**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-K**

 

| **ý**                                    | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**     |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                          |                                                                                          |
| **For  the fiscal year ended March 31, 2003** |
|                                          |                                                                                          |
|                                          | **OR**                                                                                        |
|                                          |                                                                                          |
| **o**                                         | **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) |
|                                                    |

 

| **Delaware**                                                        |   | **95-0886610**                        |
|---------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)    |   | (I.R.S. Employer  Identification No.) |
|                                                                |   |                                  |
| **3050  East Birch Street, Brea, California**                       |   | **92821**                             |
| (Address of  principal executive offices)                           |   | (Zip Code)                            |
|                                                                |
| Registrant’s  telephone number:   **(714) 579-8823** |

 

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

 

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes ý  No o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  ý

 

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

 

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

 

The number of shares outstandingof the registrant’s common stock, par value $.01 per share as of May 30, 2003was 128 shares.

 

 

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**FORWARD-LOOKINGSTATEMENTS**

 

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

 

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

 

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

•                  since the beginning of the recession in2001, key industries we serve have experienced decreased demand for theirproducts, adversely affecting our ability to increase or maintain sales; we donot expect significant improvement in the general economy or the industries weserve in fiscal 2004;

•                  availability and pricing of products we sellare influenced by factors beyond our control, including general economicconditions, bankruptcies or consolidation of primary metal producers,governmental trade restrictions or tariffs on metal products and competition,and may result in volatility in the supply and/or pricing of metal products,our market share and/or gross margins;

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

•                  our ability to implement customer sellingprice increases in response to higher metal costs;

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

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

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

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

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

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

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

•                  changes in environmental legislation andenvironmental conditions.

 

Youshould be aware that any forward-looking statement made by us in this report,or elsewhere, speaks only as of the date on which we make it. New risks anduncertainties come up from time to time, and it is impossible for us to predictthese events or how they may affect us. We have no duty to, and do not intendto, update or revise the forward-looking statements in this report after thedate of this report.  In light of theserisks and uncertainties, you should keep in mind that any forward-lookingstatement made in this report or elsewhere might not occur.

 

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**PART I**

 

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

 

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

 

We are one of the largestindependent distributors of metal products in North America, providingvalue-added metals processing services and distributing over 25,000 differentmetals products. We have been distributing metals products for over 80 yearsand we believe we are the leading distributor of bar and tubing products inNorth America. We have over 35,000 customers engaged in a wide variety ofindustries, including machine tools, transportation, industrial equipment,fabricated metal, oil, gas and energy, construction and farm equipment andaerospace. None of our customers represent more than 2% of our gross revenues.

 

In addition to offering abroad range of metals products, we serve our customers by providing metalsprocessing expertise and inventory management services, as well as what webelieve is a unique on-time product delivery guaranty.  We process nearly all of the metals productswe sell by cutting to length, burning, sawing, honing, shearing, grinding,polishing, or performing other similar services on them, all to customerspecifications. During fiscal 2003, we handled approximately 7,500 salestransactions per business day, at an average of $490 per transaction.

 

We operate in onereportable segment—the metals service center industry—through a network of 35service and processing centers strategically located throughout North America,including three service centers in Canada. For the fiscal year ended March 31, 2003, we generatedrevenues of $919.9 million and reported net income and EBITDA (as defined – see“Item 6. Selected Financial Data”) of $2.4 million and $62.5 million,respectively.

 

**IndustryOverview and Competition**

 

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

** **

Metals service centersfunction as intermediaries between primary metals producers and end users byselling products in smaller quantities and offering value-added or specializedservices ranging from pre-production processing in accordance with specificcustomer requirements to storage and distribution of unprocessed metalproducts. Metals service centers are the single largest customer group of theU.S. domestic steel industry and serve the metal supply needs of more than300,000 manufacturers and fabricators through service center locationsnationwide. According to industry sources, metals service centers purchase anddistribute about 30% of all carbon steel products and nearly 45% of allstainless steel products produced in the U.S. while generating over $40 billionin annual revenues.

 

We believe that themetals service center industry will continue to increase its role as a valuableintermediary between primary metals producers and end users, principally as aresult of (i) the metals producers’ efforts to increase sales to larger volumepurchasers in order to increase production efficiency and (ii) increased demandby end users for value-added services in order to reduce their costs andcapital expenditures associated with the production process.

 

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

 

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

 

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**Competitive Strengths**

 

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

 

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

 

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

 

*BroadNetwork of Strategically Located Facilities and Diverse Customer Base.*    Ourservice centers are strategically located throughout North America, generallywithin one day’s delivery time to almost all U.S. manufacturing centers. Ourbroad service network gives us the ability to provide services to nationalcustomers with multiple locations. We serve more than 35,000 customers across abroad range of industries with no single customer accounting for more than 2%of our gross revenues. Our largest ten customers represented approximately 10%of our revenues in fiscal 2003, and the average length of these customerrelationships was approximately 13 years.

 

*TechnologyDriven Process Improvements.*    We havedeveloped warehouse automation tools to streamline order filling and maximizeemployee productivity and have invested significantly in automated inventorystorage and retrieval systems (“Kasto” systems) in our Kansas City and Chicagofacilities.  We believe that these toolsand systems have and will continue to reduce our material handling andprocessing costs, substantially increase order fill rates, and provide us witha significant competitive advantage. For example, as the result of installing the Kasto system in KansasCity, we added 20% more inventory storage capacity while using 41% less floorspace and reduced headcount approximately 18% to 78 in fiscal 2003 from 95 infiscal year end 1998.  In Chicago, wehave already realized benefits from the nearly completed installation ofseveral Kasto systems as part of a 130,400 sq. ft. expansion to our existing473,300 sq. ft. depot.  When fullyoperational by September 2003, these Kasto systems will enable the Chicagofacility to process and ship more than 4,000 inventory line items per day,compared to its capacity of about 2,200 inventory line items per day prior tosuch installation, while significantly reducing labor costs.

 

*ExperiencedManagement with Significant Equity Ownership.*    Oursenior management team has an average of 28 years of industry experience. Ourchief executive officer, Maurice S. Nelson, has spent over 41 years in themetals industry with us and at Inland Steel Company and Alcoa. Mr. Nelson wasnamed the Service Center Executive of the Year for 2001 by Metal Center Newsand served as chairman of the Metal Service Center Institute during the 2002 – 2003year.  Our employees directly, andindirectly through our stock bonus and stock option plans, beneficially own inthe aggregate approximately 25.6% (28.5% on a fully-diluted basis) of theoutstanding common stock of Holding (the ‘‘Holding Common Stock”) as of March31, 2003.

 

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**Operatingand Growth Strategy**

 

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

 

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

 

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

 

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

 

*ExpandSatellite Operations.* We believe a key aspect of serving our customers is having a physicalpresence in those markets requiring our products and services. Accordingly, wehave formalized a strategy to target those geographic areas where we canjustify opening a “satellite” location. These locations are managed locally bywarehouse and delivery personnel, stock a limited inventory of core productsand require minimal initial and maintenance capital expenditures, resulting ina low cost opportunity to serve select markets. Each satellite operation issupported by inventory, inside salespeople and the general management of ourlarger service center responsible for the satellite’s results of operations.  Since the beginning of fiscal 2000, we haveopened five satellites and we are evaluating opening another in fiscal 2004.

 

**ProductsAnd Suppliers**

 

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

 

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Carbon steel bar products(hot-rolled and cold-finished) and carbon plate and sheet are used inconstruction equipment, farm equipment, automotive and truck manufacturing andoil exploration as well as a wide range of other products. Stainless steel barand plate are used widely in the chemical, petrochemical, and oil refining andbiomedical industries where resistance to corrosion is important. Aluminum barand plate are frequently used in aircraft and aerospace applications whereweight is a factor. Different tubing products are appropriate for particularuses based on different characteristics of the tubing materials, includingstrength, weight, resistance to corrosion and cost. Carbon tubing and pipe areused in general manufacturing. Alloy tubing is used primarily in themanufacturing of oil field equipment and farm equipment. Stainless steel tubingand pipe are used in applications requiring a high resistance to corrosion, suchas food processing. Aluminum tubing and pipe are used in applications that puta premium on light-weight (such as aerospace manufacturing).

 

The percentage ofrevenues generated from sales of material by product group for the fiscal yearsended March 31, 2001, 2002 and 2003 is as follows:.

 
|              |   | **Year Ended March 31,** |   |
|-------------------|--------|-------------------------------|--------|
|              |   | **2001**                      |   | **2002** |   | **2003** |   |
| Bars:             |   |                          |   |   |   |   |   |
| Carbon  and Alloy |   | 36.0                          | %      | 36.6 | % | 37.4 | % |
| Stainless         |   | 11.4                          |   | 11.9 |   | 11.3 |   |
| Aluminum          |   | 7.8                           |   | 7.7 |   | 7.9 |   |
| Total             |   | 55.2                          |   | 56.2 |   | 56.6 |   |
|              |   |                          |   |   |   |   |   |
| Tubing:           |   |                          |   |   |   |   |   |
| Carbon  and Alloy |   | 24.9                          |   | 24.6 |   | 24.6 |   |
| Stainless         |   | 2.9                           |   | 3.0 |   | 2.9 |   |
| Aluminum          |   | 3.4                           |   | 3.6 |   | 3.2 |   |
| Total             |   | 31.2                          |   | 31.2 |   | 30.7 |   |
|              |   |                          |   |   |   |   |   |
| Plate:            |   |                          |   |   |   |   |   |
| Carbon  and Alloy |   | 4.0                           |   | 3.9 |   | 3.5 |   |
| Stainless         |   | 2.2                           |   | 1.5 |   | 1.3 |   |
| Aluminum          |   | 2.9                           |   | 2.3 |   | 2.4 |   |
| Total             |   | 9.1                           |   | 7.7 |   | 7.2 |   |
| Other             |   | 4.5                           |   | 4.9 |   | 5.5 |   |
|              |   | 100.0                         | %      | 100.0 | % | 100.0 | % |

 

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

 

The majority of ourinventory purchases are made by purchase order, and we have no significantsupply contracts with periods in excess of one year. We are not dependent onany single supplier for any product or for a significant portion of ourpurchases, and in fiscal year 2003 no single supplier represented more than 10%of our total purchases. We purchased less than 15% of our inventoryrequirements from foreign-based suppliers in fiscal 2003.

 

In March 2002, the UnitedStates enacted tariffs on certain metal products from specified countries underSection 201 of the Trade Act of 1974 to provide protection for the domesticsteel industry for a period of three years. Since that time, certain changes,including exemptions of various metal products have been made.  We do not believe that these tariffsmaterially impacted the availability or pricing of product we sold duringfiscal 2003 or will have a significant impact in fiscal 2004.  However, any significant increase in pricesof product purchased by us generally would result in higher prices for productwe sell to our customers.

 

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**Customersand Markets**

 

We provide metal productsand value-added metals processing services to over 35,000 customers throughoutNorth America that do business in a wide variety of industries, none of whichrepresents more than 2% of our gross revenues. During fiscal 2003, we processedapproximately 7,500 sales transactions per business day generating an averagerevenue of approximately $490 per transaction. In addition, sales of material out of our stock inventory (referred toas “stock” sales) represented 90.2%, 89.7% and 90.8% of total revenuesgenerated from material sales for fiscal years 2001, 2002 and 2003,respectively. We believe our ability to support this high proportion of stocksales is critical in growing market share and maintaining higher gross margins than would otherwise be possible. Thebalance of revenues represents special customer requirements that we meet byarranging mill-direct sales and by making buy-outs from other distributors ofinventory items we do not maintain as stock inventory. Such non-stock salesgenerally have lower gross margins than stock sales, but provide a valuablecustomer service.

 

The following table providesthe percentage of tonnage sold to our ten largest key industries for the fiscalyears ended March 31, 2001, 2002 and 2003.

 
|                                         |   | **2001** |   | **2002** |   | **2003** |   |
|----------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Machine  Tools                               |   | 27.9     | %      | 27.4     | %      | 27.0     | %      |
| Industrial  Equipment                        |   | 11.4     |   | 9.5      |   | 8.7      |   |
| Transportation                               |   | 8.3      |   | 8.5      |   | 8.1      |   |
| Construction/Farm  Equipment                 |   | 7.9      |   | 8.4      |   | 7.9      |   |
| Fabricated  Metal                            |   | 7.0      |   | 6.3      |   | 6.6      |   |
| Metal  Service Centers & Wholesale Trade |   | 6.1      |   | 6.3      |   | 6.6      |   |
| Screw  Machine Products                      |   | 4.5      |   | 4.4      |   | 6.0      |   |
| Fluid  Power                                 |   | 4.2      |   | 4.1      |   | 4.7      |   |
| Oil,  Gas & Energy                       |   | 2.8      |   | 4.3      |   | 4.2      |   |
| Power  Transmission Equipment                |   | 3.0      |   | 2.7      |   | 3.4      |   |
| All  Other Industries                        |   | 16.9     |   | 18.1     |   | 16.8     |   |
| Total                                        |   | 100.0    | %      | 100.0    | %      | 100.0    | %      |

 

The majority of our salesoriginate from individual purchase orders and are not subject to ongoing supplycontracts; however, we make some of our sales under contracts that fix theprice for up to 12 months. When we enter into a fixed price contract, we enterinto a corresponding supply contract with our supplier to cover the commitmentto our customer. These corresponding supply contracts substantially reduce therisk of fluctuating prices negatively impacting our margins on these fixedprice contracts. Such contracts provide the customer with greater certainty asto timely delivery, price stability and continuity of supply, and sometimessatisfy particular processing or inventory management requirements. Suchcontracts have resulted in new customer relationships and increased salesvolumes, but can have a slightly lower gross margin than our ordinary sales. Webelieve such contracts, in the aggregate, represented less than 10% of ourtotal revenues in fiscal 2003. In addition, the pricing for most of our salesis set at the time of the sale.

 

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

 

**IntellectualProperty and Licenses**

 

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

 

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**ManagementInformation Systems**

 

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

 

**Employees**

 

As of March 31, 2003, EMJemployed 1,674 persons, of whom 1,020 were employed in production or shipping,359 were employed in sales and 295 served in executive, administrative ordistrict office capacities. Three different unions represented approximately613 of our employees from 16 locations. Our collective bargaining agreementsexpire on staggered dates through March 2010. We believe we have a good overallrelationship with our employees and do not expect any significant issues toarise in connection with agreements in the near future.

 

**ForeignOperations**

 

Through our wholly-ownedsubsidiary, Earle M. Jorgensen (Canada) Inc., a Canadian limited liabilitycompany, we operate three service centers located in Toronto, Montreal andEdmonton. Revenues from our Canadian operations totaled $42.8 million in fiscal2001, $43.7 million in fiscal 2002 and $54.4 million in fiscal 2003.

 

**Governmental Regulations**

 

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

 

**EnvironmentalMatters**

 

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

 

During fiscal years 2001,2002 and 2003, expenditures totaling approximately $0.2 million, $0.1 millionand $0.2 million, respectively, were made in connection with monitoring andinvestigation activities at sites with contaminated soil and/or groundwater. Asof March 31, 2003, an accrual of $0.4 million exists for future investigationactivities related to the Duwamish Site, as discussed below.  All other pending environmental matters arenot considered material and are fully discussed in Note 8 to consolidatedfinancial statements.

 

*Forge(Seattle/Kent, WA).*    In November 1998,we paid the purchasers of our former Forge facility and an off-site disposalsite $2.3 million as an indemnification settlement for liabilities related tothe remediation of known contamination at the Forge facility. We continue tomonitor the disposal site for environmental conditions in accordance with aconsent decree issued by the Washington Department of Ecology, or “Ecology.”Annual costs associated with such monitoring are not significant, and we do notanticipate significant additional expenditures related to this matter.

 

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The Forge property islocated on the Lower Duwamish Waterway, which has been identified by the UnitedStates Environmental Protection Agency, or the “EPA,” as a Superfund Site, orthe “Duwamish Site.” Under the federal Comprehensive Environmental Remediation,Compensation, and Liability Act, or “Superfund,” owners or operators offacilities that have released hazardous substances to the environment may beliable for remediation costs. Courts have held that such liability may be jointand several; however, in many instances, the costs are allocated among theparties, primarily based on their estimated contribution to the contamination.The EPA, along with Ecology, have entered into an Administrative Order ofConsent (“AOC”) with four major property owners with potential liability forcleanup of the Duwamish Site that outline tasks required to be completed tofurther investigate the nature and extent of the contamination and cleanupalternatives. In November 2001, the current owners of the Forge propertynotified us of a potential claim for indemnification for any liability relatingto contamination of the Duwamish Site. The notification stated that the Forgefacility, along with other businesses located along the Duwamish Site, areexpected be named as potentially responsible parties for contamination of theDuwamish Site and requested that EMJ participate under a joint defense.

 

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

 

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

 

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

 

**Available Information**

 

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

 

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

 
| **Item 2.** | **PROPERTIES** |
|-------------|----------------|

 

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

 

8

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

 
| **Country/City/State**          |   | **Owned (O)  Leased (L)** |   | **Size  (Sq. Ft.)** |   |
|---------------------------------|--------|--------------------------------|--------|--------------------------|--------|
| **United States:**              |   |                           |   |                     |   |
| Phoenix, Arizona                |   | O                              |   | 72,200                   |   |
| Little Rock, Arkansas           |   | L                              |   | 27,700                   |   |
| Brea, California (headquarters) |   | L                              |   | 33,300                   |   |
| Hayward, California             |   | L                              |   | 91,000                   |   |
| Los Angeles, California         |   | O                              |   | 319,400                  |   |
| Denver, Colorado                |   | L                              |   | 77,400                   |   |
| Chicago, Illinois               |   | O                              |   | 603,700                  |   |
| Plainfield, Indiana             |   | O                              |   | 225,000                  |   |
| Eldridge, Iowa                  |   | L                              |   | 104,500                  |   |
| Boston, Massachusetts           |   | O                              |   | 63,500                   |   |
| Roseville, Michigan(a)          |   | L                              |   | 28,700                   |   |
| Minneapolis, Minnesota          |   | O                              |   | 169,200                  |   |
| Kansas City, Missouri           |   | L                              |   | 120,900                  |   |
| St. Louis, Missouri             |   | L                              |   | 108,100                  |   |
| Brighton, New York(a)           |   | L                              |   | 31,500                   |   |
| Charlotte, North Carolina       |   | O                              |   | 175,300                  |   |
| Cincinnati, Ohio                |   | L                              |   | 125,200                  |   |
| Cleveland, Ohio                 |   | O                              |   | 200,200                  |   |
| Cleveland, Ohio                 |   | O                              |   | 137,800                  |   |
| Tulsa, Oklahoma                 |   | O                              |   | 108,000                  |   |
| Tulsa, Oklahoma                 |   | O                              |   | 137,900                  |   |
| Portland, Oregon                |   | L                              |   | 33,800                   |   |
| Philadelphia, Pennsylvania(b)   |   | L                              |   | 38,000                   |   |
| Wrightsville, Pennsylvania(a)   |   | L                              |   | 83,900                   |   |
| Chattanooga, Tennessee(a)       |   | L                              |   | 27,000                   |   |
| Memphis, Tennessee              |   | L                              |   | 56,500                   |   |
| Dallas, Texas                   |   | O                              |   | 132,800                  |   |
| Houston, Texas                  |   | O                              |   | 276,000                  |   |
| Salt Lake City, Utah(a)         |   | L                              |   | 25,400                   |   |
| Kent, Washington                |   | L                              |   | 83,600                   |   |
| **Canada:**                     |   |                           |   |                     |   |
| Toronto, Ontario                |   | L                              |   | 61,800                   |   |
| Montreal, Quebec                |   | L                              |   | 82,700                   |   |
| Edmonton, Alberta               |   | L                              |   | 25,800                   |   |

 

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(a)                                 Theselocations are considered satellite operations. 

(b)                                Excludes196,800 square feet subleased to a third party under a long-term agreement. 

 
| **Item 3.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

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

 

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

 

The Department of Labor,or the “DOL,” also investigated the same transactions involving the Plan.  In the course of its investigation, the DOLand its advisors reviewed the valuations of Holding’s common and preferredstock prepared for the Plan and challenged the methodology used in preparingthe valuations.

 

9

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OnMarch 8, 2002, the DOL sued us, Holding, our Plan and former members of ourbenefits committee in the federal district court for the Central District ofCalifornia. The DOL claimed that the valuations of Holding’s common stock usedto make annual contributions to our Plan in each of the years 1994 through 2000contained significant errors that resulted in the common stock beingovervalued, and that the failure of the members of our benefits committee todetect and correct the errors was a breach of their fiduciary duty under ERISA.As a result of the alleged overvaluations, the DOL contended that thecontributions to our Plan were prohibited transactions under ERISA. On January27, 2003, we signed a settlement agreement with the DOL in connection withtheir lawsuit.  The key provisions ofthe agreement are as follows: (i) we are not required to make any paymentsunder the agreement at this time; (ii) we are prohibited to make further commonstock contributions to the stock bonus plan; (iii) we will continue to obtainannual appraisals of Holding stock using methodology consistent with priorappraisals, and use that appraised value as the purchase price for repurchasesof common stock as we have done in the past, and; (iv) if the annual appraisalof our common stock is less than $4.25 per share, we shall pay a floor price of$4.25 per share in connection with the repurchase of common stock fromdeparting employees for shares that were originally contributed to the stock bonusplan for the plan years 1994 through 2000.

 

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

 

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

 

On April 22, 2002, wewere sued by Champagne Metals, a small metals service center distributingaluminum coil products in Oklahoma, alleging that we had conspired with othermetal service centers to induce or coerce aluminum suppliers to refuse todesignate Champagne Metals as a distributor, which resulted in unspecifieddamages. We have answered the complaint denying all claims and allegations, andthe parties are currently conducting discovery.  We will file a Motion for Summary Judgment prior to thecommencement of the trial in March 2004.

 
| **Item 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|---------------------------------------------------------|

 

None.

 

**PART II**

 
| **Item 5.** | **MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED  STOCKHOLDER MATTERS** |
|-------------|---------------------------------------------------------------------------------|

 

We have 128 shares ofcommon stock par value $.01 per share outstanding, all of which are owned byHolding.  For each of fiscal years endedMarch 31, 2001, 2002 and 2003, we paid cash dividends totaling $5,514,000,$14,963,000 and $10,587,000, respectively, to Holding in connection with therepurchase of its capital stock from employees of EMJ whose employment hadterminated, as required by the terms of Holding’s Stockholders Agreement andour Plan.  In addition, we paid cashdividends of $25,000,000 to Holding in connection with our May 2002 refinancingof certain indebtedness.

 

10

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| **Item 6.** | **SELECTED FINANCIAL DATA** |
|-------------|-----------------------------|

 

All information containedin the following table was derived from the audited consolidated financialstatements of the Company and should be read in conjunction with “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and with the consolidated financial statements of the Company andthe related notes thereto included elsewhere in this Form 10-K.
|                                                                           |   | **Year Ended March 31,**   |    |
|--------------------------------------------------------------------------------|--------|----------------------------|---------|
|                                                                           |   | **1999**                   |    | **2000** |   | **2001** |   | **2002** |   | **2003** |   |
|                                                                           |   | **(dollars in thousands)** |    |
| **Statement of Operations Data:**                                              |   |                       |    |   |   |   |   |   |   |   |   |
| Revenues                                                                       |   | $                          | 915,811 |   | $ | 938,252 |   | $ | 1,059,681 |   | $ | 895,058 |   | $ | 919,927 |   |
| Costs of goods sold                                                            |   | 649,851                    |    | 662,803 |   | 767,263 |   | 641,991 |   | 658,562 |   |
| Gross profit                                                                   |   | 265,960                    |    | 275,449 |   | 292,418 |   | 253,067 |   | 261,365 |   |
| Operating expenses exclusive of restructuring and  other non-recurring charges |   | 198,465                    |    | 205,626 |   | 223,222 |   | 200,933 |   | 197,999 |   |
| Restructuring and other non-recurring charges                                  |   | 286                        |    | 2,432 |   | 5,320 |   | 1,861 |   | — |   |
| Income from operations                                                         |   | 67,209                     |    | 67,391 |   | 63,876 |   | 50,273 |   | 63,366 |   |
| Net interest expense(1)                                                        |   | 41,181                     |    | 41,595 |   | 44,855 |   | 42,545 |   | 47,206 |   |
| Extraordinary loss (2)                                                         |   | —                     |    | — |   | — |   | — |   | 12,278 |   |
| Net income                                                                     |   | 24,493                     |    | 23,987 |   | 17,798 |   | 5,354 |   | 2,382 |   |
|                                                                           |   |                       |    |   |   |   |   |   |   |   |   |
| **Other Data:**                                                                |   |                       |    |   |   |   |   |   |   |   |   |
| EBITDA(3)                                                                      |   | $                          | 76,384  |   | $ | 77,342 |   | $ | 74,911 |   | $ | 59,803 |   | $ | 62,457 |   |
| EBITDA margin %                                                                |   | 8.3                        | %       | 8.2 | % | 7.1 | % | 6.7 | % | 6.8 | % |
| Depreciation and amortization(4)                                               |   | 9,175                      |    | 9,951 |   | 11,035 |   | 11,449 |   | 11,369 |   |
| Capital expenditures                                                           |   | 8,957                      |    | 9,525 |   | 14,475 |   | 24,531 |   | 15,335 |   |
| Net cash flows provided by operating activities                                |   | 36,035                     |    | 32,984 |   | 38,026 |   | 14,544 |   | 30,974 |   |
| Net cash flows used in investing activities                                    |   | (3,646                     | )       | (4,846 | ) | (15,048 | ) | (24,752 | ) | (14,035 | ) |
| Net cash flows provided by (used in) financing  activities                     |   | (35,275                    | )       | (24,331 | ) | (20,877 | ) | 7,748 |   | (18,210 | ) |
| Ratio of earnings to fixed charges(5)                                          |   | 1.55                       | x       | 1.54 | x | 1.36 | x | 1.11 | x | 1.29 | x |
| Dividends  paid(6)                                                             |   | 17,701                     |    | 13,372 |   | 5,514 |   | 14,963 |   | 35,587 |   |
|                                                                           |   |                       |    |   |   |   |   |   |   |   |   |
| **Balance Sheet Data:**                                                        |   |                       |    |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                                      |   | $                          | 17,860  |   | $ | 21,660 |   | $ | 23,758 |   | $ | 21,300 |   | $ | 20,030 |   |
| Total working capital                                                          |   | 156,691                    |    | 165,148 |   | 156,309 |   | 154,936 |   | 150,205 |   |
| Total assets                                                                   |   | 426,867                    |    | 464,374 |   | 484,264 |   | 443,998 |   | 490,741 |   |
| Total debt                                                                     |   | 296,506                    |    | 285,547 |   | 270,184 |   | 292,895 |   | 330,537 |   |
| Total stockholder’s deficit                                               |   | (28,020                    | )       | (14,365 | ) | (3,151 | ) | (15,786 | ) | (48,016 | ) |

----

(1)          Net interest expense includes amortization andwrite-off of debt issue costs aggregating $1,481, $1,482, $1,482, $1,792 and$1,416 for the fiscal years ended March 31, 1999, 2000, 2001, 2002 and 2003,respectively, net of interest income of $570, $636, $1,179, $164 and $83 forthe fiscal years ended  March 31, 1999, 2000, 2001, 2002 and 2003,respectively. 

(2)          Theextraordinary loss of $12,278 includes the write-off of deferred financingcosts and payments of call premiums and other expenses in connection with earlyretirement of debt.  

(3)          “EBITDA” represents net income beforedepreciation and amortization, net interest expense and provision for incometaxes, as shown in the table below. Consistent with Item 10(e) of Regulation S-K, our EBITDA has not beenadjusted to exclude any other non-cash charges (credits) or liabilities, suchas LIFO adjustments of $(2,933), $(9,022), $887, $590 and $(3,354), andaccruals for stock bonus plan contributions and postretirement benefitsaggregating $3,024, $2,862, $11, $249 and $498 for the years ended March 31,1999, 2000, 2001, 2002 and 2003, respectively. In addition, our EBITDA has not been adjusted for any recurring ornon-recurring items, such as provisions for workforce reductions andconsolidations and losses from sale of significant assets aggregating $286,$2,432, $3,320, $1,861 and none for the years ended March 31, 1999, 2000, 2001,2002 and 2003, respectively;  specialcompensation of $2,000 payable to our CEO in fiscal 2001; excise tax of $1,919related to an IRS settlement in fiscal 2002; and an extraordinary loss of$12,278 related to early retirement of debt in fiscal 2003.  We believe that EBITDA is commonly used as ameasure of performance for companies in our industry and is frequently used byanalysts, investors, lenders and other interested parties to evaluate acompany’s financial performance and its ability to incur and service debt.   Our EBITDA is used by management as aperformance measure to assess our financial results in connection withdetermining incentive compensation, and is also used by the independentappraisal firm in connection with their annual valuation of our equity.  While providing useful information, ourEBITDA should not be considered in isolation or as a substitute forconsolidated statement of operations and cash flows data prepared in accordancewith accounting principles generally accepted in the United States, and shouldnot be construed as an indication of a company’s operating performance or as ameasure of liquidity.
|                               |   | **Year Ended March 31,** |   |
|------------------------------------|--------|--------------------------|--------|
| **(dollars  in thousands)**        |   | **1999**                 |   | **2000** |   | **2001** |   | **2002** |   | **2003** |   |
| Reconciliation  of EBITDA**:**     |   |                     |   |   |   |   |   |   |   |   |   |
| Net income                         |   | $                        | 24,493 |   | $ | 23,987 |   | $ | 17,798 |   | $ | 5,354 |   | $ | 2,382 |   |
| Depreciation and  amortization (4) |   | 9,175                    |   | 9,951 |   | 11,035 |   | 11,449 |   | 11,369 |   |
| Net interest  expense              |   | 41,181                   |   | 41,595 |   | 44,855 |   | 42,545 |   | 47,206 |   |
| Provision for  income taxes        |   | 1,535                    |   | 1,809 |   | 1,223 |   | 455 |   | 1,500 |   |
| EBITDA                             |   | $                        | 76,384 |   | $ | 77,342 |   | $ | 74,911 |   | $ | 59,803 |   | $ | 62,457 |   |

----

(4)          Depreciationand amortization excludes amortization or write-off of debt issue costsreferred to in Note (1) above, reflected in the Company’s consolidatedstatements of operations as interest expense.

(5)          Incomputing the ratio of earnings to fixed charges, “earnings” represents pre-taxincome (loss) plus fixed charges except capitalized interest, if any.  “Fixed charges” represents interest whetherexpended or capitalized, debt cost amortization, and 33% of rent expense, whichis representative of the interest factor.

(6)          Dividendspaid to Holding in connection with the repurchase of its capital stock fromterminated employees.  In fiscal 2003,the Company also paid a dividend to Holding of $25,000 to be used to repay orrepurchase a portion of its Holding Notes (as defined below) and/or capitalstock.

 

11

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| **Item 7.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------------|

 

The following discussionshould be read in conjunction with “Item 6. Selected Financial Data” and theconsolidated financial statements of the Company, and the notes related theretoappearing elsewhere in this Annual Report on Form 10-K.

 

**General**

 

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

 

We purchase largerquantities of metals products from primary producers and sell these metals insmaller quantities to a wide variety of end users. We process nearly all of themetals products we sell by cutting to length, burning, sawing, honing,shearing, grinding, polishing, and performing other similar services on them,all to customer specifications. During fiscal 2003, we handled approximately7,500 sales transactions per business day, at an average of $490 pertransaction.

 

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

 

Over the last severalyears we have streamlined our operations and lowered our operating costs. Wehave focused our efforts on improving internal business processes and systems,enhancing customer service, reducing headcount, optimizing facility workflow,eliminating redundant facilities and eliminating management layers andcorporate overhead. These efforts have produced a more flexible operating coststructure and significantly greater employee productivity, and have allowed usto offer our customers what we believe is a unique on-time product deliveryguaranty.

 

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

 

12

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**Overviewof Fiscal 2003**

 

Themetals service center industry continues to be adversely affected by weakeconomic conditions in the United States attributable to the recession thatbegan in 2001.  Customers served bymetals service centers continue to maintain lower levels of inventories andproduction activities due to weakened demand and the uncertainty of an economicrecovery.  Pricing for metal productsremains volatile due to competitive pressures and changes in availability ofinventories held by service centers or supplied by both domestic and foreignmills.

 

Our tonnage shippedduring fiscal 2003 was comparable to fiscal 2002 levels, with somestrengthening in our fourth fiscal quarter, due to increasing demand and fromsuccess in gaining market share, particularly in Canada.  We believe we are gaining market sharethrough our core products strategies and excellent customer service, andbeginning in July 2002, from significant benefits realized from the expansionand automation of our Chicago facility.

 

We continue to bechallenged by competitive forces and overall weak demand in the United States for our core productsand services sold to customers in key industries we serve.  Although tonnage sold to our customers inseveral key industries increased in fiscal 2003 when compared to thehistorically low levels experienced in fiscal 2002, it is not possible topredict whether these increases will be sustainable or whether a significantrecovery in these and other key industries will take place in fiscal 2004.  However, we are confident that ourwell-balanced inventories, valued-added capabilities, aggressive marketing andunequaled customer service have and will continue to differentiate us in themarketplace and will position us to gain market share.

 

During fiscal 2003, wecontinued to focus on improving our business processes, including thedevelopment or enhancement of systems that enable us to reduce costs andincrease productivity related to order processing and scheduling, inventoryprocessing and handling.  For fiscal2003, our gross margins were 28.4% versus 28.3% in fiscal 2002 and 27.6% infiscal 2001, while our operating margins in fiscal 2003 improved to 6.9%, whencompared to 5.6% in fiscal 2002 and 6.0% in fiscal 2001.  During fiscal 2003, our average total numberof employees decreased to 1,706 from 1,805 in fiscal 2002 and 2,016 in fiscal2001.

 

We believe our ability toquickly align our cost structures with the prevailing levels of business whilecontinuing to provide customer service that we believe is unequaled in theindustry, together with our operating and growth strategies, have positioned usto outperform the industry if general economic conditions improve.

 

On May 22, 2002, wecompleted a private offering under Rule 144A of $250 million of 93/4%Senior Secured Notes due 2012, Series A. The proceeds of the transaction were used to (i) redeem $105 million inaggregate principal amount of our outstanding 91/2% seniornotes, plus call premium and accrued interest, (ii) prepay $96 million of ourterm loan plus accrued interest, (iii) terminate our interest rate swapagreement, and (iv) pay a dividend to Holding in the amount of $25 million tobe used by Holding to repay or repurchase a portion of its senior indebtedness(the “Holding Notes”) and/or capital stock. The Holding Notes are owned by an affiliate of Kelso & Company,Holding’s largest shareholder.

 

OnAugust 30, 2002, we completed an exchange offering registered with theSecurities and Exchange Commission of $250 million of its 93/4% Senior Secured Notes due 2012, Series B forall of its outstanding 93/4% Senior Secured Notes due 2012, Series A.

 

13

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**Statementof Operations Information**

 

The following table setsforth certain of our consolidated statement of operations data. The historicalfinancial data for the fiscal years ended March 31, 2001, 2002 and 2003 arederived from the historical financial statements included elsewhere herein.

 
|                                                   |   | **Year Ended March 31,** |      |
|--------------------------------------------------------|--------|--------------------------|-----------|
| **(dollars in  thousands)**                            |   | **2001**                 |      | **%** |   | **2002** |   | **%** |   | **2003** |   | **%** |   |
| **Statement of Operations Data:**                      |   |                     |      |   |   |   |   |   |   |   |   |   |   |
| Revenues                                               |   | $                        | 1,059,681 |   | 100.0 | % | $ | 895,058 |   | 100.0 | % | $ | 919,927 |   | 100.0 | % |
| Gross profit                                           |   | 292,418                  |      | 27.6 |   | 253,067 |   | 28.3 |   | 261,365 |   | 28.4 |   |
| Operating expenses exclusive of non-recurring  charges |   | 223,222                  |      | 21.1 |   | 200,933 |   | 22.4 |   | 197,999 |   | 21.5 |   |
| Restructuring and other non-recurring charges          |   | 5,320                    |      | 0.5 |   | 1,861 |   | 0.2 |   | — |   | 0.0 |   |
| Income from operations                                 |   | 63,876                   |      | 6.0 |   | 50,273 |   | 5.6 |   | 63,366 |   | 6.9 |   |
| Net interest expense                                   |   | 44,855                   |      | 4.2 |   | 42,545 |   | 4.8 |   | 47,206 |   | 5.1 |   |
| Extraordinary loss                                     |   | —                   |      | 0.0 |   | — |   | 0.0 |   | 12,278 |   | 1.3 |   |
| Net income                                             |   | 17,798                   |      | 1.7 |   | 5,354 |   | 0.6 |   | 2,382 |   | 0.3 |   |
|                                                        |        |                          |           |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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

 

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

 

*GrossProfit.*    Gross profit increased 3.3% to$261.4 million in fiscal 2003, compared to $253.1 million in fiscal 2002. Grossmargin improved to 28.4% when compared to 28.3% in fiscal 2002. Fiscal 2003included a LIFO credit of $3.4 million compared to a charge of $0.6 million infiscal 2002. Gross profit and gross margin from our Canadian operations were$11.6 million and 21.3% in fiscal 2003 compared to $9.5 million and 21.7% infiscal 2002. Exclusive of our Canadian operations and LIFO, gross margindecreased to 26.8% in fiscal 2003, when compared to 28.7% in fiscal 2002; thedecrease was attributable to a 1% increase in material costs, competitivepricing pressures, and changes in customer and product mixes.

 

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

 

Warehouse and deliveryexpenses increased $2.6 million (2.1%) to $127.1 million in fiscal 2003,compared to $124.5 million in fiscal 2002. As a percent of revenues, warehouseand delivery expenses were 13.8% in fiscal 2003, compared to 13.9% in fiscal2002. The increase in these expenses was attributable to higher depreciation,property tax accruals and insurance costs, increased equipment lease andmaintenance expenses, and higher freight and utilities costs.  Some of the increase in these costs andexpenses is attributable to the expansion and automation of our Chicagofacility, which became operational in July 2002.  As of March 31, 2003, warehouse and delivery activities employed1,020 employees, compared to 1,055 as of March 31, 2002.

 

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

 

14

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

 

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

 

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

 

The outstandingborrowings against the cash surrender value of life insurance policies were$165.0 million at March 31, 2003 and $147.3 million at March 31, 2002, and thetotal interest expense on such borrowings increased to $17.8 million in fiscal2003 compared to $16.0 million in fiscal 2002. Such increases resultedprimarily from borrowings of $18.6 million against the increased cash surrendervalue of life insurance policies in November 2002 to pay annual premiums onsuch policies and to pay interest on previous borrowings (see “—Liquidity andCapital Resources” below). As specified in the terms of the insurance policies,the rates for dividends payable on the policies correspondingly increase whenborrowings are outstanding under the policies. This increase in dividends isgreater than the increase in the incremental borrowing rate. Dividend incomeearned under the policies was $17.2 million in fiscal 2003, $13.5 million infiscal 2002 and $13.0 million in fiscal 2001 and is reported as an offset togeneral and administrative expenses in the consolidated statements ofoperations.

 

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

 

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

 

*ExtraordinaryItem. *We recognizedan extraordinary loss of $12.3 million in connection with the early retirementof our 91⁄2% senior notes and term loan, which consisted of the call premiumpaid, a payment to terminate the interest rate swap agreement, the write-off ofdeferred financing costs, and certain other expenses incurred in connectionwith the refinancing transaction.  Notax benefit was recorded in connection with this loss due to the uncertainty inrealizing the resulting deferred tax asset.

 

**Resultsof Operations—Year ended March 31, 2002 compared to year ended March 31, 2001**

 

*Revenues.*    Revenuesfor fiscal 2002 decreased 15.5% to $895.1 million, compared to $1,059.7 millionin fiscal 2001. Revenues from our domestic operations decreased 16.3% to $851.4million in fiscal 2002, compared to $1,016.9 million in fiscal 2001 resultingfrom a 14% decrease in tonnage shipped and a 2% decrease in average sellingprices when compared to fiscal 2001 levels. Our domestic operations experiencedlower levels of business in core products and in key industries, such astransportation and industrial tooling and machines, caused by the recession.Revenues from our Canadian operations increased 2.1% to $43.7 million comparedto $42.8 million in fiscal 2001 due to the full year effect from our newservice center in Edmonton, Alberta, Canada that opened in September 2000.

 

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*GrossProfit.*    Gross profit decreased 13.4%to $253.1 million in fiscal 2002, compared to $292.4 million in fiscal 2001.Gross margin improved to 28.3% when compared to 27.6% in fiscal 2001. Fiscal2002 included a LIFO charge of $0.6 million compared to a charge of $0.9million in fiscal 2001. Gross profit and gross margin from foreign operationswere $9.5 million and 21.7% in fiscal 2002 compared to $9.9 million and 23.1%in fiscal 2001. Exclusive of foreign operations and LIFO, gross marginincreased to 28.7% in fiscal 2002, when compared to 27.9% in fiscal 2001; theincrease was attributable to a 2% decrease in material costs, improved productsourcing and inventory management, and changes in customer and product mixes.

 

*Expenses.*    Totaloperating expenses, exclusive of non-recurring charges, were $200.9 million, or22.4% of revenues in fiscal 2002, compared to $223.2 million, or 21.1% ofrevenues in fiscal 2001. The decrease in operating expenses generally reflectsthe impact on variable expenses from lower tonnage shipped in fiscal 2002. Thenon-recurring charges in fiscal 2002 were associated with workforce reductionsand costs incurred in connection with facility consolidation; the non-recurringcharges in fiscal 2001 were associated primarily with workforce reductions andspecial compensation payable to our chief executive officer.

 

Warehouse and deliveryexpenses decreased $12.3 million (9.0%) to $124.5 million in fiscal 2002,compared to $136.8 million in fiscal 2001. As a percent of revenues, warehouseand delivery expenses were 13.9% in fiscal 2002, compared to 12.9% in fiscal2001. The decrease in these expenses was attributable to lower compensationexpense and freight costs resulting from the decrease in tonnage shipped,decreased levels of expenditures for utilities, maintenance and otherproduction and facility expenses, partially offset by higher lease anddepreciation expense incurred to support added capacity and services, includingthose related to facility expansions and satellite operations. As of March 31,2002, warehouse and delivery activities employed approximately 1,055 employees,compared to 1,225 as of March 31, 2001.

 

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

 

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

 

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

 

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

 

The outstandingborrowings against the cash surrender value of life insurance policies were$147.3 million at March 31, 2002 and $132.0 million at March 31, 2001, and thetotal interest expense on such borrowings increased to $16.0 million in fiscal2002 compared to $14.4 million in fiscal 2001. Such increases resultedprimarily from borrowings of $17.3 million against the increased cash surrendervalue of life insurance policies in November 2001 to pay annual premiums onsuch policies and to pay interest on previous borrowings (see “—Liquidity andCapital Resources”). As specified in the terms of the insurance policies, therates for dividends payable on the policies correspondingly increase whenborrowings are outstanding under the policies. This increase in dividends isgreater than the increase in the incremental borrowing rate. Dividend incomeearned under the policies was $13.5 million in fiscal 2002, $13.0 million infiscal 2001 and $14.0 million in fiscal 2000 and is reported as an offset togeneral and administrative expenses in the consolidated statements ofoperations.

 

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The interest rates on ourexisting senior notes and our life insurance policy borrowings are fixed at9.50% and 11.76%, respectively. The interest rates on our credit facility andterm loan are floating rates (3.82% and 5.31%, respectively, as of March 31,2002). Pursuant to an interest rate swap agreement we entered with DBTCA inJune 1998, the interest rate on our term loan was fixed at approximately 9.05%through June 2003. Such agreement required us or DBTCA to make quarterlypayments to the other calculated using the difference between a definedfloating rate and 9.05%. During fiscal 2002, we paid DBTCA $2.2 million ofinterest as calculated under the provisions described above. Since inception ofthe interest rate swap agreement, we have paid DBTCA a net amount of $2.0million through March 31, 2002.

 

**Liquidityand Capital Resources**

 

Working capital decreasedto $150.2 million at March 31, 2003 when compared to $154.9 million at March31, 2002. Primary sources of cash in fiscal 2003 consisted of funds provided byoperations of $31.0 million and proceeds from sale of assets of $2.4 million.Primary uses of cash in fiscal 2003 consisted of (i) capital expenditures of$15.3 million, (ii) dividends to Holding of $10.6 million for the redemption ofstock from retired and terminated employees, and (iii) net payments under therevolving loan agreement of $10.0 million. In addition, we paid Holding a dividend of $25.0 million from the proceedsof our May 2002 senior debt offering to be used by Holding to repay orrepurchase a portion of its Holding Notes and/or capital stock.

 

Cash generated fromoperating activities was $31.0 million (3.4% of revenues) in fiscal 2003compared to $14.5 million (1.6% of revenues) in fiscal 2002 and $38.0 million(3.6% of revenues) in fiscal 2001.

 

The redemption of $10.6million of capital stock from retiring and terminated employees was required bythe terms of our stock bonus plan and by Holding’s Stockholders’ Agreement.This amount was lower than the amount paid in fiscal 2002 and higher than theamount paid in fiscal 2001 due to the timing of distributions, the number andmix of shares being purchased and changes in stock prices. We expect that suchredemptions for fiscal 2004 will be lower than the amount paid in fiscal 2003,although the amount or timing of such expenditures is not within our controland there can be no assurance in this regard.

 

Capital expenditures were$15.3 million in fiscal 2003, $24.5 million in fiscal 2002 and $14.5 million infiscal 2001. Capital expenditures in fiscal 2003 were primarily for routinereplacement of machinery and equipment, facility improvements and expansions,including the expansion and automation of our facility in Chicago and thepurchase of computer hardware and software. For fiscal 2004, we have plannedapproximately $9.8 million of capital expenditures to be financed frominternally generated funds and borrowings under our credit facility.Approximately $8.2 million is for facility improvements and expansions(including a commitment of approximately $2.3 million for the Chicago project)and routine replacement of machinery and equipment, and $1.6 million is forfurther additions and enhancements to our management information systems.

 

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

 

As of March 31, 2003 ourprimary sources of liquidity were available borrowings of approximately $103.3million under our credit facility, available borrowings of approximately $9.3million against certain life insurance policies and internally generated funds.Borrowings under our credit facility are secured by our domestic inventory andaccounts receivable, and future availability under the facility is determinedby prevailing levels of such accounts receivable and inventory. The notes aresecured by a first-priority lien on a substantial portion of our current andfuture acquired unencumbered real property, plant and equipment. The lifeinsurance policy loans are secured by the cash surrender value of the policiesand are non-recourse. The interest rate on the life insurance policy loans is0.5% greater than the dividend income rate on the policies. As of March 31,2003, there was approximately $31.0 million of cash surrender value in all lifeinsurance policies maintained, net of borrowings. In addition, our Canadiansubsidiary has available its own credit facilities of up to CDN$8.6 million,including a revolving credit facility of CDN$5.1 million, a term financialinstruments facility of CDN$3.0 million, to be used for hedging foreigncurrency and rate fluctuations, and a special credit facility of CDN$0.5million for letters of guaranty in connection with a lease for a newlyconstructed facility in Toronto. As of March 31, 2003, CDN$1.4 million(USD$0.9 million) was outstanding under the revolving credit facility and aletter of guaranty for CDN$0.5 million (USD$0.3 million) was issued.  None of the term financial instrumentsfacility was used as of March 31, 2003.

 

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Our ongoing debt serviceobligations are expected to consist primarily of interest payments under ourcredit facility, interest payments on our notes and principal and interestpayments on industrial revenue bonds. As of March 31, 2003, annual principalpayments required by our outstanding industrial revenue bonds indebtednessamount to $1.4 million in fiscal year 2004, $2.1 million in fiscal year 2005,$1.2 million in fiscal 2006, $0.7 million in fiscal years 2007 and 2008 and$1.5 million in the aggregate thereafter through fiscal year 2011. We will notbe required to make any principal payments on our notes until their maturity infiscal 2012. Our credit facility, as amended, will mature in April 2006. Ourcredit facility has covenants that require maintenance of minimum workingcapital and a fixed-charge coverage ratio; and although compliance with suchcovenants in the future is largely dependent on the future performance of ourcompany and general economic conditions, for which there can be no assurance,we expect to be in compliance with all of our debt covenants for theforeseeable future.

 

Asof March 31, 2003, our total commitments and contractual obligations andthe timing of future related payments were as follows (in $000’s):

 
|                           |   | **Payments Due By Period** |    |
|--------------------------------|--------|----------------------------|---------|
| **Contractual  Obligations**   |   | **Total**                  |    | **Fiscal  2004** |   | **Fiscal  2005** |   | **Fiscal  2006** |   | **Fiscal  2007** |   | **Fiscal  2008** |   | **Thereafter** |   |
| Long-term debt                 |   | $                          | 330,537 |   | $ | 2,330 |   | $ | 2,115 |   | $ | 1,215 |   | $ | 72,722 |   | $ | 715 |   | $ | 251,440 |   |
| Capital lease obligations      |   | —                     |    | — |   | — |   | — |   | — |   | — |   | — |   |
| Operating leases(a)            |   | 109,295                    |    | 18,942 |   | 16,724 |   | 12,375 |   | 8,431 |   | 5,817 |   | 47,006 |   |
| Purchase obligations           |   | —                     |    | — |   | — |   | — |   | — |   | — |   | — |   |
| Other long-term liabilities(b) |   | 8,233                      |    | 200 |   | 925 |   | 950 |   | 975 |   | 1,000 |   | 4,183 |   |
| Total                          |   | $                          | 448,065 |   | $ | 21,472 |   | $ | 19,764 |   | $ | 14,540 |   | $ | 82,128 |   | $ | 7,532 |   | $ | 302,629 |   |

 

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(a)          Excludes sublease incomeof $8,494, $641, $687, $792, $804, $816 and $4,754 for the above periods, respectively.

(b)         Includes estimated annualpayments based on prior years trended amounts for postretirement benefits($3,970 in total); payments for 401(e)(17) supplemental stock purchase plan($763 in total) expected to begin after five years, and; estimated annualpayments of $700 to meet ERISA minimum pension funding requirements over fiveyears beginning in fiscal 2005.

 

We believe our sources ofliquidity and capital resources are sufficient to meet all currentlyanticipated working capital requirements, and all known commitments andobligations; however, we anticipate that it will be necessary to replace or torefinance all or a portion of our credit facility and the notes prior to theirscheduled maturities in fiscal years 2006 and 2012, respectively, althoughthere can be no assurance on what terms, if any, that we would be able toobtain such refinancing or additional financing. Our ability to make interestpayments on our credit facility and our notes will be dependent on maintainingthe level of performance reflected in the accompanying consolidated financialstatements, which will be dependent on a number of factors, many of which arebeyond our control, and the continued availability of revolving creditborrowings. Our earnings were sufficient to cover fixed charges for fiscalyears 2001, 2002 and 2003.

 

**ForeignExchange Exposure**

 

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

 

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**Inflation**

 

Our operations have notbeen, nor are they expected to be, materially affected by inflation.

 

**CriticalAccounting Policies**

 

Management’s Discussionand Analysis of Financial Position and Results Of Operations discusses ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires management to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses and related disclosure of contingent assets and liabilities.  Actual results could differ significantlyfrom those estimates and judgments under different assumptions andconditions.  Management believes thecritical accounting policies and areas that require the most significantjudgments and estimates to be used in the preparation of the consolidatedfinancial statements are revenue recognition, allowance for doubtful accounts,inventory reserves, pension and other postretirement benefits, insurancereserves, incentive compensation, contingencies and income tax accounting.  There have been no material changes made tothe critical accounting policies during the periods presented in theConsolidated Financial Statements.

 

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

 

*Revenue Recognition*

 

We recognize revenue whenproducts are shipped to our customers, title has passed and collectibility isreasonably assured.  Revenues are shownnet of returns and allowances, which historically have been less than 0.2% ofgross revenues.

 

*Accounts Receivable and Allowancesfor Doubtful Accounts*

 

Accounts receivableconsist primarily of amounts due to us from our normal business activities.Allowances for doubtful accounts are established based on estimates of lossesrelated to customer receivable balances. Estimates are developed by using formulas or standard quantitativemeasures based on accounts aging, historical losses (adjusted for currenteconomic conditions) and, in some cases, evaluating specific customer accountsfor risk of loss. The establishment of reserves requires the use of judgmentand assumptions regarding the potential for losses on receivable balances.  Our provision for estimated losses and ourwrite-offs for doubtful accounts recorded during each of the three fiscal yearsended March 31, 2003 was less than 0.5% of the respective years’ annualrevenues.  However, significant changesin economic conditions in specific markets in which we operate could have amaterial effect on required reserve balances.

 

*Inventory Reserves*

 

Inventories largelyconsist of raw material purchased in bulk quantities from various millsuppliers to be sold to our customers. An allowance for excess inventory ismaintained to reflect the expected unsaleability of specific inventory itemsbased on condition, recent sales activity and projected market demand, and hasrepresented less than 2% of our total inventory as of March 31, 2001, 2002 and2003.

 

*Pension and Postretirement Benefits*

 

Our pension andpostretirement benefit costs and credits are developed from actuarialvaluations. Inherent in these valuations are key assumptions including discountrates and expected return on plan assets. We are required to consider currentmarket conditions, including changes in interest rates, in selecting theseassumptions. Changes in the related pension and postretirement benefit costs orcredits may occur in the future due to changes in the assumptions, in additionto changes resulting from fluctuations in our related headcount.

 

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*Insurance Reserves*

 

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

 

*IncentiveCompensation*

 

Management incentiveplans are tied to various financial performance metrics. Bonus accruals madethroughout the year based on management’s best estimate of the achievement ofthe specific financial metrics. Adjustments to the accruals are made on aquarterly basis as forecasts of financial performance are updated. At year-end,the accruals are adjusted to reflect the actual results achieved.

 

*Contingencies*

 

We are subject toproceedings, lawsuits and other claims related to environmental, labor, productand other matters. We assess the likelihood of any adverse judgments oroutcomes to these matters as well as potential ranges of probable losses. Adetermination of the amount of reserves required, if any, for thesecontingencies are made after careful analysis of each individual issue. Therequired reserves may change in the future due to new developments in eachmatter or changes in approach such as a change in settlement strategy indealing with these matters.

 

*IncomeTaxes*

 

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

 
| **Item  7a.** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|---------------|-----------------------------------------------------------------|

 

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

 

At March 31, 2003, nofinancial instruments existed; at March 31, 2002, our only financial instrumentwas a fixed rate interest rate swap agreement covering $95.0 million of ourTerm Loans, which was terminated in connection with the repayment of the TermLoans during fiscal 2003.  See “Item 7.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations”.  Our exposure to changing interest rates is limited to ourrevolving credit facility such that our results of operations and cash flowsduring fiscal 2003 would have been impacted by approximately $1.0 million  for each 1% increase or decrease in theapplicable interest rate.

 

Our exposure to marketrisk for changes in foreign currency exchange rates is limited to our Canadianoperations and the Canadian dollar. Changes in the exchange rate of the Canadian dollar have not and are notexpected to have a material impact on our results of operations and cashflows.  We estimate that a 10% change inthe average exchange rate of the Canadian dollar during fiscal 2003 would haveimpacted our results of operations by approximately $0.1 million.  Due to our product mix and the frequency ofour buying and selling activities over normal business cycles, our exposure tochanges in commodity prices is not considered material.

 

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| **Item 8.** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA** |
|-------------|-------------------------------------------------|

 

Financial statements andsupplementary data required by this Item 8 are set forth as indicated in Item16(a)(1) and (2) below.

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

 

None.

 

**PART III**

 
| **Item 10.** | **DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT** |
|--------------|--------------------------------------------------------|

 

The following table setsforth the name, age (at March 31, 2003), principal occupation and businessexperience of each of our directors and executive officers. Holding’s directorsand executive officers are identical to ours. The executive officers serve atthe pleasure of the board of directors of EMJ and Holding, respectively.

 

Each member of our boardof directors holds office until the next annual meeting of the stockholders oruntil his successor is elected and qualified. The election of Holding’sdirectors is subject to the provisions of a stockholders’ agreement describedbelow.  During fiscal 2003, the board ofdirectors had four regular meetings and four special meetings.

 

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

 

From 1998 through 2001,each non-officer director other than Messrs. Schuchert and Nickell was grantedoptions to purchase 10,000 shares of Holding Common Stock at their fair marketvalue as established by the most recent appraisal available at the date ofgrant. These options are fully vested. Beginning April 1, 2002, we changed our policies on compensation fordirectors so that each of our non-officer directors now receives an annual retainerof $20,000, payable quarterly. Effective April 1, 1997, April 1, 1998, April 1,1999, April 1, 2000 and April 1, 2001, in consideration for his service as adirector, 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 recentappraisal available at the date of the grant. These options are fully vested.Beginning April 1, 2002,  as a result ofour changed policies, Mr. Roderick now receives an annual retainer of $30,000,payable quarterly.

 

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

 

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| **Name**               |   | **Age** |   | **Position**                                                                                                     |
|------------------------|--------|---------|--------|------------------------------------------------------------------------------------------------------------------|
| David M. Roderick      |   | 79      |   | Chairman of the Board  and Chairman of the Executive Committee and Director                                      |
|                   |   |    |   |                                                                                                             |
| Maurice S. Nelson, Jr. |   | 65      |   | President, Chief  Executive Officer and Chief Operating Officer, Director and Member of the  Executive Committee |
|                   |   |    |   |                                                                                                             |
| R. Neil McCaffery      |   | 53      |   | Executive Vice  President                                                                                        |
|                   |   |    |   |                                                                                                             |
| William S. Johnson     |   | 45      |   | Vice President and  Chief Financial Officer (Principal Financial and Accounting Officer) and  Secretary          |
|                   |   |    |   |                                                                                                             |
| Frank D. Travetto      |   | 50      |   | Vice President,  Merchandising                                                                                   |
|                   |   |    |   |                                                                                                             |
| Kenneth L. Henry       |   | 56      |   | Vice President                                                                                                   |
|                   |   |    |   |                                                                                                             |
| James D. Hoffman       |   | 44      |   | Vice President                                                                                                   |
|                   |   |    |   |                                                                                                             |
| William A. Marquard    |   | 83      |   | Director and Member of  the Audit Committee                                                                      |
|                   |   |    |   |                                                                                                             |
| Earl L. Mason          |   | 55      |   | Director and Chairman  of the Audit Committee                                                                    |
|                   |   |    |   |                                                                                                             |
| Frank T. Nickell       |   | 55      |   | Director and Member of  the Executive Committee                                                                  |
|                   |   |    |   |                                                                                                             |
| John Rutledge          |   | 54      |   | Director and Member of  the Audit Committee                                                                      |
|                   |   |    |   |                                                                                                             |
| Joseph S. Schuchert    |   | 74      |   | Director                                                                                                         |

 

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

 

*MauriceS. Nelson, Jr.*    Mr. Nelson was electedPresident, Chief Executive Officer and Chief Operating Officer and a directorof EMJ and Holding effective February 1, 1997. Before that, Mr. Nelson servedas President, Chief Executive Officer and Chief Operating Officer of InlandSteel Company from 1992 until April 1996. Before that, Mr. Nelson was thePresident of the Aerospace and Commercial division of the Aluminum Company ofAmerica (Alcoa) from 1987 to 1992.

 

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

 

*WilliamS. Johnson*.    Mr. Johnson has been ourVice President and Chief Financial Officer and Secretary since January 1999.Before that, Mr. Johnson was EMJ’s Controller since February 1995 and was EMJ’sAssistant Controller since February 1994. Prior to that, Mr. Johnson was theCorporate Finance Manager for Severin Montres, Ltd. since 1991. SeverinMontres, Ltd., owned by Gucci Group N.V., is the manufacturer and distributorof Gucci watches.

 

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

 

*KennethL. Henry.*    Mr. Henry has been our VicePresident responsible for operating our Chicago and Quad Cities facilitiessince January 1998. Before that, Mr. Henry was EMJ’s Vice President CentralRegion since 1995. Before that, Mr. Henry was our Vice President SouthernRegion since 1992, and Vice President of the Kilsby-Roberts Division of EMJfrom April 1990 to 1992.

 

*JamesD. Hoffman.*    Mr. Hoffman has been ourVice President since March 2001 and has been responsible for operations of ourCleveland, Indianapolis and Cincinnati facilities since March 2001. Beforethat, Mr. Hoffman was our Vice President Eastern Region since July 1996. Beforethat, Mr. Hoffman was District Manager for our Cleveland and Buffalo operationssince June 1992.

 

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*WilliamA. Marquard.*    Mr. Marquard has been adirector of EMJ since March 1990, and a director of Holding since May 1990. Mr.Marquard also serves as a director and Chairman of the Board of Arkansas BestCorporation, as a director of Kelso & Companies, Inc., and as a director ofInfraReDx, Inc.

 

*EarlL. Mason.*    Mr. Mason has been adirector of EMJ and Holding since January 2002. Mr. Mason retired from AlliantExchange (formerly the distribution business of Kraft Foods), after serving asChief Executive Officer and President since April 1999. Before that, Mr. Masonwas Senior Vice President and Chief Financial Officer of Compaq ComputerCorporation from May 1996 to April 1999 and held the position of Senior VicePresident and Chief Financial Officer of Inland Steel Industries from June 1991to May 1996. Mr. Mason also served as Group Executive of Digital EquipmentCorporation from June 1990 to June 1991 and as Chief Financial Officer of itsEuropean subsidiary from October 1987 to June 1990, and held various positionsover 15 years at AT&T Corporation. Mr. Mason is also a director of ComputerHorizons Corporation. Mr. Mason previously served as a director of the EyeTicket Corporation.

 

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

 

*JohnRutledge.*    Dr. Rutledge has been adirector of EMJ and Holding since June 1992. Dr. Rutledge is the founder ofRutledge & Company, Inc., a merchant banking firm, and has been Chairmansince January 1991. He is the founder of Claremont Economics Institute, and hasbeen its chairman since January 1979. Dr. Rutledge is also a director ofAmerindo Investment Advisers, Inc., Lazard Freres Funds, Strategic OpticalHoldings, Inc. and StairMaster Sports/Medical Products, Inc.

 

*JosephS. Schuchert*.    Mr. Schuchert has been adirector of EMJ since March 1990, and a director of Holding since May1990.  Mr. Schuchert has been Chairmanand a director of Kelso & Companies, Inc. since March 1989 and was ChiefExecutive Officer from March 1989 to August 1997. Kelso & Companies, Inc.is the general partner of Kelso & Company.

 

**Committees of the Board**

 

Our By-Laws specifically provide that the Board maydelegate responsibility to committees. During fiscal 2003, the Board had two standing committees: an AuditCommittee and an Executive Committee. In fiscal 2003, the Audit Committee met three times and the Executive Committeedid not meet.

 

*AuditCommittee*

 

The members of the AuditCommittee (Messrs.  Mason (Chairman),Marquard and Rutledge) are non-employee directors and, except for Mr. Marquard (whomay be deemed to be affiliated with Kelso), are “independent” as definedunder Section 301 of the Sarbanes–Oxley Act of 2002.   Based on Mr. Mason’s background and experience, our Boarddetermined that he meets the definition of “financial expert” as required underSection 407 of the Sarbanes–Oxley Act of 2002 in connection with his serviceson the Audit Committee.

 

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

 

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

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

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

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

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

 

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

 

The Audit Committee has received reports and met and helddiscussions with management and the independent auditors.  The Audit Committee has reviewed anddiscussed our audited financial statements with management.  The Audit Committee has discussed with theindependent auditors the matters required to be discussed by Statement on AuditingStandards No. 61.  The Audit Committeehas received the written disclosures and letter from the independent auditorsrequired by Independence Standards Board Standard No. 1, and has discussedwith the independent auditors the independent auditor’s independence.

 

Based upon the AuditCommittee’s review of our consolidated financial statements, their discussionswith management and the independent auditors, and the representation ofmanagement that such financial statements were prepared in accordance withaccounting principles generally accepted in the United States, the AuditCommittee recommended that such financial statements be included in this Reporton Form 10-K for the year ended March 31, 2003.

 

*The Executive Committee*

 

The members of the Executive Committee are Messrs. Roderick(Chairman), Nickell and Nelson.  TheExecutive Committee was delegated the authority to take any action that couldbe taken by the Board to the maximum extent permitted by Delaware GeneralCorporation Law.  The Executive Committeedid not meet or take any action by written consent in fiscal 2003.

 

**Stockholders’ Agreement**

 

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

 

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| **Item 11.** | **EXECUTIVE COMPENSATION** |
|--------------|----------------------------|

 

The following table setsforth compensation for the three fiscal years ended March 31, 2003 for ourChief Executive Officer and our four most highly compensated executive officersas of March 31, 2003. Our officers receive no additional compensation for theirservices as officers of Holding.

 

**SummaryCompensation Table**

 
|                                                            |   | **Annual Compensation** |   | **Long-Term  Compensation Awards** |    | **All Other  Compensation(3)** |   |
|-----------------------------------------------------------------|--------|-------------------------|--------|------------------------------------|---------|--------------------------------|--------|
| **Name and Principal Position**                                 |   | **Year**                |   | **Salary**                         |    | **Bonus(1)**                   |   | **Securities Underlying  Stock Options/SAR (2)** |   |   |
| Maurice  S. Nelson, Jr.                                         |   | 2003                    |   | $                                  | 555,762 |                           | $      | 374,388 |   | — |   | $ | 52,049 |   |
| President, Chief  Executive Officer and Chief Operating Officer |   | 2002                    |   | 555,762                            |    | 270,738                        |   | — |   | 47,150 |   |
|                                                            |   | 2001                    |   | 555,844                            |    | 2,374,014                      |   | — |   | 152,594 |   |
|                                                            |   |                    |   |                               |    |                           |   |   |   |   |   |
| Frank  D. Travetto                                              |   | 2003                    |   | 244,460                            |    | 142,714                        |   | 10,000 |   | 25,273 |   |
| Vice  President, Merchandising                                  |   | 2002                    |   | 238,070                            |    | 99,659                         |   | 10,000 |   | 23,233 |   |
|                                                            |   | 2001                    |   | 229,051                            |    | 133,011                        |   | 15,000 |   | 25,001 |   |
|                                                            |   |                    |   |                               |    |                           |   |   |   |   |   |
| Kenneth  L. Henry                                               |   | 2003                    |   | 235,442                            |    | 136,161                        |   | 10,000 |   | 27,355 |   |
| Vice  President                                                 |   | 2002                    |   | 226,978                            |    | 94,921                         |   | 10,000 |   | 25,397 |   |
|                                                            |   | 2001                    |   | 218,299                            |    | 151,677                        |   | 15,000 |   | 28,341 |   |
|                                                            |   |                    |   |                               |    |                           |   |   |   |   |   |
| R.  Neil McCaffery                                              |   | 2003                    |   | 220,960                            |    | 129,608                        |   | 10,000 |   | 20,418 |   |
| Executive  Vice President                                       |   | 2002                    |   | 212,600                            |    | 90,182                         |   | 10,000 |   | 18,220 |   |
|                                                            |   | 2001                    |   | 206,352                            |    | 120,343                        |   | 15,000 |   | 19,515 |   |
|                                                            |   |                    |   |                               |    |                           |   |   |   |   |   |
| James  D. Hoffman                                               |   | 2003                    |   | 222,497                            |    | 129,608                        |   | 10,000 |   | 19,588 |   |
| Vice  President                                                 |   | 2002                    |   | 214,137                            |    | 90,182                         |   | 10,000 |   | 17,313 |   |
|                                                            |   | 2001                    |   | 205,955                            |    | 120,343                        |   | 15,000 |   | 18,531 |   |
|                                                                 |        |                         |        |                                    |         |                                |        |  |  |  |  |  |  |  |

 

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(1)          Amounts reflect cashcompensation earned by executive officers in each of the fiscal years presented,including amounts received after fiscal year end, or deferred at the electionof those officers. Bonus amounts include a cash bonus payable pursuant to ourManagement Incentive Compensation Plan, which became effective April 1, 1997.In addition, Mr. Nelson received a special bonus of $2,000,000 in fiscal 2001. 

(2)          Holding has grantedexecutive officers options to purchase shares of Holding Common Stock at theirfair market value on the date of grant. Mr. Nelson’s options have an exerciseprice of $5.41 per share; options granted to Messrs. Travetto, Henry, McCafferyand Hoffman in fiscal years 2003, 2002 and 2001 have an exercise price of$7.78, $8.16 and $7.31 per share, respectively. See “Holding Stock Option Plan”and “Stock Option Grants Table” below for further information. 

(3)          Amounts shown includeallocations to the accounts of each of the named officers of contributions madeby us to our stock bonus plan and to our 401(a)(17) Supplemental ContributionPlan (“401(a)(17) Plan”) and of premiums paid by us for long-term disabilityand life insurance policies. The following allocations were made in fiscal 2003for Messrs. Nelson, Travetto, Henry, McCaffery and Hoffman, respectively (i)stock bonus plan—$10,000, $10,000, $10,000, $10,000, and $10,000; (ii)401(a)(17) Plan—$36,220, $9,261, $8,372, $7,483 and $7,483; (iii) long termdisability—$4,509, $3,745, $6,779, $2,133 and $1,623; (iv) lifeinsurance—$1,320, $2,267, $2,204, $802 and $482. The following allocations weremade in fiscal 2002 for Messrs. Nelson, Travetto, Henry, McCaffery and Hoffman,respectively (i) stock bonus plan—$8,500, $8,500, $8,500, $8,500, and $8,500;(ii) 401(a)(17) Plan—$32,538, $8,180, $7,387, $6,593 and $6,593; (iii) longterm disability—$4,509, $3,745, $6,779, $2,133 and $1,623; (iv) lifeinsurance—$1,603, $2,808, $2,731, $994 and $597. The following allocations weremade in fiscal 2001 for Messrs. Nelson, Travetto, Henry, McCaffery and Hoffman,respectively (i) stock bonus plan—$8,500, $8,500, $8,500, $8,500, and $8,500;(ii) 401(a)(17) Plan—$137,719, $9,398, $9,796, $7,694 and $7,694; (iii) longterm disability—$4,509, $3,745, $6,779, $2,133 and $1,623; (iv) lifeinsurance–$1,866, $3,358, $3,266, $1,188 and $714. The amounts in respect oflife insurance represent the estimated value of the premiums paid by us oncertain disability and life insurance policies covering each executive. Some ofthe policies are managed on a split-dollar basis and we will receive thepremiums we paid from the proceeds of such insurance. In such cases the amountof the other compensation attributed to the executive was calculated bytreating the premiums paid by us as a demand loan, and the amount ofcompensation is equal to the imputed interest expense on the cumulativeoutstanding premiums paid by us, assuming an interest rate equal to theshort-term federal funds rate, from time to time. Amounts shown also include adiscretionary bonus of $10,000 paid to Mr. Henry in fiscal 2001.

 

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**HoldingStock Option Plan**

 

In fiscal 1998, Holdingadopted the Earle M. Jorgensen Holding Company, Inc. Stock Option Plan, asamended, or the “Stock Option Plan.” Our board of directors or its ExecutiveCommittee is authorized to grant options under the Stock Option Plan. Stockoptions may be granted at not less than 100% of the fair market value ofHolding Common Stock on the date of grant and are generally exercisable for aperiod not exceeding ten years. Option grants or the vesting of options may becontingent upon such terms and conditions, such as the achievement ofperformance measures or upon the passage of time, as our board or ExecutiveCommittee determines. Our board or Executive Committee will make grants underthe Stock Option Plan to provide our executive officers and certain othermanagers with additional incentives for outstanding individual performance andthe opportunity to acquire an ownership stake in the Company, thereby moreclosely aligning their interests with those of the stockholders.

 

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

 

The aggregate number ofshares of Holding Common Stock available for grants or subject to outstandingoptions, and the respective prices and/or vesting criteria applicable tooutstanding options, will be proportionately adjusted to reflect any stockdividend on the Holding Common Stock, or any recapitalization, reorganization,merger, consolidation, split-up, spin-off, combination, exchange of shares,warrants or rights offering to purchase the Holding Common Stock at a pricesubstantially below its fair market value. To the extent deemed appropriate byour board or Executive Committee, subject to any required action by thestockholders, in any merger, consolidation, reorganization, liquidation,dissolution, or other similar transaction, any option granted under the StockOption Plan shall pertain to the securities and any other property to which aholder of the number of shares of Common Stock covered by the option would havebeen entitled to receive in connection with such event.

 

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

 

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

 

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

 

The maximum number ofshares of Holding Common Stock reserved for issuance under the Stock OptionPlan is 2,500,000, subject to adjustment as provided in the Stock Option Planto reflect certain corporate transactions affecting the number or type ofoutstanding shares.

 

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**Stock Option Grants Table**

 

The following table setsforth certain information concerning stock options granted during fiscal 2003by Holding to our Chief Executive Officer and our next four most highlycompensated executive officers. In addition, there are shown hypothetical gainsthat could be realized for the respective options, based on assumed rates ofannual compound price appreciation of 5% and 10% from the date the options weregranted 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 ofHolding’s Common Stock relative to the exercise price of the option at the timethe option is exercised. There is no assurance that the amounts reflected inthis table will be realized.

 
| **Name**                |                                                            | **Options  Granted in Last Fiscal Year  Individual Grants** |                                                                     |   |                          |
|-------------------------|-----------------------------------------------------------------|-------------------------------------------------------------|--------------------------------------------------------------------------|--------|-------------------------------|
|                    | **Number of  Securities  Underlying  Options  Granted(1)** |                                                        | **% of Total  Options  Granted to  Employees in  Fiscal Year** |   | **Exercise  Price /Sh.** | ** ** | **Expiration  Date** |   | **Potential Realizable Value at  Assumed Annual Rates of  Stock Price Appreciation  for Option Term** |   |
| **5%**                  |                                                            | **10%**                                                     |
| Maurice  S. Nelson, Jr. |                                                            | —                                                      |                                                                     | 0      | %                             | N/A |   | N/A |   | N/A |   | N/A |   |
| Frank  D. Travetto      |                                                            | 10,000                                                      |                                                                     | 8.3    | %                             | $ | 7.78 |   | 7/31/2012 |   | $ | 48,928 |   | $ | 123,993 |   |
| Kenneth  L. Henry       |                                                            | 10,000                                                      |                                                                     | 8.3    | %                             | 7.78 |   | 7/31/2012 |   | 48,928 |   | 123,993 |   |
| R.  Neil McCaffery      |                                                            | 10,000                                                      |                                                                     | 8.3    | %                             | 7.78 |   | 7/31/2012 |   | 48,928 |   | 123,993 |   |
| James  D. Hoffman       |                                                            | 10,000                                                      |                                                                     | 8.3    | %                             | 7.78 |   | 7/31/2012 |   | 48,928 |   | 123,933 |   |
|                         |                                                                 |                                                             |                                                                          |        |                               |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Holding has not grantedany stock appreciation rights. All the options shown above become exercisableon August 1, 2004. All outstanding stock options shall become fully exercisableand shall be cancelled and exchanged for cash in an amount equal to the excessof the Change in Control Price (as defined in the Stock Option Plan as definedbelow) over the exercise price, in the event of any transaction or series oftransactions, other than a public offering, where a person or a group,excluding Holding, any of its subsidiaries and Kelso and its affiliates, is orbecomes the beneficial owner, directly or indirectly, of securitiesrepresenting 35% or more of the voting power of Holding’s then outstandingsecurities (an “SOP Change of Control”), unless the Executive Committeedetermines prior to the occurrence of such SOP Change of Control that suchoptions shall be honored, or assumed or new rights (having substantiallyequivalent or better rights, terms and conditions and economic value)substituted therefor. 

 

**Aggregated Stock Option Exercises andFiscal Year-End Stock Option Value Table**

 

The following table setsforth certain information concerning stock options exercised during fiscal 2003by the Chief Executive Officer and our next four most highly compensatedexecutive officers, and the value of their unexercised stock options as ofMarch 31, 2003.

 

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

 
|                  |   |                                       |   |                             |   | **Number of Securities  Underlying Options   at Fiscal Year-End** |   | **Value of In-the-Money  Options at   Fiscal Year-End(1)** |                |
|-----------------------|--------|--------------------------------------------|--------|----------------------------------|--------|-----------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|---------------------|
| **Name**              |   | **Shares  Acquired on  Exercise (#)** |   | **Value Realized ($)** |   | **Exercisable /  Unexercisable**                                            |   | **Exercisable/  Unexercisable**                                           |                |
| Maurice S. Nelson, Jr |   | —                                     |   | —                           |   | 1,320,000 /—                                                           |   | $                                                                         | 3,128,400 / $— |   |
| Frank  D. Travetto    |   | —                                     |   | —                           |   | 75,000 / 20,000                                                             |   | $                                                                         | 142,000 / $—   |   |
| Kenneth  L. Henry     |   | —                                     |   | —                           |   | 75,000 / 20,000                                                             |   | $                                                                         | 142,000 / $—   |   |
| R.  Neil McCaffery    |   | —                                     |   | —                           |   | 75,000 / 20,000                                                             |   | $                                                                         | 142,000 / $—   |   |
| James  D. Hoffman     |   | —                                     |   | —                           |   | 75,000 / 20,000                                                             |   | $                                                                         | 142,000 / $—   |   |

 

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(1)          Holding is a privatecompany and its stock is not publicly traded. The fair market value ofHolding’s common stock underlying the options shown above is determinedannually by a third-party appraiser. The value of in-the-money options shownabove was calculated by subtracting the exercise prices from the most recentappraisal available which was $7.78 per share as of March 31, 2002. 

 

**EquityCompensation Plan Information As Of March 31, 2003**

 
| **Plan category**                                                                                              |   | **(a)**                                                                                           |   | **(b)**                                                                                                                                                                                         |   | **(c)** |    |
|----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|---------|
| **Number of securities  to be issued upon   exercise of  outstanding options,  warrants and rights** |   | **Weighted-  average exercise  price of outstanding  options, warrants and  rights ($/Sh.)** |   | **Number of securities********remaining available********for future issuance under  equity compensation plans  (excluding securities********reflected in column (a))** |   |
| Equity  compensation plans approved by security holders(1)                                                     |   | 2,136,500                                                                                         |   | $                                                                                                                                                                                               | 5.87   |    | 363,500 |   |
| Equity  compensation plans not approved by security holders                                                    |   | —                                                                                            |   | —                                                                                                                                                                                          |   | —  |    |
| Total                                                                                                          |   | 2,136,500                                                                                         |   | $                                                                                                                                                                                               | 5.87   |    | 363,500 |   |

 

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

 

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**OurStock Bonus Plan**

 

We maintain a stock bonusplan, or the “Plan,” in respect of our nonunion employees who meet certainservice requirements. Since April 1, 1999 (when our employee stock ownershipplan was amended and became a stock bonus plan), the amount of annualcontributions is calculated as a percentage (as determined by our Board ofDirectors based on the achievement of EMJ performance objectives) of total cashcompensation (as defined in the Plan) and may be made by us in cash or byHolding in shares of Holding capital stock. Participants become 20% vested intheir account balances after one year of continuous service. Participants vestan additional 20% for each year of service thereafter and become fully vestedat age 65 or upon completion of five years of service, retirement, disability ordeath. Following the occurrence of a participant’s termination of service (asdefined in the Plan), retirement, disability, or death, the Plan is required toeither distribute the vested balance in stock or cash. If stock is distributed,it is accompanied by a put option to Holding under terms defined in the Plan.At March 31, 2003, shares of Holding’s Series A and Series B Preferred Stockand Holding Common Stock owned by the Plan totaled 40,881, 27,068, and2,875,443 shares, respectively. For the fiscal years ended March 31, 2001, 2002and 2003, contributions payable to the Plan totaled $3.2 million, $2.8 millionand $2.8 million, respectively. The contributions payable for fiscal years2001, 2002 and 2003 have been paid in cash.

 

Although Holding has notexpressed any intent to terminate the Plan, it has the right to terminate oramend the provisions of the Plan at any time. In the event of any termination,participants become fully vested to the extent of the balances in theirseparate accounts and receive put options with respect to Holding stockallocated to their accounts.

 

In 1984, 1985 and 1986,Kilsby purchased life insurance policies to provide, among other things, aseparate source for funds to repurchase capital stock, including capital stockdistributed by the Plan, from departing employees. Certain of these policiesallow us to borrow against the cash surrender value of such policies. As ofMarch 31, 2003, we have borrowed $165.0 million against the cash surrendervalue of such policies to fund renewal premiums, accrued interest on previousborrowings and working capital needs. The net cash surrender value availablefor future borrowings was approximately $9.3 million as of March 31, 2003. Ourcredit facility and other resources are also available, subject to certainlimitations, to satisfy stock repurchase obligations as they arise. See “Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Liquidity and Capital Resources.”

 

On March 8, 2002, we weresued by the DOL for alleged breaches of fiduciary duty by former members of ourbenefits committee in relying on the valuations of our common stock prepared byour independent appraiser and allegedly resulting in prohibited transactions.This matter was settled in January 2003. Among other things, the settlement prohibits us from making furthercommon stock contributions to the Plan. We refer you to “Item 3. Legal Proceedings.”

 

**SupplementalPlan**

 

In fiscal 1996, weadopted a supplemental contribution plan, or the “Supplemental Plan,” forcontributions not allowed under our Plan pursuant to limitations of Sections401(a)(17) and 415 of the Internal Revenue Code of 1986, as amended.Participants in the Supplemental Plan include certain highly compensated employeesand other employees who are not eligible to participate in the Plan.Contributions payable, vesting and distributions under the Supplemental Planare comparable with those under the Plan. Contributions under the SupplementalPlan are made in cash and are held in an irrevocable trust. For the fiscalyears ended March 31, 2001, 2002 and 2003, contributions payable totaled $0.2million, $0.1 million and $0.1 million, respectively.

 

**ManagementIncentive Compensation Plan**

 

Effective April 1, 1997,we adopted a new Management Incentive Compensation Plan (the “Incentive Plan”).The Incentive Plan provides for payment of cash bonuses to senior executivesand other key management employees based on the achievement of certainoperating profit and cash flow objectives determined by our Board of Directorsor Executive Committee. Bonuses awarded are based on a sliding scale based onthe percentage of the objectives achieved. No bonus is payable unless at least80% of the objectives are achieved, and the maximum bonus would be awarded forachievement of 150% or more of the established objectives. In addition, ourChief Executive Officer may award bonuses from a discretionary pool forexemplary service. The board of Directors ratified bonuses pursuant to theIncentive Plan aggregating $5.9 million in fiscal 2001, $4.0 million in fiscal2002 and $5.6 million in fiscal 2003.

 

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**CompensationCommittee Interlocks and Insider Participation**

 

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

 

Affiliates of Kelso &Company beneficially own shares of the capital stock of Holding as describedunder “Item 12. Security Ownership of Certain Beneficial Owners andManagement.” Mr. Nickell is a stockholder of Kelso and a general partner ofKelso Partners I, L.P., or “KP I,” Kelso Partners III, L.P., or “KP III,” andKelso Partners IV, L.P., or “KP IV.” KP I, KP III and KP IV are the general partnersof Kelso Investment Associates, Limited Partnership, or “KIA I,” KIA III-EarleM. Jorgensen, L.P., or “KIA III-EMJ” and KIA IV, respectively. Mr. Nickell is adirector of Holding and the Company and shares investment and voting power withrespect to shares of the capital stock of Holding held by KIA I, KIA III-EMJand KIA IV as described under “Item 12. Security Ownership of CertainBeneficial Owners and Management.”

 

In connection with theAcquisition, we agreed to pay Kelso & Company an annual fee of $1,250,000each year for financial advisory services and to reimburse it for out-of-pocketexpenses incurred in connection with rendering such services. However, no suchannual fee was payable for fiscal years 2001, 2002 and 2003 and other expensespaid to Kelso & Company in fiscal years 2001, 2002 and 2003 were notsignificant.  Holding has issued to KIAIV two warrants, entitling KIA IV to purchase 2,937,915 shares of HoldingCommon Stock in the aggregate at a purchase price of $.01 per share.

 

Beginning April 1, 1998,and on each subsequent April 1, ending April 1, 2001, in consideration for hisservice as a director, Chairman of the Company’s Executive Committee andChairman of the Board, the Company granted Mr. Roderick options to purchase20,000 shares of Holding Common Stock at a purchase price equal to the fairmarket value as established by the most recent appraisal available at the dateof grant. For the grants issued April 1, 2000 and 2001, the grant prices were$5.51 per share and $7.31 per share, respectively. From April 1, 2002, Mr.Roderick has received an annual retainer of $30,000 for such services, payablequarterly.

 
| **Item 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT** |
|--------------|---------------------------------------------------------------------|

 

**OurCommon Stock**

 

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

 

**CapitalStock of Holding**

 

The following tabledescribes the beneficial ownership of shares of Holding Common Stock and SeriesA Preferred Stock as of March 31, 2003, by all stockholders of Holding known tobe beneficial owners of more than 5% of any such class, by each of ourdirectors and executive officers named in the Summary Compensation Table and byall directors and executive officers as a group as determined in accordance withRule 13d-3(i) under the Securities Exchange Act of 1934, as amended. As ofMarch 31, 2003, 27,081 shares of Series B Preferred Stock of Holding wereissued, of which 27,068 were owned by the stock bonus plan.

 

29

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| **Name and Address of Beneficial Owner**                        |   | **Number of Shares of  Common Stock** |   | **Percentage of  Shares of  Common Stock  Outstanding(a)** |    | **Number of Shares  of Series A  Preferred Stock** |   | **Percentage of  Shares of Series A  Preferred Stock  Outstanding(b)** |   |
|-----------------------------------------------------------------|--------|------------------------------------------------------|--------|-----------------------------------------------------------------|---------|--------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|
| Kelso  Investment Associates, IV, L.P.(c)                       |   | 9,462,475                                            | (d)    | 64.9                                                            | %(d)    | 0                                                            |   | 0.0                                                                                   | %      |
| KIA  III—Earle M. Jorgensen, L.P.(c)                       |   | 1,704,740                                            |   | 14.6                                                            | %       | 0                                                            |   | 0.0                                                                                   | %      |
| Joseph  S. Schuchert(c)                                         |   | 11,167,215                                           | (d)(e) | 76.6                                                            | %(d)(e) | 24,519                                                       | (f)    | 37.4                                                                                  | %(f)   |
| Frank  T. Nickell(c)                                            |   | 11,187,714                                           | (d)(e) | 76.8                                                            | %(d)(e) | 24,519                                                       | (f)    | 37.4                                                                                  | %(f)   |
| Michael  B. Goldberg(c)                                         |   | 9,462,475                                            | (d)(e) | 64.9                                                            | %(d)(e) | 0                                                            |   | 0.0                                                                                   | %      |
| George  E. Matelich(c)                                          |   | 11,172,215                                           | (d)(e) | 76.7                                                            | %(d)(e) | 24,519                                                       | (f)    | 37.4                                                                                  | %(f)   |
| Thomas  R. Wall, IV(c)                                          |   | 11,172,215                                           | (d)(e) | 76.7                                                            | %(d)(e) | 24,519                                                       | (f)    | 37.4                                                                                  | %(f)   |
| Frank  K. Bynum(c)                                              |   | 11,167,215                                           | (d)(e) | 76.6                                                            | %(d)(e) | 0                                                            |   | 0.0                                                                                   | %      |
| David  I. Wahrhaftig(c)                                         |   | 11,167,215                                           | (d)(e) | 76.6                                                            | %(d)(e) | 0                                                            |   | 0.0                                                                                   | %      |
| Philip  E. Berney(c)                                            |   | 11,167,215                                           | (d)(e) | 76.6                                                            | %(d)(e) | 0                                                            |   | 0.0                                                                                   | %      |
| Maurice  S. Nelson(g)                                           |   | 1,320,000                                            | (l)    | 11.3                                                            | %(l)    | 0                                                            |   | 0.0                                                                                   | %      |
| Frank  D. Travetto(g)                                           |   | 87,000                                               | (l)    | 0.7                                                             | %(l)    | 0                                                            |   | 0.0                                                                                   | %      |
| Kenneth  L. Henry(g)                                            |   | 94,000                                               | (l)    | 0.8                                                             | %(l)    | 704                                                          |   | 1.1                                                                                   | %      |
| R.  Neil McCaffery(g)                                           |   | 80,000                                               | (l)    | 0.7                                                             | %(l)    | 0                                                            |   | 0.0                                                                                   | %      |
| James  D. Hoffman(g)                                            |   | 75,000                                               | (l)    | 0.6                                                             | %(l)    | 0                                                            |   | 0.0                                                                                   | %      |
| David  M. Roderick(g)                                           |   | 134,000                                              | (l)    | 1.2                                                             | %(l)    | 0                                                            |   | 0.0                                                                                   | %      |
| John  Rutledge(h)                                               |   | 45,000                                               | (l)    | 0.4                                                             | %(l)    | 0                                                            |   | 0.0                                                                                   | %      |
| William  A. Marquard(m)                                         |   | 50,000                                               | (l)    | 0.4                                                             | %(l)    | 0                                                            |   | 0.0                                                                                   | %      |
| Earl  L. Mason(g)                                               |   | 0                                                    |   | 0.0                                                             | %       | 0                                                            |   | 0.0                                                                                   | %      |
| Earle  M. Jorgensen Company Stock Bonus Plan(g)                 |   | 2,853,432                                            | (i)    | 24.5                                                            | %(i)    | 39,943                                                       | (i)    | 60.9                                                                                  | %(i)   |
| All  directors and executive officers of the Company as a group |   | 1,955,499                                            | (j)(l) | 16.8                                                            | %(j)(l) | 704                                                          | (k)    | 1.1                                                                                   | %(k)   |

 

----

(a)          The percentage of sharesof Holding Common Stock outstanding for KIA IV, and Messrs. Schuchert, Nickell,Wall, Matelich, Goldberg, Wahrhaftig, Bynum and Berney was calculated assumingthe total outstanding shares of Holding Common Stock was 14,574,759, (i)including shares of Holding Common Stock which would be outstanding assumingKIA IV exercised the two Warrants referred to in note (d) below in successionand there have been no other dilution events prior to such exercise, and (ii)excluding 2,136,500 shares subject to stock options referred to in note (l)below. The percentage of shares of Holding Common Stock outstanding for allother holders was calculated assuming the total outstanding shares of HoldingCommon Stock was 11,636,844, excluding shares subject to stock options andshares issuable upon the exercise of the Warrants held by KIA IV as of March31, 2003. 

(b)         The percentage of sharesof Series A Preferred Stock outstanding was calculated assuming the totaloutstanding shares of Series A Preferred Stock was 65,641, excluding 181,905shares of Series A Preferred Stock held in the Holding treasury as of March 31,2003. 

(c)          The business address forsuch person(s) is c/o Kelso & Company, 320 Park Avenue, 24th Floor, NewYork, New York, 10022. Kelso & Company is a private investment firm. 

(d)         Includes 2,937,915 sharesof the Holding Common Stock that KIA IV is entitled to purchase pursuant to twoWarrants issued to KIA IV. Each Warrant entitles the holder to purchase up to10% of the Holding Common Stock on a fully-diluted basis at an exercise priceof $.01 per share. 

(e)          Messrs. Schuchert,Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum and Berney may be deemedto share beneficial ownership of shares of Holding Common Stock owned of recordby (i) KIA IV and an affiliated entity by virtue of their status as generalpartners 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 partnersof KP III, the general partner of KIA III-EMJ. Messrs. Schuchert, Nickell,Wall, Matelich, Goldberg, Wahrhaftig, Bynum and Berney share investment andvoting power with respect to securities owned by the Kelso affiliates of whichthey are general partners. Messrs. Nickell, Wall, Matelich, Goldberg,Wahrhaftig, Bynum and Berney disclaim beneficial ownership of the shares ofHolding Common Stock owned by the affiliates of Kelso & Company. 

(f)            Messrs. Schuchert,Nickell, Wall and Matelich may be deemed to share beneficial ownership ofshares of Series A Preferred Stock owned of record by KIA I by virtue of theirstatus as general partners of KP I, the general partner of KIA I. Messrs.Schuchert, Nickell, Wall and Matelich disclaim beneficial ownership of theshares of Series A Preferred Stock owned by KIA I. 

(g)         The business address ofsuch person(s) or entity is 3050 East Birch Street, Brea, California, 92821. 

(h)         The business address forDr. Rutledge is 15 Locust Avenue, New Canaan, Connecticut, 06840. 

(i)             Excludes 22,011shares of Holding Common Stock and 939 shares of Series A Preferred Stock heldby our stock bonus plan in directed accounts that are deemed to be beneficiallyowned by any of the directors or executive officers or other of our employees.

(j)             Excludes (i)11,167,215 shares of Holding Common Stock held by Kelso affiliates that may bedeemed to be beneficially owned by Mr. Schuchert and Mr. Nickell, and (ii)shares held by our stock bonus plan, except for shares held in directedaccounts that may be deemed to be beneficially owned by any of the directorsand our executive officers. 

(k)          Excludes (i) 24,519shares of Series A Preferred Stock held by KIA I that may be deemed to bebeneficially owned by Mr. Schuchert and Mr. Nickell, and (ii) shares heldby our stock bonus plan, except for shares held in directed accounts that maybe deemed to be beneficially owned by any of our directors or executiveofficers. 

(l)             Includes shares subjectto stock options vested and exercisable as of March 31, 2003. 

(m)       The business address of Mr.Marquard is 2199 Maysville Road, Carlyle, Kentucky  40311.

 

30

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| **Item 13.** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS** |
|--------------|----------------------------------------------------|

 

Affiliates of Kelso &Company beneficially own shares of the capital stock of Holding as describedunder “Security Ownership of Certain Beneficial Owners and Management.” Messrs.Schuchert, Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum and Berney areindirect stockholders of Kelso & Company and general partners of KP I(other than Messrs. Goldberg, Bynum, Wahrhaftig and Berney), KP III (other thanMr. Goldberg) and KP IV. KP I, KP III and KP IV are the general partners of KIAI, KIA III-EMJ and KIA IV, respectively. Messrs. Schuchert and Nickell aredirectors of Holding and EMJ. See “Item 12. Security Ownership of CertainBeneficial Owners and Management.”

 

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

 

KIA IV is the holder oftwo Holding warrants which are described under “Item 11. ExecutiveCompensation—Compensation Committee Interlocks and Insider Participation.”

 

On each April 1, from1998 through 2001, in consideration for his service as a director, Chairman ofthe Company’s Executive Committee and Chairman of the Board, the Companygranted Mr. Roderick options to purchase 20,000 shares of Holding Common Stockat their fair market value as established by the most recent appraisalavailable at the date of grant. From April 1, 2002, Mr. Roderick has beenpaid an annual retainer of $30,000, payable quarterly for his services asChairman and a member of our board of directors.

 
| **Item  14.** | **CONTROLS  AND PROCEDURES** |
|---------------|------------------------------|

 

Within 90 days prior tothe filing of this report, an evaluation was carried out by our Chief ExecutiveOfficer and Chief Financial Officer, with the assistance of other members ofmanagement, of the effectiveness of disclosure controls and procedures (asdefined in Rule 15d-14(c) under the Securities Exchange Act of 1934).Based upon that evaluation, the Chief Executive Officer and Chief FinancialOfficer concluded that the disclosure controls and procedures were effective inensuring that all material information required to be disclosed by the Companyin the reports filed or furnished by us under the Securities Exchange Act of1934, as amended, was gathered, analyzed and reported or otherwise made knownto them and other members of management, as appropriate to allow timelydecisions regarding required disclosure.

 

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

 

Notwithstanding theforegoing, the Company has engaged an independent contractor to review itssystems of disclosure controls and procedures, including internal control overfinancial reporting, in preparation for management’s assessment and theindependent auditor’s attestation regarding the effectiveness of our internalcontrol over financial reporting as of March 31, 2004, as required by Section404 of the Sarbanes-Oxley Act of 2002. Such review is ongoing and the work of the contractor is being reviewedand monitored by the Audit Committee of our Board of Directors.

 

We have adopted a code ofethics for our Chief Executive Officer, as principal executive officer, and ourChief Financial Officer and Controller, as our senior financial officers,pursuant to Section 406 of the Sarbanes–Oxley Act of 2002.  We have filed such code of ethics documentas Exhibit 10.22 to this Annual Report on Form 10-K and will provide a copy toany person without charge upon written request to our Secretary.

 

31

----

 
| **Item  15.** | **PRINCIPAL  ACCOUNTANT FEES AND SERVICES** |
|---------------|---------------------------------------------|

 

The Audit Committee has implemented policies and proceduresfor the pre-approval of all audit, audit-related and tax services for theCompany, which meets the requirements under the Sarbanes-Oxley Act of2002.  The Audit Committee haspre-approved certain audit, audit-related, tax and permitted non-audit servicesto be performed by our independent auditors, Ernst & Young LLP.  These pre-approved services include theannual audit and quarterly reviews of our consolidated financial statements andthe Company’s periodic filings with the SEC; annual audit and related filingsfor the Company’s 401(k) plan, stock bonus plan and Hourly Pension Plan; reviewof federal and state income tax returns and review of Form 5500s.  The Audit Committee has provided the AuditCommittee Chair with the authority to approve up to $50,000 of other audit,audit-related and non-audit services, subject to ratification of the AuditCommittee.  Additionally, the AuditCommittee has directed Ernst & Young LLP not to perform any services forthe Company that are specifically prohibited by the Sarbanes-Oxley Act of 2002.

 

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

 

| **Type**      |   | **Description of Services**                                                                                     |   | **Fiscal  2002** |    | **%**  |   | **Fiscal  2003** |   | **%**   |   |
|---------------|--------|-----------------------------------------------------------------------------------------------------------------|--------|------------------|---------|--------|--------|------------------|--------|---------|--------|
| Audit         |   | Audit and review  of  consolidated financial statements  included in Form 10-K and Form 10-Q, respectively |   | $                | 519,000 |   | 81.1   |             | $      | 594,000 |   | 64.4 |   |
| Audit-Related |   | Audits of employee  benefit plans; review of Form 5500s                                                         |   | 59,000           |    | 9.2    |   | 60,000           |   | 6.5     |   |
| Tax           |   | Review of income tax  returns; consultation related to IRS inquiries and audits                                 |   | 62,000           |    | 9.7    |   | 73,000           |   | 7.9     |   |
| All  Other    |   | Review of debt offering  for Senior Secured Notes                                                               |   | —           |    | — |   | 195,000          |   | 21.2    |   |
|          |   |                                                                                                            |   | $                | 640,000 |   | 100.0  |             | $      | 922,000 |   | 100.0 |   |

 

**PART IV**

 
| **Item  16.** | **EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON  FORM 8-K** |
|---------------|-----------------------------------------------------------------------|

 

(a)(1) FinancialStatements.

 

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

 

(a)(2) FinancialStatement Schedules.

 

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

 

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

 

(a)(3) Exhibits.

 

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

 

(b)                   Reports onForm 8-K.

 

We furnished a report onForm 8-K on May 1, 2003 under Item 12 announcing our results of operations andfinancial position as of and for the three month period and fiscal year endedMarch 31, 2003.

 

32

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INDEX TO EXHIBITS

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.1*                |   | Certificate of  Incorporation of the Company.   Incorporated by reference to Exhibit 3.1 of the Company’s Registration  Statement on Form S-1 as filed on January 15, 1993 (Registration No.  33-57134) (the “Company’s 1993 Registration Statement”).                                                                                                                                                                                                                                                                                                                                                                                 |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 3.2*                |   | By-laws of the  Company.  Incorporated by reference to  Exhibit 3.2 of the Company’s 1993 Registration Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.1*                |   | Form of 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”).                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.2*                |   | Amendment to  Restructuring Agreement, dated as of March 3, 1993, by and between Holding  and KIA IV, amended as of March 24, 1998. Incorporated by reference to  Exhibit 4.8 of the Company’s 1998 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.3**               |   | Amendment to  Restructuring Agreement, dated as of March 3, 1993, by and between Holding  and KIA IV, amended as of May 22, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.4**               |   | Second Amendment to  Restructuring Agreement, dated as of March 3, 1993, by and between Holding  and KIA IV, amended as of May 22, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.5**               |   | Third Amendment to  Restructuring Agreement, dated as of March 3, 1993, by and between Holding  and KIA IV, amended as of June 28, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.6**               |   | Fourth Amendment to  Restructuring Agreement, dated as of March 3, 1993, by and between Holding  and KIA IV, amended as of September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.7**               |   | Fifth Amendment to  Restructuring Agreement, dated as of March 3, 1993, by and between Holding  and KIA IV, amended as of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.8*                |   | Second Amended and  Restated Credit Agreement dated as of March 3, 1993, amended and restated as  of March 24, 1998, and further amended and restated as of April 12, 2002 (the  “Credit Agreement”), among the Company, Holding, Various Financial  Institutions, BT Commercial Corporation, as Agents (the “Agent”), and  Deutsche Bank Alex. Brown Incorporated, as Lead Arranger and Sole Book  Runner.  Incorporated by reference to  Exhibit 4.16 of the Company’s Registration Statement on Form S-4 as filed on  July 3, 2002 (Registration No. 333-91866) (the “Company’s 2002 Registration  Statement”). |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.9*                |   | Form of Indenture with  respect to EMJ’s 93/4% Senior Secured Notes due 2012.  Incorporated by reference to Exhibit 4.17 of the Company’s 2002 Registration  Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.10*               |   | Form of certificate for  EMJ’s 93/4% Senior Secured Notes, Series A, $248,435,000.  Incorporated by reference to Exhibit 4.18(a) of the Company’s 2002  Registration Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.11*               |   | Form of certificate for  EMJ’s 93/4% Senior Secured Notes, Series A, $1,565,000.  Incorporated by reference to Exhibit 4.18(b) of the Company’s 2002  Registration Statement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 4.12*               |   | Purchase Agreement,  dated as of May 17, 2002, among EMJ, Credit Suisse First Boston Corporation,  Deutsche Bank Securities, Inc. and J.P. Morgan Securities, Inc., for an  aggregate of $250,000,000 in principal amount of EMJ’s 93/4%  Senior Notes due 2012. Incorporated by reference to Exhibit 4.19 of the  Company’s 2002 Registration Statement.                                                                                                                                                                                                                                                                                             |

 

33

----

 
| 4.13*  |   | Registration Rights  Agreement, dated as of May 17, 2002, among EMJ, Credit Suisse First Boston  Corporation, Deutsche Bank Securities, Inc. and J.P. Morgan Securities, Inc.  Incorporated by reference to Exhibit 4.20 of the Company’s 2002 Registration  Statement.                                                                                                                                                                                                                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.14*  |   | First Amendment to the  Credit Agreement and Consent, dated as of May 22, 2002, and entered into by  and among Earle M. Jorgensen Holding Company, Inc., EMJ, the banks and other  financial institutions signatory thereto and Deutsche Bank Trust Company  Americas, as Agent. Incorporated by reference to Exhibit 4.21 of the  Company’s 2002 Registration Statement.                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.15*  |   | Security Agreement,  dated as of May 22, 2002, and entered into by and among the Company and other  Grantors signatory thereto and The Bank of New York, as trustee. Incorporated  by reference to Exhibit 4.22 of the Company’s 2002 Registration Statement.                                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.16*  |   | Intercreditor  Amendment, dated as of May 22, 2002, and entered into by and among The Bank  of New York, as Trustee under the Indenture with respect to EMJ’s 93/4%  Senior Notes, and Deutsche Bank Trust Company Americas, as Agent under the  Credit Agreement. Incorporated by reference to Exhibit 4.23 of the Company’s  2002 Registration Statement.                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.1*  |   | Stockholders Agreement,  amended and restated as of September 14, 1990, among Holding, KIA III-EMJ,  KIA IV, Kelso Equity Partners II, L.P. and the Management Stockholders and  Other Investors named therein.   Incorporated by reference to Exhibit 4.1 of Holding’s Post-Effective  Amendment No. 1 to the Form S-1 Registration Statement as filed with the  Commission on October 12, 1990 (Registration No. 33-35022) (“Holding’s  Post-Effective Amendment No. 1 to the 1990 Form S-1”). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.2*  |   | Amendment to the  Stockholders Agreement, dated as of January 20, 1992.  Incorporated by reference to Exhibit 10.2  of the Company’s 1993 Registration Statement.                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.3*  |   | Amendment to the  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.                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.4** |   | Third Amendment to the  Stockholders Agreement, dated as of July 23, 1998.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.5*  |   | Services Agreement,  between Acquisition and Kelso, dated March 19, 1990.  Incorporated by reference to Exhibit 10.2  of Holding’s Registration Statement on Form S-1 as filed May 30, 1990 with  the Commission (Registration No. 33-35022) (“Holding’s 1990 Registration  Statement”).                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.6*  |   | Holding’s ESOP Trust  Agreement.  Incorporated by reference  to Exhibit 10.32 of Holding’s 1991 Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.7*  |   | Lease and Agreement,  dated as of August 1, 1991, between Advantage Corporate Income Fund L.P. and  the Company, relating to the sale and lease-back of Kilsby’s Kansas City,  Missouri property.  Incorporated by  reference to Exhibit 10.30 of the Company’s 1993 Registration Statement.                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.8*  |   | 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.                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.9*  |   | 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.                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.10* |   | 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.                                                                                                                                                                                                            |

 

34

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| 10.11*  |   | 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.                                                                                                                                                                    |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.12*  |   | Form of Tax Allocation  Agreement between the Company and Holding.   Incorporated by reference to Exhibit 10.47 of Amendment No. 3.                                                                                                                                                                                                                   |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.13*  |   | 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”).                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.14*  |   | Holding’s Deferred  Compensation Plan, effective April 1, 1994. Incorporated by reference to  Exhibit 10.55 to the Company’s 1995 Form 10-K.                                                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.15*  |   | Form of Holding  Incentive and Non-Qualified Stock Option Agreement. Incorporated by reference  to Exhibit 10.58 to the Company’s 1997 Form 10-K.                                                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.16*  |   | Earle M. Jorgensen  Company Management Incentive Compensation Plan. Incorporated by reference to  Exhibit 10.62 to the Company’s Quarterly Report on Form 10-Q, Commission File  No. 5-10065 for the fiscal quarter ended December 31, 1997.                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.17*  |   | Earle M. Jorgensen  Company Employee Stock Ownership Plan, as amended and restated effective as  of April 1, 2001. Incorporated by reference to Exhibit 10.57 to the Company’s  Quarterly Report on Form 10-Q, Commission File No. 1-7537 for the fiscal  quarter ended December 31, 2002.                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.18*  |   | First Amendment to the  Earle M. Jorgensen Company Employee Stock Ownership Plan (as amended and  restated effective as of April 1, 2001), effective as of January 15, 2002.  Incorporated by reference to Exhibit 10.58 to the Company’s Quarterly Report  on Form 10-Q, Commission File No. 1-7537 for the fiscal quarter ended  December 31, 2002. |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.19*  |   | Second Amendment to the  Earle M. Jorgensen Company Employee Stock Ownership Plan (as amended and  restated effective as of April 1, 2001), effective as of April 1, 2001.  Incorporated by reference to Exhibit 10.59 to the Company’s Quarterly Report  on Form 10-Q, Commission File No. 1-7537 for the fiscal quarter ended  December 31, 2002.   |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.20*  |   | Third Amendment to the  Earle M. Jorgensen Company Employee Stock Ownership Plan (as amended and  restated effective as of April 1, 2001), effective as of January 1, 2002.  Incorporated by reference to Exhibit 10.60 to the Company’s Quarterly Report  on Form 10-Q, Commission File No. 1-7537 for the fiscal quarter ended  December 31, 2002.  |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.21** |   | Fourth Amendment to the  Earle M. Jorgensen Company Employee Stock Ownership Plan (as amended and  restated effective as of April 1, 2001), effective as of April 1, 2003.                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 10.22** |   | Audit Committee Charter  as adopted on April 17, 2003.                                                                                                                                                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 12.1**  |   | Statement of  Computation of Number of Times Fixed Charges Earned.                                                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 14.1**  |   | Code of Ethics for  Senior Financial Officers and the Principal Executive Officer, effective as  of March 31, 2003.                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 21**    |   | Listing of the  Company’s subsidiaries.                                                                                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 99.1**  |   | Certification of  Financial Reports by Chief Executive Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                       |
| 99.2**  |   | Certification of  Financial Reports by Chief Financial Officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                 |

 

----

*                 Previously filed.

**          Included in this filing.

 

35

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities and Exchange Act of 1934, the Registrant hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized, in the City of Brea, State of California, on the24th of June, 2003.

 
|   | EARLE M. JORGENSEN  COMPANY |
|--------|-----------------------------|
|   |                        |
|   |                        |
|   | By                          | /s/ William S. Johnson |   |
|   |                        |  William S.  Johnson |
|   |                        |  Vice President  and Chief Financial Officer |
|   |                        |  (Principal  Financial and Accounting   Officer)   and Secretary |

 

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

 
| **Signatures**              |   | **Title**                                                            |   | **Date**      |
|-----------------------------|--------|----------------------------------------------------------------------|--------|---------------|
|                        |   |                                                                 |   |          |
| /s/ DAVID M. RODERICK       |   | Chairman of the Board  and Chairman                                  |   | June 24, 2003 |
| David M. Roderick           |   | of the Executive  Committee and Director                             |   |          |
|                        |   |                                                                 |   |          |
| /s/ MAURICE S. NELSON,  JR. |   | President, Chief  Executive Officer and                              |   | June 24, 2003 |
| Maurice S. Nelson, Jr.      |   | Chief Operating Officer  and Director                                |   |          |
|                        |   |                                                                 |   |          |
| /s/ WILLIAM S. JOHNSON      |   | Vice President and  Chief Financial                                  |   | June 24, 2003 |
| William S. Johnson          |   | Officer (Principal  Financial and Accounting  Officer) and Secretary |   |          |
|                        |   |                                                                 |   |          |
| /s/ JOSEPH S. SCHUCHERT     |   | Director                                                             |   | June 24, 2003 |
| Joseph S. Schuchert         |   |                                                                 |   |          |
|                        |   |                                                                 |   |          |
| /s/ WILLIAM A. MARQUARD     |   | Director                                                             |   | June 24, 2003 |
| William A. Marquard         |   |                                                                 |   |          |
|                        |   |                                                                 |   |          |
| /s/ FRANK T. NICKELL        |   | Director                                                             |   | June 24, 2003 |
| Frank T. Nickell            |   |                                                                 |   |          |
|                        |   |                                                                 |   |          |
| /s/ JOHN RUTLEDGE           |   | Director                                                             |   | June 24, 2003 |
| Dr. John Rutledge           |   |                                                                 |   |          |
|                        |   |                                                                 |   |          |
| /s/ EARL L. MASON           |   | Director                                                             |   | June 24, 2003 |
| Earl L. Mason               |   |                                                                 |   |          |

 

36

----

 

CERTIFICATION OFFINANCIAL REPORTS

PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Maurice S. Nelson,Jr., certify that:

 

1. I have reviewed thisannual report on Form 10-K of EARLE M. JORGENSEN COMPANY (“EMJ”);

 

2. Based on my knowledge,this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisannual report, fairly present in all material respects the financial condition,results of operations and cash flows of EMJ as of, and for, the periodspresented in this annual report;

 

4. EMJ’s other certifyingofficer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for EMJ and we have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisannual report is being prepared;

 

b) evaluated theeffectiveness of EMJ’s disclosure controls and procedures as of a date within90 days prior to the filing date of this annual report (the “Evaluation Date”);and

 

c) presented in thisannual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5. EMJ’s other certifyingofficer and I have disclosed, based on our most recent evaluation, to EMJ’sauditors and the audit committee of EMJ’s board of directors (or personsperforming the equivalent function):

 

a) all significant deficienciesin the design or operation of internal controls which could adversely affectEMJ’s ability to record, process, summarize and report financial data and haveidentified for EMJ’s auditors any material weaknesses in internal controls; and

 

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in EMJ’s internal controls; and

 

6. EMJ’s other certifyingofficer and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date: June 24, 2003                                             |
|-----------------------------------------------------------------|
|                                                            |
|                                                            |
| /s/ Maurice S. Nelson,  Jr.                                     |   |
| Maurice S. Nelson, Jr.                                          |
| President, Chief  Executive Officer and Chief Operating Officer |

 

37

----

 

CERTIFICATION OFFINANCIAL REPORTS

PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, William S. Johnson,certify that:

 

1. I have reviewed thisannual report on Form 10-K of EARLE M. JORGENSEN COMPANY (“EMJ”);

 

2. Based on my knowledge,this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisannual report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, theperiods presented in this annual report;

 

4. EMJ’s other certifyingofficer and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)for the registrant and we have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisannual report is being prepared;

 

b) evaluated theeffectiveness of EMJ’s disclosure controls and procedures as of a date within90 days prior to the filing date of this annual report (the “Evaluation Date”);and

 

c) presented in thisannual report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5. EMJ’s other certifyingofficer and I have disclosed, based on our most recent evaluation, to EMJ’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect EMJ’s ability to record, process, summarize and reportfinancial data and have identified for EMJ’s auditors any material weaknessesin internal controls; and

 

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in EMJ’s internal controls; and

 

6. EMJ’s other certifyingofficer and I have indicated in this annual report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date: June 24, 2003                                    |
|--------------------------------------------------------|
|                                                   |
|                                                   |
| /s/ William S. Johnson                                 |   |
| William S. Johnson                                     |
| Vice President, Chief  Financial Officer and Secretary |

 

38

----

 

**SUPPLEMENTALINFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOTREGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT**

 

Noannual report or proxy material has been or will be sent to security holderssince the Company became subject to Section 15(d) of the Act.

 

39

----

 

**EARLEM. JORGENSEN COMPANY**

 

**INDEXTO AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 
| Report of Independent  Auditors                                                                                    |
|--------------------------------------------------------------------------------------------------------------------|
| Consolidated Balance Sheets  at March 31, 2002 and 2003                                                            |
| Consolidated  Statements of Operations and Comprehensive Income  for the years ended March 31, 2001, 2002 and 2003 |
| Consolidated  Statements of Stockholder’s Equity  for the years ended March 31, 2001, 2002 and 2003           |
| Consolidated  Statements of Cash Flows  for the years ended March 31, 2001, 2002 and 2003                          |
| Notes to  Consolidated Financial Statements                                                                        |

 

F-1

----

 

**REPORTOF INDEPENDENT AUDITORS**

 

TheBoard of Directors and Stockholder

EarleM. Jorgensen Company

 

We have audited theaccompanying consolidated balance sheets of Earle M. Jorgensen Company as ofMarch 31, 2002 and 2003, and the related consolidated statements of operationsand comprehensive income, stockholder’s equity, and cash flows for each of thethree years in the period ended March 31, 2003. Our audits also included thefinancial statement schedule listed in the index at item 16(a)(2). Thesefinancial statements and schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements and schedule based on our audits.

 

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

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Earle M. Jorgensen Company atMarch 31, 2002 and 2003, and the consolidated results of its operations and itscash flows for each of the three years in the period ended March 31, 2003 inconformity with accounting principles generally accepted in the UnitedStates.  Also, in our opinion, therelated financial statement schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly in all material respectsthe information set forth therein.

 

 
|                       | /s/ ERNST & YOUNG LLP |   |
|----------------------------|---------------------------|--------|
|                       |                      |
|                       |                      |
| Orange  County, California |                      |
| May 16, 2003               |                      |

 

F-2

----

 

**EARLEM. JORGENSEN COMPANY**

 

**CONSOLIDATEDBALANCE SHEETS**

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

 
|                                                                                            |   | **March 31,** |    |
|-------------------------------------------------------------------------------------------------|--------|---------------|---------|
|                                                                                            |   | **2002**      |    | **2003** |   |
| **ASSETS**                                                                                      |   |          |    |   |   |
| Current  assets:                                                                                |   |          |    |   |   |
| Cash  and cash equivalents                                                                      |   | $             | 21,300  |   | $ | 20,030 |   |
| Accounts  receivable, less allowance for doubtful accounts                                      |   | 89,279        |    | 97,292 |   |
| Inventories                                                                                     |   | 186,868       |    | 213,590 |   |
| Other  current assets                                                                           |   | 4,899         |    | 6,402 |   |
| Total  current assets                                                                           |   | 302,346       |    | 337,314 |   |
| Net  property, plant and equipment, at cost                                                     |   | 111,243       |    | 113,037 |   |
| Cash  surrender value of life insurance policies                                                |   | 27,625        |    | 31,007 |   |
| Debt  issue costs, net of accumulated amortization                                              |   | 1,810         |    | 8,232 |   |
| Other  assets                                                                                   |   | 974           |    | 1,151 |   |
| Total  assets                                                                                   |   | $             | 443,998 |   | $ | 490,741 |   |
|                                                                                            |   |          |    |   |   |
| **LIABILITIES  AND STOCKHOLDER’S EQUITY**                                                  |   |          |    |   |   |
| Current  liabilities:                                                                           |   |          |    |   |   |
| Accounts  payable                                                                               |   | $             | 88,484  |   | $ | 119,815 |   |
| Accrued  employee compensation and related taxes                                                |   | 9,874         |    | 12,185 |   |
| Accrued  employee benefits                                                                      |   | 11,533        |    | 14,150 |   |
| Accrued  interest                                                                               |   | 8,079         |    | 16,186 |   |
| Other  accrued liabilities                                                                      |   | 6,751         |    | 2,993 |   |
| Deferred  income taxes                                                                          |   | 19,094        |    | 19,450 |   |
| Current  portion of long-term debt                                                              |   | 3,595         |    | 2,330 |   |
| Total  current liabilities                                                                      |   | 147,410       |    | 187,109 |   |
| Long-term  debt                                                                                 |   | 289,300       |    | 328,207 |   |
| Deferred  income taxes                                                                          |   | 16,292        |    | 15,936 |   |
| Other  long-term liabilities                                                                    |   | 6,782         |    | 7,505 |   |
| Commitments  and contingencies                                                                  |   |          |    |   |   |
| Stockholder’s  equity:                                                                     |   |          |    |   |   |
| Preferred  stock, $.01 par value; 200 shares authorized and unissued                            |   | —        |    | — |   |
| Common  stock, $.01 par value; 2,800 shares authorized; 128 shares issued and  outstanding |   | —        |    | — |   |
| Capital  in excess of par value                                                                 |   | 70,871        |    | 35,284 |   |
| Accumulated  other comprehensive loss                                                           |   | (4,859        | )       | (3,884 | ) |
| Accumulated  deficit                                                                            |   | (81,798       | )       | (79,416 | ) |
| Total  stockholder’s equity (deficit)                                                      |   | (15,786       | )       | (48,016 | ) |
| Total  liabilities and stockholder’s equity                                                |   | $             | 443,998 |   | $ | 490,741 |   |

 

See accompanying notes.

 

F-3

----

 

**EARLEM. JORGENSEN COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME**

**(dollarsin thousands)**

 
|                                                        |   | **Year Ended March 31,** |      |
|-------------------------------------------------------------|--------|--------------------------|-----------|
|                                                        |   | **2001**                 |      | **2002** |   | **2003** |   |
| Revenues                                                    |   | $                        | 1,059,681 |   | $ | 895,058 |   | $ | 919,927 |   |
| Cost  of sales                                              |   | 767,263                  |      | 641,991 |   | 658,562 |   |
| Gross  profit                                               |   | 292,418                  |      | 253,067 |   | 261,365 |   |
|                                                        |   |                     |      |   |   |   |   |
| Expenses:                                                   |   |                     |      |   |   |   |   |
| Warehouse  and delivery                                     |   | 136,752                  |      | 124,457 |   | 127,080 |   |
| Selling                                                     |   | 36,391                   |      | 31,932 |   | 32,329 |   |
| General  and administrative                                 |   | 55,399                   |      | 46,405 |   | 38,590 |   |
| Total  expenses                                             |   | 228,542                  |      | 202,794 |   | 197,999 |   |
| Income  from operations                                     |   | 63,876                   |      | 50,273 |   | 63,366 |   |
| Interest  expense, net                                      |   | 44,855                   |      | 42,545 |   | 47,206 |   |
| Excise  tax imposed under IRS settlement                    |   | —                   |      | 1,919 |   | — |   |
| Income  before income taxes and extraordinary item          |   | 19,021                   |      | 5,809 |   | 16,160 |   |
| Income  tax expense                                         |   | 1,223                    |      | 455 |   | 1,500 |   |
| Net  income before extraordinary item                       |   | 17,798                   |      | 5,354 |   | 14,660 |   |
| Extraordinary  item – loss on early retirement of debt |   | —                   |      | — |   | 12,278 |   |
| Net  income                                                 |   | 17,798                   |      | 5,354 |   | 2,382 |   |
| Other  comprehensive income (loss):                         |   |                     |      |   |   |   |   |
| Derivative—interest  rate swap agreement               |   | —                   |      | (2,925 | ) | — |   |
| Foreign  currency translation adjustment                    |   | (1,047                   | )         | (133 | ) | 1,200 |   |
| Minimum  pension liability                                  |   | (23                      | )         | 32 |   | (3,150 | ) |
| Comprehensive  income                                       |   | $                        | 16,728    |   | $ | 2,328 |   | $ | 432 |   |

 

See accompanying notes.

 

F-4

----

 

**EARLEM. JORGENSEN COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDER’S EQUITY**

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

 
|                                                                       |   |       | ** ** | **Capital  in excess  of par value** | ** ** | **Accumulated  other  comprehensive  loss** | ** ** | **Accumulated  deficit** | ** ** | **Total** | ** ** |
|----------------------------------------------------------------------------|--------|------------|------------|--------------------------------------|------------|---------------------------------------------|------------|--------------------------|------------|-----------|------------|
|                                                                       |   |       |
| **Common  Stock**                                                          |
| **Shares**                                                                 |   | **Amount** |
| Balance at March  31, 2000                                                 |   | 128        |       | $                                    | —     |                                        | $          | 91,348                   |       | $         | (763       | ) | $ | (104,950 | ) | $ | (14,365 | ) |
| Dividend to  Parent                                                        |   | —     |       | —                               |       | (5,514                                      | )          | —                   |       | —    |       | (5,514 | ) |
| Foreign currency  translation adjustment                                   |   | —     |       | —                               |       | —                                      |       | (1,047                   | )          | —    |       | (1,047 | ) |
| Additional  minimum pension liability                                      |   | —     |       | —                               |       | —                                      |       | (23                      | )          | —    |       | (23 | ) |
| Net income                                                                 |   | —     |       | —                               |       | —                                      |       | —                   |       | 17,798    |       | 17,798 |   |
| Balance at March  31, 2001                                                 |   | 128        |       | —                               |       | 85,834                                      |       | (1,833                   | )          | (87,152   | )          | (3,151 | ) |
| Dividend to  Parent                                                        |   | —     |       | —                               |       | (14,963                                     | )          | —                   |       | —    |       | (14,963 | ) |
| Loss on interest  rate swap agreement                                      |   | —     |       | —                               |       | —                                      |       | (2,925                   | )          | —    |       | (2,925 | ) |
| Foreign currency  translation adjustment                                   |   | —     |       | —                               |       | —                                      |       | (133                     | )          | —    |       | (133 | ) |
| Additional  minimum pension liability                                      |   | —     |       | —                               |       | —                                      |       | 32                       |       | —    |       | 32 |   |
| Net income                                                                 |   | —     |       | —                               |       | —                                      |       | —                   |       | 5,354     |       | 5,354 |   |
| Balance at March  31, 2002                                                 |   | 128        |       | —                               |       | 70,871                                      |       | (4,859                   | )          | (81,798   | )          | (15,786 | ) |
| Dividend to  Parent                                                        |   | —     |       | —                               |       | (35,587                                     | )          | —                   |       | —    |       | (35,587 | ) |
| Reversal of loss  on interest rate swap agreement recognized in net income |   | —     |       | —                               |       | —                                      |       | 2,925                    |       | —    |       | 2,925 |   |
| Foreign currency  translation adjustment                                   |   | —     |       | —                               |       | —                                      |       | 1,200                    |       | —    |       | 1,200 |   |
| Additional  minimum pension liability                                      |   | —     |       | —                               |       | —                                      |       | (3,150                   | )          | —    |       | (3,150 | ) |
| Net income                                                                 |   | —     |       | —                               |       | —                                      |       | —                   |       | 2,382     |       | 2,382 |   |
| Balance at March  31, 2003                                                 |   | 128        |       | $                                    | —     |                                        | $          | 35,284                   |       | $         | (3,884     | ) | $ | (79,416 | ) | $ | (48,016 | ) |

 

See accompanying notes.

 

F-5

----

 

**EARLE M.JORGENSEN COMPANY**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(dollarsin thousands)**

 
|                                                                               |   | **Year Ended March 31,** |   |
|------------------------------------------------------------------------------------|--------|--------------------------|--------|
|                                                                               |   | **2001**                 |   | **2002** |   | **2003** |   |
| **Operating activities:**                                                          |   |                     |   |   |   |   |   |
| Net  income                                                                        |   | $                        | 17,798 |   | $ | 5,354 |   | $ | 2,382 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |   |                     |   |   |   |   |   |
| Extraordinary  item – loss on early retirement of debt                        |   | —                   |   | — |   | 12,278 |   |
| Depreciation  and amortization                                                     |   | 11,035                   |   | 11,449 |   | 11,369 |   |
| Amortization  and write-off of debt issue costs included in interest expense       |   | 1,482                    |   | 1,792 |   | 1,416 |   |
| Accrued  postretirement benefits                                                   |   | 11                       |   | 249 |   | 498 |   |
| Gain  on sale of property, plant and equipment                                     |   | (44                      | )      | (36 | ) | (183 | ) |
| Provision  for bad debts                                                           |   | 1,651                    |   | 2,434 |   | 2,649 |   |
| Increase  in cash surrender value of life insurance over premiums paid             |   | (1,529                   | )      | (2,174 | ) | (2,242 | ) |
| Changes  in operating assets and liabilities:                                      |   |                     |   |   |   |   |   |
| Decrease  (increase) in accounts receivable                                        |   | (627                     | )      | 15,510 |   | (10,662 | ) |
| Decrease  (increase) in inventories                                                |   | (13,564                  | )      | 31,712 |   | (26,722 | ) |
| Decrease  (increase) in other current assets                                       |   | (884                     | )      | 960 |   | 134 |   |
| (Decrease)  increase in accounts payable and accrued liabilities and expenses      |   | 24,414                   |   | (53,491 | ) | 40,608 |   |
| Decrease  (increase) in non-trade receivables                                      |   | (1,035                   | )      | 1,681 |   | (1,637 | ) |
| Other                                                                              |   | (682                     | )      | (896 | ) | 1,086 |   |
| Net  cash provided by operating activities                                         |   | 38,026                   |   | 14,544 |   | 30,974 |   |
| **Investing activities:**                                                          |   |                     |   |   |   |   |   |
| Additions  to property, plant and equipment                                        |   | (14,475                  | )      | (24,531 | ) | (15,335 | ) |
| Proceeds  from the sale of property, plant and equipment                           |   | 118                      |   | 116 |   | 2,440 |   |
| Premiums  paid on life insurance policies                                          |   | (1,364                   | )      | (1,461 | ) | (1,335 | ) |
| Proceeds  from redemption of life insurance policies                               |   | 673                      |   | 1,124 |   | 195 |   |
| Net  cash used in investing activities                                             |   | (15,048                  | )      | (24,752 | ) | (14,035 | ) |
| **Financing activities:**                                                          |   |                     |   |   |   |   |   |
| Net  borrowings (payments) under revolving loan agreements                         |   | (12,963                  | )      | 25,111 |   | (9,958 | ) |
| Proceeds  from issuance of senior debt                                             |   | —                   |   | — |   | 250,000 |   |
| Repayment  of term loan                                                            |   | —                   |   | — |   | (96,000 | ) |
| Repayment  of senior debt                                                          |   | —                   |   | — |   | (105,000 | ) |
| Payment  of debt issue costs                                                       |   | —                   |   | — |   | (10,669 | ) |
| Other  costs paid in connection with early retirement of debt                      |   | —                   |   | — |   | (9,596 | ) |
| Other  debt payments, net                                                          |   | (2,400                   | )      | (2,400 | ) | (1,400 | ) |
| Cash  dividend to Parent                                                           |   | (5,514                   | )      | (14,963 | ) | (35,587 | ) |
| Net  cash provided (used) in financing activities                                  |   | (20,877                  | )      | 7,748 |   | (18,210 | ) |
| Effect  of exchange rate changes on cash                                           |   | (3                       | )      | 2 |   | 1 |   |
| Net  increase (decrease) in cash                                                   |   | 2,098                    |   | (2,458 | ) | (1,270 | ) |
| Cash  at beginning of year                                                         |   | 21,660                   |   | 23,758 |   | 21,300 |   |
| Cash  at end of year                                                               |   | $                        | 23,758 |   | $ | 21,300 |   | $ | 20,030 |   |

 

See accompanying notes.

 

F-6

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**EARLE M.JORGENSEN COMPANY**

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**March31, 2003**

 

**1.  Summaryof Significant Accounting Policies**

 

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

 

The accompanyingconsolidated financial statements include the accounts of the Company and itswholly-owned subsidiaries including Earle M. Jorgensen (Canada) Inc. (“EMJ(Canada)”) and Stainless Insurance Ltd., a captive insurance subsidiary (“EMJ(Bermuda)”). In fiscal years 2001, 2002 and 2003, EMJ (Canada) generated netincome (loss) of $(605,000), $(325,000) and $1,153,000, respectively. In fiscalyears 2001, 2002 and 2003, EMJ (Bermuda) generated net income (loss) of  $431,000, $(2,056,000) and $540,000,respectively, including investment income and intercompany fees. The loss infiscal year 2002 was attributable to higher loss reserves established in connectionwith the Company’s self-insured workers compensation program. All significantintercompany accounts and transactions have been eliminated.

 

*CompanyBackground and Segment Information*—The Company distributes abroad line of bar, tubing, plate and various other metal products and value addedservices through a network of 35 service centers and value-added processingoperations strategically located throughout North America.  Metals products sold by the Company arepurchased from various primary metal producers and suppliers, none of which providedmore than 10% of the Company’s total purchases in fiscal year 2003.  The Company has over 35,000 customers, noneof which represented more than 2% of the Company’s gross revenues in fiscalyear 2003.

 

For financial reportingpurposes, the Company operates in one reportable segment—the metals servicecenter industry—as determined in accordance with SFAS No. 131, “DisclosuresAbout Segments of an Enterprise and Related Information”.

 

*Reclassification*—Certainamounts reported in prior years have been reclassified to conform to the 2003presentation.

 

*Useof Estimates*—The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses and related disclosure ofcontingent assets and liabilities. Actual results could differ significantly from those estimates andjudgments under different assumptions and conditions.

 

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

 

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

 

*AccountsReceivable and Concentration of Credit Risk*—The Company sellsthe majority of its products throughout the United States and Canada. Sales tothe Company’s recurring customers are generally made on open account termswhile sales to occasional customers are made on a C.O.D. basis whencollectibility is not assured. The Company performs periodic credit evaluationsof its ongoing customers and generally does not require collateral. The Companyestablishes an allowance for potential credit losses based upon factorssurrounding the credit risk for specific customers, historical trends and otherinformation; such losses have been within management’s expectations, and werehigher in fiscal year 2003 when compared to fiscal years 2002 and 2001. TheCompany’s allowance for doubtful accounts at March 31, 2002 and 2003 was$452,000 and $390,000, respectively. Management believes there are nosignificant concentrations of credit risk as of March 31, 2003.

 

F-7

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

 

The Company capitalizescertain costs incurred during the development of software used internally andamortizes such costs over their estimated useful lives. During fiscal years2001, 2002 and 2003, such costs totaling $735,000, $414,000 and $220,000,respectively, were capitalized.

 

Long-lived assets,primarily land, buildings, leasehold improvements and certain equipment, usedin operations or are expected to be disposed of are reviewed for impairmentwhenever events or changes in circumstances indicate that full recoverabilityis questionable. Factors used in the evaluation include, but are not limitedto, future plans for the operations, recent operating results and forecastedcash flows.  When indicators ofimpairment are present and the undiscounted cash flows estimated to be generatedby those assets are less than the carrying value of the assets, the assets arewritten down and an impairment loss is recognized. There were no impairmentlosses recorded in fiscal years 2001, 2002, and 2003.

 

*DebtIssue Costs*—Debt issue costs are deferred and amortized tointerest expense over the life of the underlying indebtedness. For the fiscalyears ended March 31, 2001, 2002 and 2003, amortization of debt issue costs was$1,482,000, $1,792,000 and $1,416,000, respectively.  Accumulated amortization of debt issue costs was $6,292,000 and$1,263,000 at March 31, 2002 and 2003, respectively.

 

*Stock-BasedCompensation*—Stock options granted to directors, officers andother key employees of the Company under the Parent’s stock option plan adoptedin January 1997 are accounted for in accordance with APB No. 25. As all stockoption grants were made at fair value on the date of grant, no compensationcost has been recognized by the Company for the fiscal years ended March 31,2001, 2002 and 2003.  Had compensationexpense for stock options granted been recorded based on the fair value methodunder SFAS No. 123, the effect on the Company’s net income for fiscal years2001, 2002 and 2003 would have been as follows:

 
|                                                                                                                |   | **2001** |       | **2002** |   | **2003**  |   |
|---------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|-----------|--------|
| Net  income, as reported                                                                                            |   | $        | 17,798,000 |     | $      | 5,354,000 |   | $ | 2,382,000 |   |
| Deduct:  total stock-based compensation expense  determined using fair value method for all awards, net of tax |   | (513,000 | )          | (209,000 | )      | (138,000  | )      |
| Net  income, as adjusted                                                                                            |   | $        | 17,285,000 |     | $      | 5,145,000 |   | $ | 2,244,000 |   |

 

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

 

The Company recordsdeferred taxes based upon differences between the financial statement and taxbasis of assets and liabilities pursuant to SFAS No. 109, “Accounting forIncome Taxes”, as though it files on a separate basis. Any differences indeferred taxes determined on a separate basis and the actual payments made orreceived under the Tax Allocation Agreement are accounted for as an equityadjustment between the Company and Parent. There were no such differences infiscal year 2003. Deferred taxes are also recorded for the future benefit ofFederal and state tax losses and tax credit carryforwards. Consistent with SFASNo. 109, a valuation allowance has been recognized for certain deferred taxassets, which management believes are not likely to be realized (see Note 6).

 

F-8

----

 

*ForeignCurrency Translation*—The financial statements of foreignsubsidiaries are translated into U.S. dollars in accordance with SFAS No. 52,“Foreign Currency Translation”. Balance sheet accounts are translated using theyear-end exchange rates while income statement amounts are translated using theaverage exchange rates for each year. Adjustments resulting from translation offoreign currency financial statements are included in accumulated othercomprehensive loss in stockholder’s equity. Exchange gains and losses fromforeign currency transactions are included in the consolidated statements of operationsin the period in which they occur.  Nosignificant exchange gains and losses were recorded during the three yearsended March 31, 2003.

 

*Cashand Statements of Cash Flows*—Cash includes disbursements anddeposits not yet funded by or applied to the Company’s Revolving CreditFacility as of a balance sheet date and cash and cash equivalents totaling$5,862,000 and $2,940,000 as of March 31, 2002 and 2003, respectively,  held by EMJ (Bermuda) in connection withproviding insurance to the Company.  TheCompany considers all highly liquid investments purchased with a maturity ofthree months or less to be cash equivalents.

 

For the years ended March31, 2001, 2002 and 2003 cash paid for interest on borrowings was $43,137,000,$39,942,000 and $37,674,000, and net cash paid (refunded) for income taxes was$1,676,000, $403,000 and $(551,000), respectively.

 

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

 

*Derivatives*—EffectiveApril 1, 2001, the Company adopted SFAS No. 133, “Accounting for DerivativeInstruments and Hedging Activities”, as amended, which requires the Company torecognize all derivatives on the balance sheet at fair value. The change infair value of derivatives that are not hedges must be recognized throughincome. If the derivative is a hedge, then depending on the nature of thehedge, any changes in fair value will be either offset against changes in thefair value of the hedged item, or recognized in other comprehensive incomeuntil the hedged item is recognized in earnings. The Company has and may usederivative instruments to reduce interest rate risks (see Note 5). The Companydoes not hold or issue any derivative instruments for speculative or tradingpurposes.

 

*Impact of Recently Issued AccountingStandards*

 

In December 2002, theFinancial Accounting Standards Board (the “FASB”)  issued Statement of Financial Accounting Standards (“SFAS”) No.148, “Accounting for Stock-Based Compensation – Transition and Disclosure,”which amends SFAS No. 123, “Accounting for Stock-Based Compensation,” toprovide alternative methods for a voluntary change to the fair value basedmethod of accounting for stock-based employee compensation. In addition, SFASNo. 148 amended the Company’s disclosure requirements of SFAS No. 123 torequire prominent disclosures in both annual and interim financial statementsabout the method of accounting for stock-based employee compensation and theeffect of the method used on reported results.

 

In November 2002, theFASB issued FASB Interpretation No. 45 (“FIN No. 45”) “Guarantor’s Accountingand Disclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others” an interpretation of SFAS No. 5, 57, and 107 and therescission of FASB Interpretation No. 34, was issued. FIN No. 45 clarifies therequirements of SFAS No. 5, “Accounting for Contingencies,” relating to aguarantor’s accounting for, and disclosure of, the issuance of certain types ofguarantees. The disclosure requirements in this interpretation are effectivefor financial statements of interim and annual periods ending after December15, 2002. The recognition and measurement provisions for FIN No. 45 areeffective for guarantees issued or modified after December 31, 2002. TheCompany had no guarantees that were required to be disclosed in theconsolidated financial statements for the year ended March 31, 2003. Theadoption of the recognition and measurement provisions of this statement is notexpected to have a material effect on the consolidated financial statements.

 

During June 2002, theFASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities,” which nullifies Emerging Issues Task Force Issue No.94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring).”  SFAS No. 146 requiresthat a liability for a cost associated with an exit or disposal activity berecognized when the liability is incurred. SFAS No. 146 is effective for exitand disposal activities that are initiated after December 31, 2002.  The adoption of this statement did not havean effect on the consolidated financial statements.

 

F-9

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In April 2002, the FASBissued SFAS No. 145, “Rescission of SFAS Statements No. 4, 44, and 64,Amendment of SFAS No. 13, and Technical Corrections,” which rescinds SFAS No.4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendmentof that statement, SFAS No. 64, “Extinguishments of Debt Made to SatisfySinking-Fund Requirements.”  ThisStatement also rescinds SFAS No. 44, “Accounting for Intangible Assets of MotorCarriers” and amends SFAS No. 13, “Accounting for Leases,” to eliminate aninconsistency between the required accounting for sale-leaseback transactionsand the required accounting for certain lease modifications that have economiceffects that are similar to sale-leaseback transactions.  The provisions of SFAS No. 145 relating tothe rescission of SFAS No. 4, which are effective for fiscal years beginningafter May 15, 2002, require that any gain or loss on extinguishment of debtthat was classified as an extraordinary item in prior periods presented bereclassified if it does not meet the criteria in APB Opinion No. 30, “Reportingthe Results of Operations-Reporting the Effects of Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions.” The Company is in the process of assessing the effect ofadopting SFAS No. 145.

 

In October 2001, the FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets,” which supersedes SFAS No. 121, “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed Of,” which iseffective for fiscal years beginning after December 15, 2001. SFAS No. 144addresses financial accounting and reporting for the impairment of long-livedassets and for long-lived assets to be disposed of. However, SFAS No. 144retains certain fundamental provisions of SFAS No. 121 including recognitionand measurement of the impairment of long-lived assets to be held and used; andmeasurement of long-lived assets to be disposed of by sale. The adoption ofthis statement did not have a material effect on the consolidated financialstatements.

 

In June 2001, the FASBissued SFAS No. 143, “Accounting for Asset Retirement Obligations, “ which iseffective for fiscal years beginning after June 15, 2002. SFAS No. 143addresses financial accounting and reporting for obligations associated withthe retirement of tangible long-lived assets and the associated retirementcosts. The adoption of this statement is not expected to have a material effecton the consolidated financial statements.

 

**2.  Inventories**

 

Substantially allinventories are held for sale at the Company’s service center locations and arevalued at the lower of cost (using the last-in, first-out (LIFO) method) ormarket. If the Company had used the first-in, first-out (FIFO) method ofinventory valuation, inventories would have been lower by $8,432,000 and$11,786,000 at March 31, 2002 and March 31, 2003, respectively.

 

Any reduction ofinventory quantities that liquidates LIFO inventories carried at costs lower orhigher than costs prevailing in prior years may have a significant effect onthe Company’s gross profit.  Such areduction and liquidation occurred during fiscal year 2002 but did not have asignificant effect on gross profit. There were no such reductions in fiscalyears 2003 and 2001.

 

**3.  NetProperty, Plant and Equipment**

 

Property, plant andequipment (including in-process costs for assets not yet placed in service) andaccumulated depreciation at March 31, 2002 and 2003 consisted of the following:

 

|                                  |   | **2002**    |        | **2003**    |   |
|---------------------------------------|--------|-------------|-------------|-------------|--------|
| Land                                  |   | $           | 20,957,000  |        | $      | 18,867,000 |   |
| Buildings  and leasehold improvements |   | 35,352,000  |        | 51,056,000  |   |
| Machinery  and equipment              |   | 105,247,000 |        | 118,166,000 |   |
| In-process  costs                     |   | 21,539,000  |        | 6,807,000   |   |
|                                  |   | 183,095,000 |        | 194,896,000 |   |
| Less  accumulated depreciation        |   | 71,852,000  |        | 81,859,000  |   |
| Net  property, plant and equipment    |   | $           | 111,243,000 |        | $      | 113,037,000 |   |

 

The in-process costs areprimarily attributable to the expansion and automation of the Company’s Chicagofacility, which became operational beginning in July 2002.  As of March 31, 2003, such costs include$5,826,000 (including $213,000 of capitalized interest).  Estimated remaining costs to be incurred inconnection with this project total $2,307,000 and are expected to be paidduring fiscal year 2004.

 

F-10

----

 

**4.  CashSurrender Value of Life Insurance**

 

The Company is the ownerand beneficiary of life insurance policies on all former nonunion employees ofa predecessor company including certain current employees of the Company andits Parent. The Company is also the owner and beneficiary of key man lifeinsurance policies on certain current and former executives of the Company andpredecessor companies. These policies are designed to provide cash to theCompany to repurchase shares held by employees in the Company’s Stock BonusPlan and shares held individually by employees upon the termination of their employment.Cash surrender value of the life insurance policies increases by a portion ofthe amount of premiums paid and by dividend income earned under the policies.Dividend income earned under the policies totaled $13,010,000, $13,521,000 and$17,156,000 in fiscal years 2001, 2002 and 2003, respectively, and is recordedas an offset to general and administrative expense in the accompanyingstatements of operations.

 

The Company has borrowedagainst the cash surrender value of certain policies to pay a portion of thepremiums and accrued interest on those policies and to fund working capitalneeds. Interest rates on borrowings under the life insurance policies are fixedat 11.76%. As of March 31, 2003, approximately $9,306,000 was available forfuture borrowings.

 
|                       |   | **Surrender  value before  loans** |        | **Loans  Outstanding** |   | **Net cash********surrender  value** |   |
|----------------------------|--------|------------------------------------|-------------|------------------------|--------|--------------------------------------|--------|
| Balance  at March 31, 2002 |   | $                                  | 174,943,000 |                   | $      | 147,318,000                          |   | $ | 27,625,000 |   |
| Balance  at March 31, 2003 |   | 195,976,000                        |        | 164,969,000            |   | 31,007,000                           |   |
|                            |        |                                    |             |                        |        |                                      |        |  |  |  |

 

Interest on cashsurrender value borrowings totaled $14,398,000, $15,996,000 and $17,796,000 infiscal years 2001, 2002 and 2003, respectively, and is included in net interestexpense in the accompanying statements of operations.

 

**5.  Long-TermDebt**

 

Long-term debt at March31, 2002 and 2003 consisted of the following:

 
|                                                                                                                           |   | **2002**    |        | **2003**    |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| Revolving  Loans (including $1,195,000 and $930,000 at March 31, 2002 and 2003,  respectively, related to a Canadian facility) |   | $           | 82,895,000  |        | $      | 72,937,000 |   |
| 93/4%  Senior Secured Notes due June 1, 2012                                                                                   |   | —      |        | 250,000,000 |   |
| Variable  Rate Term Loan due March 24, 2004                                                                                    |   | 96,000,000  |        | —      |   |
| 91/2%  Senior Notes due April 1, 2005                                                                                          |   | 105,000,000 |        | —      |   |
| Industrial  Development Revenue Bonds:                                                                                         |   |        |        |        |   |
| Payable  in annual installments of $500,000 commencing June 1, 1998,  interest at 9%                                           |   | 2,000,000   |        | 1,500,000   |   |
| 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%                               |   | 2,700,000   |        | 1,800,000   |   |
|                                                                                                                           |   | 292,895,000 |        | 330,537,000 |   |
| Less  current portion                                                                                                          |   | 3,595,000   |        | 2,330,000   |   |
|                                                                                                                           |   | $           | 289,300,000 |        | $      | 328,207,000 |   |

 

Aggregate maturities oflong-term debt are as follows: $2,330,000 in fiscal year 2004; $2,115,000 infiscal year 2005; $1,215,000 in fiscal year 2006; $72,722,000 in fiscal year2007, $715,000 in fiscal year 2008 and $251,440,000 thereafter.

 

The fair value of theSenior Secured Notes at March 31, 2003 was $257,500,000 based on the quotedmarket prices as of that date. The carrying values of all other long-term debtand other financial instruments at March 31, 2003 approximate fair value.

 

F-11

----

 

On May 22, 2002, theCompany completed the issuance and sale of 93/4% SeniorSecured Notes due 2012 totaling $250,000,000, the proceeds from which were usedto (i) redeem $105 million in aggregate principal amount of the outstanding 91/2%senior notes, plus call premium and accrued interest, (ii) prepay $96 millionof the term loan plus accrued interest, and (iii) terminate the interest rateswap agreement. As a result of this refinancing transaction, the Companyrecorded an extraordinary loss of $12,278,000 related to the early retirementof debt, consisting of the call premium paid, a payment to terminate theinterest rate swap agreement, the write-off of deferred financing costs, andcertain other expenses incurred in connection with the refinancingtransaction.  No tax benefit wasrecorded in connection with this loss due to the uncertainty in realizing theresulting deferred tax asset.

 

**CreditAgreements**

 

The Company’s revolvingcredit facility (“Credit Agreement”), allows maximum borrowings of $200million, including letters of credit ($7,292,000 outstanding at March 31,2003).  Borrowings under the CreditAgreement bear interest at a base rate (generally defined as the greater ofbank’s prime lending rate or 1/2% over the Federal FundsRate) plus 1.25% or the adjusted Eurodollar rate plus 2.50%.  At March 31, 2003, the bank’s prime lendingrate was 4.25% and the Eurodollar rate was 1.30%. In addition, borrowings underthe revolving loans are limited to an amount equal to 85% of eligible tradereceivables (as defined) plus 55% of eligible inventories (as defined). Unusedavailable borrowings under the revolving loans totaled $103,304,000 at March31, 2003. The Credit Agreement matures on April 7, 2006 and is secured by alien on all domestic inventory and accounts receivable of the Company.

 

Under the CreditAgreement, the Company is obligated to pay certain fees including an unusedcommitment fee of 0.5%, payable quarterly in arrears, and letter of credit feesof 2.50% per annum of the maximum amount available to be drawn under eachletter of credit, payable quarterly in arrears, plus issuance, fronting,amendment and other standard fees. The Company paid loan commitment feestotaling $423,000 in fiscal year 2001, $480,000 in fiscal year 2002, and$584,000 in fiscal year 2003.

 

The Credit Agreementcontains financial covenants in respect of maintenance of minimum workingcapital and a fixed charge coverage ratio (as defined). The Credit Agreementalso limits, among other things, the incurrence of liens and otherindebtedness, mergers, consolidations, the sale of assets, annual capitalexpenditures, advances, investments and loans by the Company and itssubsidiaries, dividends and other restricted payments by the Company and itssubsidiaries in respect to their capital stock, and certain transactions withaffiliates.

 

The Company’s Canadiansubsidiary maintains a one year renewable credit facility (the “CanadianFacility”) totaling CDN$8,600,000 including (i) a revolving credit facility ofCDN$5,075,000, (ii) a term financial instruments facility of CDN$3,000,000 forhedging foreign currency and rate fluctuations (unused as of March 31, 2003),and (iii) a special credit facility for the issuance of a letter of guaranteeup to CDN$525,000 in connection with the lease for the Toronto facility.Borrowings under the revolving credit facility are limited to an amount equalto 80% of eligible trade receivables (as defined) plus 40% of eligibleinventories (as defined, and limited to CDN$1,500,000), are repayable ondemand, and bear interest at the bank’s annual prime lending rate plus 0.50%.At March 31, 2003, the interest rate on the revolving credit facility was5.25%. The revolving credit facility contains financial covenants in respect ofmaintenance of minimum equity and a debt-to-equity ratio (as defined) and hasother restrictions similar to those under the amended Credit Agreement, asdescribed above.

 

**SeniorSecured Notes**

 

On May 22, 2002, theCompany refinanced its 91\2 senior notes and variable rateterm loan by issuing $250 million of 93/4% Senior Secured Notes due2012.  The 93/4% SeniorSecured Notes were issued at par and interest payments are made semi-annuallyon June 1 and December 1, commencing on December 1, 2002.  The 93/4% Senior Secured Notes aresecured by a first-priority lien (subject to permitted liens) on substantiallyall of the Company’s existing and future acquired unencumbered property, plantand equipment and may be redeemed by the Company under certain conditions andwith certain restrictions at varying redemption prices. The Indenture to the 93/4%Senior Secured Notes contains certain covenants which limit, among otherthings, the incurrence of liens and other indebtedness, mergers,consolidations, the sale of assets, investments and loans, dividends and otherdistributions, and certain transactions with affiliates.

 

F-12

----

 

**DerivativeInstrument**

 

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

 

The interest rate swapagreement was considered a highly effective cash flow hedge under theprovisions of SFAS No. 133, as amended, which was adopted by the Companyeffective April 1, 2001. Under SFAS No. 133, the effective portion of gain orloss resulting from changes in the fair value of the interest rate swapagreement is reported in other comprehensive income while the ineffectiveportion is recognized in net income. For the year ended March 31, 2002, a loss of $2,925,000 was recognizedin other comprehensive income and a loss of $100,000 was recognized in netincome. As of March 31, 2002, the interest rate swap agreement represented along-term liability with a fair market value of $3,025,000, as calculated underthe provisions of SFAS No. 133.  Inconnection with the issuance and sale of the 93/4% SeniorSecured Notes, the Company paid $3,025,000 to terminate the interest rate swapagreement, which was recognized as part of the extraordinary loss of$12,278,000 related to the early retirement of debt.

 

**Other**

 

The Company’s industrialrevenue development bonds were issued in connection with significant facilityimprovements or construction projects.

 

**6.  IncomeTaxes**

 

Significant components ofthe provision for income taxes attributable to continuing operations for theyears ended March 31, 2001, 2002 and 2003 were as follows:

 
|                  |   | **2001**   |      | **2002**   |   | **2003**   |   |
|-----------------------|--------|------------|-----------|------------|--------|------------|--------|
| Current:              |   |       |      |       |   |       |   |
| Federal               |   | $          | 774,000   |       | $      | (49,000    | )      | $ | 435,000 |   |
| State                 |   | 692,000    |      | 492,000    |   | 492,000    |   |
| Foreign               |   | (243,000   | )         | 12,000     |   | 573,000    |   |
| Total  current        |   | 1,223,000  |      | 455,000    |   | 1,500,000  |   |
| Deferred:             |   |       |      |       |   |       |   |
| Federal               |   | 1,910,000  |      | (3,277,000 | )      | 6,115,000  |   |
| State                 |   | (60,000    | )         | (482,000   | )      | 42,000     |   |
| Valuation  allowances |   | (1,850,000 | )         | 3,759,000  |   | (6,157,000 | )      |
| Total  deferred       |   | —     |      | —     |   | —     |   |
|                  |   | $          | 1,223,000 |       | $      | 455,000    |   | $ | 1,500,000 |   |

 

F-13

----

 

The reconciliation of theincome tax provision differs from that which would result from applying theU.S. statutory rate as follows:

 
|                                                                 |   | **2001**   |      | **2002**   |   | **2003**   |   |
|----------------------------------------------------------------------|--------|------------|-----------|------------|--------|------------|--------|
| Expected  tax at Federal statutory rate                              |   | $          | 6,657,000 |       | $      | 2,033,000  |   | $ | 5,656,000 |   |
| State  franchise tax expense and capital taxes, net of Federal taxes |   | 450,000    |      | 320,000    |   | 320,000    |   |
| Expiration  of capital loss carryforward                             |   | —     |      | —     |   | 5,618,000  |   |
| Net  increase in cash surrender values of life insurance             |   | (4,554,000 | )         | (4,732,000 | )      | (6,005,000 | )      |
| Change  in valuation allowance                                       |   | (1,850,000 | )         | 3,759,000  |   | (6,157,000 | )      |
| Other                                                                |   | 520,000    |      | (925,000   | )      | 2,068,000  |   |
| Income  tax provision                                                |   | $          | 1,223,000 |       | $      | 455,000    |   | $ | 1,500,000 |   |

 

The change of $6,157,000in the valuation allowance for deferred tax assets as of March 31, 2003 was dueprimarily to the expiration of a capital loss carryforward in fiscal year 2003.

 

Income before taxesconsists primarily of income from the Company’s domestic operations. For fiscalyears 2001, 2002 and 2003, the Company’s foreign operations, including thecaptive insurance subsidiary, generated pre-tax income (loss) of $(418,000),$(2,369,000) and $2,267,000, respectively.

 

Significant components ofthe Company’s deferred income tax assets and liabilities at March 31, 2002 and2003 were as follows:

 
|                                               |   | **2002**    |       | **2003**    |   |
|----------------------------------------------------|--------|-------------|------------|-------------|--------|
| Deferred  tax liabilities:                         |   |        |       |        |   |
| Tax  over book depreciation                        |   | $           | 7,888,000  |        | $      | 7,709,000 |   |
| Purchase  price adjustments                        |   | 36,879,000  |       | 35,846,000  |   |
| Total  deferred tax liabilities                    |   | 44,767,000  |       | 43,555,000  |   |
| Deferred  tax assets:                              |   |        |       |        |   |
| Net  operating loss and credit carryforwards       |   | 14,991,000  |       | 13,731,000  |   |
| Capital  loss carryforward                         |   | 5,618,000   |       | —      |   |
| Workers  compensation and other insurance accruals |   | 3,165,000   |       | 3,011,000   |   |
| Inventory  and related reserves                    |   | 4,512,000   |       | 4,105,000   |   |
| Other                                              |   | 1,788,000   |       | 1,858,000   |   |
| Valuation  allowance for deferred tax assets       |   | (20,693,000 | )          | (14,536,000 | )      |
| Net  deferred tax assets                           |   | 9,381,000   |       | 8,169,000   |   |
| Net  deferred tax liabilities                      |   | $           | 35,386,000 |        | $      | 35,386,000 |   |

 

At March 31, 2003, theCompany had net operating loss carryforwards of $30,202,000 for Federal incometax purposes and $15,323,000 for State income tax purposes. The Federalcarryforwards resulted from the Company’s losses during 1993, 1996 and 2002,and expire in years 2008, 2011and 2022, respectively, while the Statecarryforwards were generated in various states over various years. The ultimaterealization of the benefits of these loss carryforwards is dependent on futureprofitable operations. In addition, use of the Company’s net operating losscarryforwards and other tax attributes may be substantially limited if acumulative change in ownership of more than 50% occurs within any three yearperiod subsequent to a loss year.  AtMarch 31, 2003, the Company had an alternative minimum tax carryforward ofapproximately $2,116,000 which can be utilized over an  indefinite period of time.

 

On September 11, 2002,new tax laws were enacted in California that suspend the use of net operatingtax carryforwards into years beginning on or after January 1, 2002 and2003.  Accordingly, net operating lossesgenerated in California in prior tax years cannot be used to offset theCompany’s  taxable income for the yearsending March 31, 2003 and 2004.  Thissuspension will not apply to tax years beginning on or after January 1, 2004and did not have material impact on the Company’s results of operations for theyear ended March 31, 2003.

 

The Company has notprovided for taxes on undistributed earnings from its non-U.S. subsidiariesbecause such earnings are intended to be re-invested indefinitely.  If these earnings were distributed, foreigntax credits may become available under current tax law to reduce the resultingU.S. tax liability.

 

F-14

----

 

**7.  EmployeeBenefit Plans**

 

***Stock Bonus Plan***

 

The Company and itsParent have a Stock Bonus Plan (the “Plan”, formerly an employee stockownership plan (“ESOP”) prior to April 1, 1999) which covers nonunion employeesof the Company who meet certain service requirements. The cost of the Plan isborne by the Company through annual contributions to a trust in amountsdetermined by the Board of Directors. Prior to an agreement reached with theDepartment of Labor in January 2003 (see Note 8), contributions were made incash or shares of the Parent’s stock as the Parent’s Board of Directors mayfrom time to time determine. Participants vest at a rate of 20% per year ofservice and become fully vested at age 65 or upon retirement, disability ordeath. Upon the occurrence of a participant’s termination (as defined),retirement, disability, or death, the Plan is required to either distribute thevested balance in stock or to repurchase the vested balance for cash (asdetermined by the Benefits Committee). If stock is distributed, it isaccompanied by a put option to the Parent under terms defined in the Plan.Shares of the Parent’s Series A and B preferred and common stock owned by thePlan totaled 40,881, 27,068 and 2,875,443 at March 31, 2003, respectively. Forfiscal years ended March 31, 2001, 2002 and 2003, contributions payable to thePlan’s trust totaled $3,222,000, $2,831,000 and $2,772,000, which represented5% of eligible compensation for each of the respective years. The contributionspayable as of March 31, 2001, 2002 and 2003 have been or will be paid in cash.The Company recognizes the cost of the Plan as compensation expense with acorresponding amount reflected in its capital for the value of the Parent’scommon stock contributed to the trust by the Parent, or as a dividend to Parentfor contributions paid in cash.

 

The Company also has asupplemental stock bonus plan to include highly compensated employees and otheremployees, who are not eligible to participate in the Plan. Contributionspayable, vesting and distributions in the supplemental plan are comparable tothose under the Plan. Contributions under this supplemental plan are made incash and are held in an irrevocable trust. For the fiscal years ended March 31,2001, 2002 and 2003, contributions payable totaled $191,000, $76,000 and$78,000, respectively.

 

Although the Parent hasnot expressed any intent to terminate or amend the plan, it has the right to doso at any time. In the event of any termination, participants become fullyvested to the extent of the balances in their separate accounts and come underthe put options as previously discussed.

 

**PensionPlans**

 

The Company maintains anoncontributory defined benefit pension plan covering substantially all hourlyunion employees (the “Hourly Plan”). Benefits under the Hourly Plan are vestedafter five years and are determined based on years of service and a benefitrate that is negotiated with each union. The assets of the Hourly Plan forparticipants are held in trust and consist of bonds, equity securities andinsurance contracts. The Company contributes at least the minimum requiredannually under ERISA. The Company also maintains an unfunded supplementalpension plan, which provides benefits to highly compensated employees; thisplan has been frozen to include only existing participants (the “SupplementalPlan”).

 

Components of net pensionbenefit cost (credit) associated with the Company’s pension plans for fiscal years2001, 2002 and 2003 are as follows:

 
|                                               |   | **2001**   |     | **2002**   |   | **2003** |   |
|----------------------------------------------------|--------|------------|----------|------------|--------|----------|--------|
| Service  cost of benefits earned during the period |   | $          | 357,000  |       | $      | 433,000  |   | $ | 432,000 |   |
| Interest  cost on projected benefit obligation     |   | 760,000    |     | 784,000    |   | 843,000  |   |
| Expected  return on plan assets                    |   | (1,093,000 | )        | (1,017,000 | )      | (864,000 | )      |
| Amortization  of prior service cost                |   | (111,000   | )        | (95,000    | )      | (47,000  | )      |
| Recognized  net (gain) loss                        |   | (230,000   | )        | (66,000    | )      | 21,000   |   |
|                                               |   | $          | (317,000 | )          | $      | 39,000   |   | $ | 385,000 |   |

 

F-15

----

 

The following provides areconciliation of the changes in the benefit obligation and fair value of planassets, and the funded (unfunded) status of the pension plans for the yearsended March 31, 2002 and 2003.

 
|                                                         |   | **2002**   |       | **2003**   |   |
|--------------------------------------------------------------|--------|------------|------------|------------|--------|
| Change  in Projected Benefit Obligation:                     |   |       |       |       |   |
| Benefit  obligation at beginning of year                     |   | $          | 11,536,000 |       | $      | 11,350,000 |   |
| Service  cost                                                |   | 433,000    |       | 432,000    |   |
| Interest  cost                                               |   | 784,000    |       | 843,000    |   |
| Change  in assumptions                                       |   | —     |       | 1,414,000  |   |
| Amendments                                                   |   | 77,000     |       | 504,000    |   |
| Benefit  payments                                            |   | (1,521,000 | )          | (514,000   | )      |
| Actuarial  losses                                            |   | 41,000     |       | 37,000     |   |
| Benefit  obligation at end of year                           |   | 11,350,000 |       | 14,066,000 |   |
| Change  in Plan Assets:                                      |   |       |       |       |   |
| Fair  value of plan assets at beginning of year              |   | 13,596,000 |       | 11,203,000 |   |
| Actual  return on assets                                     |   | (938,000   | )          | (1,434,000 | )      |
| Benefit  payments                                            |   | (1,521,000 | )          | (514,000   | )      |
| Company  contributions                                       |   | 93,000     |       | 92,000     |   |
| Fees                                                         |   | (27,000    | )          | (50,000    | )      |
| Fair  value of plan assets at end of year                    |   | 11,203,000 |       | 9,297,000  |   |
| Unfunded                                                     |   | (147,000   | )          | (4,769,000 | )      |
| Unrecognized  prior service cost                             |   | (787,000   | )          | (236,000   | )      |
| Unrecognized  net actuarial gain                             |   | (120,000   | )          | 3,658,000  |   |
| Net  amount recognized                                       |   | $          | (1,054,000 | )          | $      | (1,347,000 | ) |
| Amounts  recognized in balance sheets consist of:            |   |       |       |       |   |
| Prepaid  cost                                                |   | $          | —     |       | $      | — |   |
| Accrued  benefit liability                                   |   | (1,303,000 | )          | (4,746,000 | )      |
| Accumulated  comprehensive loss-additional minimum liability |   | 249,000    |       | 3,399,000  |   |
| Net  amount recognized                                       |   | $          | (1,054,000 | )          | $      | (1,347,000 | ) |
| Weighted-average  assumptions as of March 31:                |   |       |       |       |   |
| Discount  rate                                               |   | 7.25       | %          | 6.50       | %      |
| Expected  return on assets                                   |   | 8.25       | %          | 8.25       | %      |
| Rate  of compensation increase                               |   | —     |       | —     |   |

 

In accordance with unionagreements, the Company also contributes to multi-employer defined benefitretirement plans covering substantially all union employees of the Company.Expenses incurred in connection with these plans totaled $692,000, $1,015,000and $1,295,000 in fiscal years 2001, 2002 and 2003, respectively.

 

**PostretirementBenefit Plan**

 

In addition to theCompany’s defined benefit pension plans, the Company sponsors a defined benefithealth care plan that provides postretirement medical and dental benefits toeligible full time employees and their dependents (the “Postretirement Plan”).The Postretirement Plan is fully insured, with retirees paying a percentage ofthe annual premium. Such premiums are adjusted annually based on age and lengthof service of active and retired participants. The Postretirement Plan containsother cost-sharing features such as deductibles and coinsurance. The Companyrecognizes the cost of future benefits earned by participants during theirworking careers, as determined using actuarial assumptions. Gains and lossesrealized from the remeasurement of the plan’s benefit obligation are amortizedto income over three years.

 

Components of the netbenefit cost associated with the Company’s Postretirement Plan for fiscal years2001, 2002 and 2003 are as follows:

 
|                                               |   | **2001** |    | **2002** |   | **2003** |   |
|----------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Service  cost of benefits earned during the period |   | $        | 174,000 |     | $      | 223,000  |   | $ | 249,000 |   |
| Interest  cost on projected benefit obligation     |   | 194,000  |    | 211,000  |   | 258,000  |   |
| Recognized  net gain                               |   | (357,000 | )       | (185,000 | )      | (9,000   | )      |
|                                               |   | $        | 11,000  |     | $      | 249,000  |   | $ | 498,000 |   |

 

F-16

----

 

The following tablesprovide a reconciliation of the changes in the benefit obligation and theunfunded status of the Postretirement Plan for the years ended March 31, 2002and 2003.

 
|                                             |   | **2002**   |       | **2003**   |   |
|--------------------------------------------------|--------|------------|------------|------------|--------|
| **Change in Projected Benefit Obligation:**      |   |       |       |       |   |
| Benefit  obligation at beginning of year         |   | $          | 2,972,000  |       | $      | 3,271,000 |   |
| Service  cost                                    |   | 223,000    |       | 249,000    |   |
| Interest  cost                                   |   | 211,000    |       | 258,000    |   |
| Change  in assumptions                           |   | —     |       | 950,000    |   |
| Benefit  payments                                |   | (121,000   | )          | (208,000   | )      |
| Actuarial  gains                                 |   | (14,000    | )          | (192,000   | )      |
| Benefit  obligation at end of year               |   | 3,271,000  |       | 4,328,000  |   |
| Unfunded                                         |   | (3,271,000 | )          | (4,328,000 | )      |
| Unrecognized  prior service cost                 |   | —     |       | —     |   |
| Unrecognized  net actuarial gain                 |   | (408,000   | )          | 358,000    |   |
| Accrued  benefit cost                            |   | $          | (3,679,000 | )          | $      | (3,970,000 | ) |
| **Weighted-average assumptions as of March 31:** |   |       |       |       |   |
| Discount  rate                                   |   | 7.25       | %          | 6.50       | %      |
| Healthcare  cost trend rate                      |   | 6.50       | %          | 12.00      | %      |

 

The healthcare cost trendrate of 12.0% used in the calculation of net benefit cost of the PostretirementPlan is assumed to decrease 1.0% per year to 6.0% for 2009 and remain at thatlevel thereafter .

 

Assumed healthcare trendrates have a significant effect on the amounts reported for the Company’sPostretirement Plan. A one-percentage-point change in assumed healthcare costtrend rates would have the following effects:

 
|                                                  |   | **1%  Increase** |   | **1%  Decrease** |   |
|-------------------------------------------------------|--------|------------------|--------|------------------|--------|
| Effect  on total service and interest cost components |   | $                | 78,000 |             | $      | (66,000 | ) |
| Effect  on postretirement benefit obligation          |   | 567,000          |   | (484,000         | )      |
|                                                       |        |                  |        |                  |        |  |  |

 

**8.    Commitmentsand Contingencies**

 

**Lease Commitments**

 

The Company leases, underseveral agreements with varying terms, certain office and warehouse facilities,equipment and vehicles. Rent expense totaled $19,803,000, $21,353,000 and$21,657,000 for the years ended March 31, 2001, 2002 and 2003,respectively.  Sublease income for theyears ended March 31, 2001, 2002 and 2003 was $117,000, $456,000 and $632,000,respectively.  Minimum rentals ofcertain leases escalate from time to time based on certain indices.

 

At March 31, 2003 theCompany was obligated under non-cancellable operating leases for future minimumrentals as follows:

 
| Fiscal  year:                    |   |        |        |
|----------------------------------|--------|-------------|-------------|
| 2004                             |   | $           | 18,942,000  |   |
| 2005                             |   | 16,724,000  |        |
| 2006                             |   | 12,375,000  |        |
| 2007                             |   | 8,431,000   |        |
| 2008                             |   | 5,817,000   |        |
| Thereafter                       |   | 47,006,000  |        |
| Sub  -total                      |   | 109,295,000 |        |
| Less:  Non-cancellable subleases |   | (8,494,000  | )           |
| Net  lease obligations           |   | $           | 100,801,000 |   |

 

F-17

----

 

**OtherCommitments**

 

In connection with the1990 merger, the Company agreed to pay Kelso & Companies, Inc. (“Kelso”),affiliates of which own the majority of Parent’s common stock, an annual fee of$1,250,000 each year for financial advisory services and to reimburse it forout-of-pocket expenses incurred in connection with rendering such services. TheCompany also agreed to indemnify Kelso and its affiliates against certainclaims, losses, damages, liabilities, and expenses that may arise in connectionwith the merger. However, no such annual fee was payable for fiscal years 2001,2002 and 2003 and other expenses paid to Kelso in fiscal years 2001, 2002 and2003 were not significant.

 

**GovernmentalMatters**

 

The Internal RevenueService (the “IRS”) conducted an audit of the Company’s employee stockownership plan (the “Plan”) for the fiscal years ended March 31, 1992, throughMarch 31, 1996, and issued a preliminary report to the Company in which the IRSasserted that certain contributions of stock by the Parent to the Plan violatedprovisions of the Internal Revenue Code because the securities contributed werenot “qualifying employer securities” as defined by ERISA. In fiscal year 2002,this matter was settled without the Company admitting the allegations of theIRS, and the Company paid $1,919,000 of excise tax to the IRS.

 

The Department of Labor(the “DOL”) also investigated the same transactions involving the Plan.  In the course of its investigation, the DOLand its advisors reviewed the valuations of the Parent’s common and preferredstock prepared for the Plan and challenged the methodology used in preparingthe valuations.

 

On March 8, 2002, the DOLsued the Company, the Parent, the Plan and former members of the Company’sbenefits committee in the federal district court for the Central District ofCalifornia. The DOL claims that the valuations of Parent’s common stock used tomake annual contributions to the Plan in each of the years 1994 through 2000contained significant errors that resulted in the common stock beingovervalued, and that the failure of the members of our benefits committee todetect and correct the errors was a breach of their fiduciary duty under ERISA.As a result of the alleged overvaluations, the DOL contended that thecontributions to the Plan were prohibited transactions under ERISA.  On January 27, 2003, the Company signed asettlement agreement with the DOL in connection with their lawsuit.  The key provisions of the agreement are asfollows: (i) the Company is not required to make any payments under theagreement at this time; (ii) the Company is prohibited to make further commonstock contributions to the stock bonus plan; (iii) the Company will continue toobtain annual appraisals of Parent stock using methodology consistent withprior appraisals, and use that appraised value as the purchase price forrepurchases of common stock as it has done in the past, and; (iv) if the annualappraisal of the Company’s common stock is less than $4.25 per share, theCompany shall pay a floor price of $4.25 per share in connection with therepurchase of common stock from departing employees for shares that wereoriginally contributed to the stock bonus plan for the plan years 1994 through2000.

 

If theCompany pays the floor price in connection with the repurchase of common stockfrom departing employees, the agreement also allows the DOL to assess theCompany a penalty equal to 20% of the amount calculated by multiplying thedifference between the appraised value and the floor price by the number ofshares repurchased at the floor price.

 

The Company does notbelieve the settlement will have a material impact on its financial conditionor future results of operations, and we believe payments under the settlement,if any, will most likely be paid in immaterial amounts which will be spreadover many years.

 

**EnvironmentalContingencies**

 

The Company is subject toextensive and changing federal, state, local and foreign laws and regulationsdesigned to protect the environment and human health and safety, includingthose relating to the use, handling, storage, discharge and disposal ofhazardous substances and the remediation of environmental contamination. As aresult, the Company is from time to time involved in administrative andjudicial proceedings and inquiries relating to environmental matters.

 

During fiscal years 2001,2002 and 2003, expenditures made in connection with environmental matterstotaled $207,000,  $97,000 and $194,000,respectively, principally for settlement of claims, and monitoring, remediationand investigation activities at sites with contaminated soil and/or groundwaterand were expensed as incurred.  As ofMarch 31, 2003, an accrual of $400,000 exists for future investigation andremediation expenditures related to the following pending environmentalmatters.

 

F-18

----

 

*Forge(Seattle/Kent, WA).*    In November 1998,the Company paid the purchasers of its former Forge facility and an off-sitedisposal site $2,250,000 as an indemnification settlement for liabilitiesrelated to the remediation of known contamination at the Forge facility. TheCompany continues to monitor the disposal site for environmental conditions inaccordance with a consent decree issued by the Washington Department of Ecology(“Ecology”).  Annual costs associatedwith such monitoring are not significant, and the Company does not anticipatesignificant additional expenditures related to this matter.

 

The Forge property islocated on the Lower Duwamish Waterway, which has been identified by the UnitedStates Environmental Protection Agency (“EPA”) as a Superfund Site (the“Duwamish Site”). Under the Federal Comprehensive Environmental Remediation,Compensation, and Liability Act (“CERCLA”), owners or operators of facilitiesthat have released hazardous substances to the environment may be liable forremediation costs. Courts have held that such liability may be joint andseveral; however, in many instances, the costs are allocated among the parties,primarily based on their estimated contribution to the contamination. The EPA,along with Ecology, have entered into an Administrative Order of Consent(“AOC”) with four major property owners with potential liability for cleanup ofthe Duwamish Site that outlines tasks required to be completed to furtherinvestigate the nature and extent of the contamination and cleanupalternatives. In November 2001, the current owners of the Forge property notifiedthe Company of a potential claim for indemnification for any liability relatingto contamination of the Duwamish Site. The notification stated that the Forgefacility, along with other businesses located along the Duwamish Site, areexpected to be named as potentially responsible parties for contamination ofthe Duwamish Site and requested that the Company participate under a jointdefense.

 

On February 6, 2003, theCompany received a request from the EPA to sign an AOC under CERCLA toinvestigate certain areas of the Duwamish Site.  A preliminary cost of proposed work under the AOC ranges from$350,000 to $450,000, and is subject to approval by the EPA.  As of March 31, 2003, the Company accrued$400,000 for these costs that are expected to be incurred during fiscal year2004.  On April 15, 2003, the Companysigned a funding and participation agreement with the current owners of theForge property, which requires it to fund 85% of costs to be incurred in connectionwith the investigation activities to be performed under the AOC.

 

The Company is continuingto evaluate this matter and remedies it may have, including insurancerecoveries for any monies to be spent as part of the investigation or cleanupof the Duwamish Site. At this time, the Company cannot determine what ultimateliability it may have relating to this matter.

 

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

 

Although it is possiblethat new information or future developments could require the Company toreassess its potential exposure relating to all pending environmental matters,management believes that, based upon all currently available information, theresolution of such environmental matters will not have a material adverseeffect on the Company’s financial condition, results of operations orliquidity. The possibility exists, however, that new environmental legislationand/or environmental regulations may be adopted, or other environmentalconditions may be found to exist, that may require expenditures not currentlyanticipated and that may be material.

 

F-19

----

 

**Other**

 

On April 22, 2002, theCompany was sued by Champagne Metals, a small metals service centerdistributing aluminum coil products in Oklahoma, alleging that the Company hadconspired with other metal service centers to induce or coerce aluminumsuppliers to refuse to designate Champagne Metals as a distributor, whichresulted in unspecified damages. The Company has answered the complaint denyingall claims and allegations, and the parties are currently conductingdiscovery.  The Company will file aMotion for Summary Judgment prior to the commencement of the trial in March2004.

 

The Company is involvedin other litigation or legal matters in the normal course of business. In theopinion of management, these matters will be resolved without a material impacton the Company’s financial position or results of operations.

 

F-20

----

 

**EARLEM. JORGENSEN COMPANY**

 

**INDEXTO FINANCIAL STATEMENT SCHEDULES**

 
| **Schedule  Number** |   | **Description  of Schedules***                  |   | **Sequentially  Numbered Page** |
|----------------------|--------|-------------------------------------------------|--------|--------------------------------------|
| Schedule II     |   | Valuation and  Qualifying Accounts and Reserves |   | S-2                                  |

 

----

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

 

S-1

----

 

**EARLEM. JORGENSEN COMPANY**

 

#### **SCHEDULEII—VALUATION AND QUALIFYING ACCOUNTS AND RESERVES**

 
| **Column A**                     |   | **Column B**                         |      | **Column C**                        |   | **Column D**                                            |   | **Column E**                  |       |
|----------------------------------|--------|--------------------------------------|-----------|-------------------------------------|--------|---------------------------------------------------------|--------|-------------------------------|------------|
| **Description**                  |   | **Balance at  beginning  of period** |      | **Charges to  costs and  expenses** |   | **Amounts  charged off  (net of recoveries)** |   | **Balance at  end of period** |       |
| Allowance  for doubtful accounts |   |                                 |      |                                |   |                                                    |   |                          |       |
| Year  ended March 31, 2001       |   | $                                    | 416,000   |                                | $      | 1,651,000                                               |   | $                             | (1,640,000 | ) | $ | 427,000 |   |
| Year  ended March 31, 2002       |   | 427,000                              |      | 2,434,000                           |   | (2,409,000                                              | )      | 452,000                       |       |
| Year  ended March 31, 2003       |   | 452,000                              |      | 2,649,000                           |   | (2,711,000                                              | )      | 390,000                       |       |
|                             |   |                                 |      |                                |   |                                                    |   |                          |       |
| Reserve  for inventory           |   |                                 |      |                                |   |                                                    |   |                          |       |
| Year  ended March 31, 2001       |   | $                                    | 2,047,000 |                                | $      | 1,385,000                                               |   | $                             | (1,201,000 | ) | $ | 2,231,000 |   |
| Year  ended March 31, 2002       |   | 2,231,000                            |      | 2,705,000                           |   | (2,411,000                                              | )      | 2,525,000                     |       |
| Year  ended March 31, 2003       |   | 2,525,000                            |      | 2,321,000                           |   | (1,669,000                                              | )      | 3,177,000                     |       |

 

S-2

----