##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal quarter ended June 30, 2006.
 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
(State or other jurisdiction of
incorporation or organization)
    
    65-1269024
(I.R.S. Employer
Identification No.)10650 Alameda Street, Lynwood, California
(Address of principal executive offices)
    
    90262
(Zip Code)
 Registrants telephone number: (323) 567-1122
 
 x o
  o o x
 o x




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##### Table of Contents



EARLE M. JORGENSEN COMPANY
 TABLE OF CONTENTS
 PART IFINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Condensed Balance Sheets at June 30, 2006 (unaudited) and March 31, 2006
    
    
    3Unaudited Consolidated Condensed Statements of Income for the Three Months Ended June 30, 2006 and June 29, 2005
    
    
    4Unaudited Consolidated Condensed Statements of Cash Flows for the Three Months Ended June 30, 2006 and June 29, 2005
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    16PART IIOTHER INFORMATION
    
    
    17Item 1. Legal Proceedings
    
    
    17Item 6. Exhibits
    
    
    17SIGNATURES
    
    
    18CERTIFICATIONS
    
    
    19Exhibit 31.1
    
    
    19Exhibit 31.2
    
    
    20Exhibit 32.1
    
    
    21Exhibit 32.2
    
    
    22EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
 2




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 EARLE M. JORGENSEN COMPANY
 CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
 June 30,
    
    
    
    March 31,2006
    
    
    
    2006Successor
    
    
    
    Predecessor(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,246
    
    
    
    $
    60,402Accounts receivable, less allowance for doubtful
accounts of $4,164 and $991 at June 30, 2006 and
March 31, 2006, respectively
    
    
    214,303
    
    
    
    
    193,622Inventories
    
    
    376,571
    
    
    
    
    252,364Prepaid expenses and other current assets
    
    
    4,864
    
    
    
    
    10,188Total current assets
    
    
    615,984
    
    
    
    
    516,576Property, plant and equipment at cost:Land
    
    
    39,030
    
    
    
    
    23,332Buildings
    
    
    65,793
    
    
    
    
    67,747Machinery and equipment
    
    
    90,456
    
    
    
    
    144,002Accumulated depreciation
    
    
    (3,069
    )
    
    
    
    (95,959
    )192,210
    
    
    
    
    139,122Goodwill
    
    
    329,449
    
    
    
    
    Intangible assets, net
    
    
    280,473
    
    
    
    
    Cash surrender value of life insurance policies, net
    
    
    48,567
    
    
    
    
    42,006Deferred income taxes
    
    
    9,363
    
    
    
    
    9,003Other assets
    
    
    18,071
    
    
    
    
    6,675Total assets
    
    $
    1,494,117
    
    
    
    $
    713,382LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    185,611
    
    
    
    $
    199,610Accrued expenses
    
    
    31,949
    
    
    
    
    28,464Accrued compensation and retirement costs
    
    
    32,778
    
    
    
    
    44,998Income taxes payable
    
    
    13,349
    
    
    
    
    3,183Deferred income taxes
    
    
    3,621
    
    
    
    
    3,621Current maturities of long-term debt
    
    
    715
    
    
    
    
    715Total current liabilities
    
    
    268,023
    
    
    
    
    280,591Intercompany borrowings
    
    
    30,641
    
    
    
    
    Long-term debt
    
    
    273,138
    
    
    
    
    252,155Long-term retirement costs
    
    
    18,582
    
    
    
    
    19,056Deferred income taxes
    
    
    147,182
    
    
    
    
    Commitment and contingenciesStockholders equity:Common stock, $.001 par value; 1,000 and 80,000,000
shares authorized; 1,000 and 50,237,094 shares
issued at June 30, 2006 and March 31, 2006,
respectively
    
    
    
    
    
    
    
    50Capital in excess of par value
    
    
    729,674
    
    
    
    
    364,018Accumulated other comprehensive income (loss)
    
    
    1,082
    
    
    
    
    (3,067
    )Retained earnings (deficit)
    
    
    25,795
    
    
    
    
    (199,421
    )Total stockholders equity
    
    
    756,551
    
    
    
    
    161,580Total liabilities and stockholders equity
    
    $
    1,494,117
    
    
    
    $
    713,382
  3




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EARLE M. JORGENSEN COMPANY
 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands)
 Three Months EndedJune 30,
    
    
    
    June 29,2006
    
    
    
    2005Successor
    
    
    
    Predecessor(Unaudited)Net sales
    
    $
    496,121
    
    
    
    $
    443,972Other income (expense), net
    
    
    (1,481
    )
    
    
    
    494,640
    
    
    
    
    443,972Costs and expenses:Cost of sales (exclusive of depreciation and
amortization shown below)
    
    
    368,946
    
    
    
    
    328,374Warehouse, delivery, selling, general and administrative
    
    
    75,706
    
    
    
    
    65,545Depreciation and amortization
    
    
    4,420
    
    
    
    
    2,670Interest
    
    
    5,512
    
    
    
    
    13,638454,584
    
    
    
    
    410,227Income before income taxes
    
    
    40,056
    
    
    
    
    33,745Provision for income taxes
    
    
    14,261
    
    
    
    
    11,163Net income
    
    $
    25,795
    
    
    
    $
    22,582
  4




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EARLE M. JORGENSEN COMPANY
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
 Three Months EndedJune 30,
    
    
    
    June 29,2006
    
    
    
    2005Successor
    
    
    
    Predecessor(Unaudited)OPERATING ACTIVITIES:Net income
    
    $
    25,795
    
    
    
    $
    22,582Adjustments to reconcile net income to net cash used in operating activities:Loss (gain) from the revaluation of common stock obligation to the Retirement Savings Plan
    
    
    653
    
    
    
    
    (4,357
    )Depreciation and amortization
    
    
    4,420
    
    
    
    
    2,670Debt premium amortization
    
    
    (887
    )
    
    
    
    Deferred taxes
    
    
    (1,316
    )
    
    
    
    Amortization of debt issue costs
    
    
    
    
    
    
    
    330Loss (gain) on sales of property, plant and equipment
    
    
    157
    
    
    
    
    (13
    )Stock-based compensation
    
    
    482
    
    
    
    
    139Increase in cash surrender value of life insurance over premiums paid
    
    
    (6,323
    )
    
    
    
    (8,295
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (20,681
    )
    
    
    
    (14,604
    )Inventories
    
    
    (32,125
    )
    
    
    
    (13,732
    )Prepaid expenses and other current assets
    
    
    5,324
    
    
    
    
    1,613Accounts payable and accrued expenses
    
    
    (18,191
    )
    
    
    
    (45,830
    )Other
    
    
    (8,151
    )
    
    
    
    (706
    )Net cash used in operating activities
    
    
    (50,843
    )
    
    
    
    (60,203
    )INVESTING ACTIVITIES:Purchases of property, plant and equipment
    
    
    (6,347
    )
    
    
    
    (7,840
    )Proceeds from sales of property, plant and equipment
    
    
    199
    
    
    
    
    30Premiums paid on life insurance policies
    
    
    (238
    )
    
    
    
    (464
    )Proceeds from redemption of life insurance policies
    
    
    
    
    
    
    
    2,669Net cash used in investing activities
    
    
    (6,386
    )
    
    
    
    (5,605
    )FINANCING ACTIVITIES:Net borrowings under intercompany revolving loan agreement
    
    
    30,641
    
    
    
    
    Funding of letters of credit
    
    
    (13,629
    )
    
    
    
    Net borrowings under revolving loan agreements
    
    
    
    
    
    
    
    57,718Net proceeds from initial public offering
    
    
    
    
    
    
    
    161,792Cash paid in exchange for senior variable rate notes
    
    
    
    
    
    
    
    (127,091
    )Cash paid upon conversion of Holdings series A preferred stock
    
    
    
    
    
    
    
    (23,245
    )Cash paid upon conversion of Holdings series B preferred stock
    
    
    
    
    
    
    
    (13,784
    )Principal payments on long-term debt
    
    
    (5
    )
    
    
    
    Payments of debt issue costs
    
    
    
    
    
    
    
    (43
    )Payments on other debt
    
    
    
    
    
    
    
    (500
    )Net cash provided by financing activities
    
    
    17,007
    
    
    
    
    54,847Effect of exchange rate changes on cash
    
    
    66
    
    
    
    
    (28
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (40,156
    )
    
    
    
    (10,989
    )Cash and cash equivalents at beginning of period
    
    
    60,402
    
    
    
    
    19,994CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    20,246
    
    
    
    $
    9,005Supplemental cash flow information:Interest paid during the period
    
    $
    12,403
    
    
    
    $
    13,497Income taxes paid during the period
    
    $
    4,013
    
    
    
    $
    20,514
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EARLE M. JORGENSEN COMPANY
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(continued)
(in thousands, except per share data)
      6




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EARLE M. JORGENSEN COMPANY
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2006
 1. Basis of Presentation and Consolidation
     2. Acquisition of the Company
  7




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At April 3, 2006(In thousands)Total purchase price
    
    $
    729,162Less, net book value of EMJ assets acquired and
liabilities assumed
    
    
    161,580Excess of purchase price over net book value of
assets acquired and liabilities assumed
    
    $
    567,582Allocation of the excess purchase price over net
book value of assets acquired and liabilities
assumed:Inventory
    
    $
    92,082Property, plant and equipment
    
    
    50,231Goodwill
    
    
    329,449Intangible assets  Customer list/relationships
    
    
    85,700Intangible assets  Internal use software
    
    
    8,100Intangible assets  Tradename
    
    
    187,900Long-term debt
    
    
    (21,875
    )Deferred income taxes
    
    
    (146,806
    )Other assets and liabilities
    
    
    (17,199
    )Total
    
    $
    567,582
  3. Impact of Recently Issued Accounting Principles
 Share-Based Payment, Stock-Based Compensation,
 Accounting for
Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 Accounting for Income Taxes
 8




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4. Intercompany borrowings
   5. Stockholders Equity
 Reporting Comprehensive Income
 Three Months EndedJune 30,
    
    
    
    June 29,2006
    
    
    
    2005Successor
    
    
    
    PredecessorNet income
    
    $
    25,795,000
    
    
    
    $
    22,582,000Foreign currency translation adjustment
    
    
    1,082,000
    
    
    
    
    (267,000
    )Comprehensive income
    
    $
    26,877,000
    
    
    
    $
    22,315,000
  June 30,
    
    
    
    March 31,2006
    
    
    
    2006Successor
    
    
    
    PredecessorForeign currency translation adjustment
    
    $
    1,082,000
    
    
    
    $
    1,914,000Minimum pension liability
    
    
    
    
    
    
    
    (4,981,000
    )Total accumulated other comprehensive income (loss)
    
    $
    1,082,000
    
    
    
    $
    (3,067,000
    )
 6. Stock-Based Compensation
 Accounting for Stock-Based Compensation Accounting for Stock-Based CompensationTransition and DisclosureAn Amendment of FASB Statement
No. 123 Share-Based Payment ,
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WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    Contractual
    
    
    AggregateExercise
    
    
    Term
    
    
    Intrinsic ValueStock Options
    
    Shares
    
    
    Price
    
    
    (In years)
    
    
    (In thousands)PredecessorOutstanding at March 31, 2006
    
    
    3,860,668
    
    
    $
    4.53Exercised/Redeemed as part acquisition by Reliance
    
    
    (3,053,668
    )
    
    $
    3.35Outstanding at April 3, 2006
    
    
    807,000
    
    
    $
    8.96Converted to Reliance equivalents (.1784 exchange ratio)
    
    
    143,943
    
    
    $
    50.26Add: Adjustment for Reliance common stock split
    
    
    143,943SuccessorOutstanding at April 3, 2006
    
    
    287,886
    
    
    $
    25.13Granted
    
    
    
    
    
    
    Exercised
    
    
    (24,040
    )
    
    $
    26.30Forfeited
    
    
    (13,378
    )
    
    $
    24.92Outstanding at June 30, 2006
    
    
    250,468
    
    
    $
    25.03
    
    
    
    9.0
    
    
    $
    4,120Exercisable at June 30, 2006
    
    
    63,988
    
    
    $
    25.09
    
    
    
    8.9
    
    
    $
    1,048
   Three Months EndedJune 30,
    
    
    June 29,2006
    
    
    2005Successor
    
    
    PredecessorWeighted average assumptions used:Risk free interest rate
    
    
    4.75
    %
    
    
    3.90
    %Expected life in years
    
    
    5.8
    
    
    
    6.9Expected volatility
    
    
    .38
    
    
    
    .42Expected dividend yield
    
    
    .43
    %
    
    
    
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WeightedAverageGrant DateNon-vested Options
    
    Shares
    
    
    Fair ValueNon-vested at April 3, 2006
    
    
    199,858
    
    
    $
    28.91Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (13,378
    )
    
    $
    28.95Non-vested at June 30, 2006
    
    
    186,480
    
    
    $
    28.91
  7. Benefit Plans
   Three Months EndedJune 30,
    
    
    
    June 29,2006
    
    
    
    2005Successor
    
    
    
    PredecessorService cost of benefits earned during the period
    
    $
    173,000
    
    
    
    $
    164,000Interest cost of projected benefit obligation
    
    
    287,000
    
    
    
    
    264,000Expected return on plan assets
    
    
    (285,000
    )
    
    
    
    (263,000
    )Amortization of prior service cost
    
    
    39,000
    
    
    
    
    32,000Recognized net loss
    
    
    102,000
    
    
    
    
    34,000Net periodic pension expense
    
    $
    316,000
    
    
    
    $
    231,000
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Three Months EndedJune 30,
    
    
    
    June 29,2006
    
    
    
    2005Successor
    
    
    
    PredecessorService cost of benefits earned over the period
    
    $
    100,000
    
    
    
    $
    90,000Interest cost on projected benefit obligation
    
    
    88,000
    
    
    
    
    81,000Recognized net loss
    
    
    19,000
    
    
    
    
    41,000Net periodic post-retirement benefit expense
    
    $
    207,000
    
    
    
    $
    212,000
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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Information
   Statement of Operations and Other Data
  Three Months EndedJune 30, 2006
    
    
    June 29, 2005Successor
    
    
    Predecessor% of
    
    
    
    
    
    
    % of$
    
    
    Net Sales
    
    
    $
    
    
    Net SalesNet sales
    
    $
    496,121
    
    
    
    100.0
    %
    
    $
    443,972
    
    
    
    100.0
    %Gross profit
    
    
    127,175
    
    
    
    25.6
    %
    
    
    115,598
    
    
    
    26.0
    %S,G&A expenses
    
    
    75,706
    
    
    
    15.3
    %
    
    
    65,545
    
    
    
    14.8
    %Depreciation expense
    
    
    3,134
    
    
    
    0.6
    %
    
    
    2,670
    
    
    
    0.6
    %Operating profit(1).
    
    $
    48,335
    
    
    
    9.7
    %
    
    $
    47,383
    
    
    
    10.7
    %
 (1)
    
    Excludes other income, amortization expense, interest expense, and income tax expense.
 Results of OperationsThree Months Ended June 30, 2006 Compared To Three Months Ended June 29, 2005
 Revenues
 13




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Gross Profit.
 Expenses.
  Interest Expense.
 Income Taxes
 Liquidity and Capital Resources
 Working Capital.
 Capital Expenditures.
 14




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Sources of Liquidity.
 Canadian Subsidiary Liquidity.
 Future Needs.
   Seasonality
  Goodwill
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  15




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Item 4. CONTROLS AND PROCEDURES
   16




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PART IIOTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
 th
  
 Item 6. EXHIBITS
 31.1
    
    Certification of Financial Reports by Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Financial Reports by Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Financial Reports by Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Financial Reports by Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 17




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SIGNATURES
  EARLE M. JORGENSEN COMPANYDate: August 11, 2006
    /s/    R. Neil McCafferyR. Neil McCafferyChief Executive OfficerDate: August 11, 2006
    /s/    William S. JohnsonWilliam S. JohnsonVice President, Chief Financial Officer and Secretary 18