**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 10-Q**

 

| **ý** |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal quarter ended January 1, 2004.** |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                        |
| **OR**     |   |                                                                                                                                        |
|       |   |                                                                                                                                        |
| **o**      |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                               |
|       |   |                                                                                                                                        |

**Commissionfile number: 1-7537**

 

**EARLE M. JORGENSEN COMPANY**

(Exact name of registrant as specified in itscharter)

** **

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

 

 

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

 

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 registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days. Yes  ý      Noo

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  Yes oNo ý

 

State the aggregatemarket value of the voting stock held by non-affiliates of the registrant.     None 

 

Outstanding common stock,par value $.01 per share, at January 31, 2004 - 128 shares

 

 

----

 

**EARLE M.JORGENSEN COMPANY**

**TABLE OFCONTENTS**

 
| PART  I  -   FINANCIAL INFORMATION |                                                                                                                                                         |
|------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                             |                                                                                                                                                         |   |
| Item 1.                                                          | Financial Statements                                                                                                                                         |   |
|                                                             |                                                                                                                                                         |   |
|                                                             | Consolidated  Condensed Balance Sheets at January 1, 2004 and March 31, 2003                                                                                 |   |
|                                                             |                                                                                                                                                         |   |
|                                                             | Consolidated  Condensed Statements of Operations and Comprehensive Income for the Three  Months and Nine Months  Ended January 1, 2004 and December 31, 2002 |   |
|                                                             |                                                                                                                                                         |   |
|                                                             | Consolidated  Condensed Statements of Cash Flows for the Nine Months Ended January 1, 2004  and December 31, 2002                                            |   |
|                                                             |                                                                                                                                                         |   |
|                                                             | Notes  to Consolidated Condensed Financial Statements                                                                                                        |   |
|                                                             |                                                                                                                                                         |   |
| Item 2.                                                          | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                                  |   |
|                                                             |                                                                                                                                                         |   |
| Item  3.                                                         | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                  |   |
|                                                             |                                                                                                                                                         |   |
| Item 4.                                                          | Controls and  Procedures                                                                                                                                     |   |
|                                                             |                                                                                                                                                         |   |
| PART II  -   OTHER INFORMATION          |                                                                                                                                                         |
|                                                             |                                                                                                                                                         |   |
| Item  4.                                                         | Submission  of Matters to a Vote of Security Holders                                                                                                         |   |
|                                                             |                                                                                                                                                         |   |
| Item 5.                                                          | Other Information                                                                                                                                            |   |
|                                                             |                                                                                                                                                         |   |
| Item 6.                                                          | Exhibits and  Reports on Form 8-K                                                                                                                            |   |
|                                                             |                                                                                                                                                         |   |
| SIGNATURES                                                       |                                                                                                                                                         |

 

1

----

 

**PART  I - FINANCIAL INFORMATION**

 

**Item 1.**     **FINANCIAL STATEMENTS**

 

**EARLE M. JORGENSEN COMPANY**

**CONSOLIDATED CONDENSED BALANCE SHEETS**

**(Dollars in thousands, except pershare data)**

 
|                                                                                                                                        |   | **January 1, 2004** |    | **March 31, 2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------------------|--------|
|                                                                                                                                        |   | **(Unaudited)**     |    |               |   |
|                                                                                                                                        |   |                |    |               |   |
| **ASSETS**                                                                                                                                  |   |                |    |               |   |
| Current assets:                                                                                                                             |   |                |    |               |   |
| Cash                                                                                                                                        |   | $                   | 7,295   |               | $      | 20,030 |   |
| Accounts receivable, less allowance for doubtful  accounts of $1,160 and $390 at January 1, 2004 and March 31, 2003,  respectively          |   | 105,522             |    | 97,292             |   |
| Inventories                                                                                                                                 |   | 227,542             |    | 213,590            |   |
| Other current assets                                                                                                                        |   | 7,731               |    | 6,402              |   |
| Total current assets                                                                                                                        |   | 348,090             |    | 337,314            |   |
|                                                                                                                                        |   |                |    |               |   |
| Property, plant and equipment, net of accumulated  depreciation of $90,234 and $81,859 at January 1, 2004 and March 31, 2003,  respectively |   | 111,284             |    | 113,037            |   |
|                                                                                                                                        |   |                |    |               |   |
| Net cash surrender value of life insurance policies                                                                                         |   | 28,976              |    | 31,007             |   |
| Debt issue costs, net of accumulated amortization                                                                                           |   | 7,240               |    | 8,232              |   |
| Other assets                                                                                                                                |   | 1,156               |    | 1,151              |   |
| Total assets                                                                                                                                |   | $                   | 496,746 |               | $      | 490,741 |   |
|                                                                                                                                        |   |                |    |               |   |
| **LIABILITIES AND STOCKHOLDER’S  EQUITY**                                                                                              |   |                |    |               |   |
| Current liabilities:                                                                                                                        |   |                |    |               |   |
| Accounts payable                                                                                                                            |   | $                   | 110,586 |               | $      | 119,815 |   |
| Accrued employee compensation and related taxes                                                                                             |   | 10,351              |    | 12,185             |   |
| Accrued employee benefits                                                                                                                   |   | 10,433              |    | 10,751             |   |
| Accrued interest                                                                                                                            |   | 6,123               |    | 16,186             |   |
| Other accrued liabilities                                                                                                                   |   | 6,930               |    | 6,392              |   |
| Deferred income taxes                                                                                                                       |   | 19,450              |    | 19,450             |   |
| Current portion of long-term debt                                                                                                           |   | 2,765               |    | 2,330              |   |
| Total current liabilities                                                                                                                   |   | 166,638             |    | 187,109            |   |
|                                                                                                                                        |   |                |    |               |   |
| Long-term debt                                                                                                                              |   | 351,372             |    | 328,207            |   |
| Deferred income taxes                                                                                                                       |   | 15,936              |    | 15,936             |   |
| Other long-term liabilities                                                                                                                 |   | 7,989               |    | 7,505              |   |
|                                                                                                                                        |   |                |    |               |   |
| Stockholder’s equity (deficit):                                                                                                        |   |                |    |               |   |
| 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                                                                                                              |   | 30,522              |    | 35,284             |   |
| Accumulated other comprehensive loss                                                                                                        |   | (1,579              | )       | (3,884             | )      |
| Accumulated deficit                                                                                                                         |   | (74,132             | )       | (79,416            | )      |
| Total stockholder’s equity (deficit)                                                                                                   |   | (45,189             | )       | (48,016            | )      |
| Total liabilities and stockholder’s equity (deficit)                                                                                   |   | $                   | 496,746 |               | $      | 490,741 |   |

 

See accompanying notes toconsolidated financial statements.

 

2

----

 

**EARLE M. JORGENSEN COMPANY**

**CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE INCOME**

**(Dollars in thousands)**

** **
|                              |   | **Three Months Ended** |    | **Nine Months Ended**  |   |
|-----------------------------------|--------|------------------------|---------|------------------------|--------|
|                              |   | **January 1,  2004**   |    | **December 31,  2002** |   | **January 1,  2004** |   | **December 31,  2002** |   |
|                              |   | **(Unaudited)**        |    | **(Unaudited)**        |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Revenues                          |   | $                      | 248,785 |                   | $      | 223,573 |   | $ | 718,301 |   | $ | 673,936 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Cost of sales                     |   | 179,980                |    | 159,854                |   | 518,394 |   | 483,340 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Gross profit                      |   | 68,805                 |    | 63,719                 |   | 199,907 |   | 190,596 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Expenses:                         |   |                   |    |                   |   |   |   |   |   |
| Warehouse and delivery            |   | 33,830                 |    | 31,959                 |   | 98,657 |   | 93,883 |   |
| Selling                           |   | 8,401                  |    | 7,818                  |   | 25,031 |   | 23,811 |   |
| General and administrative        |   | 11,871                 |    | 10,126                 |   | 31,282 |   | 30,580 |   |
| Loss on early retirement of debt  |   | —                 |    | —                 |   | — |   | 12,278 |   |
| Total expenses                    |   | 54,102                 |    | 49,903                 |   | 154,970 |   | 160,552 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Income from operations            |   | 14,703                 |    | 13,816                 |   | 44,937 |   | 30,044 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Interest expense, net             |   | 12,995                 |    | 12,529                 |   | 38,205 |   | 35,086 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Income (loss) before income taxes |   | 1,708                  |    | 1,287                  |   | 6,732 |   | (5,042 | ) |
|                              |   |                   |    |                   |   |   |   |   |   |
| Income tax expense                |   | 471                    |    | 134                    |   | 1,448 |   | 586 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Net income (loss)                 |   | 1,237                  |    | 1,153                  |   | 5,284 |   | (5,628 | ) |
|                              |   |                   |    |                   |   |   |   |   |   |
| Other comprehensive income        |   | 862                    |    | 24                     |   | 2,305 |   | 115 |   |
|                              |   |                   |    |                   |   |   |   |   |   |
| Comprehensive income (loss)       |   | $                      | 2,099   |                   | $      | 1,177 |   | $ | 7,589 |   | $ | (5,513 | ) |

 

See accompanying notes toconsolidated financial statements.

 

3

----

 

**EARLE M. JORGENSEN COMPANY**

**CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS**

**(Dollars in thousands)**

** **
|                                                                                  |   | **Nine  Months Ended** |   |
|---------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                  |   | **January 1,  2004**   |   | **December 31,  2002** |   |
|                                                                                  |   | **(Unaudited)**        |   |
| OPERATING ACTIVITIES:                                                                 |   |                   |   |   |   |
| Net income (loss)                                                                     |   | $                      | 5,284  |   | $ | (5,628 | ) |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities: |   |                   |   |   |   |
| Loss on early retirement of debt                                                      |   | —                 |   | 12,278 |   |
| Depreciation and amortization                                                         |   | 8,488                  |   | 8,522 |   |
| Amortization of debt issue costs                                                      |   | 992                    |   | 1,083 |   |
| Accrued postretirement benefits                                                       |   | 563                    |   | 378 |   |
| Gain on sale of property, plant and equipment                                         |   | (1,194                 | )      | (314 | ) |
| Provision for bad debts                                                               |   | 2,338                  |   | 2,003 |   |
| Increase in cash surrender value of life insurance  over premiums paid                |   | 929                    |   | 3,137 |   |
| Changes in operating assets and liabilities:                                          |   |                   |   |   |   |
| Accounts receivable                                                                   |   | (10,568                | )      | (5,415 | ) |
| Inventories                                                                           |   | (13,952                | )      | (38,212 | ) |
| Other current assets                                                                  |   | (904                   | )      | (1,236 | ) |
| Accounts payable and accrued liabilities and expenses                                 |   | (20,906                | )      | 18,632 |   |
| Non-trade receivable                                                                  |   | (425                   | )      | (919 | ) |
| Other                                                                                 |   | 2,045                  |   | 312 |   |
| Net cash used in operating activities                                                 |   | (27,310                | )      | (5,379 | ) |
|                                                                                  |   |                   |   |   |   |
| INVESTING ACTIVITIES:                                                                 |   |                   |   |   |   |
| Additions to property, plant and equipment                                            |   | (6,781                 | )      | (13,070 | ) |
| Proceeds from the sale of property, plant and  equipment                              |   | 1,388                  |   | 2,405 |   |
| Premiums paid on life insurance policies                                              |   | (1,198                 | )      | (1,198 | ) |
| Proceeds from redemption of life insurance policies                                   |   | 2,300                  |   | 143 |   |
| Net cash used in investing activities                                                 |   | (4,291                 | )      | (11,720 | ) |
|                                                                                  |   |                   |   |   |   |
| FINANCING ACTIVITIES:                                                                 |   |                   |   |   |   |
| Net borrowings under revolving loan agreements                                        |   | 25,000                 |   | 8,949 |   |
| Proceeds from issuance of senior debt                                                 |   | —                 |   | 250,000 |   |
| Repayments of term loan and senior debt                                               |   | —                 |   | (201,000 | ) |
| Payments of debt issue costs                                                          |   | —                 |   | (10,668 | ) |
| Payments made upon early retirement of debt                                           |   | —                 |   | (9,596 | ) |
| Payments on other debt                                                                |   | (1,400                 | )      | (1,400 | ) |
| Cash dividend to parent                                                               |   | (4,762                 | )      | (30,612 | ) |
| Net cash provided by financing activities                                             |   | 18,838                 |   | 5,673 |   |
|                                                                                  |   |                   |   |   |   |
| Effect of exchange rate changes on cash                                               |   | 28                     |   | 3 |   |
|                                                                                  |   |                   |   |   |   |
| NET DECREASE IN CASH                                                                  |   | (12,735                | )      | (11,423 | ) |
| Cash at beginning of period                                                           |   | 20,030                 |   | 21,300 |   |
|                                                                                  |   |                   |   |   |   |
| CASH AT END OF PERIOD                                                                 |   | $                      | 7,295  |   | $ | 9,877 |   |

 

See accompanying notes toconsolidated financial statements.

 

4

----

 

**EARLE M.JORGENSEN COMPANY**

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(Unaudited)**

**JANUARY 1, 2004**

 

1.      Basis of Presentation andConsolidation

 

The Earle M. Jorgensen Company (the “Company”) is awholly-owned subsidiary of Earle M. Jorgensen Holding Company, Inc.(“Holding”).

 

The accompanying unaudited consolidated condensedfinancial statements include the accounts of the Company and its wholly-ownedsubsidiaries, including Earle M. Jorgensen (Canada) Inc. and Stainless Insurance Ltd., a captive insurancesubsidiary.  All significantintercompany accounts and transactions have been eliminated.

 

In the opinion of management, the accompanyingunaudited consolidated condensed financial statements have been prepared in accordancewith the instructions to Form 10-Q and include all adjustments (consisting ofnormally recurring accruals) and disclosures considered necessary for a fairpresentation of the consolidated financial position of the Company at January1, 2004 and the consolidated results of operations and comprehensive income andcash flows for the three months and nine months ended January 1, 2004 andDecember 31,  2002. The consolidatedresults of operations and comprehensive income for the nine months endedJanuary 1, 2004 are not necessarily indicative of the results to be expectedfor the full year. For further information, refer to the consolidated financialstatements and footnotes included in the Company’s Annual Report on Form 10-Kfor the year ended March 31, 2003.

 

Certain prior year amounts have been reclassified toconform to the current year presentation.

 

2.      Other Comprehensive Income

 

Other comprehensive income included foreign currencytranslation income of $862,000 and $24,000 for the three months ended January1, 2004 and December 31, 2002, respectively, and $2,305,000 and $115,000 forthe nine months ended January 1, 2004 and December 31, 2002, respectively.

 

3.      Income from Redemption ofLife Insurance Policies

 

Included in general and administrative expense isincome from redemption of corporate-owned life insurance policies of $835,000and $683,000 for the three months ended January 1, 2004 and December 31, 2002,respectively and $4,359,000 and $683,000 for the nine months ended January 1,2004 and December 31, 2002, respectively.

 

4.      Reclassification of Loss onEarly Retirement of Debt

 

Effective April 1, 2003, the Company adopted SFAS No.145, *Rescission of SFAS Statements No. 4,44, and 64, Amendment of SFAS No. 13, and Technical Corrections*. Theprovisions of SFAS No. 145 relating to the rescission of SFAS No. 4 requirethat any gain or loss on extinguishment of debt that was classified as anextraordinary item in prior periods presented be reclassified and included inoperating expenses if it does not meet the criteria in APB Opinion No. 30, *Reporting the Results of Operations-Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions*. Accordingly, theCompany has reclassified a loss of $12,278,000 related to early retirement ofdebt that was previously reported as an extraordinary item in the first quarterended June 27, 2002.

 

5.      Stock-Based Compensation

 

Stock options granted todirectors, officers and other key employees of the Company under Holding’sstock option plan adopted in January 1997 are accounted for in accordance withAPB No. 25. As all stock option grants are made at fair value on the date ofgrant, the Company recognizes no compensation cost.  Had compensation expense for stock options granted been recordedbased on the fair value method under SFAS No. 123, as amended by SFAS No. 148, *Accounting for Stock-Based Compensation-Transitionand Disclosure*, the effect on the Company’s net income for the ninemonths ended January 1, 2004 and December 31, 2002 would have been as follows:

 

5

----

 
|                                                                                                                 |   | **Nine  Months Ended** |      |
|----------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|
|                                                                                                                 |   | **January 1,  2004**   |      | **December  31, 2002** |   |
| Net income (loss), as reported                                                                                       |   | $                      | 5,284,000 |   | $ | (5,628,000 | ) |
| Deduct:   total stock-based compensation expense determined using fair value  method for all awards, net of tax |   | (62,000                | )         | (108,000 | ) |
| Net income (loss), as adjusted                                                                                       |   | $                      | 5,222,000 |   | $ | (5,736,000 | ) |

 

6.      Subsequent Events

 

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

 

The consummation of the merger and the financialrestructuring is subject to various customary conditions, including theapproval of various classes of Holding’s stockholders by a majority of thestockholders of such classes other than Kelso and the consent of Holding’slenders.  The Company anticipates that ameeting of Holding’s stockholders will be held to address the merger late inthe first calendar quarter of 2004. There is no assurance that the proposed merger will be approved by therequisite votes of Holding’s stockholders or that the other conditions tocompletion of the transaction will be satisfied.  Thus there can be no assurance that the merger will beconsummated.

 

7.      Impact of Recently IssuedAccounting Standards

 

In May 2003, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 150, *Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity*, which establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equities. Theprovisions of SFAS No. 150 are effective for financial instruments entered intoor modified after May 31, 2003. For nonpublic companies (under which theCompany is classified, as defined by SFAS No. 150), application is effective inthe fiscal period beginning after December 15, 2003. The Company is in theprocess of assessing the effect of adopting SFAS No. 150.

 

In April 2003,FASB issued SFAS No. 149, *Amendment ofStatement 133 on Derivative Instruments and Hedging Transactions*,which amends and clarifies financial accounting and reporting for derivativeinstruments, including those embedded in other contracts, and for hedgingactivities under SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*.  The provisions of SFAS No. 149 are effectivefor contracts entered into or modified after June 30, 2003. As of January 1,2004, the Company had no such instruments.

 

In January 2003,FASB issued FASB Interpretation No. 46 (“FIN No. 46”), *Consolidation of Variable Interest Entities,*to expand upon and strengthen existing accounting guidance that addresses whena company should include in its financial statements the assets, liabilitiesand activities of another entity. The disclosure requirements in thisinterpretation are effective for financial statements of interim and annualperiods ending after January 31, 2003. This statement did not have an effect onthe accompanying consolidated condensed financial statements as of and for theperiods ending January 1, 2004.

 

During June 2002,the FASB issued SFAS No. 146, *Accounting forCosts Associated with Exit or Disposal Activities*, which nullifiesEmerging Issues Task Force Issue No. 94-3, *LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring)*.  SFAS No. 146 requires that a liability for acost associated with an exit or disposal activity be recognized when the liabilityis incurred. SFAS No. 146 is effective for exit and disposal activities thatare initiated after December 31, 2002. The adoption of this statement resultedin an expense of approximately $300,000 in the third quarter of fiscal 2004 forthe relocation of the Company’s corporate headquarters from Brea, California,to Lynwood, California, in accordance with the provisions of this statement.

 

6

----

 

8.      Income Taxes

 

Income tax expense for the first nine months of fiscal2004 and 2003 included provisions for state franchise and foreign incometaxes.  Federal tax provisions for thefirst nine months of fiscal 2004 and 2003 were offset by recognition of taxbenefits associated with our loss carryforwards.

 

### **Item 2.**      MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

# **Forward-Looking Information**

 

This Report onForm 10-Q includes both historical and forward-looking statements. We havebased these forward-looking statements on our current expectations andprojections about future results. When we use words in this document, such as“anticipates,” “intends,” “plans,” “believes,” “estimates,” “expects,” “will,”“should,” and similar expressions, we do so to identify forward-looking statements.Such statements are intended to operate as “forward looking statements” of thekind permitted by the Private Securities Litigation Reform Act of 1995,incorporated in Section 27A of the Securities Act and Section 21E of theSecurities Exchange Act of 1934, as amended. That legislation protects suchpredictive statements by creating a “safe harbor” from liability in the eventthat a particular prediction does not turn out as anticipated.

 

While we alwaysintend to express our best judgment when we make statements about what webelieve will occur in the future, and although we base these statements onassumptions that we believe to be reasonable when made, these forward-lookingstatements are not a guarantee of performance, and you should not place unduereliance on such statements. Forward-looking statements are subject to manyuncertainties and other variable circumstances, many of which are outside ofour control, that could cause our actual results and experience to differmaterially from those anticipated in these forward-looking statements. Theseforward-looking statements are affected by risks, uncertainties and assumptionsthat we make, which are more fully discussed in our Registration Statement onForm S-4 filed on July 3, 2002, and our other periodic reports filed with theSecurities and Exchange Commission. These risks and uncertainties include, butare not limited to, economic, competitive, legal and governmental factors overwhich Earle M. Jorgensen Company has no control.  Accordingly, there is no assurance that the expectationsreflected in such forward-looking statements will be realized.  We undertake no obligation to providerevisions to any forward-looking statements should circumstances change, exceptas otherwise required by securities and other applicable laws.

 

**Overview**

 

After many quarters of weak industrial economic conditions in the UnitedStates, in the last calendar quarter of 2003 the metal service center industrybegan to experience both growth in sales volume and increases in prices. Acombination of factors, including improved industrial demand, favorableexchange rates for exporting companies (unfavorable exchange rates forimporters of metals) continued low interest rates, and recent price increasesfrom mills because of higher raw material costs and higher capacityutilization, have begun to impact the metals service center industry.  While metals prices for most of calendar 2003were volatile due to competitive pressures and changes in availability ofinventories held by service centers or supplied by both domestic and foreignmills, these factors resulted in a general modest increase in metals prices inthe last calendar quarter of 2003 that appears to be continuing in theremainder of 2004.

 

Our tonnageshipped during the first nine months of fiscal 2004 increased approximately 5%when compared to the same period in fiscal 2003 due to increasing demand incertain key industries we serve. We believe we are gaining market share throughour core products strategy and excellent customer service, including our“on-time or free” delivery guaranty, and from productivity gains and otherbenefits realized from the expansion and automation of our Chicago facility,which was completed in June 2003.

 

7

----

 

Our increase inrevenues in the three months ended January 1, 2004, is primarily attributableto our increase in tons shipped.  If thetrend towards an increase in metals prices continues, it should contributefurther to an increase in revenues in the current quarter and the remainder ofcalendar 2004.

 

We believe thatour well-balanced inventories, valued-added capabilities, aggressive marketingand unequaled customer service have and will continue to differentiate us inthe marketplace and will position us to outperform the industry as the economicrecovery continues.

 

The followingtable provides a percentage breakdown of domestic sales to our ten largestindustries for the three months and nine months ended January 1, 2004 andDecember 31, 2002.

 
|                                        |   | **Three Months Ended** |   | **Nine Months Ended** |   |
|---------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                        |   | **January 1, 2004**    |   | **December 31, 2002** |   | **January 1, 2004** |   | **December 31, 2002** |   |
|                                        |   |                   |   |                  |   |   |   |   |   |
| Machine Tools                               |   | 28.6                   | %      | 27.4                  | %      | 27.7 | % | 27.3 | % |
| Transportation                              |   | 7.4                    |   | 8.2                   |   | 7.9 |   | 8.3 |   |
| Industrial Equipment                        |   | 7.9                    |   | 7.5                   |   | 7.8 |   | 7.8 |   |
| Metal Service Centers & Wholesale Trade |   | 6.0                    |   | 6.4                   |   | 6.1 |   | 6.3 |   |
| Fluid Power                                 |   | 6.2                    |   | 5.6                   |   | 6.0 |   | 5.7 |   |
| Fabricated Metal                            |   | 5.6                    |   | 5.7                   |   | 5.7 |   | 6.0 |   |
| Construction/Farm Equipment                 |   | 5.1                    |   | 5.5                   |   | 5.0 |   | 5.4 |   |
| Oil, Gas & Energy                       |   | 5.5                    |   | 6.1                   |   | 5.9 |   | 6.0 |   |
| Power Transmission Equipment                |   | 3.8                    |   | 3.3                   |   | 3.8 |   | 3.3 |   |
| Screw Machine Products                      |   | 4.9                    |   | 4.9                   |   | 4.8 |   | 5.0 |   |
| All Other Industries                        |   | 19.0                   |   | 19.4                  |   | 19.3 |   | 18.9 |   |
| Total                                       |   | 100                    | %      | 100                   | %      | 100 | % | 100 | % |

 

We continue tofocus on improving business processes and reducing costs and believe ourresults reflect the benefits realized from improved productivity and from ourability to maintain cost structures that are aligned with the prevailing levelsof business.  Our operating margin forthe first nine months of fiscal 2004 and fiscal 2003 was 6.3%,  excluding the loss from early retirement ofdebt in fiscal 2003.  As of January 1,2004, our total number of employees was 1,607, compared to 1,674 as of March31, 2003 and 1,684 as of December 31, 2002.

 

## **Statement of Operations and Other Data**

 

All informationcontained in the following table was derived from the historical financialstatements for the three and nine months ended January 1, 2004 and December 31,2002 included elsewhere herein.

 
|                                                         |   | **Three Months Ended** |    | **Nine Months Ended** |   |
|--------------------------------------------------------------|--------|------------------------|---------|-----------------------|--------|
| **(dollars in thousands)**                                   |   | **January  1, 2004**   |    | **%**                 |   | **December  31, 2002** |   | **%** |   | **January 1,  2004** |   | **%** |   | **December  31, 2002** |   | **%** |   |
| **Statement of Operations Data:**                            |   |                   |    |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                     |   | $                      | 248,785 |                  | 100.0  | % | $ | 223,573 |   | 100.0 | % | $ | 718,301 |   | 100.0 | % | $ | 673,936 |   | 100.0 | % |
| Gross Profit                                                 |   | 68,805                 |    | 27.7                  | %      | 63,719 |   | 28.5 | % | 199,907 |   | 27.8 | % | 190,596 |   | 28.3 | % |
| Operating expenses excluding the loss on retirement  of debt |   | 54,102                 |    | 21.7                  | %      | 49,903 |   | 22.3 | % | 154,970 |   | 21.6 | % | 148,274 |   | 22.0 | % |
| Loss on early retirement of debt                             |   | —                 |    | 0                     | %      | — |   | 0 | % | — |   | 0 | % | 12,278 |   | 1.8 | % |
| Income from operations                                       |   | 14,703                 |    | 5.9                   | %      | 13,816 |   | 6.2 | % | 44,937 |   | 6.3 | % | 30,044 |   | 4.5 | % |
| Net interest expense                                         |   | 12,995                 |    | 5.2                   | %      | 12,529 |   | 5.6 | % | 38,205 |   | 5.3 | % | 35,086 |   | 5.2 | % |
| Net income (loss)                                            |   | 1,237                  |    | 0.5                   | %      | 1,153 |   | 0.5 | % | 5,284 |   | 0.7 | % | (5,628 | ) | -0.8 | % |
|                                                              |        |                        |         |                       |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

8

----

 
|                                            |   | **Three Months Ended** |   | **Nine Months Ended**  |   |
|-------------------------------------------------|--------|------------------------|--------|------------------------|--------|
| **(dollars in thousands)**                      |   | **January  1, 2004**   |   | **December  31, 2002** |   | **January 1,  2004** |   | **December  31, 2002** |   |
| **Other Data:**                                 |   |                   |   |                   |   |   |   |   |   |
| EBITDA(1)                                       |   | $                      | 17,546 |                   | $      | 16,728 |   | $ | 53,425 |   | $ | 38,566 |   |
| Capital expenditures                            |   | 2,488                  |   | 3,903                  |   | 6,781 |   | 13,070 |   |
| Net cash flows used in operating activities     |   | (15,369                | )      | (8,906                 | )      | (27,310 | ) | (5,379 | ) |
| Net cash flows used in investing activities     |   | (1,491                 | )      | (1,399                 | )      | (4,291 | ) | (11,720 | ) |
| Net cash flows provided by financing activities |   | 10,755                 |   | 5,415                  |   | 18,838 |   | 5,673 |   |
|                                                 |        |                        |        |                        |        |  |  |  |  |  |  |  |  |

 

----

| (1) | (a) | “EBITDA” represents net  income (loss) before net interest expense, provision for income taxes and  depreciation and amortization. Consistent with Item 10(e) of Regulation S-K, our EBITDA has not been  adjusted to exclude any other non-cash charges (credits) or liabilities, such  as LIFO adjustments of $500, $(652), $500 and $(652) and accruals for  postretirement benefits aggregating $188 and $138,  $563 and $378 for the three months and nine-months ended  January 1, 2004 and December 31, 2002, respectively.  In addition, our EBITDA for the  nine-months ended December 31, 2002 has not been adjusted for a loss of $12,278  related to early retirement of debt.   We believe that EBITDA is commonly used as a measure of performance  for companies in our industry and is frequently used by analysts, investors,  lenders and other interested parties to evaluate a company’s financial  performance and its ability to incur and service debt.Our EBITDA is used by  management as a performance measure to assess our financial results in  connection with determining incentive compensation, and is also used by the  independent appraisal firm in connection with its annual valuation of our  equity.  While providing useful  information, our EBITDA should not be considered in isolation or as a  substitute for consolidated statement of operations and cash flows data  prepared in accordance with accounting principles generally accepted in the  United States, and should not be construed as an indication of a company’s  operating performance or as a measure of liquidity. |
|-----|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|                          |   | **Three Months Ended** |   | **Nine Months Ended**   |   |
|-------------------------------|--------|------------------------|--------|-------------------------|--------|
| **(dollars in thousands)**    |   | **January  1,  2004**  |   | **December  31,  2002** |   | **January  1,  2004** |   | **December  31,  2002** |   |
| Reconciliation of EBITDA:     |   |                   |   |                    |   |   |   |   |   |
| Net income (loss)             |   | $                      | 1,237  |                    | $      | 1,153 |   | $ | 5,284 |   | $ | (5,628 | ) |
| Depreciation and amortization |   | 2,843                  |   | 2,912                   |   | 8,488 |   | 8,522 |   |
| Net interest expense          |   | 12,995                 |   | 12,529                  |   | 38,205 |   | 35,086 |   |
| Provision for income taxes    |   | 471                    |   | 134                     |   | 1,448 |   | 586 |   |
| EBITDA                        |   | $                      | 17,546 |                    | $      | 16,728 |   | $ | 53,425 |   | $ | 38,566 |   |
| EBITDA Margin %               |   | 7.1                    | %      | 7.5                     | %      | 7.4 | % | 5.7 | % |

 

# **Results of Operations - Three Months Ended January1, 2004 Compared To Three Months Ended December 31, 2002**

 

*Revenues*.Revenues for the third quarter of fiscal 2004 increased 11.3% to $248.8million, from $223.6 million for the same period in fiscal 2003.  Revenues from our domestic operationsincreased 10.2% to $231.4 million in the third quarter of fiscal 2004, from$210.0 million for the same period in fiscal 2003, reflecting a 8.2% increasein tonnage shipped and higher average selling prices when compared to the thirdquarter of fiscal 2003.  The increasewas due to stronger demand for products sold to customers in certain key industrieswe serve, including fluid power, power transmission equipment and machinetools, offset by decreased shipments to customers in metal service centers andwholesale trade. Revenues from our Canadian operations increased 27.9% to $17.4million in the third quarter of fiscal 2004 from $13.6 million in the sameperiod in fiscal 2003, due to increased capacity and efficiencies from newerfacilities, effective marketing of core products and services and overallstronger economic conditions and favorable currency conversion rates.

 

*GrossProfit*. Gross profit for the third quarter of fiscal 2004increased 8.0% to $68.8 million, from $63.7 million for the same period infiscal 2003, while consolidated gross margins were 27.7% and 28.5%,respectively. The third quarter of fiscal 2004 included a LIFO charge of $0.5million compared to a credit of $0.7 million for the same period in fiscal2003. Gross profit from our Canadian operations was $4.3 million and grossmargin was 24.7% during the third quarter of fiscal 2004, compared to $2.9million and 21.3%, respectively, for the same period in fiscal 2003. Exclusiveof our Canadian operations and LIFO adjustments, gross margin was 28.1% for thethird quarter of fiscal 2004 versus 28.6% for the same period in fiscal 2003.

 

9

----

 

*Expenses*.Total operating expenses for the third quarter of fiscal 2004 increased 8.4% to$54.1 million (21.7% of revenues), from $49.9 million (22.3% of revenues) forthe same period in fiscal 2003. The increase in operating expenses generallyreflects the changes in variable expenses impacted by higher tonnage shipped,rising prices for certain goods and services, particularly healthcareinsurance, and an increase in expenses associated with added capacity,including, utilities, property tax, professional services and insuranceexpenses, the increase in professional services expense was primarilyattributable to accounting, legal and financial advisory fees in connectionwith the proposed merger and financial restructuring.  These higher expenses were partially offset by incomeattributable to our corporate-owned life insurance programs and benefitsrealized from ongoing cost reduction efforts and improved productivity.

 

Warehouseand delivery expenses for the third quarter of fiscal 2004 increased 5.6% to$33.8 million (13.6% of revenues), from $32.0 million (14.3% of revenues) forthe same period in fiscal 2003. The increase resulted primarily from highercosts for healthcare insurance, higher property tax accruals and increasedexpenses for utilities, freight and shipping due to higher tonnage shipped.

 

Sellingexpenses for the third quarter of fiscal 2004 increased 7.7% to $8.4 million(3.4% of revenues), from $7.8 million (3.5% of revenues) for the same period infiscal 2003. The increase resulted from higher healthcare insurance costs andincentive accruals.

 

Generaland administrative expenses for the third quarter of fiscal 2004 increased17.8% to $11.9 million (4.8% of revenues), from $10.1 million (4.5% ofrevenues) for the same period in fiscal 2003. The increase resulted from higherprofessional services expense, general insurance and costs associated with thecorporate office move from Brea, California, to Lynwood, California, offset byincreased income attributable to our corporate-owned life insurance programsand lower compensation expense resulting from ongoing cost reduction effortsand improved productivity.

 

*NetInterest Expense*. Net interest expense was $13.0 millionduring the third quarter of fiscal 2004 and $12.5 million during the sameperiod in fiscal 2003.  Such amountsinclude interest related to our long-term debt and borrowings against the cashsurrender value of corporate-owned life insurance policies we maintain, and theamortization of debt issue costs.

 

Interest expenseand amortization of debt issue costs related to our outstanding indebtedness(excluding interest on borrowings against the cash surrender value of ourcorporate-owned life insurance policies) totaled $7.8 million for the thirdquarter of fiscal 2004 and fiscal 2003. Our average outstanding indebtedness,excluding borrowings against the cash surrender value of our corporate-ownedlife insurance policies, during the third quarter of fiscal 2004 was $363.3 million,compared to $356.1 million for the same period in fiscal 2003. The increase inaverage outstanding indebtedness was due to increased borrowings under ourcredit facility. The weighted average interest rate on our indebtedness was7.69% during the third quarter of fiscal 2004 versus 7.95% during the sameperiod in fiscal 2003. During the three months ended January 1, 2004 andDecember 31, 2002, borrowings under our credit facility averaged $107.1 millionand $98.5 million, and the average interest rate on such borrowings was 3.95%and 4.56%, respectively.

 

Interestexpense associated with borrowings against the cash surrender value ofcorporate-owned life insurance policies we maintain was $5.3 million during thethird quarter of fiscal 2004, compared to $4.7 million for the same period infiscal 2003.

 

Theinterest rates on our existing senior secured notes and on the borrowings underthe corporate-owned life insurance policies are fixed at 9.75% and 11.76%,respectively.  The interest rate on ourcredit facility is floating (3.85% as of January 1, 2004).

 

*IncomeTaxes*. Income tax expense for the third quarter of fiscal2004 and 2003 included provisions for state franchise and foreign incometaxes.  Federal tax provisions for thethird quarter of fiscal 2004 and 2003 were offset by recognition of taxbenefits associated with our loss carryforwards.

 

# **Results of Operations - Nine Months Ended January1, 2004 Compared To Nine Months Ended December 31, 2002**

 

*Revenues*.Revenues for the first nine months of fiscal 2004 increased 6.6% to $718.3million, from $673.9 million for the same period in fiscal 2003.  Revenues from our domestic operationsincreased 5.5% to $670.6 million in the first nine months of fiscal 2004, from$635.4 million for the same period in fiscal 2003. The increase in domesticrevenues reflects a 3% increase in tonnage shipped attributable to strongerdemand for our products sold to customers in certain key industries we serve,including power transmission equipment, fluid power and oil, gas and energy.Revenues from our Canadian operations increased 23.9% to $47.7 million in thefirst nine months of fiscal 2004 from $38.5 million in the same period infiscal 2003, due to increased capacity and efficiencies from newer facilities,effective marketing of core products and overall stronger economic conditionsand favorable currency conversion rates.

 

10

----

 

*GrossProfit*. Gross profit for the first nine months of fiscal 2004increased 4.9% to $199.9 million, from $190.6 million for the same period infiscal 2003, while consolidated gross margins were 27.8% and 28.3%,respectively. The first nine months of fiscal 2004 included a LIFO charge of$0.5 million compared to a credit of $0.7 million for the same period in fiscal2003. Gross profit from our Canadian operations was $11.6 million and grossmargin was 24.2% during the first nine months of fiscal 2004, compared to $8.2million and 21.3%, respectively, for the same period in fiscal 2003. Exclusiveof our Canadian operations and LIFO adjustments, gross margin was 28.2% for thefirst nine months of fiscal 2004 versus 28.6% for the same period in fiscal2003.

 

*Expenses*.Total operating expenses for the first nine months of fiscal 2004 decreased3.5% to $155.0 million (21.6% of revenues), from $160.6 million (23.8% ofrevenues) for the same period in fiscal 2003. Fiscal 2003 includes a loss of$12.3 million resulting from early termination of debt. Excluding the loss onearly termination of debt, the increase in operating expenses generallyreflects the changes in variable expenses impacted by higher tonnage shippedand added capacity, including utilities, maintenance, fuel and freight, andproperty tax. In addition the first nine months of fiscal 2004 included highercosts for healthcare insurance, professional services, offset by incomeattributable to our corporate-owned life insurance programs, lower compensationexpense and gain on sale of surplus property. The increase in professionalservices was primarily attributable to accounting, legal and financial advisoryfees in connection with the proposed merger and financial restructuring.

 

Warehouseand delivery expenses for the first nine months of fiscal 2004 increased 5.1%to $98.7 million (13.7% of revenues), from $93.9 million (13.9% of revenues)for the same period in fiscal 2003. The increase resulted from higherhealthcare insurance costs, including utilities, depreciation, maintenance,fuel and property tax resulting from higher tonnage shipped, partially offsetby lower compensation expense resulting from ongoing cost reduction efforts andimproved productivity. As of January 1, 2004, 983 employees were involved inwarehouse and delivery activities, compared to 1,022 as of December 31, 2002.

 

Sellingexpenses for the first nine months of fiscal 2004 increased 5.0% to $25.0million (3.5% of revenues), from $23.8 million (3.5% of revenues) for the sameperiod in fiscal 2003. The increase resulted from higher healthcare insurancecosts and incentive accruals.

 

General andadministrative expenses for the first nine months of fiscal 2004 increased 2.3%to $31.3 million (4.4% of revenues) from $30.6 million (4.5% of revenues),excluding the loss of $12.3 million from early termination of debt in fiscal2003, for the same period in fiscal 2003. The increase resulted from higherprofessional services expense, general insurance and costs associated with thecorporate office move from Brea, California, to Lynwood, California, offset byincome recognized in connection with our corporate-owned life insuranceprograms, lower depreciation expense and a gain on sale of surplus property.

 

*NetInterest Expense*. Net interest expense was $38.2 millionduring the first nine months of fiscal 2004 and $35.1 million during the sameperiod in fiscal 2003.  Such amountsinclude interest related to our long-term debt and borrowings against the cashsurrender value of the corporate-owned life insurance policies we maintain, andthe amortization of debt issue costs.

 

Interest expenseand amortization of debt issue costs related to our outstanding indebtedness(excluding interest on borrowings against the cash surrender value of ourcorporate-owned life insurance policies) totaled $23.2 million for the firstnine months of fiscal 2004, compared to $21.7 million for the same period infiscal 2003.  The increase in interestexpense is the result of the larger principal amount and higher interest rateon our existing 9 3/4% seniorsecured notes as compared to our 91⁄2% senior notes and term loan which wereredeemed and repaid in the first nine months of fiscal 2003.  Our average outstanding indebtedness,excluding borrowings against the cash surrender value of our corporate-ownedlife insurance policies, during the first nine months of fiscal 2004 was $361.2million, compared to $353.3 million for the same period in fiscal 2003. Theincrease in average outstanding indebtedness was due to the issuance of $250million of our 9 3/4% seniorsecured notes on May 22, 2002 to redeem and repay aggregate indebtedness of$201 million represented by our 91⁄2% senior notes and term loan and an increasein borrowings under our credit facility. The weighted average interest rate on our indebtedness was 7.89% duringthe first nine months of fiscal 2004 versus 7.99% during the same period infiscal 2003. During the nine months ended January 1, 2004 and December 31,2002, borrowings under our credit facility averaged $104.3 million and $93.7million, respectively, and the average interest rate on such borrowings was4.04% and 4.84%, respectively.

 

Interestexpense associated with borrowings against the cash surrender value ofcorporate-owned life insurance policies we maintain was $15.1 million duringthe first nine months of 2004, compared to $13.4 million for the same period infiscal 2003.

 

11

----

 

Theinterest rates on our existing senior secured notes and on the borrowings underthe life insurance policies are fixed at 9.75% and 11.76%, respectively.  The interest rate on our credit facility isfloating (3.85% as of January 1, 2004).

 

*IncomeTaxes*. Income tax expense for the first nine months of fiscal2004 and 2003 included provisions for state franchise and foreign incometaxes.  Federal tax provisions for thefirst nine months of fiscal 2004 and 2003 were offset by recognition of taxbenefits associated with our loss carryforwards.

 

**Liquidityand Capital Resources**

 

Working capitalincreased to $181.5 million at January 1, 2004 from $150.2 million at March 31,2003, primarily as the result of higher inventories.  During the nine months of fiscal 2004 our primary source of cashconsisted of borrowings under our credit facility, which increased by $25.0million.  Our primary uses of cashincluded funding operating actvities, $27.3 million, and capital expenditures,$6.8 million.

 

Cash used in operatingactivities was $27.3 million in the first nine months of fiscal 2004, comparedto $5.4 million in the same period of fiscal 2003. The change was primarilyattributable to timing of payments to vendors relative to changes in workingcapital assets during the respective periods and the increase in inventory tosupport sales growth.

 

For fiscal 2004,we have planned approximately $10.0 million of capital expenditures to be financedfrom internally generated funds and borrowings under our credit facility.Approximately $8.4 million is for facility improvements and expansions(including a commitment of approximately $2.4 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.During the first nine months of fiscal 2004, we spent $6.8 million for plannedcapital expenditures, including $2.4 million for the Chicago project, whichbecame fully operational in June 2003.

 

Our ongoing cashrequirements for debt service and related obligations are expected to consistprimarily of interest payments under our credit facility, interest payments onour senior secured notes, dividend payments to Holding in connection with therequired repurchase of its capital stock from departing stockholders pursuantto Holding’s Stockholders’ Agreement and our stock bonus plan, capitalexpenditures and principal and interest payments on our industrial revenuebonds.  As of January 1, 2004, principalpayments required by our outstanding industrial revenue bond indebtednessamount to $2.1 million in fiscal year 2005, $1.2 million in fiscal year 2006,$0.7 million in fiscal years 2007 and 2008, and $1.5 million in the aggregatethereafter through fiscal year 2011. Our credit facility will mature in April2006 and we will not be required to make any principal payments on our seniorsecured notes until their maturity in fiscal year 2013.

 

As of January 1,2004, we were in compliance with all covenants under our credit facility,including maintenance of minimum working capital and a fixed-charge coverageratio.  We expect to be in compliancewith all of our debt covenants for the foreseeable future.

 

As of January 1,2004, our primary sources of liquidity were available borrowings of $81.5million under our credit facility, available borrowings of approximately $3.3million against certain life insurance policies we maintain and internally generatedfunds.  Borrowings under our creditfacility are secured by domestic inventory and accounts receivable. Theavailability of borrowings under our credit facility is determined by theprevailing levels of those assets.  Our 9 3/4% senior secured notes are secured by a first priority lien(subject to permitted liens) on substantially all of our current and futureacquired unencumbered real property, plant and equipment.  The life insurance policy loans are securedby the cash surrender value of the policies, are non-recourse, and bearinterest at a rate 0.5% greater than the dividend income rate on thepolicies.  For the first nine months offiscal 2004, dividend income earned under the policies totaled $12.4 million,compared to $12.2 million for the same period in fiscal year 2003 and isreported as an offset to general and administrative expenses in theaccompanying statements of operations. As of January 1, 2004, there wasapproximately $29.0 million of cash surrender value in all life insurance policieswe maintain, net of borrowings.

 

In addition, ourCanadian subsidiary has available its own credit facilities of up to CDN$8.6million, including a revolving credit facility of CDN$5.1 million, a termfinancial instruments facility of CDN$3.0 million to be used for hedgingforeign currency and rate fluctuations, and a special credit facility ofCDN$0.5 million for letters of guaranty in connection with a lease for ourfacility in Toronto. As of January 1, 2004, CDN$1.8 million (USD$1.4 million)was outstanding under the revolving credit facility and a letter of guarantyfor CDN$0.5 million (USD$0.4 million) was issued.  None of the term financial instruments facility was used as ofJanuary 1, 2004.

 

12

----

 

Excluding thechanges in borrowings under our credit facility, our commitments andcontractual obligations as of January 1, 2004 did not materially change fromthose disclosed in our Annual Report on Form 10-K for the year ended March 31,2003.

 

We believe oursources of liquidity and capital resources are sufficient to meet all currentlyanticipated operating cash requirements, including debt service payments on ourcredit facility and 9 3/4% seniorsecured notes prior to their scheduled maturities in fiscal years 2007 and2013, respectively; however, we anticipate that it will be necessary to replaceor to refinance all or a portion of our credit facility and the senior securednotes prior to their respective maturities, although there can be no assurance onwhat terms, if any, we would be able to obtain such refinancing or additionalfinancing. Our ability to make interest payments on our credit facility and thesenior secured notes will be dependent on maintaining the level of performancereflected in the last twelve months, which will be dependent on a number offactors, many of which are beyond our control, and the continued availabilityof revolving credit borrowings.

 

**CriticalAccounting Policies**

 

Management’sDiscussion and Analysis of Financial Position and Results of Operationsdiscusses our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. The preparation of these financial statementsrequires 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.  Management believes the critical accounting policies and areasthat require the most significant judgments and estimates to be used in thepreparation of the consolidated financial statements are revenue recognition,allowance for doubtful accounts, inventory reserves, pension and otherpostretirement benefits, insurance reserves, incentive compensation,contingencies and income tax accounting.  These critical accounting policies, which are fully discussed in ourAnnual Report on Form 10-K for the year ended March 31, 2003, have beenconsistently applied to the consolidated condensed financial statementsincluded herein. There have been no material changes made to the criticalaccounting policies during the periods presented in the accompanyingconsolidated condensed financial statements.

 

**Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

## ** **

In the ordinarycourse of business, we are exposed to various market risk factors caused bychanges in commodity prices, interest rates and foreign currency exchangerates.  We do not use financialinstruments or enter into hedging transactions for speculative or tradingpurposes with respect to managing these market risks.  However, we have used and will continue to evaluate the use offinancial instruments to reduce our exposure to higher interest costs duringperiods of rising interest rates.

 

At January 1, 2004and March 31, 2003, no such financial instruments existed.  Our exposure to changing interest rates islimited to our revolving credit facility such that our results of operationsand cash flows during the first nine months of fiscal 2004 would have been impactedby approximately $0.8 million for each 1% increase or decrease in theapplicable interest rate.

 

Our exposure tomarket risk for changes in foreign currency exchange rates is limited to ourCanadian operations 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 the first nine monthsof fiscal 2004 would have impacted our results of operations by approximately$0.3 million.  Due to our product mixand the frequency of our buying and selling activities over normal businesscycles, our exposure to changes in commodity prices is not considered material.   

 

**Item 4.  CONTROLS AND PROCEDURES**

 

As of the end of eachfiscal quarter, an evaluation is carried out by our Chief Executive Officer andChief Financial Officer, with the assistance of other members of management, ofthe effectiveness of the design and operation of disclosure controls andprocedures (as defined in Rule 15d-14(c) under the Securities Exchange Actof 1934). Based upon such evaluation as of January 1, 2004, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the disclosure controls andprocedures were effective in ensuring that all material information required tobe disclosed in the reports filed or submitted by the Company under theSecurities Exchange Act of 1934, as amended, is gathered, analyzed and reportedor otherwise made known to them as appropriate to allow timely decisionsregarding required disclosure. In designing and evaluating such disclosurecontrols and procedures, our management recognized that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurances of achieving the desired control objectives and theynecessarily were required to apply judgment in evaluating the cost-benefitrelationship of possible controls and procedures. We believe that ourdisclosure controls and procedures provide such reasonable assurance.  There have been no significant changes inour internal controls, or in other factors that could significantly affectthese controls, subsequent to the date the evaluation was completed.

 

 

13

----

 

# **PART II - OTHERINFORMATION**

 

**Item 4.****    SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS**

 

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

 

# **Item 5.  OTHER INFORMATION**

 

On January 14,2004, we announced that we had reached an agreement with Holding, our parent,and Holding’s principal security holders providing for a restructuring of ourcombined capital structure.  Thefinancial restructuring is being effected pursuant to an Agreement and Plan ofMerger and Reorganization dated as of December 18, 2003 among us, Holding and EMJMetals LLC, a newly-formed wholly-owned subsidiary, as well as an ExchangeAgreement among us, Holding and Kelso Investment Associates IV, L.P. andcertain of its affiliates (“Kelso”). The principal effect of the financial restructuring will be to convertall outstanding debt and equity securities of Holding to our common stock.  Kelso is the holder of Holding’s outstandingSeries A Variable Rate Notes and also is Holding’s controlling stockholder.

 

The consummationof the merger and the financial restructuring is subject to various customary conditions,including the approval of various classes of Holding’s stockholders by amajority of the stockholders of such classes other than Kelso and the consentof Holding’s lenders.  We anticipatethat a meeting of Holding’s stockholders will be held to address the mergerlate in the first calendar quarter of 2004. There is no assurance that the proposed merger will be approved by therequisite votes of Holding’s stockholders or that the other conditions to completionof the transaction will be satisfied. Thus there can be no assurance that the merger will be consummated.

 

If completed, thetransaction will not affect our day-to-day operations, and our customers,suppliers and employees will continue to deal with the Earle M. JorgensenCompany.  As a result of the merger andfinancial restructuring:

 

•      all of Holding’s outstanding Series AVariable Rate Notes in principal amount of $222.2 million would be exchangedfor 40,691,173 newly-issued shares of our common stock;

 

•      each outstanding share of Holding’sSeries B Preferred Stock would convert into 188.271 newly-issued shares of ourcommon stock;

 

•      each outstanding share of Holding’sSeries A Preferred Stock would convert into 124.840 newly-issued shares of ourcommon stock; and

 

•      each outstanding share of Holding’scommon stock would convert into one newly-issued share of our common stock.

 

In addition, aspart of the merger and financial restructuring, an aggregate of approximately2,932,534 shares of our common stock would be issued in exchange foroutstanding warrants to purchase Holding’s common stock.  Options to purchase approximately 2,101,000shares of Holding’s common stock (as of November 30, 2003) and any subsequentlyissued options would be assumed by us and exercisable for our common stock.  In connection with the merger, our boardalso authorized a new stock incentive plan providing for options to purchase upto 5,000,000 shares of our common stock. Following the merger and financial restructuring, we will haveapproximately 68,260,676 shares of common stock outstanding, not includingshares to be issuable upon exercise of options.  We filed a registration statement with the Securities andExchange Commission on January 13, 2004 relating to the shares of our commonstock proposed to be issued in the restructuring.

 

**Item 6.****      EXHIBITS AND REPORTS ON FORM8-K**

 
| (a)    |   | 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 and  Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                             |
|   |   |                                                                                                                                                                                                           |
| (b)    |   | Reports on Form  8-K                                                                                                                                                                                           |
|   |   | We furnished a report  on Form 8-K on January 28, 2004 under Item 12 announcing our results of  operations and financial position as of and for the three month and  nine-month periods ended January 1, 2004. |

 

14

----

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned hereunto dulyauthorized.

 
|                    | EARLE M. JORGENSEN  COMPANY                             |
|-------------------------|---------------------------------------------------------|
|                    |                                                    |
|                    |                                                    |
|                    | /s/ Maurice S. Nelson,  Jr.                             |   |
| Date: February 16, 2004 | Maurice S. Nelson, Jr.                                  |
|                    | President, Chief  Executive Officer and                 |
|                    | Chief Operating Officer                                 |
|                    |                                                    |
|                    |                                                    |
|                    | /s/ William S. Johnson                                  |   |
| Date: February 16, 2004 | William S. Johnson                                      |
|                    | Vice President, Chief  Financial Officer and            |
|                    | Secretary (Principal  Financial and Accounting Officer) |
|                         |                                                         |  |  |

 

15

----