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 quarterly period ended December 31, 2004. |
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 1-7537
EARLE M. JORGENSEN COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 95-0886610 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer | |
| 10650 Alameda Street, Lynwood, California | 90262 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: (323) 567-1122
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the aggregate market value of the voting stock held by non-affiliates of the registrant. None
Outstanding common stock, par value $.01 per share, at January 31, 2005—128 shares
TABLE OF CONTENTS
| Page | ||||
| PART I—FINANCIAL INFORMATION | ||||
| Item 1. | ||||
| Consolidated Condensed Balance Sheets at December 31, 2004 (unaudited) and March 31, 2004 |
2 | |||
| 3 | ||||
| 4 | ||||
| Notes to Consolidated Condensed Financial Statements (unaudited) |
5 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | ||
| Item 3. | 22 | |||
| Item 4. | 23 | |||
| PART II—OTHER INFORMATION | 24 | |||
| Item 1. | 24 | |||
| Item 4. | 26 | |||
| Item 6. | 26 | |||
| SIGNATURES | 28 | |||
1
PART I—FINANCIAL INFORMATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands, except share data)
| December 31, 2004 |
March 31, 2004 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 5,760 | $ | 15,528 | ||||
| Accounts receivable, less allowance for doubtful accounts of $1,868 and $601 at December 31, 2004 and March 31, 2004, respectively |
173,871 | 133,092 | ||||||
| Inventories |
281,307 | 225,248 | ||||||
| Other current assets |
8,976 | 7,655 | ||||||
| Total current assets |
469,914 | 381,523 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $89,284 and $97,873 at December 31, 2004 and March 31, 2004, respectively |
117,896 | 112,190 | ||||||
| Cash surrender value of life insurance policies |
31,820 | 34,689 | ||||||
| Debt issue costs, net of accumulated amortization |
5,920 | 6,909 | ||||||
| Other assets |
2,501 | 1,169 | ||||||
| Total assets |
$ | 628,051 | $ | 536,480 | ||||
| LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT) |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 158,060 | $ | 162,648 | ||||
| Accrued employee compensation and related taxes |
17,007 | 19,207 | ||||||
| Accrued employee benefits |
13,044 | 12,744 | ||||||
| Accrued interest |
6,627 | 17,352 | ||||||
| Accrued stock bonus plan special contribution |
12,601 | — | ||||||
| Other accrued liabilities |
16,591 | 8,616 | ||||||
| Deferred income taxes |
17,517 | 17,517 | ||||||
| Current portion of long-term debt |
2,320 | 3,976 | ||||||
| Total current liabilities |
243,767 | 242,060 | ||||||
| Long-term debt |
344,428 | 305,762 | ||||||
| Deferred income taxes |
17,869 | 17,869 | ||||||
| Other long-term liabilities |
13,382 | 8,148 | ||||||
| Commitments and contingencies |
||||||||
| 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 |
21,194 | 29,503 | ||||||
| Accumulated other comprehensive income (loss): |
||||||||
| Foreign currency translation adjustment |
1,268 | (73 | ) | |||||
| Additional minimum pension liability |
(2,625 | ) | (2,625 | ) | ||||
| Accumulated deficit |
(11,232 | ) | (64,164 | ) | ||||
| Total stockholders’ equity (deficit) |
8,605 | (37,359 | ) | |||||
| Total liabilities and stockholder’s equity (deficit) |
$ | 628,051 | $ | 536,480 | ||||
See accompanying notes
2
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(dollars in thousands)
| Three Months Ended |
Nine Months Ended | ||||||||||||
| December 31, 2004 |
January 1, 2004 |
December 31, 2004 |
January 1, 2004 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||||
| Revenues |
$ | 401,683 | $ | 248,785 | $ | 1,152,589 | $ | 718,301 | |||||
| Cost of sales |
293,932 | 179,980 | 828,735 | 518,394 | |||||||||
| Gross profit |
107,751 | 68,805 | 323,854 | 199,907 | |||||||||
| Expenses: |
|||||||||||||
| Warehouse and delivery |
39,964 | 33,830 | 116,052 | 98,657 | |||||||||
| Selling |
9,662 | 8,401 | 34,972 | 25,031 | |||||||||
| General and administrative |
41,721 | 11,871 | 69,067 | 31,282 | |||||||||
| Total expenses |
91,347 | 54,102 | 220,091 | 154,970 | |||||||||
| Income from operations |
16,404 | 14,703 | 103,763 | 44,937 | |||||||||
| Interest expense, net |
14,101 | 12,995 | 40,534 | 38,205 | |||||||||
| Income before income taxes |
2,303 | 1,708 | 63,229 | 6,732 | |||||||||
| Income tax (benefit) expense |
(1,982 | ) | 471 | 10,297 | 1,448 | ||||||||
| Net income |
$ | 4,285 | $ | 1,237 | $ | 52,932 | $ | 5,284 | |||||
See accompanying notes
3
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
| Nine Months Ended |
||||||||
| December 31, 2004 |
January 1, 2004 |
|||||||
| (unaudited) | ||||||||
| Operating Activities: |
||||||||
| Net income |
$ | 52,932 | $ | 5,284 | ||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Special contribution to stock bonus plan |
17,327 | — | ||||||
| Depreciation and amortization |
8,780 | 8,488 | ||||||
| Amortization of debt issue costs |
989 | 992 | ||||||
| Accrued postretirement benefits |
611 | 563 | ||||||
| Gain on sale of property, plant and equipment |
(1,452 | ) | (1,194 | ) | ||||
| Stock-based compensation |
1,557 | — | ||||||
| Provision for bad debts |
2,153 | 2,338 | ||||||
| Increase in cash surrender value of life insurance over |
||||||||
| premiums paid |
4,016 | 929 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(42,932 | ) | (10,568 | ) | ||||
| Inventories |
(56,059 | ) | (13,952 | ) | ||||
| Other current assets |
(1,321 | ) | (904 | ) | ||||
| Accounts payable and accrued liabilities and expenses |
(9,238 | ) | (20,906 | ) | ||||
| Non-trade receivable |
— | (425 | ) | |||||
| Other |
(311 | ) | 2,045 | |||||
| Net cash used in operating activities |
(22,948 | ) | (27,310 | ) | ||||
| Investing Activities: |
||||||||
| Additions to property, plant and equipment |
(19,606 | ) | (6,781 | ) | ||||
| Proceeds from the sale of property, plant and equipment |
6,714 | 1,388 | ||||||
| Premiums paid on life insurance policies |
(1,271 | ) | (1,198 | ) | ||||
| Proceeds from redemption of life insurance policies |
124 | 2,300 | ||||||
| Net cash used in investing activities |
(14,039 | ) | (4,291 | ) | ||||
| Financing Activities: |
||||||||
| Net borrowings under revolving loan agreements |
39,125 | 25,000 | ||||||
| Other debt payments |
(2,115 | ) | (1,400 | ) | ||||
| Cash dividend to Parent |
(9,866 | ) | (4,762 | ) | ||||
| Net cash provided by financing activities |
27,144 | 18,838 | ||||||
| Effect of exchange rate changes on cash |
75 | 28 | ||||||
| Net decrease in cash and cash equivalents |
(9,768 | ) | (12,735 | ) | ||||
| Cash and cash equivalents at beginning of period |
15,528 | 20,030 | ||||||
| Cash and cash equivalents at the end of the period |
$ | 5,760 | $ | 7,295 | ||||
See accompanying notes
4
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
DECEMBER 31, 2004
| 1. | Basis of Presentation and Consolidation |
Earle M. Jorgensen Company (the “Company”) became a wholly-owned subsidiary of Earle M. Jorgensen Holding Company, Inc. (the “Parent” or “Holding”) as the result of a series of business combinations and mergers effective April 1, 1990.
The accompanying unaudited consolidated condensed financial statements include the accounts of the Company and its wholly-owned subsidiaries: Earle M. Jorgensen (Canada) Inc. and Stainless Insurance Ltd., a captive insurance subsidiary. All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and include all adjustments (consisting of normally recurring accruals) and disclosures considered necessary for a fair presentation of the consolidated financial position of the Company at December 31, 2004 and the consolidated results of operations and cash flows for the three months and nine months ended December 31, 2004 and January 1, 2004. The consolidated results of operations for the three and nine months ended December 31, 2004 are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2004.
Certain prior year amounts have been reclassified to conform to the current year presentation.
| 2. | The components of comprehensive income are as follows: |
| Three Months Ended |
Nine Months Ended | |||||||||||
| December 31, 2004 |
January 1, 2004 |
December 31, 2004 |
January 1, 2004 | |||||||||
| Net earnings |
$ | 4,285,000 | $ | 1,237,000 | $ | 52,932,000 | $ | 5,284,000 | ||||
| Foreign currency translation adjustment |
723,000 | 862,000 | 1,341,000 | 2,305,000 | ||||||||
| Comprehensive income |
$ | 5,008,000 | $ | 2,099,000 | $ | 54,273,000 | $ | 7,589,000 | ||||
| 3. | Income from Redemption of Life Insurance Policies |
Included in general and administrative expense is income from redemption of company owned life insurance policies of none, $835,000, $318,000 and $4,359,000 for the three months and nine months ended December 31, 2004 and January 1, 2004, respectively.
| 4. | Stock-Based Compensation |
During December 2004, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, using the modified-prospective transition method, for all employee awards granted, modified or settled after April 1, 2004, as permitted by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of FASB Statement No. 123. In accordance with SFAS No. 123, the Company estimated the fair value of options using an option-pricing model, which takes into account assumptions such as the dividend yield, the risk-free interest rate, and the expected life of the options. The Company’s common stock is not currently traded on a national securities exchange or an over-the-counter market, and therefore an effectively zero percent volatility was used. The dividend yield is excluded from the calculation, as it is the Company’s intention to retain all future earnings. All stock options had fully vested prior to the adoption of SFAS No. 123.
5
Until the adoption of SFAS No. 123 in December 2004, stock options granted to directors, officers and other key employees of the Company under Holding’s stock option plan adopted in January 1997 were accounted for in accordance with APB No. 25. As all stock option grants have been made at fair value on the date of grant, the Company had not recognized any compensation cost. Had compensation expense for stock options granted been recorded based on the fair value method under SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, the effect on the Company’s net income for the three months and nine months ended January 1, 2004 and December 31, 2004 would have been as follows:
| Three Months Ended |
Nine Months Ended |
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| December 31, 2004 |
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