[TEXT]
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-22603
BAYOU STEEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-1125783
(State of incorporation) (I.R.S. Employer
Identification No.)
River Road, P.O. Box 5000, LaPlace, Louisiana 70069
(Address of principal executive offices)
(Zip Code)
(504) 652-4900
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at March 31, 1994
Class A Common Stock, $.01 par value 10,613,380
Class B Common Stock, $.01 par value 2,271,127
Class C Common Stock, $.01 par value 100
----------
12,884,607
==========
2
BAYOU STEEL CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Balance Sheets -- March 31, 1994
and September 30, 1993 3
Statements of Income (Loss) --
Six Months Ended
March 31, 1994 and 1993 5
Statements of Cash Flows -- Six Months
Ended March 31, 1994 and 1993 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
Results of Operations 11
Liquidity and Capital Resources 14
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 15
3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BAYOU STEEL CORPORATION
BALANCE SHEETS
ASSETS
(Unaudited) (Audited)
March 31, September 30
1994 1993
------------ -------------
CURRENT ASSETS:
Cash and temporary cash investments $ 3,854,195 $ 517,900
Trade receivables 15,883,016 18,350,338
Other receivables 632,968 326,569
Inventories 58,472,780 48,486,408
Prepaid expenses 553,951 222,277
------------ ------------
Total current assets 79,396,910 67,903,492
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 4,134,962 4,124,002
Machinery and equipment 73,186,410 72,954,682
Plant and office building 12,663,242 12,663,242
Construction in progress 3,975,749 3,302,603
Less-Accumulated depreciation (26,126,062) (23,785,622)
------------ ------------
Net property, plant and equipment 67,834,301 69,258,907
------------ ------------
OTHER ASSETS 3,696,505 1,117,788
------------ ------------
Total assets $150,927,716 $138,280,187
============ ============
The accompanying notes are an integral part of these financial statements.
4
BAYOU STEEL CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited) (Audited)
March 31, September 30,
1994 1993
------------- -------------
CURRENT LIABILITIES:
Accounts payable $ 13,392,605 $ 17,671,923
Accrued liabilities 5,964,140 4,560,249
Current maturities of long-term debt 335,428 9,282,156
Borrowings under line of credit -- 4,000,000
------------ ------------
Total current liabilities 19,692,173 35,514,328
------------ ------------
LONG-TERM DEBT:
Senior secured notes 75,000,000 39,900,000
Notes payable 932,474 1,634,625
------------ ------------
Total long-term debt 75,932,474 41,534,625
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A 106,134 106,134
Class B 22,711 22,711
Class C 1 1
------------ ------------
Total common stock 128,846 128,846
Paid-in capital 44,890,554 44,890,554
Retained earnings 10,283,669 16,211,834
------------ ------------
Total stockholders' equity 55,303,069 61,231,234
------------ ------------
Total liabilities & stockholders'
equity $150,927,716 $138,280,187
============ ============
The accompanying notes are an integral part of these financial statements.
5
BAYOU STEEL CORPORATION
STATEMENTS OF INCOME (LOSS)
(Unaudited)
Second Quarter Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
------------ ------------ ------------ ------------
NET SALES $ 37,432,807 $ 33,407,778 $ 74,211,296 $ 65,240,707
COST OF SALES 33,857,736 31,367,380 68,416,060 59,565,939
------------ ------------ ------------ ------------
GROSS PROFIT 3,575,071 2,040,378 5,795,236 5,674,768
SELLING, GENERAL
& ADMINISTRATIVE
EXPENSES 989,127 1,029,362 1,878,976 2,110,055
NON-PRODUCTION
STRIKE EXPENSES 238,064 728,365 637,245 728,365
------------ ------------ ------------ ------------
OPERATING INCOME 2,347,880 282,671 3,279,015 2,836,348
------------ ------------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (1,935,521) (1,972,012) (3,820,135) (4,196,630)
Interest income 130,936 32,672 151,383 84,993
Miscellaneous (30,313) (40,448) (70,212) (75,127)
------------ ------------ ------------ ------------
(1,834,898) (1,979,788) (3,738,964) (4,186,764)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES
& EXTRAORDINARY ITEMS 512,982 (1,697,117) (459,949) (1,350,416)
PROVISION FOR
INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS 512,982 (1,697,117) (459,949) (1,350,416)
EXTRAORDINARY GAIN (LOSS),
NET OF APPLICABLE
INCOME TAX (5,468,216) -- (5,468,216) 755,788
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (4,955,234) $ (1,697,117) $ (5,928,165) $ (594,628)
============ ============ ============ ============
AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 12,884,607 12,884,607 12,884,607 12,884,607
============ ============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before
extraordinary
items $ .04 $ (.13) $ (.04) $ (.11)
Extraordinary gain
(loss) (.42) -- (.42) .06
------------ ------------- ------------ ------------
Income (loss) per
common share $ (.38) $ (.13) $ (.46) $ (.05)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
6
BAYOU STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (5,928,165) $ (594,628)
Extraordinary loss (gain) 5,468,216 (755,788)
Depreciation and amortization 2,572,331 2,455,040
Provision for losses on accounts
receivable 218,949 185,394
Changes in working capital:
Decrease (increase) in receivables 1,941,975 (459,524)
(Increase) decrease in inventories (9,986,371) 3,176,002
(Increase) in prepaid expenses (331,674) (311,641)
(Decrease) in accounts payable (4,279,318) (3,730,843)
Increase (decrease) in accrued
liabilities 1,403,890 (323,932)
------------ ------------
Net cash (used in)
operations (8,920,167) (359,920)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant
and equipment (915,835) (2,139,120)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) under line of credit (4,000,000) --
Payments of long-term debt (49,548,878) (3,852,945)
Proceeds from issuance of long-term debt 75,000,000 256,296
Refinancing cost (8,278,825) --
Net cash provided by (used in)
financing activities 13,172,297 (3,596,649)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,336,295 (6,095,689)
CASH AND CASH EQUIVALENTS,
beginning balance 517,900 11,149,702
CASH AND CASH EQUIVALENTS,
ending balance $ 3,854,195 $ 5,054,013
The accompanying notes are an integral part of these financial statements.
7
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1994
(Unaudited)
1) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. Although Bayou Steel Corporation (the Company) believes that
disclosures made are adequate to ensure that information presented is not
misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report, Form 10-K, filed with the SEC on December 13,
1993 under File Number 33-22603.
In the opinion of the Company, the accompanying unaudited financial
statements present fairly the Company's financial position as of March 31, 1994
and September 30, 1993 and the results of its operations for the six-month
periods ended March 31, 1994 and 1993 and the cash flow statements for the six-
month periods ended March 31, 1994 and 1993.
The results of operations for the six-month periods ended March 31, 1994
and 1993 are not necessarily indicative of the results for the full year.
2) INVENTORIES
Inventories as of March 31, 1994 and September 30, 1993 consisted of the
following:
(Unaudited) (Audited)
March 31, September 30,
1994 1993
Scrap steel $ 2,777,515 $ 3,187,963
Billets 2,581,158 3,918,223
Finished product 38,015,572 25,242,294
LIFO adjustments (1,801,242) (324,303)
------------ ------------
$ 41,573,003 $ 32,024,177
Mill rolls, operating
supplies and other 16,899,777 16,462,231
------------ ------------
$ 58,472,780 $ 48,486,408
The inventory valuations are based on LIFO estimates of year-end levels
and prices. The actual LIFO inventories will not be known until year-end
quantities and indices are determined.
Shapes, billets, scrap steel, and certain production supplies are pledged
as collateral against the Company's line of credit.
8
3) PROPERTY, PLANT AND EQUIPMENT
Betterments, improvements, and additions on property, plant and equipment
are capitalized at cost. Interest during construction of significant additions
is capitalized. Interest of $38,000 and $50,000 was capitalized during the six-
month periods ended March 31, 1994 and 1993, respectively. Interest of $115,000
was capitalized during the fiscal year ended September 30, 1993.
4) OTHER ASSETS
Other assets consist of costs associated with the issuance of the 10.25%
First Mortgage Notes (the 10.25% Notes) and the Company's revolving line of
credit (see Notes 5 and 6) which are being amortized over the lives of the
related debt. The Company wrote off $953,000 of other assets related to the
14.75% Senior Secured Notes and capitalized $3,268,000 of deferred financing
cost related to the 10.25% Notes. Amortization expense was $143,000 and
$166,000 for the six-month periods ended March 31, 1994 and 1993. Amortization
expense was $458,000 for the fiscal year ended September 30, 1993.
5) LONG-TERM DEBT
On March 3, 1994, the Company issued $75 million of 10.25% First Mortgage
Notes. The proceeds were used to redeem and defease the 14.75% Senior Secured
Notes and to repay the borrowings under the new revolving line of credit. The
remaining proceeds will be used to implement a two year capital expenditure
program directed toward cost reduction and general working capital purposes.
For more information on the refinancing of debt, please refer to the Company's
latest annual report, Form 10-K, filed with the SEC on December 13, 1993 under
File Number 33-22603 and Form S-1 filed on February 21, 1994.
6) SHORT-TERM DEBT
On November 23, 1993, the Company entered into an amendment and
restatement of its revolving line of credit agreement. The terms of the amended
and restated agreement call for available borrowings up to $30 million including
outstanding letters of credit. The agreement is secured by inventory and
accounts receivable at interest rates of prime plus 1% or LIBOR plus 2%. There
were no outstanding borrowings under the line as of March 31, 1994.
Maximum and average borrowings and weighted average interest rates on
short-term borrowings during the fiscal year 1994 through March 3, 1994 when the
borrowings were repaid, were as follows:
Maximum borrowings outstanding. . . . . . . . . $7,900,000
Average borrowings outstanding. . . . . . . . . $5,156,000
Weighted average interest rate. . . . . . . . . 5.2%
7) TAXES
As of September 30, 1993, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $310.5 million and $284.5 million
available to offset against regular tax and alternative minimum tax,
respectively. Due to the fact that book and tax losses were generated in 1993,
1992 and 1991, there was no provision for income taxes in any of these years.
The NOLs will expire in varying amounts through fiscal 2008. A
substantial portion of the available NOLs, approximately $200 million, expires
by fiscal 2000. In addition, the Company has $30.2 million of future tax
benefits attributable to its tax benefit lease which expires in 1996 and which
may, to the extent of taxable income in the year such tax benefit is produced,
be utilized
9
prior to the NOLs. Even though management believes the Company will
be profitable in the future and will be able to utilize a portion of the NOLs,
management does not believe that it is likely that all of the NOLs will be
utilized. In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"), which was adopted beginning October 1, 1993. FAS 109
requires, among other things, recognition of future tax benefits, subject to a
valuation allowance based on the likelihood of realizing such benefits.
Deferred tax assets of approximately $118 million (NOLs and other temporary
timing differences multiplied by the federal income tax rate) and deferred tax
liabilities of approximately $8 million were recorded upon adoption of FAS 109
in the first quarter of fiscal 1994. However, in recording these deferred
assets, FAS 109 requires the Company to determine whether it is "more likely
than not" that the Company will realize such benefits and that all negative and
positive evidence be considered (with more weight given to evidence that is
"objective and verifiable") in making the determination. FAS 109 indicates that
"forming a conclusion that a valuation allowance is not needed is difficult when
there is negative evidence such as cumulative losses in recent years";
therefore, the Company has determined that it is required by the provisions of
FAS 109 to establish a valuation allowance for all of the recorded net deferred
tax assets. In view of the fact that this determination is based primarily on
historical losses with no regard for the impact of proposed capital expenditures
and business plans, future favorable adjustments to the valuation allowance may
be required if and when circumstances change and the Company returns to
profitability. Adoption of FAS 109 will have no material adverse impact on
income for financial reporting or tax purposes.
8) MISCELLANEOUS
Miscellaneous for the six-month period ended March 31, 1994 and 1993
included the following:
March 1994 March 1993
Discounts earned $ 118,139 $ 55,256
Provision for bad debts (218,948) (185,393)
Other 30,597 55,010
---------- ----------
$ (70,212) $ (75,127)
========== ==========
9) COMMON STOCKHOLDERS' EQUITY
Common stock as of March 31, 1994 and 1993 consisted of:
Class A Class B Class C
Authorized 24,271,127 4,302,347 100
Outstanding, at end of
quarter 10,613,380 2,271,127 100
Average outstanding for
quarter 10,613,380 2,271,127 100
10) COMMITMENTS AND CONTINGENCIES
Strike
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike against the Company. Negotiations on a new contract
have continued, but differences have thus far precluded an agreement. The
10
Company cannot predict the impact that a new collective bargaining contract will
have on the Company's results. However, the Company believes its last contract
proposal or a new contract will not have any adverse material effect upon the
Company's results. The Company can not predict the impact that workers
returning under a new contract may have upon results, although it could disrupt
operations and result in additional costs for a time. Also, the Union has filed
charges with the National Labor Relations Board alleging that the Company has
violated the National Labor Relations Act relating to its bargaining conduct.
The Company believes it has meritorious defenses to these charges and has
responded timely to all of these allegations and believes that it has negotiated
in good faith with the Union. It is management's opinion that an unfavorable
decision by the National Labor Relations Board would not result in any liability
to the Company. As a result, management does not believe that any such decision
would materially affect its results of operations, liquidity, financial position
or ability to comply with its debt covenants.
Environmental
The Company is subject to various Federal, state and local laws and
regulations concerning the discharge of contaminants which may be emitted into
the air, discharged into waterways, and the disposal of solid and/or hazardous
wastes such as electric arc furnace dust. In addition, in the event of a
release of a hazardous substance generated by the Company, the Company could be
potentially responsible for the remediation of contamination associated with
such a release. In the past, the Company's operations in some respects have not
met all of the applicable standards promulgated pursuant to such laws and
regulations. At this time, the Company believes that it is in compliance in all
material respects with applicable environmental requirements and that the cost
of such continuing compliance will not have a material adverse effect on the
Company's competitive position, operations or financial condition, or cause a
material increase in currently anticipated capital expenditures. The Company
currently has no mandated expenditures to address previously contaminated sites
and does not anticipate any infrequent or non-recurring clean-up expenditures.
Also, the Company is not designated as a Potential Responsible Party ("PRP")
under the Superfund legislation.
Other
There are various claims and legal proceedings arising in the ordinary
course of business pending against or involving the Company wherein monetary
damages are sought. It is management's opinion that the Company's liability,
if any, under such claims or proceedings would not materially affect its results
of operations, liquidity, financial position or ability to comply with its debt
covenants.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The Company's results for the second quarter of fiscal 1994 were mainly
affected by three factors. First, the metal margin, the spread between the
selling price of the Company's products and the cost of scrap metal, was $7 per
ton higher than the same period of last year. During this quarter, the Company
initiated several price increases in response to earlier scrap price increases.
The shape price increases finally caught up with the scrap increases resulting
in improved margins in the second quarter. Second, conversion cost, the cost
to convert scrap metal into shapes, decreased approximately 11% per ton compared
to the second fiscal quarter of last year. Third, strike-related expenses,
compared to the second quarter of last year, are significantly lower. As a
result, the Company posted an income of $513,000 before an extraordinary loss
which represents a swing in earnings of $2.2 million compared to the second
quarter of fiscal 1993.
The extraordinary loss was caused by the early redemption and defeasment
of the 14.75% Senior Secured Notes. The loss includes prepayment penalties,
interest during the defeasment period, and the write-off of the unamortized
portion of deferred financing cost. This debt was replaced with $75 million of
10.25% First Mortgage Notes which are due in 2001.
The Company's results for the first six months of fiscal 1994 were
primarily impacted by the following factors. First, the metal margin was $3 per
ton lower in the first six months of fiscal 1994 compared to the same period of
fiscal 1993 as shape price increases lagged behind first quarter scrap price
increases. Second, in the first six months of fiscal 1993, the Company
benefitted from adjustments due to a refund from the power company and an
adjustment for completing shutdown maintenance projects for less than expected;
there were no such favorable adjustments in the first six months of fiscal 1994.
Third, the conversion cost for these comparable periods decreased by 8%.
Fourth, shape shipments increased by 5.4%. The improved conversion costs and
increased shipment level more than offset the decrease in metal margin and the
absence of any unusual favorable adjustments. Consequently, the Company posted
a $460,000 loss before the extraordinary loss of $5.5 million due to
refinancing; this represents a $0.9 million improvement in earnings compared to
the same prior fiscal year period.
The following table sets forth shipment and sales data for the periods
indicated.
Second Quarter Ended Six Months Ended
March 31, March 31,
1994 1993 1994 1993
Net Sales (in thousands) $ 37,433 $ 33,408 $ 74,211 $ 65,241
Shape Shipment Tons 104,722 104,752 207,890 197,239
Shape Selling Price Per Ton $ 340 $ 298 $ 331 $ 297
Billet Shipment Tons 5,882 7,494 19,257 25,982
Billet Selling Price Per Ton $ 226 $ 207 $ 225 $ 203
A. Sales
Net sales increased by 12% in the second quarter of fiscal 1994 compared
to the second quarter of fiscal 1993 due primarily to an 13.5% increase in shape
selling prices. Net sales increased by 14% in the first six months of fiscal
1994 compared to the same period of fiscal 1993 due primarily to an 11.5%
increase in shape selling prices and a 5.4% increase in shape shipments.
12
Shapes - Shape shipment tons for the second quarter o
in-line with shipments for the same period of fiscal 1993. During this period,
severe weather in the Mid-West, Mid-Atlantic and New England states hampered
shipments from the service centers to end-users, affecting demand. Severe
weather also hampered the Company's ability to transport shapes from the
manufacturing facility to the Company's stocking locations in these regions
thereby affecting the Company's opportunity to further increase shape shipments
in the second quarter of fiscal 1994. The 5.4% increase in shape shipments in
the first six months of fiscal 1994, compared to the same period of fiscal 1993,
is attributable to an improving economy and the Company's improved product mix
and availability. Backlog of orders at March 31, 1994 is twice last year's
amount and is the highest in the Company's history.
Shape prices increased by 13.5% and 11.5% in the second quarter and first
six months of fiscal 1994 compared to the same periods of fiscal 1993. These
higher prices were primarily in response to sharp increases in scrap costs. The
overall price increases only partially offset the scrap increases for the first
quarter of fiscal 1994 as shape price increases lagged behind scrap price
increases. However, shape selling price increases offset these scrap price
increases by the second fiscal quarter resulting in increased margin compared
to the same period of fiscal 1993. Also, during the second quarter of fiscal
1994 the Company was able to capitalize on selling greater volumes of higher
priced products and significantly reducing competitive allowances compared to
the same period of fiscal 1993.
Billets - Shipments of billets, the Company's semi-finished product,
decreased 1,612 tons and 6,725 tons in the second quarter and first six months
of fiscal 1994 compared to the same periods of fiscal 1993. More billets were
required by the Rolling Mill due to higher shape production levels. The overall
selling price of billets increased in the second quarter and the first six
months of fiscal 1994 compared to the same periods of fiscal 1993 by 9% and 11%,
respectively, due to increasing raw material costs. However, the average billet
metal margin for the second fiscal quarter and the first six months of fiscal
1994 compared to the same periods of fiscal 1993 were $15 and $16 per ton lower,
respectively. Since billet prices for a major billet customer are related to
prior month's scrap prices, the Company expects margins to improve once scrap
prices stabilize or decrease. Shipments should improve as the Company's
availability improves.
B. Cost of Sales
The major component of cost of sales is scrap. In the second quarter and
first six months of fiscal 1994, average steel scrap cost was approximately $34
and $37 per ton higher than the average steel scrap cost for the same periods
of fiscal 1993.
Another significant portion of cost of sales is conversion costs, which
include labor, energy, maintenance materials and supplies used to convert raw
materials into billets and billets into shapes. Conversion cost per ton in the
second quarter and first six months of fiscal 1994 decreased by 11% and 8% per
ton, respectively, compared to the same periods of fiscal 1993. The decrease
in conversion cost was due to the reduced per ton fixed costs resulting from
increased production and productivity in the second quarter and first six months
of fiscal 1994 compared to the same periods of fiscal 1993. In the first six
months of fiscal 1993, the Company's Melt Shop was operating six days per week.
In the first quarter of fiscal 1994, the Company's Melt Shop was operating seven
days per week. In November of fiscal 1993, the Rolling Mill had a shutdown for
major maintenance thereby reducing production. Also operations worked a reduced
schedule beginning March 21, 1993 due to the strike. The current work force is
well trained and performing at a very high skill level. The Melt Shop
established a one furnace production record in March. The Rolling Mill for the
second quarter of fiscal 1994 operated at 112% of pre-strike levels.
13
The Company expects fuel costs to temporarily increase in the third
quarter due to the power company's planned shutdown of the inexpensive nuclear
plants. Prices on carbon supply items appear to be strengthening. Scrap prices
appear to be declining in the third fiscal quarter of 1994.
Negotiations on a new labor contract have continued, but differences have
thus far precluded an agreement. The Company believes its last contract
proposal or a new contract will not have any adverse material effect upon the
Company's results. The Company can not predict the impact that workers
returning under a new contract may have upon results, although it could disrupt
operations and result in additional costs for a time.
C. Selling, General and Administrative Expense
Selling, general and administrative expenses decreased by 3.9% and 11.0%,
respectively, in the second fiscal quarter and first six months of fiscal 1994
compared to the same periods of fiscal 1993 due to reductions in collection
expenses, travel, legal and consulting fees.
D. Non-Production Strike Expenses
Strike-related expenses for the second quarter and the first six months
of fiscal 1994 were $238,000 and $637,000, respectively, compared to $728,000
for both the second quarter and the first six months of fiscal 1993. Given the
same level of strike-related activity, the Company expects that future strike-
related costs will not exceed $100,000 per month. These expenses are primarily
incurred for legal and security services.
E. Other Income (Expense)
Interest expense decreased in the first six months of fiscal 1994 compared
to the same periods of fiscal 1993 due to the Company purchasing $11.1 million
of its 14.75% Notes in fiscal 1993. The Company accrued interest on the
remainder of the 14.75% Notes in the first six months of fiscal 1994 at a rate
of 14.75%. Interest expense for the comparable second quarters were
approximately the same. Interest income increased in the second quarter and the
first six months of fiscal 1994 compared to the same periods of fiscal 1993 due
to investing excess cash from the $75 million 10.25% notes issued.
Miscellaneous expenses were approximately the same in the comparable periods.
F. Net Income/Loss
The net income of $513,000 before the extraordinary loss for the second
quarter of fiscal 1994 represents a favorable swing of $2.2 million compared to
the same period of fiscal 1993. This was due to three main reasons. First, the
metal margin was $7 per ton higher than the second quarter of fiscal 1993.
Second, conversion cost decreased approximately 11% per ton. Third, strike-
related expenses are significantly lower.
The net loss of $460,000 before extraordinary items for the first six
months of fiscal 1994 represents a favorable swing of $890,000 compared to the
same period of fiscal 1993. The lower metal margin and the absence of any
unusual favorable adjustments were more than offset by a significant decrease
in conversion cost and the increase in shape shipments, creating the favorable
swing in earnings.
14
LIQUIDITY AND CAPITAL RESOURCES
In March, 1994, the Company issued $75 million of First Mortgage Notes
(the "Offering"). The proceeds of the Offering were used to defease and redeem
the $48.9 million of outstanding 14.75% Senior Secured Notes, to repay the then
outstanding loans under the Company's revolving credit facility, and for working
capital purposes.
Working capital increased by $27.3 million to $59.7 million in the first
six months of fiscal 1994. The increase was due to the increase in cash from
the Offering, replenishment of inventory, reductions of accounts payable and the
repayment of the short-term debt under the Credit Facility.
In the first six months of fiscal 1994, cash flow from operations
decreased by $8.9 million. The decrease was due to a $10 million increase in
inventory. The Company has rebuilt its inventories, which were depleted due to
lower production in the early phases of the strike. A two-week planned shutdown
of the production facilities late in the third quarter will reduce inventories
by $4 to $5 million. Also, accounts payable decreased by $4 million due to
actively taking attractive vendor discounts and paying vendors that were
previously paid slowly due to the cash position. These decreases were partially
offset by decreases in accounts receivable.
Capital expenditures amounted to $0.9 million in the first six months of
fiscal 1994. These expenditures were used for minor upgrades to the plant and
major maintenance projects. The Company intends to spend $8.6 million of the
funds from the Offering for a two year capital improvements program directed
towards cost reduction. Commitments should be finalized in the third quarter.
Cash from financing activities of $13.2 million in the first six months
of fiscal 1994 was due to the Offering. The 10.25% First Mortgage Notes are due
in 2001 and require semi-annual interest payments only until 2001.
On November 23, 1993, the Company entered into an amendment and
restatement of the Credit Facility, which is a three-year line of credit that
permits loans to be made to the Company thereunder, on a secured basis, of up
to $30 million. As of March 31, 1994, there were no borrowings under the Credit
Facility. Interest rates under the Credit Facility are prime plus 1% or LIBOR
plus 2% at the Company's option. The Company's Credit Facility contains certain
covenants, such as the Interest Expense Coverage ratio, which become more
restrictive over time. Under the Credit Facility, the Interest Expense Coverage
Ratio for the quarter ending September 30, 1994 is 1.25 to 1.00 and becomes
increasingly more restrictive for the quarters thereafter. For the quarter
ended March 31, 1994, the Company's Interest Expense Coverage Ratio is 1.99 to
1.00. In the event of a default under the Credit Facility, the Company would not
be permitted to borrow under the Credit Facility and the lenders thereunder may
accelerate payment of all amounts then outstanding and terminate their
commitments. In such an event, the Company would seek a waiver of the covenant
from its lenders under the Credit Facility or otherwise renegotiate the terms
of the Credit Facility. The Company believes that current cash balances,
internally generated funds, the Credit Facility and additional purchase money
mortgages will provide adequate funds for the Company's operating requirements.
There are no financial obligations with respect to post-employment or
post-retirement benefits.
15
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is an index of the exhibits included in this
report on Form 10-Q.
None.
(b) Reports on Form 8-K
None were filed during the first quarter of fiscal year 1994.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAYOU STEEL CORPORATION
By /s/ RICHARD J. GONZALEZ
Richard J. Gonzalez
Vice President, Treasurer and
Chief Financial Officer
Date: April 29, 1994