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
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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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.)
138 Highway 3217, 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 December 31, 1999
Class A Common Stock, $.01 par value 10,619,380
Class B Common Stock, $.01 par value 2,271,127
Class C Common Stock, $.01 par value 100
-----------
12,890,607
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BAYOU STEEL CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Balance Sheets -- December 31, 1999 and
September 30, 1999 3
Consolidated Statements of Operations -- Three
Months Ended December 31, 1999 and 1998 5
Consolidated Statements of Cash Flows -- Three Months
Ended December 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Results of Operations 9
Liquidity and Capital Resources 11
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 12
Page 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BAYOU STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited) (Audited)
December 31, September 30,
1999 1999
------------- -------------
CURRENT ASSETS:
Cash $ 26,876,323 $ 31,091,309
Receivables, net of allowance for doubtful accounts 24,179,328 23,650,668
Inventories 71,905,396 72,567,304
Deferred income taxes and other 5,844,866 5,131,454
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Total current assets 128,805,913 132,440,735
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PROPERTY, PLANT AND EQUIPMENT:
Land 3,790,399 3,790,399
Machinery and equipment 148,235,818 146,321,994
Plant and office building 23,632,571 23,372,143
------------- -------------
175,658,788 173,484,536
Less-Accumulated depreciation (65,899,935) (63,739,731)
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Net property, plant and equipment 109,758,853 109,744,805
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DEFERRED INCOME TAXES 3,238,012 3,466,541
OTHER ASSETS 2,806,794 2,897,888
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Total assets $ 244,609,572 $ 248,549,969
============= =============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited) (Audited)
December 31, September 30,
1999 1999
------------ -------------
CURRENT LIABILITIES:
Accounts payable $ 14,955,956 $ 16,618,555
Interest payable 1,425,000 4,275,000
Accrued liabilities 5,061,458 5,226,617
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Total current liabilities 21,442,414 26,120,172
------------ ------------
LONG-TERM DEBT 119,041,653 119,013,093
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A: 24,271,127 authorized and 10,619,380
outstanding shares 106,194 106,194
Class B: 4,302,347 authorized and 2,271,127
outstanding shares 22,711 22,711
Class C: 100 authorized and outstanding shares 1 1
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Total common stock 128,906 128,906
Paid-in capital 47,795,224 47,795,224
Retained earnings 56,201,375 55,492,574
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Total common stockholders' equity 104,125,505 103,416,704
------------ ------------
Total liabilities and common stockholders' equity $244,609,572 $248,549,969
============ ============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
1999 1998
------------ ------------
NET SALES $ 52,386,622 $ 47,414,662
COST OF SALES 47,051,929 39,398,675
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GROSS MARGIN 5,334,693 8,015,987
SELLING, GENERAL AND ADMINISTRATIVE 1,815,594 1,637,902
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OPERATING PROFIT 3,519,099 6,378,085
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OTHER INCOME (EXPENSE):
Interest expense (2,850,000) (2,794,270)
Interest income 356,710 390,133
Miscellaneous 64,654 10,875
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(2,428,636) (2,393,262)
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INCOME BEFORE INCOME TAX 1,090,463 3,984,823
PROVISION FOR INCOME TAX 381,662 1,394,425
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NET INCOME $ 708,801 $ 2,590,398
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 12,890,607 12,890,607
Diluted 13,713,029 13,713,029
BASIC NET INCOME PER SHARE $ .05 $ .20
============ ============
DILUTED NET INCOME PER SHARE $ .05 $ .19
============ ============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
December 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 708,801 $ 2,590,398
Depreciation 2,254,832 2,032,807
Amortization 119,654 102,424
Provision for losses on accounts receivable 44,937 47,904
Deferred income taxes 285,662 1,030,980
Changes in working capital:
(Increase) decrease in receivables (573,597) 5,731,763
Decrease (increase) in inventories 661,908 (8,972,645)
(Increase) in prepaid expenses (770,545) (613,961)
(Decrease) in accounts payable (1,662,599) (3,679,188)
(Decrease) in interest payable
and accrued liabilities (3,015,159) (1,475,923)
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Net cash (used in) operations (1,946,106) (3,205,441)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,268,880) (4,952,095)
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NET DECREASE IN CASH (4,214,986) (8,157,536)
CASH, beginning balance 31,091,309 34,028,855
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CASH, ending balance $ 26,876,323 $ 25,871,319
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid during the period for:
Interest (net of amount capitalized) $ 5,700,000 $ 5,419,718
Income taxes $ 96,000 $ 363,445
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Unaudited)
1) BASIS OF PRESENTATION
The accompanying unaudited interim consolidated 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. However, all adjustments, which, in the opinion of
management, are necessary for fair presentation have been included except
adjustments related to inventory. The inventory valuations as of December 31,
1999 are based on last-in, first-out ("LIFO") estimates of year-end levels and
prices. The actual LIFO inventories will not be known until year-end quantities
and indices are determined. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K filed with
the SEC as of and for the year ended September 30, 1999.
The accompanying consolidated financial statements include the accounts of
Bayou Steel Corporation and its wholly-owned subsidiaries (the "Company") after
elimination of all significant intercompany accounts and transactions. The
results for the three months ended December 31, 1999 are not necessarily
indicative of the results to be expected for the fiscal year ending September
30, 2000.
Certain reclassifications have been made in the prior period financial
statements to conform to current period classifications.
2) INVENTORIES
Inventories consist of the following:
(Unaudited) (Audited)
December 31, September 30,
1999 1999
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Scrap steel $ 2,964,835 $ 4,738,110
Billets 9,739,063 7,923,519
Finished product 44,639,990 43,063,027
LIFO adjustments 2,982,686 5,689,596
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60,326,574 61,414,252
Operating supplies and other 11,578,822 11,153,052
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$71,905,396 $72,567,304
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3) LONG-TERM DEBT
The Company has $120 million of 9.5% first mortgage notes bearing interest
at 9.5% (9.65% effective rate) due 2008 with semi-annual interest payments due
May 15 and November 15 of each year. The notes were issued at a discount which
is being amortized over the life of the notes using the straight line method
which does not materially differ from the interest method. The notes are a
senior obligation of the Company, secured by a first priority lien, subject to
certain exceptions, on certain existing and future real property, plant and
equipment.
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Bayou Steel Corporation (Tennessee) and River Road Realty Corporation
(collectively the "guarantor subsidiaries"), which are wholly-owned by and which
comprise all of the direct and indirect subsidiaries of the Company, fully and
unconditionally guarantee the notes on a joint and several basis. The following
is summarized combined financial information of the guarantor subsidiaries.
Separate full financial statements and other disclosures concerning each
guarantor subsidiary have not been presented because, in the opinion of
management, such information is not deemed material to investors. The indenture
governing the notes provide certain restrictions on the ability of the guarantor
subsidiaries to make distributions to the Company.
(Unaudited) (Audited)
December 31, September 30,
1999 1999
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Current assets $30,945,000 $30,832,000
Noncurrent assets 21,845,000 21,153,000
Current liabilities 27,106,000 26,075,000
Noncurrent liabilities 34,972,000 34,973,000
(Unaudited)
Three Months Ended
December 31,
1999 1998
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Net sales $ 11,291,000 $ 10,378,000
Gross margin 235,000 934,000
Net income (loss) (225,000) 324,000
4) INCOME TAXES
As of December 31, 1999, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $170 million available to utilize
against regular taxable income. The NOLs will expire in varying amounts through
fiscal 2011. A substantial portion of the available NOLs, approximately $74
million, expire by fiscal 2001. The Company maintains a valuation allowance on a
portion of its NOLs. Deferred income tax expense of $0.4 million and $1.4
million was recognized in the first fiscal quarter of 2000 and 1999,
respectively, reflecting the utilization of a portion of the Company's available
NOLs to cover estimated taxable income.
5) PREFERRED STOCK AND WARRANTS
The Company issued 15,000 shares of redeemable preferred stock and warrants
to purchase six percent of its Class A Common Stock (or 822,422 shares) at a
nominal amount. In connection with a refinancing transaction in the third
quarter of fiscal 1998, the preferred stock was redeemed but the warrants remain
outstanding, and such warrants are considered as outstanding common stock
equivalents for purposes of computing diluted net income per share.
6) COMMITMENTS AND CONTINGENCIES
The Company is subject to various federal, state, and local laws and
regulations concerning the discharge of contaminants that 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.
Tennessee Valley Steel Corporation ("TVSC"), the prior owners of the assets
of Bayou Steel Corporation (Tennessee), entered into a Consent Agreement and
Order (the "TVSC Consent Order") with the Tennessee Department of Environment
and Conservation under its voluntary clean up program. The Company, in acquiring
the assets of TVSC,
Page 8
entered into a Consent Agreement and Order (the "Bayou Steel Consent Order")
with the Tennessee Department of Environment and Conservation. The Bayou Steel
Consent Order is supplemental to the previous TVSC Consent Order and does not
affect the continuing validity of the TVSC Consent Order. The ultimate remedy
and clean up goals will be dictated by the results of human health and
ecological risk assessments which are components of a required, structured
investigative, remedial, and assessment process. As of December 31, 1999,
investigative, remedial, and risk assessment activities resulted in expenditures
of approximately $1.3 million and a liability of approximately $0.6 million is
recorded as of December 31, 1999 to complete the remediation. At this time, the
Company does not expect the cost or resolution of the TVSC Consent Order to
exceed its recorded obligation.
As of December 31, 1999, the Company believes that it is in compliance, in
all material respects, with applicable environmental requirements and that the
cost of such continuing compliance is not expected to have a material adverse
effect on the Company's competitive position, or results of operations, and
financial condition, or cause a material increase in currently anticipated
capital expenditures. As of December 31, 1999, the Company has accrued
management's best estimate with respect to loss contingencies for certain
environmental matters.
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 financial
position or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Management's Discussion and Analysis of Financial Condition and Results of
Operations included as part of the Company's Annual Report on Form 10-K as of
and for the year ended September 30, 1999.
RESULTS OF OPERATIONS
The Company reported consolidated pretax income of $1.1 million in the
first quarter of fiscal 2000 compared to $4.0 million in the comparable period
of fiscal 1999. The $2.9 million change in earnings was due to a decrease in the
metal margin (the difference between the average selling price and the net scrap
cost) and to a lesser extent an increase in conversion cost. These changes were
partially offset by increased shipments and the proceeds from a lawsuit
settlement with a supplier of materials utilized in our melting operations.
The following table sets forth shipment and sales data.
Three Months Ended
December 31,
1999 1998
--------- ----------
Net Sales (in thousands) $ 52,387 $ 47,415
Shipment Tons 161,554 135,543
Average Selling Price Per Ton $ 318 $ 342
A. Sales
Net sales for the quarter increased by 10% on a 19% increase in shipments
and a 7% decrease in the average selling price. During the current quarter,
shipment volumes began to recover from the adverse effects of imports in the
prior year while the average selling price has not responded as quickly.
Shipments were adversely affected by the eighteen-day outage at our Tennessee
rolling mill during the quarter. It is estimated that the Company lost 12,000
tons of sales and that the average selling price was reduced because of the
limited mix of product available. Price increases have been announced throughout
the first fiscal quarter and subsequently that have various effective dates
extending
Page 9
into the second fiscal quarter. These price increases impact substantially all
of the Company's product lines.
B. Cost of Goods Sold
Cost of goods sold was 90% of sales for the quarter compared to 83% of
sales for the prior year period due largely to the selling price decrease and
the increase in the cost of scrap steel. The increase in cost of goods sold as a
percentage of sales was partially offset by the proceeds from the lawsuit
settlement previously noted which reduced cost of goods sold in the current
quarter by approximately 3%.
Scrap is used in the operation of the Company's melt shop in Louisiana and
is a significant component of the cost of billets utilized by the Company's
rolling mills. Scrap cost during the first quarter increased 17% compared to the
same period of last year as scrap prices have been trending upward over the past
quarters. This trend may level off in the second quarter; however, any future
increases will adversely impact metal margin and may minimize potential
favorable impacts of future selling price improvements.
The Company has been able to control the availability and the cost of scrap
to some degree by producing its own shredded and cut grade scrap through its
scrap processing division. This division, coupled with its local scrap
purchasing program, supplied almost 50% of the Company's scrap requirements
during the quarter.
Conversion cost includes labor, energy, maintenance materials, and supplies
used to convert raw materials into billets and billets into shapes. Conversion
cost per ton for the Company's Louisiana operations increased by 4% in the first
quarter of fiscal 2000 compared to the same period of last year as a result of
two factors. First, the Company is working through a learning curve associated
with capital installed in the melt shop last fiscal year. Additionally, the cost
of power has increased as the utility that services its Louisiana operations has
not been as competitive on pricing as it has in years past. Second, the rolling
mill in Louisiana continues operating in a reduced mode only working six and a
half days per week. The Company expects to resume full capacity during the
second quarter. Subsequent to quarter end, the melt shop experienced a
mechanical problem with its main furnace requiring a twelve day shutdown. During
that period the Company operated its less efficient back-up furnace which may
result in higher per ton costs and less production in the second fiscal quarter.
The Tennessee rolling mill experienced a 13% reduction in conversion cost
and a 12% increase in production despite taking an eighteen-day shutdown for
major repairs in the roughing mill. Although conversion costs improved and the
mill is back at full production, the capital required to replace the roughing
mill will not be installed until the end of the year. It is estimated that the
outage cost in excess of $0.5 million after netting expected insurance proceeds.
C. Selling, General and Administrative Expense
Selling, general and administrative expense in the first quarter increased
by $0.2 million compared to the same period of last year. The change is
primarily due to a recently resolved legal matter in the current year.
D. Income Taxes
In fiscal 1998, the Company recorded an adjustment to its net deferred tax
asset valuation allowance and subsequently has provided for income taxes at the
35% statutory tax rate, although its cash tax requirement was limited to the 2%
alternative minimum tax because of its net operating loss position. As of
December 31, 1999, the Company has $7.8 million of recorded net deferred tax
assets. For financial reporting purposes, the Company periodically assesses the
carrying value of its net deferred tax assets. Such an assessment includes many
factors, including changing market conditions, that could impact this assessment
over time and may result in positive or negative adjustments to the deferred tax
asset valuation allowance in the future that would ultimately affect net income.
Page 10
E. Net Income
Net income decreased $1.9 million in the first quarter compared to the
first quarter of last year due primarily to a reduced metal margin and increased
conversion cost that were somewhat offset by increased shipments and the
proceeds from a lawsuit settlement with a supplier of materials.
LIQUIDITY AND CAPITAL RESOURCES
A. Cash and Working Capital
The Company ended the first fiscal quarter with $26.9 million in cash and
temporary cash investments. In the first quarter, cash used in operations was
$1.9 million compared to $3.2 million in the first quarter of last year. At
December 31, 1999, current assets exceeded current liabilities by a ratio of
6.01 to 1.00. Working capital increased by $1.1 million to $107.4 million during
the three month period. The Company has an unused $50 million line of credit
which is also available for general corporate purposes.
B. Capital Expenditures
Capital expenditures totaled $2.3 million in the first quarter of fiscal
2000 compared to $5.0 million in the same period last year. The spending is
directed towards cost reduction, productivity enhancements, plant maintenance
and safety and environmental programs. Depending on market conditions, the
Company expects to spend approximately $20 million on various capital projects
during the next twelve months. Included in this amount is $3 million of a $7
million project to increase melting capacity by 20% to 30%. The Company is also
considering spending an additional $15 to $20 million over several years to
increase its Louisiana finished goods capacity by 20% to 30%.
C. Impact of Year 2000 Compliance
To date, the Company's systems have continued to operate without disruption
related to year 2000 issues. The Company will continue to closely monitor areas
of particular risk.
OTHER COMMENTS
Forward-Looking Information, Inflation and Other
This document contains various "forward-looking" statements which represent
the Company's expectation or belief concerning future events. The Company
cautions that a number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those included in the
forward-looking statements including, without limitation, the following: changes
in the price of supplies, power, natural gas, or purchased billets; changes in
the selling price of the Company's finished products or the purchase price of
steel scrap; changes in demand due to imports or a general economic downturn;
cost overruns or start-up problems with capital expenditures; weather conditions
in the market area of the finished product distribution; unplanned equipment
outages; and changing laws affecting labor, employee benefit costs and
environmental and other governmental regulations.
The Company is subject to increases in the cost of energy, supplies,
salaries and benefits, additives, alloys and steel scrap due to inflation. Shape
prices are influenced by supply, which varies with steel mill capacity and
utilization, import levels, and market demand.
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 financial
position or results of operations.
Page 11
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 reprot on
Form 10-Q.
3.1 - Amended and Restated By-Laws.
(b) Reports on Form 8-K
None were filed during the first quarter of fiscal year 2000.
Page 12
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, Chief Financial Officer,
Treasurer, and Secretary
Date: January 27, 2000
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