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, 1995
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, 1995
- -------------------------------------- ------------------------------------
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
==========
BAYOU STEEL CORPORATION
-----------------------
INDEX
-----
PAGE
PART I. FINANCIAL INFORMATION NUMBER
--------------------- -------------------
Item 1. Financial Statements
Balance Sheets -- March 31, 1995
and September 30, 1994 3
Statements of Income (Loss) --
Three Months & Six Months Ended
March 31, 1995 and 1994 5
Statements of Cash Flows -- Three Months &
Six Months Ended March 31, 1995 and 1994 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
Results of Operations 12
Liquidity and Capital Resources 15
PART II. OTHER INFORMATION
-----------------
Item 6. Exhibits and reports on Form 8-K 19
2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. FINANCIAL STATEMENTS
--------------------
BAYOU STEEL CORPORATION
-----------------------
BALANCE SHEETS
--------------
ASSETS
------
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1995 1994
------------- --------------
CURRENT ASSETS:
Cash and temporary cash investments $ 8,340,679 $ 8,903,413
Trade receivables 20,426,403 18,781,222
Other receivables 640,601 375,185
Inventories 61,717,542 57,145,550
Prepaid expenses 1,899,499 188,452
------------ ------------
Total current assets 93,024,724 85,393,822
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 4,333,542 4,333,542
Machinery and equipment 75,867,385 75,855,608
Plant and office building 13,125,589 13,125,589
Construction in progress 7,530,819 2,462,312
Less-Accumulated depreciation (31,065,818) (28,504,307)
------------ ------------
Net property, plant and equipment 69,791,517 67,272,744
------------ ------------
OTHER ASSETS 3,590,000 3,401,103
------------ ------------
Total assets $166,406,241 $156,067,669
============ ============
The accompanying notes are an integral part of these financial statements.
3
BAYOU STEEL CORPORATION
-----------------------
BALANCE SHEETS
--------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1995 1994
------------- --------------
CURRENT LIABILITIES:
Accounts payable $ 18,364,454 $ 16,540,005
Accrued liabilities 4,720,865 3,327,480
Current maturities of long-term debt 344,890 340,232
------------ ------------
Total current liabilities 23,430,209 20,207,717
------------ ------------
LONG-TERM DEBT:
Senior secured notes 75,000,000 75,000,000
Notes payable 587,104 735,924
------------ ------------
Total long-term debt 75,587,104 75,735,924
------------ ------------
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 22,369,528 15,104,628
------------ ------------
Total stockholders' equity 67,388,928 60,124,028
------------ ------------
Total liabilities & stockholders'
equity $166,406,241 $156,067,669
============ ============
The accompanying notes are an integral part of these financial statements.
4
BAYOU STEEL CORPORATION
-----------------------
STATEMENTS OF INCOME (LOSS)
---------------------------
(UNAUDITED)
-----------
SECOND QUARTER ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994 1995 1994
------------- ------------- ------------- -------------
NET SALES $49,521,950 $37,432,807 $93,373,735 $74,211,296
COST OF SALES 42,578,342 33,857,736 79,801,414 68,416,060
----------- ----------- ----------- -----------
GROSS PROFIT 6,943,608 3,575,071 13,572,321 5,795,236
SELLING, GENERAL
& ADMINISTRATIVE
EXPENSES 1,140,446 989,127 2,310,580 1,878,976
NON-PRODUCTION
STRIKE EXPENSES 291,183 238,064 550,200 637,245
----------- ----------- ----------- -----------
OPERATING INCOME 5,511,979 2,347,880 10,711,541 3,279,015
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (1,853,518) (1,935,521) (3,770,878) (3,820,135)
Interest income 144,902 130,936 264,503 151,383
Miscellaneous 78,389 (30,313) 133,116 (70,212)
----------- ----------- ----------- -----------
(1,630,227) (1,834,898) (3,373,259) (3,738,964
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
TAXES & EXTRAORDINARY
ITEMS 3,881,752 512,982 7,338,283 (459,949)
PROVISION FOR
INCOME TAXES 38,817 -- 73,382 --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS 3,842,935 512,982 7,264,901 (459,949)
EXTRAORDINARY (LOSS),
NET OF APPLICABLE
INCOME TAX -- (5,468,216) -- (5,468,216)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 3,842,935 $(4,955,234) $ 7,264,900 $(5,928,165)
=========== =========== =========== ===========
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 $.30 $ .04 $.56 $ (.04)
Extraordinary
(loss) -- (.42) -- (.42)
----------- ----------- ----------- -----------
Income (loss) per
common share $.30 $ (.38) $.56 $ (.46)
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
BAYOU STEEL CORPORATION
-----------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
SIX MONTHS ENDED
MARCH 31,
1995 1994
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,264,900 $ (5,928,165)
Extraordinary loss 5,468,216
Depreciation and amortization 2,885,380 2,572,331
Provision for losses on accounts
receivable 94,769 218,949
Changes in working capital:
(Increase) decrease in receivables (2,005,366) 1,941,975
(Increase) in inventories (4,571,992) (9,986,371)
(Increase) in prepaid expenses (1,711,047) (331,674)
Increase (decrease) in accounts payable 1,824,449 (4,279,318)
Increase in accrued liabilities 1,393,385 1,403,890
----------- ------------
Net cash provided by operations 5,174,478 (8,920,167)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant
and equipment (5,080,284) (915,835)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) under line of credit -- (4,000,000)
Payments of long-term debt (144,162) (49,548,878)
(Increase) in other assets (512,766)
----------- -----------
Net cash (used in) provided by
financing activities (656,928) 13,172,297
----------- ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (562,734) 3,336,295
CASH AND CASH EQUIVALENTS,
beginning balance 8,903,413 517,900
----------- ------------
CASH AND CASH EQUIVALENTS,
ending balance $ 8,340,679 $ 3,854,195
=========== ============
The accompanying notes are an integral part of these financial statements.
6
BAYOU STEEL CORPORATION
-----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1995
--------------
(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 6,
1994 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, 1995
and September 30, 1994 and the results of its operations for the six-month
periods ended March 31, 1995 and 1994 and the cash flow statements for the six-
month periods ended March 31, 1995 and 1994.
The results of operations for the six-month periods ended March 31, 1995
and 1994 are not necessarily indicative of the results for the full year.
2) INVENTORIES
-----------
Inventories as of March 31, 1995 and September 30, 1994 consisted of the
following:
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1995 1994
------------- --------------
Scrap steel $ 4,328,048 $ 3,811,616
Billets 2,702,134 1,854,211
Finished product 40,841,100 35,651,158
LIFO adjustments (2,834,687) (931,213)
----------- -----------
$45,036,595 $40,385,772
Mill rolls, operating
supplies and other 16,680,947 16,759,778
----------- -----------
$61,717,542 $57,145,550
=========== ===========
7
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 revolving
line of credit.
3) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Capital expenditures totaled $5.1 million and $.9 million during the six-
month periods ended March 31, 1995 and 1994, respectively. As of March 31,
1995, the estimated costs to complete authorized projects under construction or
contract amounted to $4.7 million.
Betterments, improvements, and additions to property, plant and equipment
are capitalized at cost. Interest during construction of significant additions
is capitalized. Interest of $122,000 and $38,000 was capitalized during the
six-month periods ended March 31, 1995 and 1994, respectively. Interest of
$69,000 was capitalized during the fiscal year ended September 30, 1994.
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 respective lives
of the related debt. In addition, costs associated with financing and
organizing Bayou Steel Corporation (Tennessee) are being capitalized. In the
second quarter of fiscal 1994, the Company wrote off $953,000 of other assets
related to the 14.75% Senior Secured Notes ("the 14.75% Notes") and capitalized
$3,268,000 of deferred financing cost related to the 10.25% Notes. Amortization
expense was $324,000 and $143,000 for the six-month periods ended March 31, 1995
and 1994. Amortization expense was $553,000 for the fiscal year ended September
30, 1994.
5) LONG-TERM DEBT
--------------
On March 3, 1994, the Company issued $75 million of the 10.25% Notes. The
proceeds were used to redeem and defease the Company's 14.75% Notes and to repay
the borrowings under the new revolving line of credit. The remaining proceeds
were used to implement a two year capital expenditure program directed toward
cost reduction and general working capital purposes.
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
8
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 of credit as of March 31,
1995 and for the six-months of fiscal 1995.
7) TAXES
-----
As of September 30, 1994, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $319.0 million and $292.9 million
available to offset against regular tax and alternative minimum tax,
respectively.
The NOLs will expire in varying amounts through fiscal 2009. A substantial
portion of the available NOLs, approximately $203 million, expires by fiscal
2000. In addition, the Company has $22.0 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 prior to the NOLs. The current provision for income taxes for the six-
month period ended March 31, 1995 represents the alternative minimum tax
estimated to be due based on the current quarter's income.
8) MISCELLANEOUS
-------------
Miscellaneous for the six-month periods ended March 31, 1995 and 1994
included the following:
MARCH 1995 MARCH 1994
---------- ----------
Discounts earned $ 51,513 $ 118,139
Provision for bad debts (94,769) (218,948)
Other 176,372 30,597
--------- ---------
$ 133,116 $ (75,127)
========= =========
9) COMMON STOCKHOLDERS' EQUITY
---------------------------
Common Stock as of March 31, 1995 and 1994 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
9
10) COMMITMENTS AND CONTINGENCIES
-----------------------------
STRIKE
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike against the Company. The strike is ongoing. There
have been no formal negotiations on a new contract since March 1994.
Differences have thus far precluded an agreement. The Company cannot predict
the impact that a new collective bargaining contract will have on the Company's
results. However, the Company believes a new contract will not have a negative
material effect on the Company's results.
The Union has filed charges with the National Labor Relations Board (the
"NLRB") 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, has responded timely to all charges, and believes
that it has negotiated in good faith with the Union. The General Counsel's
Office of Appeals of the NLRB has upheld the decision of the NLRB to dismiss
many of the allegations filed by the Union for unfair bargaining. The Union has
filed for reconsideration of the decision with the General Counsel's Office of
Appeals, which will continue to delay the NLRB's final decision on the charges.
The Company is still faced with other allegations of unfair bargaining initiated
by the USWA. The Company has proposed a settlement offer with the Regional
Office of the NLRB on the remaining outstanding charges. An unfavorable
decision by the NLRB, however, should not materially affect the Company.
The Union has initiated two inspections of the Company's facilities and
records by the Environmental Protection Agency (the "EPA"), which were completed
in June of 1994 and February of 1995. The EPA has issued its report to the
Louisiana Department of Environmental Quality which initially requested the
assistance of the EPA. The EPA did not find any evidence of buried hazardous
waste as the Union alleged.
The Union also initiated a wall-to-wall inspection of the Company's
facilities by the Occupational & Safety Health Administration (the "OSHA"),
which was completed in November of 1994. The OSHA report was recently received
and the Company received various citations and was fined $160,500; the Company
has contested the citations. In the report, it was stated that none of what was
found "showed blatant disregard for safety" and that none of the violations were
deemed "willful". The Company accrued a loss contingency for its estimate of
the ultimate liability arising from these inspections as of March 31, 1995.
ENVIRONMENTAL
The Company is subject to various Federal, state and local laws and
regulations concerning the discharge of contaminants
10
which may be emitted into the air, discharged into waterways, and the disposal
of solids 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 under
current operations 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. Under a full two furnace
operation, the Company may be required to make an additional capital investment
to upgrade the air pollution control equipment in order to maintain compliance
with current and future regulations. 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. At March 31, 1995, the Company has accrued a loss contingency for
environmental matters.
OTHER
The Company does not provide any post-employment or post-retirement benefits
to its employees.
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 effect its financial
position.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
--------------------------------------------
RESULTS OF OPERATION
- --------------------
The Company earned $3.8 million in the second quarter of fiscal 1995
compared to an income before extraordinary loss of $0.5 million for the
comparable period of fiscal 1994. During the first six months of fiscal 1995
the Company earned $7.3 million compared to a loss before extraordinary items of
($0.5) million. The improvements in the Company's results were due to two
significant factors. First, metal margin, the difference between shape selling
price and raw material ("scrap") cost, increased. And second, shape shipments
increased.
The extraordinary loss in 1994 was due to refinancing the previous 14 3/4%
debt with 10 1/4% first mortgage notes. The refinancing allowed the Company to
repay the outstanding loans under the Company's revolving credit facility,
implement a cost savings program through capital expenditures and provided
additional working capital.
The following table sets forth shipment and sales data for the periods
indicated.
SECOND QUARTER ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994 1995 1994
--------- --------- -------- --------
Net Sales (in thousands) $ 49,522 $ 37,433 $ 93,374 $ 74,211
Shape Shipment Tons 135,263 104,722 252,118 207,890
Shape Selling Price Per Ton $ 360 $ 340 $ 356 $ 331
Billet Shipment Tons 1,807 5,882 10,919 19,257
Billet Selling Price Per Ton $ 223 $ 226 $ 235 $ 225
A. SALES
-----
Net sales in the second quarter and first six months of fiscal 1995
increased, compared to the same periods of fiscal 1994, by 32%, or $12 million,
and 26%, or $19 million, respectively. The increases were the result of
increased shape shipments and prices.
SHAPES - The shape shipment increases in the second quarter and first six
------
months of fiscal 1995 compared to the same periods of fiscal 1994 is
attributable to a strong economy and to an improved product mix which enabled
the Company to respond to customer demand. This was the best second quarter in
terms of shape shipments in the history of the Company and the best first half
of the year since fiscal 1988. The backlog of orders at March 31, 1995 is 52%
higher than a year earlier and was a record for the Company. Shipments are
expected to be strong for the remainder of the fiscal year.
12
Shape prices increased by 5.9%, or $20 per ton, in the second quarter and
7.6%, or $25 per ton, for the first six months of fiscal 1995 compared to the
same period of fiscal 1994. These higher prices were primarily in response to a
strong market demand. The selling price for the second quarter was the highest
in the history of the Company. The selling price of shapes, towards the end of
fiscal 1994 and into fiscal 1995, began to be influenced more by the strong
market and less by scrap cost as was the case during the first half of fiscal
1994, resulting in an improvement in metal margin. The metal margin for the
second quarter and the first six months of fiscal 1995 was the highest since the
same periods of fiscal 1989. Metal margin is expected to level off in the third
fiscal quarter compared to the previous quarter.
BILLETS - Shipments of billets, the Company's semi-finished product,
-------
decreased 4,075 tons and 8,338 tons in the second quarter and first six months
of fiscal 1995 compared to the same periods of fiscal 1994, respectively, due to
lack of availability of billets for sale. More billets were used in the
Company's rolling mill due to higher production levels, resulting in fewer
billets available for customers. Billet sales are expected to be minimal in the
third fiscal quarter due to the continued high productivity of the rolling mill
and the acquisition of another rolling mill (see "OTHER COMMENTS- Acquisition of
Assets"), which will increase the Company's rolling capacity.
B. COST OF SALES
-------------
Cost of sales was 86.0% of sales for the second quarter of fiscal 1995
compared to 90.5% of sales for the same period of fiscal 1994. And, cost of
goods sold was 85.5% for the first six months of fiscal 1995 compared to 92.2%
for the same period of fiscal 1994. The improvements were due to shape selling
prices increasing more than the scrap prices. Also, contributing to the
improvement in cost of sales for the six-month comparative period was the
reduction in conversion costs (the cost to convert raw materials into shapes).
Conversion cost for the comparative second quarters were approximately the same.
Shipping, dock, and stocking location operating costs were higher than the
comparable prior year periods due to the higher shipment volume. Cost of sales
has been favorably impacted by approximately $0.25 million per quarter due to a
contract with the State of Louisiana to abate certain taxes. This agreement
expired at the end of the second fiscal quarter of 1995.
The major component of cost of sales is scrap. Scrap cost in the second
quarter and first six months of fiscal 1995 remained relatively unchanged
compared to the same periods of last year. Demand for scrap remains strong and
supply is adequate going into the third fiscal quarter. Another component of
raw material cost is additive, alloys, and flux ("AA&F"). AA&F cost was
approximately the same for the comparable second quarters and for the first six
months decreased by 8.3% due to consumption.
13
However, there have been pressures on prices during the late second fiscal
quarter on certain AA&F due to shortage in supplies in the domestic markets.
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 of fiscal 1995 compared to the same period of fiscal 1994 was
approximately the same. Conversion cost for the first six months of fiscal 1995
improved 2.1% compared to the same period of fiscal 1994 due to increased
production and productivity. The Company implemented a productivity incentive
plan for salaried employees (similar to the one proposed to the Union) at the
beginning of the current fiscal year.
C. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
-------------------------------------------
Selling, general and administrative expenses increased in the second
quarter and first six months of fiscal 1995 compared to the same period of the
last fiscal year by $151,000 and $432,000, respectively, due to increases in
franchise tax, amortization expenses and legal expenses.
D. NON-PRODUCTION STRIKE EXPENSES
------------------------------
Strike-related expenses were $291,000 for the second quarter of fiscal 1995
compared to $238,000 for the same period last year. The expenses increased due
to additional legal fees and security. For the first six months of fiscal 1995,
the Company's strike-related expenses averaged approximately $92,000 per month.
Future strike expenses should not exceed $100,000 per month.
E. OTHER INCOME (EXPENSE)
----------------------
Interest expense decreased in the second quarter and first six months of
fiscal 1995 compared to the same period of fiscal 1994 mainly due to capitalized
interest. The Company accrued interest on $48.9 million of the now redeemed
14.75% Notes in the first quarter of fiscal 1994 at a rate of 14.75%. The
Company accrued interest on $75 million 10.25% First Mortgage Notes due 2001 at
a rate of 10.25% during the first quarter of 1995. Interest income improved in
the second fiscal quarter and first six months of fiscal 1995 compared to the
same period last year due to an increase in overall cash to invest and improved
short-term interest rates. Miscellaneous income increased in the second quarter
and first six months of fiscal 1995 compared to the same period of the last
fiscal year by $203,000 and $109,000, respectively, mainly due to a reduction in
provision for bad debts. The provision for bad debts was reduced based on
historical write-offs and favorable market conditions.
14
F. NET INCOME
----------
The Company's results improved by $3.3 million and $7.7 million in the
second fiscal quarter and first six months of 1995 compared to the same periods
of fiscal 1994, respectively. The primary reasons for the improvement are
increased shipments and margins.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
A. CASH AND WORKING CAPITAL
------------------------
The Company ended the second fiscal quarter with $8.3 million in cash and
temporary cash investments and with current assets exceeding current liabilities
by a ratio of 3.97 to 1. Working capital increased by $4.4 million to $69.6
million during the six months ended March 31, 1995. The increase in working
capital was due to the replenishment of inventory, increases in prepaid
expenses, increases in receivables, and decreases in accounts payable.
In the first six months of fiscal 1995, cash provided by operations was
$5.2 million which was the result of net income and increases in accrued
liabilities and accounts payables. This was partially offset by the increase in
inventories, accounts receivables (due to increased sales), and prepaid expenses
(escrow payment for the purchase of the assets of Tennessee Valley Steel
Corporation). The seasonal increase in shape inventory was also impacted by the
high productivity of the rolling mill which produced more product than expected.
Shape inventory is also expected to decrease by approximately $5.0 million in
June due to the planned shutdown for major maintenance and capital improvements.
B. CAPITAL EXPENDITURES
--------------------
Capital expenditures amounted to $5.1 million in the first six months of
fiscal 1995. The $9.2 million capital program directed toward cost reduction is
expected to be completed by fiscal year end. Of the $9.2 million commitment for
five capital projects, $5.2 million has been spent cumulative through March 31,
1995.
C. FINANCING
---------
In fiscal 1994, the Company entered into an amendment and restatement of
its existing credit facility, which is a three-year line of credit that permits
loans to be made to the Company, on a secured basis, of up to $30 million.
Interest rates under the credit facility are prime plus 1% or LIBOR plus 2%, at
the Company's option. The Company's existing credit facility contains certain
covenants, such as an Interest Expense Coverage Ratio, which become increasingly
more restrictive over time. The Interest
15
Expense Coverage Ratio covenant will be 1.80 to 1.00 for the four quarters
ending September 30, 1995. The Company's Interest Expense Coverage Ratio for the
quarter ended March 31, 1995 was 3.90 to 1.00. During the past four quarters,
there has been no borrowing under the line of credit.
All of the $75 million 10.25% Notes are classified as long-term debt. There
are no principal payments due on the 10.25% Notes until maturity in 2001. The
Company believes that current cash balances, internally generated funds, the
credit facility, and additional purchase money mortgages are adequate to meet
the foreseeable short-term and long-term liquidity needs. The Company currently
intends to refinance the 10.25% Notes on or before the maturity date in 2001.
The Indenture under which the Notes are issued ("the Indenture") contains a
covenant which restricts the Company's ability to incur additional indebtedness.
Under the Indenture, the Company may not incur additional indebtedness unless
its Interest Expense Coverage Ratio for the trailing 12 months, would be greater
than 2.00 to 1.00 after giving effect to such incurrence. As of March 31, 1995,
the Interest Expense Coverage Ratio was 3.39 to 1.00. If additional funds are
required to accomplish long-term expansion of its production facility or
significant acquisitions, the Company believes funding can be obtained from a
secondary equity offering or additional indebtedness.
There are no financial obligations with respect to post-employment or post-
retirement benefits.
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OTHER COMMENTS
- --------------
ACQUISITION OF ASSETS
- ---------------------
On April 28, 1995, the Company purchased substantially all of the assets of
Tennessee Valley Steel Corporation ("TVS") for a purchase price of $30.5
million, less certain adjustments described in the 8K filed on March 8, 1995.
The $30.5 million purchase price included land, buildings, equipment, inventory,
receivables, and $8 million in cash. The assets will be included in a new
wholly owned subsidiary named "Bayou Steel Corporation (Tennessee)" ("BSCT").
BSCT's rolling mill will produce both rebar and merchant bar. The merchant bar
product mix of BSCT will extend and complement the Company's product line. The
Company intends to start its idle second furnace to produce billets to supply
the Tennessee rolling mill.
The acquisition was financed with a combination of existing cash and the
current line of credit. As of May 10, 1995, the company had borrowed
$12.0 million (net of cash investments) under its $30 million line. The company
intends to complete permanent financing shortly. The financing would consist of
a $10 million term loan and an issuance of $15 million in preferred stock.
Additionally the current line will be amended and restated to provide a $45
million line of credit.
BSCT plans to commence rolling steel by July 1, 1995 and will spend
approximately $6.0 million on various capital projects in the first 18 months of
its operations to reduce costs and increase productivity. The Company intends
to spend approximately $1 million to start its second furnace. The Company
expects several quarters where start-up losses will occur at BSCT, thereby
reducing the consolidated earnings of the Company.
STRIKE
- ------
See "Notes to the Financial Statements" for a description of the Strike.
ENVIRONMENTAL AND SAFETY
- ------------------------
See "Notes to the Financial Statements" for a description of the Company's
environmental and safety issues.
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 financial
position.
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INFLATION
- ---------
The Company is subject to increases in the cost of energy, supplies,
salaries and benefits, additives, alloy and scrap due to inflation. Shape prices
are influenced by supply, which varies with steel mill capacity and utilization,
and market demand.
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PART II - OTHER INFORMATION
---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Annual Meeting of Shareholders of the Company was held on January 26,
1995, at which the following matters were brought before and voted upon by the
shareholders:
1. The election of three (3) Class A and four (4) Class B Board of
Directors, each to serve until the next annual meeting of Stockholders
and that the following Class A and Class B Director nominees received
the following number of votes cast:
For Against Withheld
--------- ------- --------
John A. Canning, Jr. 9,592,567 32,089 988,724
Lawrence E. Golub 9,591,067 34,653 987,660
Stanley S. Shuman 9,592,067 33,690 987,623
Albert P. Lospinoso 2,271,127 0 0
Melvyn N. Klein 2,271,127 0 0
Howard M. Meyers 2,271,127 0 0
Jerry M. Pitts 2,271,127 0 0
2. Ratification of the appointment of Arthur Andersen LLP as auditors of
the Company for the fiscal year ending September 30, 1995.
FOR AGAINST ABSTAIN
--- ------- -------
25,519,536 8,061 17,860
3. Consideration of a shareholder proposal urging the Company's Board of
Directors to amend the Company's by-laws, effective after the 1994
annual meeting of shareholders, to provide a majority of Independent
Directors, as described in the Proxy Statement dated December 16, 1994.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
938,483 22,172,728 56,060 2,378,186
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
27 - Financial Data Schedule
99 - Certain Information Regarding the Acquisition Tennessee
Valley Steel Corporation. (Incorporated herein by
reference to 8-K filed March 8, 1995.)
(b) Reports on Form 8-K
Item 5 OTHER EVENTS
- Certain Information Regarding the Acquisition of
Tennessee Valley Steel Corporation. (Dated March 8,
1995.)
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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: May 12, 1995
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