SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
June 30, 1996 333-04254
------------- ---------
For the Quarter Ended Commission File Number
BAR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3753384
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
227 Franklin Street, Suite 300
Johnstown, PA 15901
(Address of Principal Executive Offices)
Registrant's Telephone Number (814) 533-7200
Not Applicable
--------------
(Former name, former address and fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
------ -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $0.001 196,410 shares
par value outstanding @ July 31, 1996
Class B Common Stock, $0.001 536,829 shares
par value outstanding @ July 31, 1996
1
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARY
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements-
Consolidated Balance Sheets as of September 30, 1995 (audited) 3
and June 30, 1996 (unaudited)
Consolidated Statements of Income for the Three Months Ended 4
June 30, 1995 and 1996 (unaudited)
Consolidated Statements of Income for the Nine Months 5
Ended June 30, 1995 and 1996 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months 6
Ended June 30, 1995 and 1996 (Unaudited)
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of Financial Condition and 14-19
Results of Operations
PART II OTHER INFORMATION:
Items 1-6 Not Applicable
2
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BAR TECHNOLOGIES INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, 1995 June 30, 1996
------------------ -------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 1,650 $ 9,445
Accounts receivable 952 19,451
Inventories 1,000 40,265
Prepaid expenses 464 2,306
Restricted interest escrow -- 12,344
--------- ---------
Total current assets $ 4,066 $ 83,811
Property, plant and equipment:
Land 1,071 2,686
Buildings and improvements 12,258 19,462
Machinery and equipment 15,681 25,466
Construction-in-progress 9,210 23,417
--------- ---------
Total property, plant and equipment 38,220 71,031
Accumulated depreciation (306) (1,324)
--------- ---------
Net property, plant and equipment $ 37,914 $ 69,707
Goodwill, net of accumulated amortization of
$0 and $64, respectively -- 12,796
Other assets, including restricted debt service
fund and restricted interest escrow of
$1,550 and $7,924, respectively 4,021 24,857
--------- ---------
Total assets $ 46,001 $ 191,171
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 1,713 $ 1,994
Revolving credit facility -- 7,000
Accounts payable 948 21,799
Accrued interest 483 3,275
Other current liabilities 2,030 8,144
--------- ---------
Total current liabilities $ 5,174 $ 42,212
Deferred income taxes -- 4,931
Non-current retirement benefits liability -- 4,587
Long-term debt, less current maturities 44,952 133,309
--------- ---------
Total liabilities $ 50,126 $ 185,039
Redeemable stock:
Series A preferred stock $0.001 par
value - authorized, 5,000 shares;
issued and outstanding 1,100 shares $ 5,500 $ 5,500
Stockholders' equity/(deficit):
Series B preferred stock $0.001 par
value - authorized, issued and
outstanding, 1 share -- --
Class A common stock, $0.001 par
value - authorized, 1,000,000 shares;
issued & outstanding, 196,410 shares -- --
Class B common stock, $0.001 par
value - authorized, 600,000 shares;
issued & outstanding, 536,829 shares -- 1
Additional paid-in capital 3,704 33,703
Warrants outstanding -- 5,119
Retained earnings/(deficit) (13,217) (38,067)
Deferred compensation (112) (69)
Cumulative translation adjustment -- (55)
--------- ---------
Total stockholders' equity/(deficit) ($ 9,625) $ 632
--------- ---------
Total liabilities and stockholders' equity $ 46,001 $ 191,171
========= =========
The accompanying notes are an integral part of these statements.
3
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BAR TECHNOLOGIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 1995 and 1996
(Dollars in thousands, except per share data)
(Unaudited)
June 30, June 30,
1995 1996
------------ ---------
Net sales -- $ 39,368
Cost of sales -- 41,010
Depreciation and amortization 91 857
Selling, general and administrative expense 2,252 3,888
-------- --------
Income (loss) from operations ($ 2,343) ($ 6,387)
Interest expense (799) (4,601)
Interest income 66 348
Other income (expense), net 170 (21)
-------- --------
Income (loss) before income taxes ($ 2,906) ($10,661)
Income tax provision (benefit) -- 171
-------- --------
Income (loss) before extraordinary loss on early
extinguishment of debt ($ 2,906) ($10,832)
Extraordinary loss on early extinguishment of debt -- 2,214
-------- --------
Net income (loss) ($ 2,906) ($13,046)
Less: preferred stock dividend requirement (96) (96)
-------- --------
Net income (loss) applicable to common shares ($ 3,002) ($13,142)
======== ========
Per share data:
Income (loss) per common share before
extraordinary loss on early
extinguishment of debt ($ 15.28) ($ 18.24)
Extraordinary loss on early extinguishment of debt -- 3.70
-------- --------
Net income (loss) per common share ($ 15.28) ($ 21.94)
======== ========
The accompanying notes are an integral part of these statements.
4
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BAR TECHNOLOGIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months Ended June 30, 1995 and 1996
(Dollars in thousands, except per share data)
(Unaudited)
June 30, 1995 June 30, 1996
------------- -------------
Net sales -- $ 39,956
Cost of sales -- 49,121
Depreciation and amortization 272 1,136
Selling, general and administrative expense 7,612 5,740
-------- --------
Income (loss) from operations ($ 7,884) ($16,041)
Interest expense (2,257) (6,451)
Interest income 226 516
Other income (expense), net 358 (200)
-------- --------
Income (loss) before income taxes ($ 9,557) ($22,176)
Income tax provision (benefit) -- 171
-------- --------
Income (loss) before extraordinary loss on early
extinguishment of debt ($ 9,557) ($22,347)
Extraordinary loss on early extinguishment of debt -- 2,214
-------- --------
Net income (loss) ($ 9,557) ($24,561)
Less: preferred stock dividend requirement (289) (289)
-------- --------
Net income (loss) applicable to common shares ($ 9,846) ($24,850)
======== ========
Per share data:
Income (loss) per common share before
extraordinary loss on early extinguishment
of debt ($ 50.13) ($ 63.32)
Extraordinary loss on early extinguishment
of debt -- 6.19
-------- --------
Net income (loss) per common share ($ 50.13) ($ 69.51)
======== ========
The accompanying notes are an integral part of these statements.
5
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BAR TECHNOLOGIES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1995 and 1996
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1996
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income/(loss) ($ 9,557) ($24,561)
Adjustments to reconcile net income/(loss) to net cash
provided by (used for ) operating activities -
Depreciation and amortization 272 1,136
Extraordinary loss on early extinguishment of debt -- 2,214
Accretion of original issue discount 123 357
Amortization of deferred financing costs 311 932
(Increase) decrease in accounts receivable (560) 343
(Increase) in inventory -- (6,623)
(Increase) in prepaid expenses (284) (585)
(Increase) in other assets (2) (256)
Increase in accounts payable 741 4,460
Increase in other current liabilities 117 3,955
(Decrease) in deferred income taxes -- (4)
Increase in non-current retirement benefit liability -- 58
-------- --------
Net cash flows provided by (used for) operating activities ($ 8,839) ($18,574)
Cash flows from investing activities:
Capital expenditures ($ 2,788) ($12,976)
Acquisition of B&L, net of cash -- (41,028)
Disposition of non-operating assets 1,640 1,633
-------- --------
Net cash flows provided by (used for) investing activities ($ 1,148) ($52,371)
Cash flows from financing activities:
Net receipts under revolving credit agreement -- $ 7,000
Borrowings of debt 5,820 99,161
Repayment of debt (1,086) (31,282)
Proceeds from issuance of common stock -- 30,000
Proceeds from issuance of warrants -- 5,119
Dividends on preferred stock (289) (289)
Deferred debt financing costs -- (12,398)
Deposit into bond interest escrow -- (18,516)
-------- --------
Net cash flows provided by (used for) financing activities $ 4,445 $ 78,795
Effect of exchange rate changes -- (55)
-------- --------
Net (decrease) increase in cash and cash equivalents ($ 5,542) $ 7,795
Cash and cash equivalents, beginning of period $ 9,178 $ 1,650
-------- --------
Cash and cash equivalents, end of period $ 3,636 $ 9,445
======== ========
Supplemental cash flow disclosures:
Interest paid $ 970 $ 1,868
Income taxes paid -- 607
</TABLE>
The accompanying notes are an integral part of these statements.
6
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BAR TECHNOLOGIES INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Financial Statements
The consolidated financial statements and other pro forma information included
herein have been prepared by Bar Technologies Inc. ("BarTech") and are
unaudited. Certain information and footnote disclosures normally prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
commission. Although management believes that all adjustments, including normal
recurring adjustments, necessary for a fair presentation have been made, interim
periods are not necessarily indicative of the results of operations for a full
year. As such, these financial statements should be read in conjunction with
audited financial statements and notes thereto for the fiscal year ended
September 30, 1995 indicated in BarTech's Registration Statement, Form S-4,
filed with the Securities and Exchange Commission effective on July 31, 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The consolidated financial statements presented for the quarter ended June 30,
1996, include the accounts of BarTech and its wholly owned subsidiary described
in Note 2 after elimination of intercompany accounts and transactions.
2. Acquisition of Bliss & Laughlin Industries Inc. ("B&L")
On April 2, 1996, BarTech consummated an amended merger agreement with B&L, a
major independent cold finished processor of steel bars. BarTech acquired B&L
for $9.50 per common share in cash for an aggregate equity purchase price of
$37,980, plus the assumption of $3,600 of debt and the refinancing of $16,800 of
debt. The terms of the merger agreement also provide that, under certain
circumstances, holders of B&L common stock will receive additional consideration
if BarTech sells all or substantially all of the stock or assets of B&L, or
merges B&L into an unaffiliated third party within one year of the date of the
merger agreement. BarTech financed the acquisition with part of the proceeds of
the Recapitalization described in Note 3.
The acquisition was accounted for as a purchase, and accordingly, the results of
operations of B&L have been included in the consolidated financial statements
since April 2, 1996. The purchase price, including acquisition expenses, was
allocated to assets acquired and liabilities assumed based on fair market values
at the date of acquisition. The excess of the purchase price over the fair
market value of the net assets acquired was recognized as goodwill and is being
amortized over 40 years. The fair value of assets acquired and liabilities
assumed are summarized as follows:
Current assets $53,743
Property, plant and equipment 21,468
Other assets 5,165
Goodwill 12,860
Current liabilities (38,142)
Long-term liabilities (13,064)
--------
Total $42,030
========
7
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2. Acquisition of Bliss & Laughlin Industries Inc. ("B&L") - continued
The following pro forma financial information gives effect to the acquisition of
B&L and the Recapitalization as if it had occurred on October 1, 1994. Such
information primarily reflects adjustments for goodwill amortization, additional
depreciation and additional interest expense.
The information provided below includes a presentation required by APB Opinion
No. 16, labeled "B&L Acquisition," which assumes BarTech only incurred the debt
necessary to acquire B&L. The additional columns labeled "Recapitalization"
reflects the impact of all borrowings incurred and debt repayments made by
BarTech as part of the Recapitalization, in addition to those needed to acquire
B&L.
<TABLE>
<CAPTION>
Unaudited Pro Forma Information
Nine months ended June 30,
"B&L Acquisition" "Recapitalization"
----------------- ------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $131,912 $117,058 $131,912 $117,058
Income (loss) before extraordinary item (9,058) (24,382) (12,485) (28,672)
Net income (loss) (9,058) (24,382) (15,142) (28,672)
Net income (loss) per common share (47.59) (125.61) (22.71) (39.50)
</TABLE>
3. The Recapitalization
On April 2, 1996, BarTech consummated a Recapitalization which included the
following:
o The issuance of $91.6 million in aggregate principal amount of 13 1/2%
Senior Secured Notes due 2001 for proceeds of $90.0 million.
o The issuance of 536,829 shares of Class B Common Stock of BarTech in
consideration of $30.0 million in cash provided by the Blackstone Capital
Partners II Merchant Banking Fund L.P. and its affiliates (the "Blackstone
Investment"), representing a 58.6% equity interest in BarTech on a fully
diluted basis.
o The establishment of a new senior revolving credit agreement (the "Credit
Agreement") among BarTech, B&L and a syndicate of banks led by Chase
Manhattan Bank (formerly Chemical Bank), as agent, which provides BarTech
and B&L with a revolving credit facility in an aggregate principal amount
of up to $90.0 million, of which a portion will be available in the form of
letters of credit.
o The consummation of the B&L Acquisition and the payment of the aggregate
purchase price of approximately $38.0 million.
o The repayment of the following indebtedness: (i) approximately $16.8
million aggregate principal amount of outstanding loans under B&L Revolving
Credit Facilities; (ii) approximately $5.8 million aggregate principal
amount of outstanding loans under the Existing BarTech Credit Facilities;
and (iii) approximately $6.1 million aggregate principal amount of
outstanding loans under the Master Agreement.
8
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3. The Recapitalization - continued
The following table sets forth a summary of the sources and uses of funds
associated with the Recapitalization (dollars in millions):
Sources Amount
------- ------
Issuance of the Senior Secured Notes $ 90.0
Blackstone investment 30.0
------
Total $120.0
======
Uses
----
Purchase price for the B&L acquisition $38.0
Repayment of indebtedness (a) 27.4
Pre-funding of phase two of the modernization and
expansion plan (b) 20.0
Funding of the interest escrow account 18.5
Fees and expenses of the Recapitalization 16.1
------
Total $120.0
======
(a) In addition, approximately $1.3 million of indebtedness was
repaid utilizing BarTech's available sources of liquidity.
(b) Since April 2, 1996 such pre-funding moneys have been utilized to
pay operational and capital expenses rather than drawing further
on BarTech's revolving credit.
As part of these transactions, the authorized capital stock of BarTech was
amended and now consists of 1,000,000 shares of Class A Common Stock, 600,000
shares of Special Class B Common Stock and 5,000 shares of Series A Preferred
Stock and 1 share of Series B Preferred Stock, each with a par value of $0.001
per share. The Special Class B Common Stock allows the holders to designate
directors who will hold 50% of the voting power of the board of directors. The
Special Class B Common Stock will also have certain rights in the event of a
liquidation, dissolution or winding up of BarTech.
In connection with the Recapitalization, the 66,600 shares of existing common
stock of BarTech were reclassified into 196,410 shares of Class A Common Stock.
As a result, the number of shares outstanding prior to the Recapitalization and
earnings per share amounts were adjusted to reflect this reclassification of
shares.
4. Revolving Credit Agreement
On April 2, 1996, the Credit Agreement with Chase Manhattan Bank (formerly
Chemical Bank) became effective and represents a new senior revolving credit
agreement (the "Revolver") among BarTech, B&L and a syndicate of banks led by
Chase Manhattan Bank, as agent, which provides BarTech and B&L with a revolving
credit facility in an aggregate principal amount of up to $90.0 million, of
which a portion will be available in the form of letters of credit. The Credit
Agreement matures four years after the closing, which was April 2, 1996. The
Credit Agreement is initially secured by (i) all of the inventory, accounts
receivable, related intangibles and documents and the proceeds of the foregoing,
(ii) all of the Common Stock of BarTech outstanding on April 2, 1996, subject to
dilution and release under certain circumstances, and (iii) all the capital
stock of each direct or indirect subsidiary of BarTech. The pledges of capital
stock referred to in (ii) and (iii) will be made on a first priority basis and
will be equal and ratable with the liens on such capital stock in favor of
holders of Senior Secured Notes. Borrowing under the Credit Agreement will bear
interest at a rate per annum equal to, at BarTech's option, either a prime rate
plus 2.00% or an adjusted LIBOR rate plus 3.00%, subject to upward adjustment in
certain circumstances. As of June 30, 1996, $7,000 was outstanding at an
interest rate of approximately 8.5%. In addition, $8,302 of irrevocable letters
of credit were outstanding as of June 30, 1996.
The Credit Agreement contains a number of covenants that, among other things,
will restrict the ability of BarTech and its subsidiaries to dispose of assets,
incur additional indebtedness, prepay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, enter
9
<PAGE>
4. Revolving Credit Agreement - continued
into sale and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business conducted
by BarTech and its subsidiaries, make capital expenditures above certain levels
or engage in certain transactions with affiliates and otherwise restrict
corporate activities. In addition, under the Credit Agreement, BarTech will be
required to maintain a minimum Consolidated Interest Coverage Ratio (calculated
net of withdrawals from the Interest Escrow Account and fees). The Credit
Agreement also contains provision that will prohibit any modification of the
Indenture in any manner adverse to the Lenders and that will limit BarTech's
ability to refinance the Senior Secured Notes without the consent of such
Lenders.
5. Financing Arrangements
BarTech had the following long-term debt obligations outstanding:
September June 30,
30, 1995 1996
--------- --------
Senior Secured Notes, $91,609, interest at
13 1/2% payable semi-annually on each April 1
and October 1, beginning October 1, 1996,
maturity date April 1, 2001 $ 0 $91,609
Marine Midland Term Loan, interest at prime or
LIBOR, monthly principal payments of $93 beginning
November 1, 1995, maturity date October 1, 2004 10,000 9,258
Congress Term Loan I, interest at prime plus
1.75%, or Eurodollar plus 3.50%, monthly
principal payments of $69 beginning July 1, 1996,
Maturity date July 1, 2001 4,125 0
RDC Loan, interest at 7.75%, quarterly principal
payments of $18 beginning October 1, 1997, maturity
date July 1, 2004 500 500
Economic Development Partnership ("EDP I"), total
commitment of $6,000, interest at 3%, quarterly
principal payments of $118 beginning April 1,
1997, maturity date October 1, 2009 6,000 6,000
Sunny Day Fund I ("SDF I"), total commitment of
$7,000, interest at 3%, quarterly principal
payments of $137 beginning April 1, 1997, maturity
date October 1, 2009 7,000 6,950
Community Development Block Grant Program ("CDBG"),
total commitment of $700, interest at 3%, quarterly
principal payments of $7 beginning July 1, 1998,
maturity date August 17, 2010 345 690
Economic Development Partnership ("EDP II"), total
commitment of $5,600, interest at 3%, quarterly
principal payments of $27 beginning July 1, 1998,
maturity date July 1, 2010 1,300 1,300
10
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5. Financing Arrangements - continued
September June 30,
30, 1995 1996
---------- --------
Sunny Day fund II ("SDF II"), total commitment of
$6,000, interest at 3%, quarterly principal payments
of $429 beginning July 1, 1998, maturity date
October 1, 2001 6,000 0
Housing and Urban Development 108 ("HUD") bond,
total commitment of $8,500, interest at 8.12%,
six payments ranging from $400 to $1,300 beginning
July 25, 1996, maturity date September 26, 2003 5,000 8,000
Pennsylvania Industrial Development Authority Note
("PIDA "), total commitment of $4,000, interest at 2%,
quarterly principal and interest payments of $36 and
$41, maturity date October 1, 2009 1,885 3,756
Bethlehem Subordinated Note, interest at 7%, annual
principal payments of $1,833 beginning October 1, 2000,
maturity date October 1, 2002 5,500 5,500
Business Infrastructure Development ("BID") Program,
total commitment of $2,650, interest at 3% paid
quarterly in arrears, beginning on the first day of the
month following the ninetieth day after such Loan is
made, principal paid in quarterly installments 0 2,500
Enterprise Zone Competitive Program ("ECP"), total
commitment of $1,000, interest at 3% paid quarterly
in arrears, beginning on the first day of the
month following the ninetieth day after such Loan is
made, principal paid in quarterly installments 0 0
Economic development Partnership ("EDP III"), total
commitment of $3,000, interest at 3%, quarterly
principal payment of $75, beginning July 1, 1998,
maturity date January 1, 2010 0 3,000
Industrial Revenue Bond ("IRB"), total commitment
of $3,600, interest rate is calculated weekly,
representing the minimum rate required to sell
the bonds in a secondary market. Principal
payments of $300 beginning on the first of
December 2009 thru 2012, payments of $400
thru maturity date, December 1, 2018 0 3,600
-------- --------
$ 47,655 $142,663
Less Original Issue Discount 990 7,360
-------- --------
$ 46,665 $135,303
Less Current Maturities 1,713 1,994
-------- --------
Total Long-Term Debt $ 44,952 $133,309
======== ========
11
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5. Financing Arrangements - continued
BarTech incurred an extraordinary charge of $2,214 during the three months ended
June 30, 1996 to reflect the recognition of premium and previously deferred
charges resulting from the repayment of debt as part of the Recapitalization.
Senior Secured Notes
The Senior Secured Notes were issued on April 2,1996 in the amount of $91,609.
Interest on the Notes will accrue at the rate of 13 1/2% per annum and will be
payable semi-annually on each April 1 and October 1, commencing October 1, 1996,
to the holders of record of Notes at the close of business on the March 15 and
September 15 immediately preceding such interest payment date. $18,516 of net
proceeds was placed into an Interest Escrow Account which will be used to make
the interest payments due over the first 18 months.
The Senior Secured Notes are callable after three years, with the exception
noted below, at the following redemption price:
Year Percentage
---- ----------
1999 .................. 106.750%
2000................... 103.375%
On or prior to April 1, 1999, BarTech may, at its option, redeem up to an
aggregate of 35% of the principal amount of Senior Secured Notes at a redemption
price equal to 113 1/2% of the principal amount plus accrued and unpaid
interest, if any, to the date of redemption; provided that not less than $55.0
million aggregate principal amount of Senior Secured Notes would remain
outstanding immediately after giving effect to any such redemption.
The Senior Secured Notes are guaranteed (the "Guarantee") on a senior basis,
jointly and severally, by all of BarTech's existing subsidiaries. The Senior
Secured Notes and the Guarantees will initially be secured by liens on (i)
interests in certain real properties owned or leased by BarTech and the
Guarantors on the Issue Date, (ii) interests in machinery and equipment owned
on, or acquired after, the Issue Date by BarTech and the Guarantors located at
such real properties, (iii) all of the Common Stock of BarTech outstanding on
the Issue Date (which was pledged by non-recourse basis and will be subject to
dilution for issuances of Common Stock subsequent to the Offering and release
upon the occurrence of certain events), (iv) all of the outstanding capital
stock of BarTech's existing subsidiaries, (v) certain contract and intellectual
property rights of BarTech and the Guarantors, (vi) the Interest Escrow Account,
and (vii) proceeds of the foregoing.
The Indenture contains certain restrictive covenants including (i) limitations
on additional indebtedness, (ii) limitations on issuances and sales of preferred
stock of certain subsidiaries, (iii) limitations on restricted payments, (iv)
limitations on liens, (v) limitations on sale-leaseback transactions, (vi)
limitations on payment restrictions affecting subsidiaries, (vii) limitations on
the disposition of proceeds from asset sales, (viii) limitations on transactions
with interested persons and (ix) limitations on designations of Unrestricted
Subsidiaries (as defined). In addition, the Indenture limits the ability of
BarTech and the Guarantors to consolidate, merge or sell all or substantially
all of their assets. These covenants are subject to important exceptions and
qualifications.
If BarTech has Excess Cash Flow for any fiscal year, BarTech will be required,
subject to certain exceptions and limitations (including its ability to retain
the first $10.0 million of Excess Cash Flow), to use 75% of such Excess Cash
Flow to make an offer to purchase Senior Secured Notes at a price equal to 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase.
5. Financing Arrangements - continued
12
<PAGE>
Issued in connection with the Senior Secured Notes are warrants which entitle
the holders thereof to acquire an aggregate of 91,609 shares of Class A Common
Stock, representing 10% of BarTech's outstanding common stock on a fully diluted
basis immediately after giving effect to the consummation of the
Recapitalization and certain other agreed to issuances of common stock.
The warrants can be exercised at a price of $0.01 per share of common stock on
or after July 1, 1996 or earlier, subject to certain conditions. The warrants
expire on April 1, 2001. The recording of these warrants created an original
issue discount on the Senior Secured Notes.
6. Inventories
The first in, first out ("FIFO") cost method is used to value inventories except
for B&L which uses the last in, first out ("LIFO") method for it's domestic
subsidiary, Bliss & Laughlin Steel Company ("BLSC"). Because the inventory value
determination under the LIFO method can only be made at the end of each year
based on the inventory levels and costs at that point, interim LIFO
determinations must necessarily be based upon management's estimates of expected
year-end inventory levels and costs. Since future estimates of inventory levels
and prices are subject to many forces beyond the control of management, interim
financial results are subject to final year-end LIFO inventory adjustments.
Inventories include the following amounts:
September 30, 1995 June 30, 1996
------------------ -------------
Raw Material $1,000 $5,945
Work In Process - 18,198
Finished Goods - 16,122
------ -------
Totals $1,000 $40,265
Inventory carrying values exceed their tax basis by $2,734 at June 30, 1996
representing excess of replacement over LIFO as of the date of the acquisition
of B&L.
The amount of inventory valued at LIFO at June 30, 1996 amounted to $22,949 and
represented 57% of the total inventory.
7. Earnings Per Share
The weighted average number of common and common equivalent shares used in the
calculation of income (loss) per common share were 196,410 and 599,032 for the
three months ended June 30, 1995 and 1996, respectively and 196,410 and 357,459
for the nine months ended June 30, 1995 and 1996, respectively. Warrants
outstanding are excluded from the calculations because of their antidilutive
effect.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BarTech acquired certain steelmaking and bar rolling assets (the "BRW Assets")
from the former Bar, Rod and Wire Division (the "Bethlehem BRW Division") of
Bethlehem Steel Corporation ("Bethlehem") in September 1994. The Bethlehem BRW
Division ceased manufacturing operations in December 1992 and no historical
results are presented for the Bethlehem BRW Division due to the noncomparability
of BarTech's operations, management and cost structure. BarTech has developed
and is implementing a two phase plan to modernize and expand its processes and
equipment at the Johnstown facility to take advantage of proven steelmaking
technologies. Phase One involves replacing the existing ingot based process with
a continuous casting steelmaking process ("Phase One"). The installation of a
combination bloom/billet continuous caster and related equipment is underway and
is scheduled to be completed and commercial steelmaking at the Johnstown
facility is scheduled to commence in the summer of 1996. Phase Two is designed
to enable BarTech to produce products for the higher quality and larger size hot
rolled engineered bar and semi-finished billet market segments ("Phase Two") and
is scheduled to be completed by the end of 1997. Additionally, the rolling of
semi-finished steel billets at the Lackawanna facility, which BarTech restarted
in February 1996 continues. On April 2, 1996, BarTech consummated an amended
merger agreement with B&L, a major independent cold finished processor of steel
bars.
On April 2, 1996, BarTech consummated a Recapitalization which included the
following:
o The issuance of $91.6 million in aggregate principal amount of 13 1/2%
Senior Secured Notes due 2001 for proceeds of $90.0 million.
o The issuance of 536,829 shares of Class B Common Stock of BarTech in
consideration of the $30.0 million Blackstone Investment, representing a
58.6% equity interest in BarTech on a fully diluted basis.
o The establishment of a new senior revolving Credit Agreement among BarTech,
B&L and a syndicate of banks led by Chase Manhattan Bank (formerly Chemical
Bank), as agent, which provides BarTech and B&L with a revolving credit
facility in an aggregate principal amount of up to $90.0 million, of which
a portion will be available in the form of letters of credit.
o The consummation of the B&L Acquisition and the payment of the aggregate
purchase price of approximately $38.0 million.
o The repayment of the following indebtedness: (i) approximately $16.8
million aggregate principal amount of outstanding loans under B&L Revolving
Credit Facilities; (ii) approximately $5.8 million aggregate principal
amount of outstanding loans under the Existing BarTech Credit Facilities;
and (iii) approximately $6.1 million aggregate principal amount of
outstanding loans under the Master Agreement.
14
<PAGE>
The following table sets forth a summary of the sources and uses of funds
associated with the Recapitalization:
Sources Amount
------- ------
(dollars in millions)
Issuance of the Senior Secured Notes $ 90.0
Blackstone investment 30.0
------
Total $120.0
======
Uses
----
Purchase price for the B&L acquisition $38.0
Repayment of indebtedness (a) 27.4
Pre-funding of phase two of the modernization and
expansion plan (b) 20.0
Funding of the interest escrow account 18.5
Fees and expenses of the Recapitalization 16.1
------
Total $120.0
======
(a) In addition, approximately $1.3 million of indebtedness was repaid
utilizing BarTech's available sources of liquidity.
(b) Since April 2, 1996 such pre-funding moneys have been utilized to pay
operational and capital expenses rather than drawing further on
BarTech's revolving credit.
Results of Operations
Overview
BarTech began producing and shipping hot rolled engineered bar products on a
limited basis from the Lackawanna facility in February, 1996. BarTech expects to
commence commercial steelmaking operations at the Johnstown facility in the
summer of 1996. In fiscal 1996, BarTech will devote substantial efforts to
re-enter the hot rolled engineered bar market and expects that its initial
prices will be below those for the market generally, that its overall average
product margins will initially reflect BarTech's re-entry into the lower quality
segment of the market as BarTech seeks to pre-qualify its products and that it
will experience initial inefficiencies resulting from low volume production
levels. BarTech believes its liquidity position will be sufficient to execute
and complete its modernization and expansion plan, restart the Johnstown
facility, integrate the operations of BarTech and B&L, effect its hot rolled
engineered bar market re-entry strategy and meet its other capital requirements,
although there can be no assurance that BarTech will be able to do so. See
"Liquidity and Capital Resources."
As the U.S. economy emerged from its recession in the early 1990's, the U.S.
steel industry, including the cold finished steel bar market, experienced a
significant resurgence in demand. B&L was able to obtain several price increases
for its products without experiencing a commensurate increase in its cost of raw
materials. As a result, B&L's gross margins improved throughout 1995. This trend
toward higher gross margins has not continued during fiscal 1996 and
management's view is that B&L's strong operating performance in fiscal 1995 may
be reflective of the industry having been at or near the peak in the current
business cycle. However, BarTech expects B&L to benefit from many operating
synergies due to its vertical integration with BarTech, including B&L's ability
to penetrate higher quality, higher margin market segments utilizing higher
quality hot rolled engineered bar products from BarTech.
15
<PAGE>
Historical - Three months and nine months ended June 30, 1995 and 1996
The following discussion of results of operations for BarTech covers the three
months and nine months ended June 30, 1995 and 1996. The results of B&L are
included for the period from April 2, 1996 (date of acquisition) through June
30, 1996. However, management does not believe that such results are indicative
of its future results of operations due to the absence of a BarTech operating
history, the absence of an operating history of B&L under BarTech's management
and the consequences of operating BarTech and B&L on a vertically integrated
basis. Comparison of the 1996 consolidated results with the 1995 BarTech only
results is limited based on the lack of comparable information for B&L for the
1995 periods presented.
BarTech recorded net sales of $39.4 million and $ 40.0 million for the three
months and nine months ended June 30, 1996, respectively. This includes sales of
hot rolled bar from the Lackawanna facility of $0.9 million, for the three
months ended June 30, 1996 and sales of $1.5 million for the nine months ended
June 30, 1996. Sales for B&L of $38.5 million were recorded for the period from
April 2, 1996 (date of acquisition), through June 30, 1996.
During fiscal 1995 and the nine month period ended June 30, 1995, BarTech
assembled its management team and undertook preparation for the start-up of
commercial steel production at the Johnstown facility, which BarTech expects to
commence in summer 1996. This included, among other things, the purchasing,
engineering and commencement of the installation of a combination bloom/billet
continuous caster, the development and installation of a management information
system, negotiations with vendors, discussions and meetings with potential
customers and the separation of utilities from Bethlehem. Costs for the portion
of these activities that are not directly associated with capital projects have
been charged to the operating expenses in the Statement of Income. Such costs
primarily relate to salaries, utilities, insurance, real estate taxes and other
administrative expenses.
Despite the inclusion of B&L operations for the three months ended June 30,
1996, BarTech continued to incur losses from operations as a result of its
continued investment in organization and start-up activities.
Interest expense increased significantly as a result of the debt incurred in the
Recapitalization.
The tax provision consists primarily of a provision for foreign taxes.
Pro Forma - Three months and nine months ended June 30, 1995 and 1996
The following pro forma financial information gives effect to acquisition of B&L
and the Recapitalization as if it had occurred on October 1, 1994. The unaudited
pro forma financial information is presented for informational purposes only and
is not necessarily indicative of the results that actually would have occurred
had the acquisition of B&L and the Recapitalization been consummated on the
dates indicated or the results that may occur or be obtained in the future.
Pro Forma
---------
Three Months Nine Months
------------ -----------
1995 1996 1995 1996
---- ---- ---- ----
Net Sales $ 43,871 $ 39,368 $ 131,912 $ 117,058
Income before extraordinary
items (3,204) (10,832) (12,485) (28,672)
Net Income (3,204) (13,048) (15,142) (28,672)
Net Income (Loss) per common
share (4.50) (17.92) (22.71) (39.50)
16
<PAGE>
Net sales for the three months and nine months ended June 30, 1996 includes
sales of hot rolled steel bars from the Lackawanna facility of $0.9 million and
$1.5 million, respectively. B&L sales decreased from $43.9 million to $38.5
million, or 12.3% for the three months ended June 30, 1995 and 1996 and from
$131.9 million to $116.9 million, or 11.4% for the nine months ended June 30,
1995 and 1996 primarily as a result of decreased volume.
Gross margins were negative as BarTech continued to start up its facilities and
re-enter the hot rolled engineered bar market. B&L's gross margins decreased
from 13.6% to 8.3% for the three months ended June 30, 1995 and 1996 and from
13.1% to 8.4% for the nine months ended June 30, 1995 and 1996, primarily due to
lower volume.
Depreciation and amortization costs increased from $0.2 million to $0.9 million
for the three months ended June 30, 1995 and 1996 and from $0.5 million to $1.3
million for the nine months ended June 30, 1995 and 1996, as a result of
additional amortization of goodwill and other purchase price allocations from
the acquisition of B&L, as well as increasing depreciation of the BarTech
facilities.
Selling, general and administrative expenses increased from $2.3 million to $3.9
million for the three months ended June 30, 1995 and 1996, primarily as a result
of continued development of an administrative organization at Johnstown.
Selling, general and administrative expenses decreased from $7.6 million to $5.7
million for the nine months ended June 30, 1995 and 1996. Selling, general and
administrative expenses in 1995 reflected the cost of maintaining the business
prior to commencing bar operations at the Lackawanna facility.
Interest expense increased significantly as a result of the debt incurred in the
Recapitalization.
The tax provision consists primarily of a provision for foreign taxes.
Liquidity and Capital Resources
BarTech's primary sources of liquidity consist of available excess cash and cash
equivalents, availability under the Credit Agreement and cash flow from
operations. As of June 30, 1996, BarTech had approximately $28.1 million in
available cash and cash equivalents, including $18.7 million in the Interest
Escrow Account, and approximately $22.1 million available (based on the
applicable borrowing base described below) under the Credit Agreement.
In connection with the Recapitalization, BarTech replaced the Existing Credit
Facilities with the new Credit Agreement, which provides BarTech with a maximum
of $90.0 million of revolving credit loan availability. Borrowings under the
Credit Agreement will be available based upon a borrowing base not to exceed a
specified percentage of the aggregate net book value of accounts receivable and
inventory, which percentage shall be, subject to certain exceptions, 73.0% for
the first 18-month period after the Issue Date, 71.4% and 69.0% for the two
successive 12-month periods thereafter and 66.7% for the remainder of the term
of the Credit Agreement. Borrowings under the Credit Agreement will bear
interest based upon, at BarTech's option, a prime rate plus 2.00% or an adjusted
LIBOR rate plus 3.00%, subject to increase under certain circumstances. The
Credit Agreement matures four years from the closing of the Offering, which was
April 2, 1996.
BarTech has various financing arrangements in place in addition to the Credit
Agreement that are committed to funding (i) its working capital and general
corporate requirements during the commencement of operations at the Lackawanna
facility, which began operating in February, 1996, and at the Johnstown
facility, which is expected to commence in the summer of 1996, and (ii) Phase
One of BarTech's modernization and expansion plan at the Johnstown facility. As
of June 30, 1996, BarTech had an aggregate amount of approximately $142.7
million of outstanding indebtedness under these committed agreements.
17
<PAGE>
Principal and interest installations required under the long-term debt
obligations will be as follows for the three months ending September 30, 1996
and for the years ending September 30, 1997 and thereafter (dollars in
thousands):
Principal Interest
--------- --------
1996 $1,266 $772
...................................
1997 2,449 15,173
...................................
1998 3,883 14,967
...................................
1999 4,273 14,727
...................................
2000 4,385 13,866
...................................
Thereafter 119,047 16,626
------- ------
................................
$135,303 $76,131
======== =======
BarTech's contract with Rokop to modify, install and start-up the combination
bloom/billet continuous caster to be installed at the Johnstown facility as part
of Phase One of BarTech's modernization and expansion plan requires Rokop to
provide $7.2 million to finance a portion of the combination bloom/billet
continuous caster project, of which $4.3 million is secured by liens on the
Caster and $2.9 million is secured by a letter of credit under the Credit
Agreement. The contract with Rokop provides that certain payments due to Rokop
will be evidenced by three notes of BarTech in the aggregate amount of $7.2
million which become effective and will begin to accrue interest after the
start-up of continuous casting operations. Such notes will be in principal
amounts of $2.9 million, $1.0 million and $3.3 million, respectively, and the
$1.0 million note and $0.3 of the $3.3 million note will mature upon the
successful testing and start-up of the combination bloom/billet continuous
caster. These notes may be prepaid at an approximate $2.0 million discount prior
to December 31, 1996. BarTech intends to prepay the notes at such discount but
not prior to the successful testing of the combination bloom/billet continuous
caster.
See the footnote number 5 to the financial statements for a description of the
terms of BarTech's indebtedness, including the interest rates due thereunder.
BarTech has commenced and is in the process of implementing Phase One of its
modernization and expansion plan, which includes the acquisition, installation
and implementation of the combination bloom/billet continuous caster and the
installation of a new management information system. The total cost of the
combination bloom/billet continuous caster installation during Phase One is
anticipated to be approximately $31.0 million.
Phase Two of BarTech's modernization and expansion plan includes the
installation of equipment to enable BarTech to have bloom processing and direct
charged large sized bar finishing capability, including a new walking beam bloom
reheat furnace, modifications to the existing billet mill, a new turnover
cooling bed and a modification of the combination bloom/billet continuous caster
equipment. BarTech is continuing to analyze all aspects of Phase Two and
negotiate with vendors and contractors in order to complete Phase Two at the
lowest possible cost. BarTech believes it has sufficient liquidity from all
sources, to complete the modernization and expansion plan.
Any substantial delay in completing or a failure to complete Phase One of
BarTech's modernization and expansion plan or, to a lesser extent, Phase Two of
the plan, or the inability of BarTech to realize the anticipated benefits from
the plan or to sell its products in its target markets could have a material
adverse effect on BarTech's financial condition and results of operations. In
the event of a substantial delay in implementation of the plan or substantial
18
<PAGE>
unanticipated costs associated with the implementation of the plan, BarTech may
need to borrow funds under the Credit Agreement or, to the extent funds are not
available thereunder, to obtain additional financing to meet its cash flow
requirements during BarTech's start-up period. Given the Recapitalization,
BarTech is highly leveraged. Restrictive covenants included in the Indenture and
other debt obligations may have the effect of limiting BarTech's ability to
incur additional indebtedness, sell assets, or acquire other entities and may
otherwise limit the operational and financial flexibility of BarTech. BarTech
believes that its cash flow from operations, combined with the available funds
under the Credit Agreement and financing commitments to fund Phase One of its
modernization and expansion plan, will be sufficient to enable BarTech to meet
its debt service requirements when due and to fund its capital expenditure and
working capital and general corporate requirements, although there can be no
assurance with respect thereto.
As a result of a change of ownership resulting from the Blackstone Investment,
BarTech's ability to use its $19.8 million of regular net operating loss
carryforwards (as of September 30, 1995) for federal income tax purposes will be
limited to an amount estimated at approximately $1.1 million per year.
There are no restrictions on the ability of B&L to transfer funds to BarTech.
Inflation
BarTech believes that inflation has not had a material effect on its results of
operations.
New Accounting Pronouncements
In May, 1995 the Financial Accounting Standards Board issued SFAS No. 121:
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of." The
statement requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for financial statements for fiscal
years beginning after December 15, 1995. BarTech does not believe that adoption
of such statement will have a material effect on its financial statements.
19
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARY
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.
BAR TECHNOLOGIES INC.
Date: August 23, 1996 By: /s/ James R. Powers
------------------ -------------------------------
James R. Powers
Chief Executive Officer
20
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