<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from October 1, 1996 to December 28, 1996
---------------------- --------------------
Commission file number 333-04254
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act: None
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 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 A Common Stock, $0.001 207,012 shares
par value outstanding @ March 28, 1997
Class B Common Stock, $0.001 536,829 shares
par value outstanding @ March 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
[None]
page 1 of ( ) pages
Exhibit Index appears on page ( )
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets September 30, December 28,
1996 1996
---------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,523 $ 7,034
Accounts receivable, less allowances of $549 and $567, respectively 18,894 18,139
Inventories 45,658 59,298
Prepaid expenses 3,027 3,091
Restricted interest escrow 12,344 12,878
-------- --------
Total current assets 85,446 100,443
-------- --------
Property, Plant And Equipment:
Land and improvements 2,781 2,781
Buildings and improvements 22,102 22,102
Machinery and equipment 54,224 54,060
Construction-in-progress 1,903 2,253
-------- --------
Total property, plant and equipment 81,010 81,196
Accumulated depreciation (2,128) (3,268)
-------- --------
Net property, plant and equipment 78,882 77,927
Goodwill, net of accumulated amortization of $163 and $244, respectively 12,697 12,616
Other Assets, including restricted debt service fund and restricted
interest escrow of $8,061 and $1,550, respectively 23,954 16,783
-------- --------
Total Assets $200,979 $207,770
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
Liabilities And Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
September 30, December 28,
1996 1996
----------------- ---------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 22,812 $25,757
Accrued interest 7,016 3,879
Other accrued liabilities 12,598 17,798
Current maturities of long-term debt 6,848 2,739
Revolving credit facility 22,500 39,800
--------- ---------
Total current liabilities 71,774 89,973
--------- ---------
Long-Term Debt 132,426 132,093
--------- ---------
Other Long-Term Liabilities 9,737 9,644
--------- ---------
Total liabilities 213,937 231,710
--------- ---------
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 and outstanding 207,012, shares -- --
Class B common stock, $0.001 par value-
Authorized, 600,000 shares;
Issued and outstanding, 536,829 shares 1 1
Additional paid-in capital 33,706 33,706
Warrants outstanding 5,119 5,119
Retained deficit (57,235) (681,354)
Deferred compensation -- --
Cumulative translation adjustment (49) (1,312)
--------- ---------
Total stockholders' equity (deficit) (18,458) (29,440)
--------- ---------
Total Liabilities & Stockholders' Equity (Deficit) $200,979 $207,770
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 28, 1996
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Net sales $ -- $40,251
Cost of sales 3,002 40,709
Depreciation and amortization 236 1,221
Selling, general and administrative expense 1,563 4,305
-------- --------
Loss from operations (4,801) (5,984)
Interest expense, net (873) (5,148)
Other income/(expense) 158 328
-------- --------
Loss before income taxes (5,516) (10,804)
Income tax provision -- 3
-------- --------
Net loss (5,516) (10,807)
-------- --------
Preferred stock dividends 96 93
-------- --------
Net loss applicable to common shares $(5,612) $(10,900)
======== ========
Net loss per common share $(65.82) $(14.66)
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND DECEMBER 28, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,516) $(10,807)
Adjustments to reconcile net loss to net cash used by operating
activities-
Depreciation and amortization 235 1,221
Accretion of original issue discount -- 2,854
Amortization of deferred financing costs -- 511
(Increase) decrease in accounts receivable (57) 7,554
(Increase) decrease in inventory -- (13,641)
(Increase) decrease in prepaid expenses (168) (64)
(Increase) decrease in other assets -- (149)
Increase (decrease) in accounts payable 141 2,945
Increase (decrease) in other current liabilities 308 2,074
Increase (decrease) in other long-term liabilities -- (93)
-------- --------
Net cash flows used by operating activities (5,057) (169,635)
-------- --------
Cash flows from investing activities:
Net capital expenditures (2,611) (186)
Disposition of nonoperating assets 1,495 --
-------- --------
Net cash flows used by investing activities (1,116) (186)
-------- --------
Cash flows from financing activities:
Net receipts under revolving credit agreement -- 17,300
Issuance of debt 6,750 --
Repayments of debt (307) (4,726)
Preferred stock dividends (96) (93)
Reduction of bond interest escrow account -- 6,149
-------- --------
Net cash flows provided by financing activities 6,347 18,630
-------- --------
Effect of exchange rates on cash -- 302
Net increase in cash and cash equivalents 174 1,511
Cash and cash equivalents, beginning of period 1,650 5,523
-------- --------
Cash and cash equivalents, end of period $1,824 $7,034
======== ========
Supplemental cash flow information:
Interest paid $671 $5,360
Income taxes paid ---- ------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per Share Data)
1. BASIS OF PRESENTATION
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, 1996, included in BarTech's Form 10K, filed with the Securities
and Exchange Commission on December 30, 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 Company announced on February 14, 1997 that it has changed its fiscal year
from the current calendar quarter basis ending September 30 to a 4/4/5 week
fiscal quarter basis ending the last Saturday in December. As a result, Bar
Tech's new fiscal 1997 will begin December 29, 1996 and end December 27, 1997.
The consolidated financial statements presented herein include the accounts of
BarTech and its wholly owned subsidiary described in Note 2 after elimination of
intercompany accounts and transactions.
Since its formation, BarTech has incurred substantial losses as a result of the
ongoing maintenance of its facilities and its general and administrative
expenses. Any substantial delay in completing or a failure to complete the
start-up of its modernized facilities, 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 the
implementation of its plans or substantial unanticipated costs associated with
the implementation of its plans, 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. As a result of 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. Based on its fiscal 1997 plan, BarTech believes that its cash flow
from operations, combined with the available funds under the Credit Agreement
and financing commitments to fund 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, working capital and general corporate
requirements, although there can be no assurances with respect thereto.
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
<PAGE>
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
============
The following unaudited pro forma financial information gives effect to the
acquisition of 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 "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. The unaudited pro forma income statements do not purport to represent what
BarTech's results of operations actually would have been if the foregoing had in
fact occurred on such date.
<TABLE>
<CAPTION>
Unaudited Pro Forma Information
----------------------------------------
"Acquisition" "Recapitalization"
12/31/95 12/31/95
---------------- --------------------
<S> <C> <C>
Net sales $35,381 $35,381
Loss before extraordinary item (7,350) (8,698)
Net loss (7,350) (8,698)
Net loss per common share (37.91) (44.77)
</TABLE>
<PAGE>
3. THE RECAPITALIZATION:
On April 2, 1996, BarTech consummated a Recapitalization which included the
following:
o The issuance of $91,609 in aggregate principal amount of 13-1/2% Senior
Secured Notes due 2001 for proceeds of $90,000.
o The issuance of 536,829 shares of Class B Common Stock of BarTech in
consideration of $30,000 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 $90,000, 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 $38,000.
o The repayment of the following indebtedness: (i) approximately $16,800
aggregate principal amount of outstanding loans under B&L Revolving Credit
Facilities; (ii) approximately $5,800 aggregate principal amount of
outstanding loans under the Existing BarTech Credit Facilities; and (iii)
approximately $6,100 aggregate principal amount of outstanding loans under
the Master Agreement with the Commonwealth of Pennsylvania and various of
its agencies (the "Master Agreement").
4. REVOLVING CREDIT AGREEMENT:
On April 2, 1996, the Credit Agreement with Chase Manhattan 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 $90,000, 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 of the capital stock of each
direct or indirect subsidiaries 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. Borrowings 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 December 28, 1996, $39,800 of borrowings at varying interest rates ranging
from 8.5% to 8.8% and $5,652 of irrevocable letters of credit were outstanding.
BarTech had approximately $47,011 available under the Credit Agreement based on
the applicable borrowing base at December 28, 1996, resulting in excess
availability of $1,559. At February 28, 1997, gross availability increased by
$8,540 to $55,551. With no change in borrowings and an additional $1,100 in
letter of credit outstandings on that date, net availability increased to
$8,999.
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 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) beginning with the four
quarters ending March 31, 1998. The Credit Agreement also contains provisions
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.
<PAGE>
5. FINANCING ARRANGEMENTS:
BarTech had the following long-term debt obligations outstanding as of September
30 and December 28, 1996:
<TABLE>
<CAPTION>
September 30, December 28,
1996 1996
------------- -------------
<S> <C> <C>
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 $ 91,609 $ 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. 8,981 8,703
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. 6,950 6,950
Community Development Block Grant Program ("CDBG"), total commitment of $700,
interest at 3%, quarterly principal payments of $7 and $13 in 1995 and
1996, respectively, beginning July 1, 1998, maturity date July 1, 2010. 690 690
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
Housing and Urban Development 108 ("HUD") Bond, total commitment of $8,500,
variable interest rates of 8.12% in 1995 and ranging from 6.59% to 8.15% in
1996, eight payments ranging from $400 to $1,450 beginning October 1, 1996,
maturity date September 26, 2003. 7,600 7,600
Pennsylvania Industrial Development Authority Note ("PIDA I"), total commitment
of $2,000, interest at 2%, quarterly principal and interest payments of $39,
maturity date October 1, 2009. 1,797 1,805
Pennsylvania Industrial Development Authority Note ("PIDA II"), total
commitment of $2,000, interest at 3%, quarterly principal and interest
payments of $41, maturity date March 1, 2011. 1,932 1,875
Bethlehem Subordinated Note, interest at 7%, annual principal payments of
$1,833 beginning October 1, 2000, maturity date September 26, 2002. 5,500 5,500
Business Infrastructure Development ("BID") Program, total commitment of
$2,650, interest at 3% paid quarterly in arrears, principal paid in
quarterly installments of $51 beginning July 1, 1998, maturity date July 1,
2010. 2,500 2,500
Economic Development Partnership ("EDP III"), total commitment of $3,000,
interest at 3%, quarterly principal and interest payments of $75, beginning
July 1, 1998, maturity date October 1, 2009. 3,000 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 through 2012, payments of $400 through maturity date,
December 1, 2018. 3,600 3,600
Rokop Corporation, $7,200 original principal, interest at 6.5%, maturity
beginning June 22, 1997, through November 22, 2000 4,400 -
---------------- ----------------
146,359 141,632
Less- Original issue discount 7,085 6,800
---------------- ----------------
139,274 134,832
Less- Current maturities 6,848 2,739
---------------- ----------------
Total Long-Term Debt $ 132,426 $ 132,093
</TABLE>
<PAGE>
5. FINANCING ARRANGEMENTS (continued):
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 are
payable semi-annually on each April 1 and October 1, to the holders of record of
Notes at the close of business on March 15 and September 15 immediately
preceding such interest payment date. $18,516 of net proceeds were placed into a
Restricted Interest Escrow Account which will be used to make the interest
payments due over the first 18 months (through and including the October 1, 1997
payment). The first interest payment of $6,149 was made on October 1, 1996.
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 $55,000
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 on a nonrecourse 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 the 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 $10,000 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.
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 approximately 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.
<PAGE>
5. FINANCING ARRANGEMENTS (continued):
The warrants can be exercised at a price of $0.01 per share of common stock on
or after July 1, 1996. The warrants expire on April 1, 2001. The recording of
these warrants created an original issue discount on the Senior Secured Notes.
6. INVENTORIES
Inventories are stated at the lower of cost or market (net realizable value).
Cost is determined under the first-in, first-out (FIFO) method.
Inventory costs include material, labor and overhead. The components of
inventory at September 30 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
September 30, December 28,
1996 1996
---------------- ----------------
<S> <C> <C>
Raw materials $ 10,241 $18,828
Work-in-process 20,413 25,918
Finished goods 15,004 14,552
---------------- ----------------
Total Inventories $ 45,658 $ 59,298
================ ================
</TABLE>
7. NET LOSS PER SHARE:
The weighted average number of common and common equivalent shares used in the
calculation of net loss per common share were 200,795 and 743,841 for the three
months ended December 31, 1995 and December 28, 1996, respectively. Warrants
outstanding are excluded from the calculations because of their antidilutive
effect.
<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 restarted
operations at the bar mill in Lackawanna, NY on February 9, 1996. Additionally,
on August 22, 1996 the Company commissioned the continuous caster and restarted
the melt shop in Johnstown, PA.
On April 2, 1996, BarTech consummated a Recapitalization and merger agreement
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 approximately $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, 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.
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. The installation
of a continuous caster and related equipment was completed and commercial
steelmaking at the Johnstown facility commenced in August, 1996. On February 14,
1997 the Company announced that it has changed its fiscal year from the current
calendar quarter basis ending September 30 to a 4/4/5 week fiscal quarter basis
ending the last Saturday in December. As a result, Bar Tech's new fiscal 1997
will begin on December 29, 1996 and end December 27, 1997. In fiscal 1997,
BarTech is devoting substantial efforts to re-enter the hot rolled engineered
bar market and expects that its initial prices will continue to 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. Among
BarTech's 1997 objectives are increasing casting production at the Johnstown
facility to commercial levels and when appropriate increasing production at the
Lackawanna facility by adding additional shifts. The Company has achieved
progress toward these goals since September 30, 1996. For example, daily casting
production the last week of December was 167% above the first week of October,
1996. Bar mill performance for the last week of December also improved 168% over
the first week of October's performance. BarTech believes its liquidity position
will be sufficient to execute and complete its modernization and expansion plan,
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."
<PAGE>
Historical - Three months ended December 31, 1995 and December 28, 1996
The following discussion of results of operations for BarTech covers the three
months ended December 31, 1995 and December 28, 1996. The results of B&L are
included for the three months ended December 28, 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 $40.3 million for the three months ended December
28, 1996. This includes sales of hot rolled bar from the Lackawanna facility of
$4.9 million for the three months ended December 28, 1996. Sales for B&L of
$35.4 million were recorded for the three months ended December 28, 1996.
During fiscal 1995 and 1996, BarTech undertook preparation for the start-up of
commercial steel production at the Johnstown facility, at which BarTech
commenced operations in August, 1996. This included, among other things, the
purchasing, engineering and commencement of the installation of a continuous
caster, 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 December 28,
1996, BarTech continued to incur losses from operations as a result of its
continued investment in organization and start-up activities. As a result of the
above factors, BarTech incurred a net loss from operations of $6.0 million for
the quarter ending December 28, 1996.
Net interest expense increased by $4.3 million as a result of debt incurred in
the Recapitalization, and revolving credit borrowings.
The tax provision consists primarily of a provision for foreign taxes.
Pro Forma - Three months ended December 31, 1995 and December 28, 1996
The following pro forma financial information gives effect to 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 Recapitalization been consummated on the dates indicated or the results that
may occur or be obtained in the future.
<TABLE>
<CAPTION>
Unaudited Pro Forma Information
------------------------------------
"Acquisition" "Recapitalization"
12/31/95 12/31/95
------------- ------------------
<S> <C> <C>
Net sales $35,381 $35,381
Loss before extraordinary item (7,350) (8,698)
Net loss (7,350) (8,698)
Net loss per common share (37.91) (44.77)
</TABLE>
Start-up of commercial steel production did not begin until the first calendar
of 1996. Accordingly no sales were made from the Lackawanna facility for the
three months ended December 31, 1995. Net sales for the three months ended
December 31, 1995 from the B&L facility were $35.4 million. B&L sales remained
flat for the three months ended December 31, 1995 compared with the three months
ended December 28, 1996.
<PAGE>
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 8.7% to 8.2% for the three months ended December 31, 1995 and December 28,
1996, primarily due to higher material cost.
Depreciation and amortization costs increased from $0.8 million to $1.2 million
for the three months ended December 31, 1995 and December 28, 1996, primarily 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 $4.3 million to
$4.4 million for the three months ended December 31, 1995 and December 28, 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 from $4.6 million to $5.1 million principally as a
result of debt incurred in the Recapitalization, and revolving credit
borrowings.
Liquidity and Capital Resources
BarTech's primary sources of liquidity consist of available cash and cash
equivalents, availability under the Credit Agreement and cash flow from
operations. As of December 28, 1996, BarTech had approximately $7.0 million in
available cash and cash equivalents. BarTech had additional liquidity available
including $12.9 million in the Interest Escrow Account, and approximately $1.6
million of excess availability (based on the applicable borrowing base described
below) under the Credit Agreement. As of February 22, 1997, BarTech's excess
borrowing base availability had increased to $9.0 million.
In connection with the Recapitalization, BarTech replaced its 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 April 2, 1996, 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 commenced in the August, 1996. As of December 28, 1996, BarTech
had an aggregate amount of approximately $141.6 million of outstanding
indebtedness under these committed agreements.
<PAGE>
Principal installments required under the long-term debt obligations will be as
follows for the years ending September 30, 1997 and thereafter (dollars in
thousands):
Principal
---------
1997..................................................... $6,848
1998..................................................... 3,882
1999..................................................... 4,267
2000..................................................... 4,382
2001..................................................... 97,887
Thereafter............................................... 29,093
--------
$146,359
=========
BarTech's contract with Rokop to modify, install and start-up the continuous
caster at the Johnstown facility required Rokop to provide $7.2 million in notes
to finance a portion of the project, of which $4.3 million was secured by liens
on the caster and $2.9 million was secured by a letter of credit under the
Credit Agreement. These notes were prepaid on November 25, 1996 for $5.2
million, which allowed BarTech to realize an approximate $2.0 million discount.
No gain was recognized on the repayment as the notes had been recorded at the
discounted amount.
See Note 5 to the financial statements for a description of the terms of
BarTech's indebtedness, including the interest rates due thereunder.
Since its formation, BarTech has incurred substantial losses as a result of the
ongoing maintenance of its facilities and its general and administrative
expenses. Any substantial delay in completing or a failure to complete the
start-up of its modernized facilities, 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 the
implementation of its plans or substantial unanticipated costs associated with
the implementation of its plans, 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. As a result of 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. Based on its fiscal 1997 plan, BarTech believes that its cash flow
from operations, combined with the available funds under the Credit Agreement
and financing commitments to fund 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, working capital and general corporate
requirements, although there can be no assurances with respect thereto.
As of September 30, 1996, BarTech had available for federal and state income tax
purposes, net operating loss carryforwards from 1996 losses of approximately
$24.0 million expiring in 2011. In addition, BarTech has prior year operating
loss carryforwards which were limited as a result of the Recapitalization. Such
amount is estimated to be limited to approximately $1.1 million annually for the
next fourteen years.
There are no restrictions on the ability of B&L to transfer funds to BarTech.
<PAGE>
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 adoption of this statement did not have a material effect on
BarTech's financial statements.
In February, 1997 the Financial Accounting Standards Board issued SFAS No. 128;
"Earnings Per Share." This statement establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. This statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Due to the Company's net loss position at December
28, 1996, the new basic EPS calculation would be the same as the old primary EPS
calculation, as no dilution for any potentially dilutive securities is included
in the basic EPS calculation.
In February, 1997 the Financial Accounting Standards Board issued SFAS No. 129,
"Disclosure of information about Capital Structure." This statement establishes
standards for disclosing information about an entities capital structure. This
statement is effective for financial statements issued for periods ending after
December 15, 1997. The Company believes that the adoption of this statement will
not have a material effect on BarTach's financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
Date: March 28,1997 By: /s/ Thomas N. Tyrrell
---------------------------------
Name: Thomas N. Tyrrell
Title: President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-28-1996
<CASH> 7,034
<SECURITIES> 0
<RECEIVABLES> 18,706
<ALLOWANCES> 567
<INVENTORY> 59,298
<CURRENT-ASSETS> 100,443
<PP&E> 81,196
<DEPRECIATION> 3,268
<TOTAL-ASSETS> 207,770
<CURRENT-LIABILITIES> 89,973
<BONDS> 0
5,500
0
<COMMON> 1
<OTHER-SE> 29,441
<TOTAL-LIABILITY-AND-EQUITY> 207,770
<SALES> 40,251
<TOTAL-REVENUES> 40,251
<CGS> 40,709
<TOTAL-COSTS> 46,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,148
<INCOME-PRETAX> (10,804)
<INCOME-TAX> 3
<INCOME-CONTINUING> (10,807)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,900)
<EPS-PRIMARY> (14.66)
<EPS-DILUTED> (14.66)
</TABLE>
