<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934.
For the quarterly period ended June 28, 1997
OR
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from _________________ to __________________
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 Identification No.)
incorporation or organization)
227 FRANKLIN STREET, SUITE 300,
JOHNSTOWN, PA 15901 (814) 533-7200
(Address of principal executive offices) (Registrant's telephone number)
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. X Yes ___ No
Number of shares outstanding of common stock as of August 8, 1997:
CLASS A COMMON STOCK, $0.001 PAR VALUE 207,012 SHARES
- -------------------------------------- ----------------
(Class) (Outstanding)
CLASS B COMMON STOCK, $0.001 PAR VALUE 536,829 SHARES
- -------------------------------------- ----------------
(Class) (Outstanding)
<PAGE>
BAR TECHNOLOGIES INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
as of June 28, 1997 and December 28, 1996................................................1
Consolidated Statements of Income (Unaudited) for the three
and six month periods ended June 28, 1997 and June 30, 1996..............................2
Consolidated Statements of Cash Flows (Unaudited) for the
six months ended June 28, 1997 and June 30, 1996.........................................3
Notes to Consolidated Financial Statements.............................................4-6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations......................................7-12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................13
Item 2. Changes in Securities...................................................................13
Item 3. Defaults Upon Senior Securities.........................................................13
Item 4. Submission of Matters to a Vote of Security Holders.....................................13
Item 5. Other Information.......................................................................13
Item 6. Exhibits and Reports on Form 8-K........................................................13
Signatures..............................................................................14
</TABLE>
<PAGE>
PART I-FINANCIAL INFORMATION
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollar amounts in thousands)
December 28, June 28
1996 1997
----------- --------
Assets:
Current Assets:
Cash and cash equivalents .......................... $ 7,034 $ 1,133
Accounts receivable, less allowances of $567
and $530 .......................................... 18,139 37,499
Inventories ........................................ 57,815 51,847
Prepaid expenses ................................... 3,094 1,920
Restricted interest escrow ......................... 12,878 6,937
----------- --------
98,960 99,336
----------- --------
Property, Plant and Equipment:
Land and improvements .............................. 2,781 2,781
Buildings and improvements ......................... 22,102 22,676
Machinery and equipment ............................ 54,060 54,677
Construction in progress ........................... 2,253 2,895
Accumulated depreciation ........................... (3,268) (5,613)
----------- --------
77,928 77,416
----------- --------
Other assets:
Goodwill, net of accumulated amortization of $244
and $406 .......................................... 12,616 12,454
Restricted debt service fund ....................... 1,550 1,550
Other assets ....................................... 15,233 13,495
----------- --------
29,399 27,499
----------- --------
Total Assets ........................................ $206,287 $204,251
=========== ========
Liabilities:
Current Liabilities:
Accounts payable ................................... $ 26,835 $ 36,461
Accrued interest payable ........................... 3,879 3,622
Accrued expenses and other current liabilities ..... 17,955 15,549
Current maturities of long-term debt ............... 2,739 2,982
Revolving credit facility .......................... 39,800 53,150
----------- --------
91,208 111,764
Long-term debt ...................................... 132,093 131,769
Other long-term liabilities ......................... 9,644 9,902
----------- --------
Total Liabilities ................................... 232,945 253,435
----------- --------
Redeemable Stock:
Series A Preferred Stock, $0.001 par value, 5,000
shares authorized, 1,100 and 1,100 shares issued
and outstanding ................................... 5,500 5,500
----------- --------
Stockholders' Equity (Deficit):
Series B Preferred Stock, $0.001 par value,
1 share authorized, issued and outstanding ........ -- --
Class A Common Stock, $0.001 par value, 1,000,000
shares authorized, 207,012 and 207,012 shares
issued and outstanding ............................ -- --
Class B Common Stock, $0.001 par value, 600,000
shares authorized, 536,829 and 536,829 shares
issued and outstanding ............................ 1 1
Additional paid-in capital ......................... 33,706 33,706
Warrants outstanding ............................... 5,119 5,119
Retained earnings (deficit) ........................ (70,853) (93,337)
Cumulative translation adjustment .................. (131) (173)
----------- --------
Total Stockholders' Equity (Deficit) ............... (32,158) (54,684)
----------- --------
Total Liabilities and Stockholders' Equity (Deficit) $206,287 $204,251
=========== ========
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollar amounts in thousands, except per share data)
Three months ended Six months ended
------------------ ------------------
June 28, June 30, June 28, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Net sales $ 63,156 $ 39,368 $115,487 $ 39,956
Cost of sales 62,494 41,010 115,995 45,445
Depreciation and amortization 1,238 857 2,500 1,045
Selling, general and administrative
expenses 4,344 3,888 8,081 4,706
-------- -------- -------- --------
(Loss) From Operations (4,920) (6,387) (11,029) (11,240)
Interest expense, net 5,999 4,253 11,724 5,062
Other income (expense) 130 (21) 769 (358)
-------- -------- -------- --------
(Loss) Before Provision for
Income Taxes (10,789) (10,661) (22,044) (16,660)
Provision for
income taxes 105 171 247 171
-------- -------- -------- --------
(Loss) Before Extraordinary Item (10,894) (10,832) (22,291) (16,831)
Extraordinary loss on early
extinguishment of debt -- 2,214 -- 2,214
-------- -------- -------- --------
Net (Loss) (10,894) (13,046) (22,291) (19,045)
Preferred stock dividends 96 96 193 192
-------- -------- -------- --------
Net (Loss) Applicable to
Common Shares $(10,990) $(13,142) $(22,484) $(19,237)
======== ======== ======== ========
Per share data:
(Loss) per common share before
extraordinary item $ (14.77) $ (18.07) $ (30.23) $ (39.38)
Extraordinary loss on early
extinguishment of debt -- 3.66 -- 5.12
-------- -------- -------- --------
Net (Loss) per Common Share $ (14.77) $ (21.73) $ (30.23) $ (44.50)
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollar amounts in thousands)
Six months ended
------------------
June 28, June 30,
1997 1996
-------- --------
Operating activities:
Net (loss) $(22,291) $(19,045)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,507 901
Extraordinary loss on early extinguishment
of debt - 2,214
Acretion of original issue discount 616 357
Amortization of deferred financing costs 1,074 932
(Increase) decrease in accounts receivable (19,358) 400
(Increase) decrease in inventory 5,968 (6,623)
(Increase) decrease in prepaid expenses 1,174 (417)
(Increase) decrease in other assets 505 (256)
Increase (decrease) in accounts payable 9,625 4,319
Increase (decrease) in other current liabilities (2,662) 3,647
Increase (decrease) in deferred income taxes 139 (4)
Increase (decrease) in other long-term liabilities 119 58
--------- ---------
Net cash provided by (used in) operating activities (22,584) (13,517)
--------- ---------
Investing activities:
Capital expenditures (1,832) (10,365)
Acquisition of B&L, net of cash - (41,028)
Disposition of nonoperating assets - 138
--------- ---------
Net cash provided by (used in) investing activities (1,832) (51,255)
--------- ---------
Financing activities:
Net receipts under revolving credit agreement 13,350 7,000
Proceeds from issuance of debt 322 92,411
Repayments of debt (1,018) (30,975)
Proceeds from issuance of common stock - 30,000
Proceeds from issuance of warrants - 5,119
Preferred stock dividends (193) (193)
Deferred debt financing costs - (12,398)
Payments from (deposits into) bond interest escrow 6,096 (18,516)
--------- ---------
Net cash provided by (used in) financing activities 18,557 72,448
--------- ---------
Effect of exchange rates on cash (42) (55)
(Decrease) increase in cash equivalents (5,901) 7,621
Cash equivalents at beginning of period 7,034 1,824
--------- ---------
Cash equivalents at end of period $ 1,133 $ 9,445
========= =========
Supplemental information:
Interest paid $ 9,474 $ 1,197
Income taxes paid 178 607
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollar amounts in thousands)
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 in December, 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 changed its fiscal
year from the current calendar quarter basis ending September 30 to a
4/4/5 week fiscal quarter basis generally ending the last Saturday in
December. As a result, BarTech's new fiscal year 1997 began December 29,
1996 and will end on December 27, 1997.
The consolidated financial statements presented include the accounts of BarTech
and its wholly owned subsidiary Bliss & Laughlin Industries, Inc. after
elimination of intercompany accounts and transactions.
Since its formation, BarTech has incurred substantial losses as a result of the
start up and ongoing maintenance of its facilities and its general and
administrative expenses. Any substantial delay in achieving or a failure to
bring the facilities up to commercial volumes and productivity levels, 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 discussed in Note 2, 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, 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 financial statement line items in the December 28, 1996 balance sheet
have been restated to reflect fourth quarter 1996 expenses which were not
accrued and to record an adjustment to further reduce inventories to lower of
cost-or-market. Certain amounts in prior year financial statements have been
reclassified to conform to the current year presentation.
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
4
<PAGE>
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, plan 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 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 "Acquisition," which assumes BarTech only incurred the debt
necessary to acquire B & L. The additional column 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.
Unaudited Pro Forma Information
----------------------------------
"Acquisition" "Recapitalization"
6/30/96 6/30/96
------------- ------------------
Net sales $81,677 $81,677
Loss before extraordinary item (17,032) (19,974)
Net loss applicable to common shares (17,032) (19,974)
Net loss per common share (39.40) (46.20)
3. 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.
5
<PAGE>
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. 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 June 28, 1997 and December 28, 1996 are as follows:
June 28, 1997 December 28, 1996
------------- -----------------
Raw materials $ 18,277 $ 18,828
Work-in-process 19,328 24,435
Finished goods 14,242 14,552
------ ------
Total Inventories $ 51,847 $ 57,815
======== ========
Prior to June 28, 1997 inventory was stated at estimated net realizable
value which was lower than cost. As a result of increasing hot rolled
bar sales values and lower unit cost levels, inventories were stated at
cost for the first time in the Company's history as of June 28, 1997.
Cost of sales in second quarter 1997 includes $408 as a result of the
transition from market to cost values.
Work-in-process inventory at June 28, 1997 reflects a second quarter write-down
of $1,704 resulting from a reconciliation of the perpetual inventory records
combined with verification of physical quantities on hand.
5. 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 743,841 and 604,878 for the three
months ended June 28, 1997 and June 30, 1996, respectively, and 743,841 and
432,326 for the six months ended June 28, 1997 and June 30, 1996, respectively.
Warrants and options outstanding are excluded from the calculations because of
their antidilutive effect.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Following is management's discussion and analysis of financial condition which
provides information with respect to the results of operations of the Company
for the three and six month periods ended June 28, 1997 and June 30, 1996. The
discussion should be read in connection with the information in the Consolidated
Financial Statements and the notes pertaining thereto.
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 had changed its fiscal year from the current
calendar quarter basis ending September 30 to a 4/4/5 week fiscal quarter basis
generally ending on the last Saturday in December. As a result, BarTech's new
fiscal year 1997 began on December 29, 1996 and will end on December 27, 1997.
During first quarter 1997, BarTech began the transition from initial operational
and organizational start-up activities to a focused commercial effort. Since
first quarter 1997 BarTech has begun to receive qualifications from certain Tier
I and II suppliers to the U.S. automotive market. As a result of these
qualifications, BarTech has accelerated the shift of its product mix from lower
to higher margin steel grades. This qualification process will continue
throughout the next one to three years, depending on the length of the customer
qualification process and the ability of BarTech to meet the particular customer
qualification standards.
7
<PAGE>
Among BarTech's 1997 operational objectives have been to increase caster
production at the Johnstown facility to commercial levels and to increase
production at the Lackawanna facility by adding additional shifts. Management
believes that the Johnstown caster is currently capable of operating at
commercial levels, and efforts continue to increase production at the Lackawanna
facility by the addition of operating shifts. A third production shift was added
in April 1997, and a fourth shift will begin production in late August.
Lackawanna mill production has steadily improved throughout the year. For
example, July 1997 hot rolled bar production was 42.8% over January levels.
Caster production at Johnstown has been adequate in all cases to support the
Lackawanna facility.
HISTORICAL - THREE MONTHS ENDED JUNE 28, 1997 COMPARED WITH JUNE 30, 1996
The following discussion of the results of operations for BarTech for the three
months ended June 28, 1997 and June 30, 1996 is limited due to the lack of
comparable information for the prior quarters. Management does not believe that
the results of BarTech included for the three months ended June 30, 1996 are
indicative of its future results of operations due to the limited BarTech
operating history and the inclusion of B&L on a vertically integrated basis.
Also contributing to the non-comparability of the periods presented is the
Company's continuing progression in moving from the start-up phase of operations
toward levels of sales and production necessary to generate operating income.
The following table is presented for comparative purposes:
Three Months Ended
---------------------------------
June 28, 1997 June 30, 1996
------------- -------------
Net Sales $63,156 $39,368
Loss before extraordinary item (10,894) (10,832)
Net loss applicable to common shares (10,990) (13,142)
Net loss per common share ($14.77) ($21.73)
NET SALES. The Company recorded net sales of $63.2 million for the three months
ended June 28, 1997, as compared with net sales of $39.4 million for the same
period last year. The $23.8 million or 60.4% increase for the three month period
is due to a $20.4 million increase for the period in hot rolled bar shipments to
outside customers from BarTech's Lackawanna facility and increased average hot
rolled bar sales prices principally resulting from the sale of higher
value-added products. The increase also reflects initiatives started in fourth
quarter 1996, including among others, the establishment of a full time sales
force and successful trial sales to numerous new customers. The shipment
increase was supported by increased production from the Johnstown caster, which
started up in third quarter 1996 and by the addition of a third production shift
at the Lackawanna facility, which began during April 1997.
COST OF SALES. Cost of sales rose to $62.5 million for the three months ended
June 28, 1997, as compared with $41.0 million for the same period last
year. The $21.5 million or 52.4% increase is principally due to
increased production activity associated with higher shipment levels.
Cost of sales in second quarter 1997 also includes $1.7 million and $0.4
million relating to a perpetual inventory adjustment and the effect of
the transition of inventory values from market to cost, respectively
(see Note 4 to Consolidated Financial Statements - "Inventories"). Additionally,
during March and April 1997, BarTech hired a third production shift at
its Lackawanna facility. The third shift performed only training and
maintenance activities prior to commencing production, and cost of sales
includes approximately $0.4 million relating to these activities.
As a result of the above sales and cost of sales factors, the Company achieved
its first positive gross margin in second quarter 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company incurred selling,
general and administrative expenses of $4.3 million for the three months ended
June 28, 1997, as compared with $3.9 million for the same period last year.
These increases reflect the corresponding increase in sales and other activities
over the period as discussed above.
INTEREST EXPENSE, NET. Net interest expense increased to $6.0 million for the
three months ended June 28, 1997, as compared with net interest expense of $4.3
million for the same period last year. The $1.7 million or 41.1% increase for
the three month period, is primarily attributable to higher average amounts
borrowed under the revolving credit facility. The tax provision relates to
foreign taxes.
8
<PAGE>
HISTORICAL - SIX MONTHS ENDED JUNE 28, 1997 COMPARED WITH JUNE 30, 1996
The following discussion of the results of operations for BarTech for the six
months ended June 28, 1997 and June 30, 1996 is limited due to the lack of
comparable information for the prior quarters. Management does not believe that
the results of BarTech included for the six months ended June 30, 1996 are
indicative of its future results of operations due to the limited BarTech
operating history and the inclusion of B&L on a vertically integrated basis.
Also contributing to the non-comparability of the periods presented is the
Company's continuing progression in moving from the start-up phase of operations
toward levels of sales and production necessary to generate operating income.
The following table is presented for comparative purposes:
Six Months Ended
----------------------------------
June 28, 1997 June 30, 1996
------------- -------------
Net Sales $115,487 $39,956
Loss before extraordinary item (22,291) (16,831)
Net loss applicable to common shares (22,484) (19,237)
Net loss per common share ($30.23) ($44.50)
NET SALES. The Company recorded net sales of $115.5 million for the six months
ended June 28, 1997, as compared with net sales of $40.0 million for the same
period last year. The $75.5 million or 188.8% increase for the six month period,
is due to a $32.7 million increase for the period in hot rolled bar shipments to
outside customers from BarTech's Lackawanna facility and increased average hot
rolled bar sales prices principally resulting from the sale of higher
value-added products. The increase also reflects initiatives started in fourth
quarter 1996, including among others, the establishment of a full time sales
force and successful trial sales to numerous new customers. The shipment
increase was supported by increased production from the Johnstown caster, which
started up in third quarter 1996 and by the addition of a third production shift
at the Lackawanna facility, which began during April 1997.
COST OF SALES. Cost of sales rose to $116.0 million for the six months
ended June 28, 1997, as compared with $45.4 million for the same period
last year. The $70.5 million or 155.3% increase is principally due to
increased production activity associated with higher shipment levels.
Cost of sales in second quarter 1997 also includes $1.7 million and $0.4
million relating to a perpetual inventory adjustment and the effect of
the transition of inventory values from market to cost, respectively
(see Note 4 to Consolidated Financial Statements - "Inventories").
Additionally, during March and April 1997, BarTech hired a third production
shift at its Lackawanna facility. The third shift performed only training and
maintenance activities prior to commencing production, and cost of sales
includes approximately $0.4 million relating to these activities. As a
result of the above sales and cost of sales factors, the Company
achieved its first positive gross margin in second quarter 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company incurred selling,
general and administrative expenses of $8.1 million for the six months ended
June 28, 1997, as compared with $4.7 million for the same period last year.
These increases reflect the corresponding increase in sales and other activities
over the period as discussed above. There was no selling, general and
administrative expense for B&L prior to April 2, 1996 (the acquisition date).
INTEREST EXPENSE, NET. Net interest expense increased to $11.7 million for the
six months ended June 28, 1997, as compared with net interest expense of
$5.1 million for the same period last year. The $6.6 million or 129.4% increase
for the six month period is primarily attributable to higher average amounts
borrowed under the revolving credit facility. The tax provision relates to
foreign taxes.
PRO FORMA - SIX MONTHS ENDED JUNE 28, 1997 COMPARED WITH JUNE 30, 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.
9
<PAGE>
Unaudited Pro Forma Information
-------------------------------
"Acquisition" "Recapitalization"
6/30/96 6/30/96
------- -------
Net sales $81,677 $81,677
Loss before extraordinary item (17,032) (19,974)
Net loss applicable to common shares (17,032) (19,974)
Net loss per common share ($39.40) ($46.20)
Start-up of commercial steel production began in the first quarter of 1996.
Sales of $1.5 million were recorded from the Lackawanna facility for the six
months ended June 30, 1996. Net sales for the six months ended June 30, 1996
from the B&L facility were $80.2 million. B&L sales were $82.2 million for the
six months ended June 28, 1997 an increase of $0.5 million compared with the six
months ended June 30, 1996 due principally to higher 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 increased
from 9.0% to 11.2% of sales for the six months ended June 30, 1996 and June 28,
1997, primarily due to lower material cost.
Selling, general and administrative expenses increased from $7.5 million to $8.1
million for the six months ended June 30, 1996 and June 28, 1997. Selling,
general and administrative expenses for the first quarter ended March 31, 1996
reflect the cost of maintaining the business prior to the start up of the
Lackawanna facility in February.
Interest expense increased from $8.9 million to $12.1 million principally as a
result of debt incurred in the Recapitalization and revolving credit borrowings.
HISTORICAL - THREE MONTHS ENDED JUNE 28, 1997 COMPARED WITH MARCH 29, 1997
The following discussion of the results of operations for BarTech for the three
months ended June 28, 1997 and March 29, 1997 is more indicative of the progress
which the company has made over the last quarter. In addition, management
believes that the results of BarTech included for the three months ended March
29, 1997 are more indicative of its results of operations due to the BarTech
operating history, the operating history of B&L under BarTech's management and
the consequences of operating BarTech and B&L on a vertically integrated basis.
This integration and ramp up of the company continues as the sales and
production levels necessary to generate a positive operating income are
attained. The following table is presented for comparative purposes:
Quarter Ended
-----------------------------------
June 28, 1997 March 29, 1997
------------- --------------
Net sales $63,156 $52,331
Loss from operations (4,920) (6,169)
Net loss applicable to common shares (10,990) (11,493)
Net loss per common share ($14.77) ($15.45)
NET SALES. The Company recorded net sales of $63.2 million for the three months
ended June 28, 1997, as compared with net sales of $52.3 million for the
previous quarter. The $10.8 million or 20.8% increase for the three month period
is principally due to a 65.1% increase in hot rolled bar shipments to outside
customers from BarTech's Lackawanna facility and increased average hot rolled
bar sales prices principally resulting from the sale of higher value-added
products. The increase also reflects initiatives started in fourth quarter 1996,
including among others, the establishment of a full time sales force and
successful trial sales to numerous new customers. The shipment increase was
supported by increased production from the Johnstown caster, which started up in
third quarter 1996 and by the addition of a third production shift at the
Lackawanna facility, which began during April 1997.
COST OF SALES. Cost of sales rose to $62.5 million for the three months
ended June 28, 1997, as compared with $53.5 million for the previous
quarter. The $9.0 million or 16.8% increase is principally due to
increased production activity associated with higher shipment levels.
Cost of sales in second quarter 1997 also includes $1.7 million and $0.4
million relating to a perpetual inventory adjustment and the effect of
the transition of inventory values from market to cost
10
<PAGE>
(see Note 4 to Notes to Consolidated Financial Statements -
"Inventories"). Additionally, during March and April 1997, BarTech hired
a third production shift at its Lackawanna facility. The third shift
performed only training and maintenance activities prior to commencing
production, and cost of sales includes approximately $0.4 million
relating to these activities. As a result of the above sales and cost of
sales factors, the Company achieved its first positive gross margin in
second quarter 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company incurred selling,
general and administrative expenses of $4.3 million for the three months ended
June 28, 1997, as compared to $3.7 million for the previous quarter. These
increase reflects the corresponding increase in sales and other activities over
the period as discussed above.
INTEREST EXPENSE, NET. Net interest expense increased to $6.0 million for the
three months ended June 28, 1997, as compared with net interest expense of $5.7
million for the previous quarter. The $0.3 million or 5.2% increase for the
three month period is primarily attributable to higher average amounts borrowed
under the revolving credit facility. The tax provision relates to foreign taxes.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related notes of the Company presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial condition and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation. Management
believes that inflation has not had a material effect on the Company's operating
results.
LIQUIDITY AND CAPITAL RESOURCES
BarTech's primary sources of liquidity consist of available cash and cash
equivalents, availability under the revolving credit facility and cash flow from
operations. As of August 11, 1997, BarTech had approximately $1.0 million in
available cash and cash equivalents. BarTech had additional liquidity available
including $6.9 million in the Restricted Interest Escrow Account, and
approximately $3.5 million of excess availability based on its revolving
credit facility.
Excluding the revolving credit facility, working capital decreased by $6.8
million from the prior year end to $40.7 million as of June 28, 1997. The
decrease in working capital was driven primarily by higher accounts receivable
due principally to higher hot rolled bar shipment levels and average selling
prices. This was offset by lower inventories based primarily on management's
efforts to reduce overall inventory levels and lower June month-end scrap
purchases in advance of a planned melt shop and caster shutdown which took place
in July 1997, and a higher accounts payable balance relating to higher business
activity levels. The revolving credit facility balance increased $13.4 million
to $53.2 million, the proceeds were used to fund the higher business activity
levels.
There are no restrictions on the ability of B&L to transfer funds to BarTech.
Based on its fiscal 1997 plan, the Company believes that its cash flow from
operations, combined with the available funds under the revolving credit
facility, will be sufficient to enable it to meet its debt service requirements
when due and to funds its capital expenditure, working capital and general
11
<PAGE>
corporate requirements, although there can be no assurances with respect
thereto.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB released SFAS No. 128, "Earnings Per Share". SFAS No.
128 establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock or potential common
stock. SFAS No. 128 simplifies previous standards for computing EPS. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; and earlier application is not
permitted. SFAS No. 128 requires restatement of all prior period EPS data
presented. Due to the Company's net loss position, no dilution for any
potentially dilutive securities is included in the existing EPS calculation
required by SFAS No. 128. Accordingly, had the Company applied the
provisions of SFAS No. 128 in the second quarter of 1997 to the EPS
calculations there would have been no impact compared to that which was
reported.
12
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are occasionally involved in various legal
proceedings occurring in the ordinary course of business. It is the opinion of
management, after consultation with legal counsel, that these matters will not
materially affect the Company's consolidated financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
13
<PAGE>
SIGNATURES
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 12, 1997 By: /s/ Thomas N. Tyrrell
-----------------------------
Thomas N. Tyrrell
President and Chief Executive
Officer
Date: August 12, 1997 By: /s/ Frederick L. Deichert
--------------------------------
Frederick L. Deichert
Vice President of Finance and
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 1,133
<SECURITIES> 0
<RECEIVABLES> 38,028
<ALLOWANCES> 530
<INVENTORY> 51,847
<CURRENT-ASSETS> 99,336
<PP&E> 83,029
<DEPRECIATION> 5,613
<TOTAL-ASSETS> 204,251
<CURRENT-LIABILITIES> 111,763
<BONDS> 0
5,500
0
<COMMON> 1
<OTHER-SE> 54,685
<TOTAL-LIABILITY-AND-EQUITY> 204,251
<SALES> 115,487
<TOTAL-REVENUES> 115,487
<CGS> 115,995
<TOTAL-COSTS> 126,576
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,724
<INCOME-PRETAX> (22,044)
<INCOME-TAX> 247
<INCOME-CONTINUING> (22,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,484)
<EPS-PRIMARY> (30.23)
<EPS-DILUTED> (30.23)
</TABLE>
