<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 September 27, 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
incorporation or organization) Identification No.)
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 November 11, 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)
Class C Common Stock, $0.001 par value 536,865 shares
- -------------------------------------- --------------
(Class) (Outstanding)
<PAGE>
BAR TECHNOLOGIES INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
as of September 27, 1997 and December 28, 1996...........................................1
Consolidated Statements of Income (Unaudited) for the three
and nine month periods ended September 27, 1997 and September 30, 1996...................2
Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended September 27, 1997 and September 30, 1996..............................3
Notes to Consolidated Financial Statements.............................................4-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations......................................8-12
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, except per share data)
<TABLE>
<CAPTION>
September 27, December 28,
1997 1996
------------- -------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 2,127 $ 7,034
Accounts receivable, less allowances of $652 and $567 37,129 18,139
Inventories 51,955 57,815
Prepaid expenses 1,639 3,094
Restricted interest escrow 7,053 12,878
------------- -------------
99,903 98,960
------------- -------------
Property, Plant and Equipment:
Land and improvements 2,781 2,781
Buildings and improvements 22,720 22,102
Machinery and equipment 54,702 54,060
Construction in progress 3,358 2,253
Accumulated depreciation (6,778) (3,268)
------------- -------------
76,783 77,928
------------- -------------
Other assets:
Goodwill, net of accumulated amortization of $486 and $244 12,373 12,616
Restricted debt service fund 1,550 1,550
Other assets 14,110 15,233
------------- -------------
28,033 29,399
------------- -------------
Total Assets $ 204,719 $ 206,287
============= =============
Liabilities:
Current Liabilities:
Accounts payable $ 37,788 $ 26,835
Accrued interest payable 6,659 3,879
Accrued expenses and other current liabilities 12,969 17,955
Current maturities of long-term debt 3,934 2,739
Revolving credit facility 29,800 39,800
------------- -------------
91,150 91,208
Long-term debt 129,967 132,093
Other long-term liabilities 10,004 9,644
------------- -------------
Total Liabilities 231,121 232,945
------------- -------------
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
Class C Common Stock, non-voting, $0.001 par value, 600,000
shares authorized, 536,865 and 0 shares issued and outstanding 1 --
Additional paid-in capital 63,055 33,706
Warrants outstanding 5,119 5,119
Retained earnings (deficit) (99,874) (70,853)
Cumulative translation adjustment (204) (131)
------------- -------------
Total Stockholders' Equity (Deficit) (31,902) (32,158)
------------- -------------
Total Liabilities and Stockholders' Equity (Deficit) $ 204,719 $ 206,287
============= =============
</TABLE>
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)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------ ------------------------------
September 27, September 30, September 27, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 64,945 $ 37,207 $ 180,432 $ 77,163
Cost of sales 60,061 43,548 176,056 88,993
Depreciation and amortization 1,246 755 3,746 1,800
Selling, general and administrative expenses 4,376 8,323 12,457 13,029
------------- ------------- ------------- -------------
Income (Loss) From Operations (738) (15,419) (11,827) (26,659)
Interest expense, net 5,797 4,898 17,521 9,960
Other income (expense) (1) 1,278 768 921
------------- ------------- ------------- -------------
Income (Loss) Before Provision for Income Taxes (6,536) (19,039) (28,580) (35,698)
Provision for (benefit from) income taxes (95) 34 152 205
------------- ------------- ------------- -------------
Income (Loss) Before Extraordinary Item (6,441) (19,073) (28,732) (35,903)
Extraordinary loss on early extinguishment of debt -- -- -- 2,214
Net Income (Loss) (6,441) (19,073) (28,732) (38,117)
Preferred stock dividends 96 96 289 289
------------- ------------- ------------- -------------
Net Loss Applicable to Common Shares $ (6,537) $ (19,169) $ (29,021) $ (38,406)
============= ============= ============= =============
Per share data:
Income (loss) per common share before extraordinary item $ (7.74) $ (25.88) $ (37.34) $ (68.95)
Extraordinary loss on early extinguishment of debt -- -- 4.22
============= ============= ============= =============
Net Income (Loss) per Common Share $ (7.74) $ (25.88) $ (37.34) $ (73.17)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended
---------------------------------
September 27, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (28,732) $ (38,117)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,746 1,800
Extraordinary loss on early extinguishment of debt -- 2,214
Accretion of original issue discount 920 633
Amortization of deferred financing costs 1,603 1,396
(Increase) decrease in accounts receivable (18,990) 957
(Increase) decrease in inventory 5,860 (12,016)
(Increase) decrease in prepaid expenses 1,455 (1,138)
(Increase) decrease in other assets (744) (401)
Increase (decrease) in accounts payable 10,953 5,332
Increase (decrease) in other current liabilities (2,206) 11,842
Increase (decrease) in deferred income taxes 137 (4)
Increase (decrease) in other long-term liabilities 223 277
------------ ------------
Net cash provided by (used in) operating activities (25,775) (27,225)
------------ ------------
Investing activities:
Capital expenditures (2,365) (20,184)
Acquisition of B&L, net of cash -- (41,028)
------------ ------------
Net cash provided by (used in) investing activities (2,365) (61,212)
------------ ------------
Financing activities:
Net receipts (payments) under revolving credit agreement (10,000) 22,500
Proceeds from issuance of debt 322 97,613
Repayments of debt (2,173) (31,847)
Proceeds from issuance of common stock, net of fees 29,350 30,003
Proceeds from issuance of warrants -- 5,119
Preferred stock dividends (289) (289)
Deferred debt financing costs -- (12,398)
Deposits to (payments from) bond interest escrow 6,096 (18,516)
------------ ------------
Net cash provided by (used in) financing activities 23,306 92,185
------------ ------------
Effect of exchange rates on cash (73) (49)
(Decrease) increase in cash and cash equivalents (4,907) 3,699
Cash and cash equivalents at beginning of period 7,034 1,824
------------ ------------
Cash and cash equivalents at end of period $ 2,127 $ 5,523
============ ============
Supplemental information:
Interest paid $ 10,011 $ 2,305
Income taxes paid 260 622
</TABLE>
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, except 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 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 3, 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 strategic 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 substantially all of the stock or assets of B&L, or
merges
4
<PAGE>
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 B&L and the Recapitalization as if it had occurred on October 1,
1995. 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 condensed 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"
9/30/96 9/30/96
------------- ------------------
Net sales $118,884 $118,884
Loss before extraordinary item (33,778) (39,018)
Net loss (38,360) (43,600)
Net loss per common share (73.08) (83.06)
3. 1996 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
5
<PAGE>
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. 1997 Equity Investment and Bank Revolving Credit Amendment
On September 11, 1997, the Company's principal owners, Blackstone Capital
Partners II Merchant Banking Fund and its affiliates and Veritas Capital, Inc.
purchased 536,865 shares of Class C non-voting common stock for $30 million. The
proceeds are expected to be spent on various capital projects at the Company's
facilities. The projects are expected to be completed by fourth quarter 1999.
Additionally, the Company and its commercial banks negotiated an amendment to
its existing $90 million Revolving Credit Agreement (the Amended Agreement). The
Amended Agreement provides for the addition of a new revolving Sub-Facility and
amends certain portions of the Revolving Credit Agreement. The Sub-Facility
component of the Amended Agreement provides the Company with up to $15 million
of additional borrowing capacity based on a higher receivables and inventory
advance rate than in the Revolving Credit Agreement. The Sub-Facility component
of the Amended Agreement expires on September 1, 1999. The original maturity
date of the Revolving Credit Agreement remains April 2, 2000.
Borrowings under the Amended Agreement will bear interest at a rate per annum
equal to, at BarTech's option, either a prime rate plus 2.00% or adjusted LIBOR
plus 3.00%, subject to upward adjustment in certain circumstances. Sub-Facility
borrowings will bear interest at a rate per annum equal to, at BarTech's option,
either a prime rate plus 3.50% or LIBOR plus 4.50%.
The Amended Agreement contains a number of covenants that, among other things,
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 other 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 investments above certain levels or engage in
certain transactions with affiliates and otherwise restrict corporate
activities. Additionally, under the Amended Agreement, BarTech will be required
to maintain a minimum Consolidated Interest Coverage Ratio beginning with
annualized results for the quarter ended September 30, 1998. The Amended
Agreement also contains provisions that will prohibit any modification of the
Indenture Agreement dated April 2, 1996 to the Senior Secured Notes 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.
6
<PAGE>
5. 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 27, 1997 and December 28, 1996 are as follows:
9/27/97 12/28/96
------------- -------------
Raw materials $ 4,388 $ 6,933
Work-in-process 32,993 36,330
Finished goods 14,574 14,552
------------- -------------
Total Inventories $ 51,955 $ 57,815
============= =============
Prior to June 28, 1997 inventory was stated at estimated fair market value which
was lower than cost. As a result of increasing hot rolled bar selling values and
lower unit cost levels, inventories have been stated at cost since June 28,
1997.
6. 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 844,135 and 740,547 for the three
months ended September 27, 1997 and September 30, 1996, respectively, and
777,272 and 524,938 for the nine months ended September 27, 1997 and September
30, 1996 respectively. Warrants and options outstanding are excluded from the
calculations because of their antidilutive effect.
7
<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 nine month periods ended September 27, 1997 and September 30,
1996. The discussion should be read in connection with the information in the
Unaudited 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.
On September 11, 1997, the Company's principal owners, Blackstone Capital
Partners II Merchant Banking Fund and its affiliates and Veritas Capital, Inc.
purchased 536,865 shares of Class C non-voting common stock for $30 million. The
proceeds are expected to be spent on various capital projects at the Company's
facilities. The projects are expected to be completed by fourth quarter 1999.
Additionally, the Company and its commercial banks negotiated an amendment to
its existing $90 million Revolving Credit Agreement (the Amended Agreement). The
Amended Agreement provides for the addition of a new revolving Sub-Facility and
amends certain portions of the Revolving Credit Agreement. The Sub-Facility
component of the Amended Agreement provides the Company with up to $15 million
of additional borrowing capacity based on a higher receivables and inventory
advance rate than in the Revolving Credit Agreement. The Sub-facility component
of the Amended Agreement expires on September 1, 1999. The original maturity
date of the Revolving Credit Agreement remains April 2, 2000.
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
8
<PAGE>
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 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.
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. A third
Lackawanna production shift was added in April 1997, and a fourth shift began
production in August 1997. Lackawanna mill production has steadily improved
throughout the year. For example, September 1997 hot rolled bar production was
83.0% over January levels. Caster production at Johnstown has been adequate in
all cases to support the Lackawanna facility.
Historical - Three months ended September 27, 1997 compared with September 30,
1996
The following discussion of the results of operations for BarTech for the three
months ended September 27, 1997 and September 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
September 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 (in
thousands):
Three Months Ended
----------------------------
9/27/97 9/30/96
------- -------
Net sales $64,945 $37,207
Net loss applicable to common shares (6,537) (19,169)
Net loss per common share ($7.74) ($25.88)
Net Sales. The Company recorded net sales of $64.9 million for the three months
ended September 27, 1997, as compared with net sales of $37.2 million for the
same period last year. The $27.7 million or 74.5% increase for the three month
period is due to an increase in hot rolled bar shipments to outside customers
from BarTech's Lackawanna facility and to an increase in the sales mix toward
higher price per unit products. This increase reflects initiatives started in
fourth quarter 1996, including among others, the establishment of a full time
sales force and successful trial and continuing 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 additions of a third
and fourth production shift at the Lackawanna facility, which began during April
and August 1997, respectively.
Cost of Sales. Cost of sales rose to $60.1 million for the three months ended
September 27, 1997, as compared with $43.5 million for the same period last
year. This increase reflects the increased sales and production volumes achieved
during the respective periods, as described above.
Selling, General and Administrative Expenses. The Company incurred selling,
general and administrative expenses of $4.4 million for the three months ended
September 27, 1997, as compared with $8.3 million for the same period last year.
The prior year three month period includes $3.0 million of non-recurring
expenses charged to operations resulting from the previously disclosed corporate
restructuring and $0.7 million other one-time employee severance costs.
Interest Expense, Net. Net interest expense increased to $5.8 million for the
three months ended September 27, 1997, as compared to net interest expense of
$4.9 million for the same period last year. The $0.9 million or 18.4%
9
<PAGE>
increase for the three month period, is primarily attributable to higher average
amounts borrowed under the revolving credit facility.
Historical - Nine months ended September 27, 1997 compared with September 30,
1996
The following discussion of the results of operations for BarTech for the nine
months ended September 27, 1997 and September 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 nine months ended September
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 (in
thousands):
Nine Months Ended
------------------------------
9/27/97 9/30/96
------- -------
Net sales $180,432 $77,163
Loss before extraordinary item (28,732) (35,903)
Net loss applicable to common shares (29,021) (38,406)
Net loss per common share ($37.34) ($73.17)
Net Sales. The Company recorded net sales of $180.4 million for the nine months
ended September 27, 1997, as compared with net sales of $77.2 million for the
same period last year. The $103.3 million or 133.9% increase is due to a an
increase in hot rolled bar shipments to outside customers from BarTech's
Lackawanna facility and to an increase in the sales mix toward higher price per
unit products. This increase reflects initiatives started in fourth quarter
1996, including among others, the establishment of a full time sales force and
successful trial and continuing sales to numerous new customers. The shipment
increase was supported by increased production from the Johnstown caster, which
started up in the third quarter 1996 and by the additions of a third and fourth
production shift at the Lackawanna facility, which began during April and August
1997, respectively.
Cost of Sales. Cost of sales rose to $176.1 million for the nine months ended
September 27, 1997, as compared to $89.0 million for the same period last year.
This increase reflects the increased sales and production volumes achieved
during the respective periods, as described above.
Selling, General and Administrative Expenses. The Company incurred selling,
general and administrative expenses of $12.5 million for the nine months ended
September 27, 1997, as compared with $13.0 million for the same period last
year. The prior year nine month period includes $3.0 million of non-recurring
expenses charged to operations resulting from the previously disclosed corporate
restructuring and $0.7 million other one-time employee severance costs.
Excluding these non-recurring charges, selling, general and administrative
expenses increased by $3.2 million which reflects the corresponding increase in
sales over the period, as discussed above.
Interest Expense, Net. Net interest expense increased to $17.5 million for the
nine months ended September 27, 1997, compared to $10.0 million for the same
period last year. The $7.6 million or 75.9% increase is primarily attributable
to higher average amounts borrowed under the revolving credit facility.
Pro Forma - Nine months ended September 27, 1997 compared with September 30,
1996
The following pro forma financial information gives effect to the
Recapitalization as if it had occurred on October 1, 1995. The unaudited pro
forma condensed 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 (in thousands).
10
<PAGE>
Unaudited Pro Forma Information
-----------------------------------
"Acquisition" "Recapitalization"
9/30/96 9/30/96
------------- ------------------
Net sales $118,884 $118,884
Loss before extraordinary item (33,778) (39,018)
Net loss (38,360) (43,600)
Net loss per common share (73.08) (83.06)
Start-up of commercial steel production began in the first quarter of 1996.
Sales of $4.1 million were recorded from the Lackawanna facility for the nine
months ended September 30, 1996. Net sales from the B&L facility for the nine
months ended September 30, 1996 were $114.8 million. B&L sales were $119.7
million for the nine months ended September 27, 1997. The $4.9 million increase
is due principally to higher shipment volumes during the respective periods.
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 were (7.7%)
of sales for the nine months ended September 30, 1996 versus 11.0% of sales for
the nine months ended September 27, 1997, primarily due to lower material cost.
Selling, general and administrative expenses decreased to $12.5 million from
$16.9 million for the nine months ended September 27, 1997 and September 30,
1996. Included in the nine month period ended September 30, 1996 selling,
general and administrative expenses are costs of maintaining the business prior
to the start up of the Lackawanna facility in February.
Net interest expense increased to $17.5 million from $14.7 million principally
as a result of debt incurred in the Recapitalization and revolving credit
borrowings.
Historical - Three months ended September 27, 1997 compared with June 28, 1997
The following discussion of the results of operations for BarTech for the three
months ended September 27, 1997 compared to June 28, 1997 is presented due to
the non-comparability with the historical data from prior years presented above.
Management believes a comparison to the most recent quarter highlights the
progress which the company has made in recent months and more accurately
presents 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 (in thousands):
Quarter Ended
----------------------------
9/27/97 6/28/97
------- -------
Net sales $64,945 $63,156
Net loss applicable to common shares (6,537) (10,990)
Net loss per common share ($7.74) ($14.77)
Net Sales. The Company recorded net sales of $64.9 million for the three months
ended September 27, 1997, as compared with net sales of $63.2 million for the
previous quarter. The $1.7 million or 3.0% increase for the three month period
is principally due to a 16.0% increase in hot rolled bar shipments to outside
customers from BarTech's Lackawanna facility, partially offset by a percentage
decrease in shipments from Bliss and Laughlin due to scheduled maintenance
shutdowns during July 1997. The shipment increase was supported by increased
production from the Johnstown caster and by the addition of a fourth production
shift at the Lackawanna facility, which began during August 1997.
Cost of Sales. Cost of sales decreased to $60.1 million for the three months
ended September 27, 1997, as compared with $62.5 million for the previous
quarter. Cost of sales in second quarter 1997 included $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. The Company achieved its
first positive gross margin in the second quarter of 1997. Additionally, during
April and August 1997, BarTech hired a third and forth production shift,
respectively, at its
11
<PAGE>
Lackawanna facility. The third shift performed only training and maintenance
activities prior to commencing production, and cost of sales for the second
quarter of 1997 includes approximately $0.4 million relating to these
activities.
Selling, General and Administrative Expenses. The Company incurred selling,
general and administrative expenses of $4.4 million for the three months ended
September 27, 1997, as compared to $4.3 million for the previous quarter. This
increase reflects the corresponding increase in sales and other activities over
the period as discussed above.
Interest Expense, Net. Net interest expense decreased to $5.8 million for the
three months ended September 27, 1997, as compared with net interest expense of
$6.0 million for the previous quarter. The $0.2 million decrease for the period
principally reflects a lower average balance of amounts borrowed under the
revolving credit facility.
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 September 27, 1997, BarTech had approximately $2.1 million in
available cash and cash equivalents. BarTech had additional liquidity available
including $7.0 million in the Interest Escrow Account, and approximately $44.0
million of excess availability based on its revolving credit facility.
Working capital increased by $3.1 million from the prior year end to $33.5 as of
September 27, 1997. The increase in working capital resulted primarily from
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 to
higher accounts payable balances due mostly to the related increases in
production volumes.
There are no restrictions on the ability of B&L to transfer funds to BarTech.
Based on its strategic 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
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, management does not expect SFAS No. 128
to have a significant impact on the Corporation's consolidated financial
statements.
12
<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
On September 11, 1997, the Company filed form 8-K to report the announcement of
a capital investment program funded by Blackstone Capital Partners II Merchant
Banking Fund L.P. and Veritas Capital, Inc.
On February 14, 1997, the Company filed form 8-K to report the a change in its
fiscal year from September 30, to a 4/4/5 week fiscal quarter basis ending on
the last Saturday in December.
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: November 11, 1997 By: /s/ Thomas N. Tyrrell
-------------------------------------
Thomas N. Tyrrell
President and Chief Executive Officer
Date: November 11, 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> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> JUN-29-1997
<PERIOD-END> SEP-27-1997
<CASH> 2,127
<SECURITIES> 0
<RECEIVABLES> 37,781
<ALLOWANCES> 652
<INVENTORY> 51,955
<CURRENT-ASSETS> 99,903
<PP&E> 83,561
<DEPRECIATION> 6,778
<TOTAL-ASSETS> 204,719
<CURRENT-LIABILITIES> 91,150
<BONDS> 0
5,500
0
<COMMON> 2
<OTHER-SE> (31,904)
<TOTAL-LIABILITY-AND-EQUITY> 204,719
<SALES> 64,945
<TOTAL-REVENUES> 64,945
<CGS> 60,061
<TOTAL-COSTS> 65,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,797
<INCOME-PRETAX> (6,536)
<INCOME-TAX> (95)
<INCOME-CONTINUING> (6,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,537)
<EPS-PRIMARY> (7.74)
<EPS-DILUTED> (7.74)
</TABLE>
