<PAGE> 1
FORM 10-Q
UNITED STATES
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 three month period ended July 4, 1998 Commission File Number: 333-04254
BAR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3753384
- -------------------------------------------------------------- ---------------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
5700 LOMBARDO CENTER DRIVE, SUITE 100
SEVEN HILLS, OHIO 44131 (216) 750-2100
- -------------------------------------------------------------- ---------------------------------
(Address of principal executive offices) (Registrant's telephone number)
</TABLE>
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 July 31, 1998:
<TABLE>
<S> <C> <C>
CLASS A COMMON STOCK, $0.001 PAR VALUE 204,458 SHARES
CLASS B COMMON STOCK, $0.001 PAR VALUE 536,829 SHARES
CLASS C COMMON STOCK, $0.001 PAR VALUE 536,865 SHARES
</TABLE>
1
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<TABLE>
<CAPTION>
BAR TECHNOLOGIES INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Income (Unaudited) for the three and six month
periods ended July 4, 1998 and June 28, 1997.............................................3
Consolidated Balance Sheets as of July 4, 1998 (Unaudited) and
January 3, 1998........................................................................4-5
Consolidated Statement of Stockholders' Equity (Deficit) (Unaudited) for
the six month period ended July 4, 1998..................................................6
Consolidated Statements of Cash Flows (Unaudited) for the six month
periods ended July 4, 1998 and June 28, 1997.............................................7
Notes to Consolidated Financial Statements............................................8-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.....................................12-15
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.......................................................................16
Item 2. Changes in Securities...................................................................16
Item 3. Defaults Upon Senior Securities.........................................................16
Item 4. Submission of Matters to a Vote of Security Holders.....................................16
Item 5. Other Information.......................................................................16
Item 6. Exhibits and Reports on Form 8-K........................................................16
Signatures..............................................................................17
</TABLE>
2
<PAGE> 3
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTH PERIODS ENDED
JULY 4, 1998 AND JUNE 28, 1997
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ---------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 79,946 $ 63,156 $ 161,589 $ 115,487
Cost of sales 71,798 62,494 150,574 115,995
Depreciation and amortization 1,491 1,238 2,918 2,500
Selling, general and administrative
expenses 5,222 4,344 10,332 8,081
------------ ------------ ------------ ------------
Income (loss) from operations 1,435 (4,920) (2,235) (11,089)
Interest expense, net 7,013 5,999 13,187 11,724
Other income 191 130 268 769
------------ ------------ ------------ ------------
Loss before provision for income taxes (5,387) (10,789) (15,154) (22,044)
Provision (benefit) for income taxes (104) 105 59 247
------------ ------------ ------------ ------------
Net loss (5,283) (10,894) (15,213) (22,291)
Preferred stock dividends 96 96 192 192
------------ ------------ ------------ ------------
Net loss applicable to common shares $ (5,379) $ (10,990) $ (15,405) $ (22,483)
============ ============ ============ ============
Net (loss) per share - basic $ (4.21) $ (14.77) $ (12.05) $ (30.23)
============ ============ ============ ============
Net (loss) per share - diluted $ (4.21) $ (14.77) $ (12.05) $ (30.23)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,718 $ 3,391
Accounts receivable, less allowances of
$901 and $817, respectively 42,353 34,287
Inventories 60,894 58,277
Prepaid expenses 2,406 1,935
Restricted interest escrow 26 42
------------ ------------
Total Current Assets 110,397 97,932
PROPERTY, PLANT & EQUIPMENT
Land and improvements 7,169 7,169
Buildings and improvements 17,751 18,209
Machinery and equipment 57,596 57,594
Construction-in-progress 13,078 4,037
------------ ------------
TOTAL PROPERTY, PLANT & EQUIPMENT 95,594 87,009
Accumulated depreciation (10,163) (7,432)
------------ ------------
NET PROPERTY, PLANT & EQUIPMENT 85,431 79,577
Goodwill, net of accumulated amortization
of $729 and $567, respectively 12,131 12,293
Restricted debt service fund 1,551 1,551
Other assets 13,389 14,325
------------ ------------
TOTAL ASSETS $ 222,899 $ 205,678
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 35,247 $ 33,339
Accrued interest 5,325 3,605
Other accrued liabilities 18,374 14,178
Current maturities of long-term debt 2,315 3,033
Revolving credit facility 79,000 53,650
------------- -------------
TOTAL CURRENT LIABILITIES 140,261 107,805
Long-term debt 131,110 130,741
Deferred income taxes 5,029 5,047
Other long-term liabilities 5,059 4,964
------------- -------------
TOTAL LIABILITIES 281,459 248,557
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, 204,458 and 204,458 shares,
respectively --- ---
Class B Common Stock, $0.001 par value;
Authorized, 600,000 shares,
Issued and outstanding, 536,829 and 536,829 shares,
respectively 1 1
Class C Common Stock, non-voting $0.001 par value;
Authorized, 600,000 shares,
Issued and outstanding, 536,865 and 536,865 shares,
respectively 1 1
Additional paid-in-capital 63,055 63,055
Warrants outstanding 5,119 5,119
Accumulated deficit (131,466) (116,061)
Cumulative translation adjustment (770) (494)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (64,060) (48,379)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 222,899 $ 205,678
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTH PERIOD ENDED JULY 4,1998
(In thousands of dollars, except share Information)
(Unaudited)
<TABLE>
<CAPTION>
Series B Class A Class B Class C
Preferred Stock Common Stock Common Stock Common Stock Additional
--------------------- --------------------- -------------------- -------------------- Paid-in
Shares Amount Shares Amount Shares Amount Shares Amount Capital
--------- -------- --------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 3, 1998 1 $ - 204,458 $ - 536,829 $ 1 536,865 $ 1 $ 63,055
Net loss
Other comprehensive
income - foreign currency
translation adjustments,
net of tax of $0
Comprehensive income
--------- -------- --------- -------- --------- --------- --------- --------- ---------
Balance, July 4, 1998 1 $ - 204,458 $ - 536,829 $ 1 536,865 $ 1 $ 63,055
========= ======== ========= ======== ========= ========= ========= ========= =========
<CAPTION>
Accumulated
Other
Warrants Accumulated Comprehensive Comprehensive
Outstanding Deficit Income 1 Income
------------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Balance, January 3, 1998 $ 5,119 $(116,061) $ (494)
Net loss (15,405) $ (15,405)
Other comprehensive
income - foreign currency
translation adjustments,
net of tax of $0 (276) (276)
-------------
Comprehensive income $ (15,681)
=============
------------- --------- --------------
Balance, July 4, 1998 $ 5,119 $(131,466) $ (770)
============= ========= ==============
</TABLE>
1 - Represents foreign currency translation adjustments.
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Bar Technologies Inc. and Subsidiaries
Consolidated Statements of Cash Flows for the Six Month
Periods Ended July 4, 1998 and June 28, 1997
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
July 4, 1998 June 28, 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (15,213) $ (22,291)
Adjustments to reconcile net cash
used by operating activities:
Depreciation and amortization 2,918 2,500
Accretion of original issue discount 673 616
Amortization of deferred financing cost 1,224 1,074
Increase in accounts receivable (8,066) (19,358)
(Increase) decrease in inventory (2,617) 5,968
(Increase) decrease in prepaid expenses (471) 1,174
Increase in accounts payable 1,908 9,625
Increase (decrease) in other current liabilities 5,916 (2,662)
Other (220) 769
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (13,948) (22,585)
------------ ------------
Cash flows from investing activities
Net capital expenditures (8,585) (1,832)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (8,585) (1,832)
------------ ------------
Cash flows from financing activities
Net receipts under revolving credit agreement 25,350 13,350
Repayments of debt (1,022) (1,018)
Proceeds from issuance of debt --- 322
Payments from bond interest escrow --- 6,096
Preferred stock dividends (192) (192)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,136 18,558
------------ ------------
Effect of exchange rate changes on cash (276) (42)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,327 (5,901)
Cash and cash equivalents-beginning of period 3,391 7,034
------------ ------------
Cash and cash equivalents-end of period $ 4,718 $ 1,133
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 9,086 $ 9,474
============ ============
Cash paid for income taxes $ 165 $ 178
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
BAR TECHNOLOGIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except share information)
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 January
3, 1998, included in the Company's Form 10-K, filed with the Securities and
Exchange Commission.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The consolidated financial statements presented include the accounts of BarTech
and its wholly owned subsidiary Bliss & Laughlin Industries, Inc. after
elimination of intercompany accounts and transactions.
Since its formation, the Company 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
the Company'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, the Company
may need to borrow funds under its credit facilities or, to the extent funds are
not available thereunder, to obtain additional financing to meet its cash flow
requirements. As a result of its recapitalization (see Notes 3 and 4), the
Company is highly leveraged. Restrictive covenants included in the indenture and
other debt obligations may have the effect of limiting the Company's ability to
incur additional indebtedness, sell assets, or acquire other entities and may
otherwise limit the operational and financial flexibility of the Company. Based
on its fiscal 1998 plan, the Company believes that its cash flow from
operations, combined with the available funds under its credit agreement, will
be sufficient to enable it to meet its debt service requirements when due and to
fund its capital expenditure, working capital and general corporate
requirements.
2. COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," ("SFAS No. 130"), which requires
companies to report all changes in equity during a period, except those
resulting from investments by owners, in a financial statement for the period in
which they are recognized. The Company has chosen to disclose Comprehensive
Income, which encompasses net losses and foreign currency translation
adjustments, in the Consolidated Statement of Stockholders' Equity (Deficit).
3. 1997 EQUITY INVESTMENT AND REVOLVING CREDIT AGREEMENT
On September 11, 1997, the Company's principal owners, Blackstone Capital
Partners II Merchant Banking Fund and its affiliates ("Blackstone") and certain
affiliates of the successor to Veritas Capital Inc., purchased 536,865 shares of
Class C non-voting common stock for $30.0 million.
Also in third quarter 1997, the Company and its commercial banks negotiated an
amendment to its existing $90,000 Revolving Credit Agreement (the "Amended
Agreement"). The Amended Agreement provides for the addition of a new revolving
Sub-Facility and amends certain portions of its original Revolving Credit
Agreement. The Sub-
8
<PAGE> 9
Facility component of the Amended Agreement provides the Company with up to
$15,000 of additional borrowing capacity based on a higher receivable and
inventory advance rate than in the Revolving Credit Agreement. The Sub-Facility
component of the Amended Agreement expires on September 1, 1999. The maturity
date of the Amended Agreement remains April 2, 2000.
Borrowings under the Amended Agreement bear interest at a rate per annum equal
to, at the Company's option, either a prime rate plus 2.0% or adjusted LIBOR
plus 3.0%, subject to upward adjustment in certain circumstances. Sub-Facility
borrowings bear interest at a rate per annum equal to, at the Company's option,
either a prime rate plus 3.5% or LIBOR plus 4.5%. Borrowings outstanding under
the Amended Agreement including the Sub-Facility were $79,000 and $53,650 at
July 4 and January 3, 1998, respectively.
The Amended Agreement contains a number of covenants similar to those in the
Revolving Credit Agreement. Additionally, under the Amended Agreement, the
Company will be required to maintain a minimum Consolidated Interest Coverage
Ratio beginning with annualized results for the quarter ended October 3, 1998.
The Amended Agreement also contains provisions that will prohibit any
modifications of the Indenture Agreement dated April 2, 1996 to the Senior
Secured Notes in any manner adverse to the Lenders and that will limit the
Company's ability to refinance the Senior Notes without the consent of such
Lenders.
4. SENIOR SECURED NOTES
The Company issued Senior Secured Notes ("Senior Notes") on April 2, 1996 in the
amount of $91,609. Interest on the Senior Notes is at 13-1/2% per annum and is
payable semi-annually. The Senior Notes are callable after three years, with the
exception noted below, at the following redemption price:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
1999 106.750%
2000 103.375%
</TABLE>
On or prior to April 1, 1999, the Company may, at its option, redeem up to an
aggregate of 35% of the principal amount of Senior 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 Notes would remain outstanding immediately after
giving effect to any such redemption.
The Senior Notes are fully and unconditionally guaranteed on a senior basis,
jointly and severally, by the Company's subsidiary, Bliss & Laughlin Industries
Inc. ("BLI") and its subsidiary, Canadian Drawn Steel Corporation ("CDSC"). Each
of the subsidiary guarantors is a wholly owned subsidiary of the Company. The
subsidiary guarantors comprise all of the direct and indirect subsidiaries of
the Company.
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<PAGE> 10
5. CONDENSED FINANCIAL INFORMATION OF BLISS & LAUGHLIN INDUSTRIES INC.
The following is the condensed information of the subsidiary guarantors on a
combined basis. Separate financial statements and other disclosures concerning
the subsidiary guarantors are not presented because management does not believe
they are material to investors.
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
------------ ------------
<S> <C> <C>
Current assets $ 57,894 $ 56,948
Noncurrent assets 37,678 37,868
Current liabilities 40,909 43,180
Noncurrent liabilities 13,688 13,611
</TABLE>
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended July 4, Ended June 28, Ended July 4, Ended June 28,
1998 1997 1998 1997
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 41,072 $ 42,725 $ 88,796 $ 82,228
Gross profit 5,276 4,816 10,721 9,231
Operating income 2,181 1,450 4,401 2,695
Net income 1,619 900 3,225 1,480
</TABLE>
6. INVENTORIES
Inventories are valued 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 were as follows:
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
------------ ------------
<S> <C> <C>
Raw materials $ 18,018 $ 14,569
Work-in-process 19,664 22,341
Finished goods 23,212 21,367
------------ ------------
Total $ 60,894 $ 58,277
============ ============
</TABLE>
7. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
------------ ------------
<S> <C> <C>
Deferred financing costs, net of accumulated
amortization of $5,575 and $4,351 $ 7,964 $ 9,188
Deferred income taxes 1,214 1,214
Prepaid pension costs 2,998 2,930
Other 1,213 993
------------ ------------
Total $ 13,389 $ 14,325
============ ============
</TABLE>
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8. NET LOSS PER SHARE
The weighted average number of common and common stock equivalent shares used in
the calculation of basic and diluted net loss per common share were 1,278,152
and 743,841 for both the three and six month periods ended July 4, 1998 and June
28, 1997, respectively. Securities totaling 137,416 shares at July 4, 1998 were
excluded from the diluted earnings per share calculation due to their
antidilutive effect.
9. SUBSEQUENT EVENTS
On July 24, 1998, Blackstone Capital Partners II Merchant Banking Fund L. P.
("Blackstone") and Veritas Capital Partners L. P. ("Veritas") announced the
acquisition of Republic Engineered Steels, Inc. ("Republic") for a cash price of
$7.25 per share of Republic common stock. The acquisition of Republic will occur
by means of a cash tender offer for all the issued and outstanding shares,
followed by a merger in which all remaining shares will be converted into the
same cash consideration. Including acquired debt, the total purchase price will
be approximately $420 million.
Following the consummation of this transaction, Blackstone and Veritas intend to
combine Republic with Bar Technologies Inc. ("the Company"), which they control.
However, the proposed acquisition of Republic is not conditioned on combining
Republic with the Company.
Within the terms of the tender offer made to purchase all of the outstanding
shares of common stock of Republic by Blackstone and Veritas and the subsequent
combination of Republic with the Company, it is anticipated that certain
indebtedness of the Company will be refinanced from the proceeds of new
indebtedness to be incurred by the new combined company.
11
<PAGE> 12
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 July 4, 1998 and June 28, 1997. The
discussion should be read in connection with the information in the Unaudited
Consolidated Financial Statements and the notes pertaining thereto.
OVERVIEW
The Company acquired certain steelmaking and bar rolling assets from the former
Bar, Rod and Wire Division of Bethlehem Steel Corporation ("Bethlehem") in
September 1994. The Bethlehem Bar, Rod and Wire Division ("Bethlehem BRW
Division") ceased operations in December 1992, and therefore no historical
results are presented for the Bethlehem BRW Division due to the noncomparability
of the Company's operations, management and cost structure. Pursuant to its
modernization and expansion plan, the Company restarted operations at its
Lackawanna, New York hot bar rolling mill in February 1996 and commissioned its
continuous caster and restarted its melt shop in its Franklin, Pennsylvania
facility in August 1996.
In April 1996, the Company completed a recapitalization that resulted in the
issuance of $91.6 million in aggregate principal amount of 13 1/2% Senior Notes
due 2001 for proceeds of approximately $90.0 million. At the same time, the
Company's principal owners, Blackstone Capital Partners II Merchant Banking Fund
L. P. and its affiliates ("Blackstone") purchased 536,829 shares of Class B
common stock of the Company for $30.0 million. In addition, the Company also
entered into a senior revolving credit agreement ("Revolving Credit Agreement")
which was subsequently amended in September 1997, which provided for an initial
aggregate principal amount of $90.0 million. Subsequent amendments ("Amended
Agreement") to this facility provided the Company with an additional
sub-facility up to $15.0 million and amended certain portions of the agreement.
The Amended Agreement expires on September 1, 1999. The original maturity date
of the Revolving Credit Agreement remains April 2, 2000. Also in September 1997,
Blackstone and certain affiliates of the successor to Veritas Capital Inc.,
purchased 536,865 shares of Class C non-voting common stock for $30.0 million.
On July 24, 1998, Blackstone and Veritas Capital Partners L. P. ("Veritas")
announced an agreement to acquire Republic Engineered Steels, Inc. ("Republic")
for a cash price of $7.25 per share of Republic stock. The acquisition of
Republic will occur by means of a cash tender offer for all issued and
outstanding shares followed by a merger in which all remaining shares will be
converted into the same cash consideration. Including acquired debt, the total
purchase price will be approximately $420 million. Following the consummation of
this transaction, Blackstone and Veritas intend to combine Republic with Bar
Technologies Inc., which they control. However, the proposed acquisition of
Republic is not conditioned on combining Republic with the Company.
RESULTS OF OPERATIONS
During first quarter 1997, the Company began the transition from initial
operational and organizational start-up activities to a focused commercial
effort. Since first quarter 1997, the Company has begun to receive
qualifications from certain Tier I and II suppliers to the U.S. automotive
market. As a result of these qualifications, the Company has experienced a shift
of its product mix from lower to higher margins and product grades. This
qualification process will continue throughout the next one to three years,
depending on the length of the customer qualification process and the Company's
ability to meet the particular customer qualification standards.
On August 18, 1998, the Company's quality management system was certified as
QS-9000 compliant, ISO 9002 registered. The registration covers the Company's
Lackawanna, New York rolling operations and supporting corporate functions
located in Seven Hills, Ohio and Johnstown, Pennsylvania.
12
<PAGE> 13
THREE MONTHS ENDED JULY 4, 1998 COMPARED WITH THE THREE MONTHS ENDED JUNE 28,
1997
The Company recorded net sales of $79.9 million for the three months ended July
4, 1998, compared with $63.2 million for the comparable prior year period. The
$16.7 million, or 26.4%, increase for the second quarter 1998 is due to an
increase in hot rolled bar shipments to outside customers and to an increase in
sales mix toward higher unit price products. The shipment increase was supported
by increased production by the additions of a third and fourth production shift
at the Company's Lackawanna, New York facility, which began during April and
August 1997, respectively.
Cost of sales was $71.8 million, or 89.8% of net sales, for the three months
ended July 4, 1998, as compared with $62.5 million, or 99.0% of net sales, for
the comparable prior year period. The improvement in cost of sales as a
percentage of net sales reflects higher sustained production levels and the
resultant improved production efficiencies.
As a result of the above factors, the Company achieved a gross profit of $8.1
million, or 10.2% of sales, for the three months ended July 4, 1998, compared
with gross profit of $.7 million, or 1.0% of sales, for the comparable prior
year period.
The Company incurred selling, general and administrative expenses of $5.2
million for the three months ended July 4, 1998, or 6.5% of net sales, as
compared with $4.3 million, or 6.9% of net sales, for the comparable prior year
period. The decrease in selling, general and administrative expenses as a
percentage of net sales is due to the fixed nature of the majority of these
expenses benefiting from the increase in net sales as the Company completed its
start-up activities and transitioned into a full steelmaking and bar rolling
operation. Offsetting the decrease in selling, general and administrative
expenses as a percentage of net sales were non-recurring charges incurred during
the second quarter 1998 related to costs associated with relocation of the
Company's headquarters and an upgrade of the Company's computer system.
Interest expense, net, increased to $7.0 million for the three months ended July
4, 1998, as compared with interest expense, net, of $6.0 million for the
comparable prior year period. The $1.0 million, or 16.7%, increase for the three
month period, is primarily attributable to higher average amounts borrowed under
the revolving credit facility.
The benefit for income taxes in second quarter fiscal 1998 was the result of the
Company's net operating losses generating a refund of taxes previously paid by
the Company's wholly owned subsidiary, Bliss and Laughlin Industries, Inc. The
provision for income taxes for the comparable prior year period consisted
primarily of a provision for foreign taxes related to the Company's Canadian
subsidiary.
THREE MONTHS ENDED JULY 4, 1998 COMPARED WITH THE THREE MONTHS ENDED APRIL 4,
1998
Net sales for the three months ended July 4, 1998 of $79.9 million were $1.7
million, or 2.1%, below the $81.6 million recorded in the previous three months
ended April 4, 1998. This was primarily due to a decrease in demand as customers
prepared for plant shutdowns scheduled for the summer months. Also contributing
to the decrease between first and second quarter fiscal 1998, was the impact of
a strike at General Motors Corporation. The Company believes that certain
competitors with sales concentration in the automotive OEM markets shifted sales
efforts towards customers in which the Company has a greater market presence,
such as steel service centers.
Cost of sales for the three months ended July 4, 1998 of $71.8 million, or 89.8%
of sales, improved from the previous three months ended April 4, 1998 of $78.8
million, or 96.5% of sales. This improvement in gross profit as a percentage of
net sales reflects lower unit inventory costs resulting from the efficiencies
derived from increased production levels. Contributing to a lesser extent to the
improvement in cost of sales as a percentage of sales was an increase in average
selling prices and lower raw material costs.
SIX MONTHS ENDED JULY 4, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 28, 1997
The Company recorded net sales of $161.6 million for the six months ended July
4, 1998, as compared with net sales of $115.5 million for the comparable prior
year period. The $46.1 million, or 39.9%, increase for the first six months of
fiscal 1998 is due to an increase in hot rolled bar shipments to outside
customers and to an increase in the sales mix toward higher price per unit
products.
Cost of sales was $150.6 million, or 93.2% of net sales, for the six months
ended July 4, 1998, as compared with $116.0 million, or 100.4% of net sales, for
the comparable prior year period. This improvement in cost of sales as a
percentage of net sales principally reflects lower unit inventory costs
resulting from the efficiencies derived from
13
<PAGE> 14
increased production levels. As a result, the Company experienced gross profit
of $11.0 million for the six months ended July 4, 1998, compared with a negative
gross profit of $.5 million for the comparable prior year period.
The Company incurred selling, general and administrative expenses of $10.3
million, or 6.4% of net sales, for the six months ended July 4, 1998, as
compared with $8.1 million, or 7.0% of net sales, for the comparable prior year
period. The decrease in selling, general and administrative expenses as a
percentage of net sales is due to the fixed nature of the majority of these
expenses benefiting from the increase in net sales as the Company completed its
start-up activities and transitioned into a full steelmaking and bar rolling
operation.
Interest expense, net, increased to $13.2 million for the six months ended July
4, 1998, as compared with interest expense, net, of $11.7 million for the
comparable prior year period. The $1.5 million, or 12.8%, increase for the six
month period is primarily attributable to higher average amounts borrowed under
the revolving credit facility.
The provision for income taxes for the six month period ended July 4, 1998 was
largely offset by a tax benefit recorded which was the result of the Company's
net operating losses generating a refund of taxes previously paid by the
Company's wholly owned subsidiary, Bliss and Laughlin Industries, Inc. The
provision for income taxes for the comparable period in the prior year consisted
primarily of a provision for foreign taxes related to the Company's Canadian
subsidiary.
IMPACT OF INFLATION AND CHANGING PRICES
The Company does not believe that inflation has or will have a significant
impact on its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity consist of available cash and cash
equivalents, borrowings under its revolving credit facility and cash flow from
operations. At August 11, 1998, the Company had liquidity available from both
cash and cash equivalents plus availability under its revolving credit facility
totaling approximately $9.8 million.
Borrowings under the Company's amended credit agreement ("Amended Agreement")
bear interest at a rate per annum equal to, at the Company's option, either a
prime rate plus 2.0%, or adjusted LIBOR plus 3.0%, subject to upward adjustment
in certain circumstances. Borrowings under the Amended Agreement's sub-facility
("Sub-Facility") bear interest at a rate per annum equal to, at the Company's
option, either a prime rate plus 3.5%, or LIBOR plus 4.5%. Amounts outstanding
under the Amended agreement, including amounts outstanding under its
Sub-Facility, were $79.0 million at July 4, 1998, compared with $82.0 million at
April 4, 1998 and $53.7 million at January 3, 1998. Weighted average interest
rates on borrowings under the Amended Agreement and the Sub-Facility at July 4,
1998 were 9.22% and 11.00%, respectively. At January 3, 1998, weighted average
interest rates under the Amended Agreement and the Sub-Facility were 8.98% and
11.00%, respectively.
The Company has various financing arrangements in place in addition to its
Amended Agreement that are committed to funding its working capital and
corporate requirements. The Company had an aggregate amount of approximately
$133.4 million of borrowings outstanding under these committed agreements.
Cash used by operating activities decreased to $13.9 million for the six month
period ended July 4, 1998, from the $22.6 million used in the comparable period
of the prior year. Contributing to the decrease in net cash used by operating
activities was a decrease in the change of accounts receivable and accounts
payable from their respective prior year end levels. Fiscal 1997 amounts
evidenced the beginning of the Company's transition from start-up activities to
a focused commercial effort. The Company also experienced larger increases in
inventory levels during the six months ended July 4, 1998 as compared with the
comparable period in the prior year as it increased its production levels to
support increased sales during this period.
There are no restrictions on the ability of the Company's wholly owned
subsidiary, Bliss & Laughlin Industries Inc. to transfer funds to the Company.
Within the terms of the tender offer made to purchase all of the outstanding
shares of common stock of Republic by Blackstone and Veritas and the subsequent
combination of Republic with the Company, it is anticipated that certain
14
<PAGE> 15
indebtedness of the Company will be refinanced from the proceeds of new
indebtedness to be incurred by the new combined company.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Many computer systems will experience problems handling dates beyond the year
1999. Certain of the Company's computer systems will be affected by the Year
2000 issue. The Company is currently in the process of replacing its existing
computer systems in an effort to improve its processes related to financial and
operational information. These initiatives include technology which will be Year
2000 compliant when implemented. The Company's installation plans for its new
systems upgrade and Year 2000 project are in place and expected completion is
scheduled for early fiscal 1999.
The cost of the systems upgrade is estimated at $1.6 million to $2.0 million and
is being funded through operating cash flows of which the majority of cost of
the project will be capitalized. During the three months ended July 4, 1998, the
Company incurred costs associated with the systems upgrade project. Certain of
these costs were included in selling, general and administrative expenses for
this period, however, they were not considered to be significant.
The Company is currently assessing the impact of the Year 2000 issue as it
relates to its suppliers and customers. There can be no assurance that the
systems of other companies on which the Company's systems rely will be converted
timely, however, the Company does not believe at this time that the Year 2000
issue related to its suppliers and customers will have a material adverse effect
on its future operating results.
Statements included in this filing with the Securities and Exchange Commission
(including those portions of Management's Discussion and Analysis that refer to
the future) may contain forward-looking statements that are not historical facts
but refer to management's intentions, beliefs, or expectations for the future.
It is important to note that the Company's actual results could differ
materially from those projected in such forward-looking statements. Certain
factors that could cause actual results to differ from those in such
forward-looking statements include, but are not limited to, the following: i.)
any substantial delay in the implementation of the Company's plans or
substantial unanticipated costs associated with its plans for a successful
transition into a full steelmaking and bar rolling operation; ii.) the ability
of the Company to sell its products in its targeted markets at gross margins
necessary to produce and maintain positive operating income. The Company's
success is dependent on its ability to increase sales. The Company is in the
process of enhancing its sales and customer service programs; and iii.) the
Company is subject to a variety of competitive factors such as pricing, the
financial strength of its competitors and the Company's ability to establish a
favorable position in the steelmaking and bar rolling industry. The Company's
competitive position could also be adversely affected by any consolidation of
its competition in the steelmaking industry.
In the event of a substantial delay in the implementation of its plans or
substantial unanticipated costs associated with the implementation of its plans,
the Company 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, the
Company is highly leveraged. Restrictive covenants included in the indenture and
other debt obligations may have the effect of limiting the Company's ability to
incur additional indebtedness, sell assets, or acquire other entities and may
otherwise limit the operational and financial flexibility of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997 and early 1998, two accounting pronouncements were issued by the
Financial Accounting Standards Board that apply to the Company: Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of
an Enterprise and Related Information," and SFAS No. 132, "Employers' Disclosure
About Pensions and Other Postretirement Benefits." Both new standards are
effective for the Company's 1998 fiscal year. SFAS No. 131 introduces a new
model for segment reporting called the "management approach". The management
approach is based on the way the chief operating decision-maker organizes
segments within a company for making operating decisions and assessing
performance. SFAS No. 132 standardizes disclosures and requires additional
disclosures for pension and postretirement benefits. Implementation of the new
pronouncements is not expected to have a significant effect on the Company's
disclosures.
15
<PAGE> 16
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This Statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999. Currently, this pronouncement is not applicable to the
operations of the Company.
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.
16
<PAGE> 17
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.
<TABLE>
<S> <C>
Date: August 18, 1998 By: /s/ Thomas N. Tyrrell
--------------------------
Thomas N. Tyrrell
President and Chief Executive Officer
Date: August 18, 1998 By: /s/ Frederick L. Deichert
------------------------------
Frederick L. Deichert
Vice President of Finance and Chief Financial Officer
</TABLE>
17
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-04-1998
<CASH> 4,718
<SECURITIES> 0
<RECEIVABLES> 43,254
<ALLOWANCES> 901
<INVENTORY> 60,894
<CURRENT-ASSETS> 110,397
<PP&E> 95,594
<DEPRECIATION> 10,163
<TOTAL-ASSETS> 222,899
<CURRENT-LIABILITIES> 140,261
<BONDS> 131,110
0
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<OTHER-SE> (64,062)
<TOTAL-LIABILITY-AND-EQUITY> 222,899
<SALES> 161,589
<TOTAL-REVENUES> 161,857
<CGS> 150,574
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