FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 0-3855
LACLEDE STEEL COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 43-0368310
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
One Metropolitan Square, St. Louis, Missouri 63102
(Address of principal executive offices)
(Zip code)
314-425-1400
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of April 21, 1994 there were 4,056,140 shares of $13.33 par value
common stock outstanding.
ITEM 1: FINANCIAL STATEMENTS
LACLEDE STEEL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(In Thousands Except Per Share Data)
Three Months Ended
March 31,
1994 1993
Net sales 84,697 76,034
Costs and expenses:
Cost of products sold 78,011 68,512
Selling, general and admin. exp. 3,382 3,218
Depreciation 1,927 1,849
Interest expense, net 1,562 1,031
Restructuring of operations (397) --
Total costs and expenses 84,485 74,610
Earnings before income taxes and
cumulative effect of change in accounting
principle 212 1,424
Provision for income taxes 85 541
Earnings before cumulative effect
of change in accounting principle 127 883
Cumulative effect of change in accounting
principle for post retirement medical benefits,
net of taxes -- (46,543)
Net earnings (loss) 127 (45,660)
Retained earnings at beginning of period 3,360 46,796
Cash dividends -- --
Retained earnings at end of period 3,487 1,136
Per share data:
Earnings before cumulative effect
of change in accounting principle 0.03 0.22
Cumulative effect of change in accounting
principle for post retirement medical benefits,
net of taxes -- --
Net earnings per share 0.03 0.22
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LACLEDE STEEL COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
Mar. 31, Dec. 31,
1994 1993
Current Assets:
Cash and cash equivalents 139 894
Bond funds in trust 9,700 9,700
Accounts receivable, less allowances 42,226 46,527
Prepaid expenses 255 351
Income taxes recoverable 596 596
Inventories:
Finished 52,787 50,165
Semi-finished 22,504 22,617
Raw materials 8,143 9,515
Supplies 15,993 15,129
Total inventories 99,427 97,426
Total Current Assets 152,343 155,494
Non-Current Assets:
Intangible assets 22,466 23,252
Bond funds in trust 4,419 5,474
Prepaid pension contributions 16,401 15,713
Deferred income taxes 27,005 27,083
Other 1,676 1,654
Total Non-Current Assets 71,967 73,176
Plant and Equipment, at cost 246,569 243,658
Accumulated depreciation 124,337 122,514
Net Plant and Equipment 122,232 121,144
Total Assets 346,542 349,814
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LIABILITIES AND STOCKHOLDERS' EQUITY
Mar. 31, Dec. 31,
1994 1993
Current Liabilities:
Accounts payable 28,351 25,421
Accrued compensation 5,694 8,788
Current portion of long-term debt 10,956 10,981
Notes payable to banks 5,000 7,500
Taxes, other than income taxes 904 733
Accrued costs of pension plans 9,963 9,963
Current portion of restructuring charges -- 622
Other current liabilities 2,998 2,653
Total Current Liabilities 63,866 66,661
Non-Current Liabilities:
Accrued costs of pension plans 53,510 54,287
Accrued postretirement medical benefits 78,201 77,801
Other non-current liabilities 7,368 7,549
Total Non-Current Liabilities 139,079 139,637
Long-Term Debt:
Bank agreement 75,000 75,000
Revenue bonds 25,880 25,926
Total Long-Term Debt 100,880 100,926
Stockholders' Equity:
Preferred stock, without par value, authorized
2,000,000 shares with none issued -- --
Common stock, $13.33 par value, authorized
5,000,000 shares with 4,056,140 shares issued 54,081 54,081
Capital in excess of par value 247 247
Retained earnings 3,487 3,360
Minimum pension liability adjustment (15,098) (15,098)
Total Stockholders' Equity 42,717 42,590
Total Liabilities and Stockholders' Equity 346,542 349,814
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LACLEDE STEEL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
1994 1993
Cash flows from operating activities:
Net earnings (loss) 127 (45,660)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Cumulative effect of change in accounting for
postretirement medical benefits -- 46,543
Depreciation 1,927 1,849
Restructuring of operations (397) --
Change in deferred income taxes 78 395
Change in operating assets and liabilities:
Accounts receivable 4,301 2,462
Inventories (2,001) (8,672)
Accounts payable and accrued expenses (355) 4,295
Pension cost less than funding (715) (576)
Change in accrued postretirement medical
benefits 400 683
Other assets and liabilities 3 152
Net cash provided by operating activities 3,368 1,471
Cash flows used in investing activities:
Capital expenditures (2,607) (3,228)
Cash flows from financing activities:
Net borrowings (repayments) under bank agreement (2,500) --
Long-term bond payments (71) (62)
Bond funds in trust 1,055 --
Net cash used in financing activities (1,516) (62)
Cash and cash equivalents:
Net decrease during the period (755) (1,819)
At beginning of period 894 1,958
At end of period 139 139
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements include the
accounts of Laclede Steel Company and its wholly-owned subsidiaries. All
inter-company accounts and transactions have been eliminated. The
consolidated financial statements reflect all adjustments (such
adjustments are of a normal recurring nature unless otherwise disclosed
in these interim financial statements) which are in the opinion of the
Management necessary to a fair statement of the results for the interim
periods.
NOTE 2 - ACCOUNTING CHANGE - POSTRETIREMENT MEDICAL BENEFITS
Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Medical Benefits Other Than Pensions" which requires accounting for the
cost of retiree medical benefits other than pensions on an accrual basis.
Implementation of this new standard also requires the recognition of a
transition obligation based on the aggregate amount that would have been
accrued in prior years had the new standard been in effect for those
years. In accordance with this new standard the Company elected to
recognize the entire transition obligation as of January 1, 1993 and,
accordingly, recorded a non-cash charge of $46,543,000, after recognition
of $28,526,000 in deferred tax benefits.
NOTE 3 - STOCK APPRECIATION RIGHTS PLANS
In the first quarter of 1993 compensation expense of $1,510,000 was
recorded for the increase in the excess of the market price over grant
prices on outstanding rights under the Company's 1988 and 1989 Stock
Appreciation Rights Plans. The charge reduced net earnings by $936,000
or $.23 per share.
NOTE 4 - RESTRUCTURING OF WIRE OPERATIONS
In the second quarter of 1992 the Company commenced a program to
restructure its wire operations, which included increasing the capacity
of the Fremont, Indiana Plant and closing the Alton, Illinois Wire Mill.
At that time a charge for restructuring of wire operations totaling
$14,500,000 ($8,990,000 after taxes) was recorded, which included a
reserve for the net book value of equipment at the Alton Wire Mill which
was not expected to be utilized in future wire production. The Company
has successfully completed the installation of new equipment at the
Fremont Plant and plans to cease operations at the Alton Wire Mill by the
end of the second quarter of 1994. In connection with completing the
wire operations restructuring, a decision has now been made, due to
higher than anticipated demand for oil tempered wire, to transfer certain
Alton Wire Mill equipment to the Memphis, Tennessee Plant to be utilized
in the production of oil tempered wire at that facility beginning
approximately June 1994. Accordingly, a credit of $397,000 has been
recorded in the first quarter of 1994, representing the estimated net
book value of the equipment to be transferred. This credit increased net
earnings for the first quarter of 1994 by $238,000 or $.06 per share.
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NOTE 5 - INCOME TAXES
The provision for income taxes represents an effective combined federal
and state tax rate of 40% and 38% for the three months ended March 31,
1994 and 1993, respectively.
NOTE 6 - EARNINGS PER SHARE
Earnings per share amounts have been calculated based on weighted average
shares outstanding.
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ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Earnings of $.1 million plus $1.9 million in depreciation charges and
deferred income taxes of $.1 million increased cash flow by $2.1 million in
the first quarter of 1994. Operating activities provided $3.4 million in
cash during the period, reflecting a decrease in accounts receivable
partially offset by an increase in inventories. Working capital decreased
by $.4 million in the first quarter of 1994 and the ratio of current assets
to current liabilities was 2.4 to 1.0 at March 31, 1994. Capital
expenditures totaled $2.6 million in the first three months of 1994.
The Company has an $80.0 million Revolving Credit Agreement with four
banks which expires September 1, 1995. In July 1993 the Agreement was
amended to provide for up to an additional $15 million in availability
through a short-term credit facility which was scheduled to expire in
January 1994. In January 1994 the short-term credit facility was amended
to provide for $12.0 million in availability through March 31, 1994,
reduced to $8.0 million through June 30, 1994. At March 31, 1994, $75.0
million in borrowings were outstanding under the Revolving Credit Agreement
and $5.0 million was outstanding under the short-term credit facility. An
additional $3.0 million in letters of credit were also outstanding.
In connection with the January amendment to the short-term credit
facility, the Company agreed to a modification of the borrowing base
formula which affects availability under the Revolving Credit Agreement.
Reflecting the January 1994 amendment, at March 31, 1994 no additional
amounts were available under the Revolving Credit Agreement, while $5.0
million was available under the short-term credit facility. The Company
believes that internally generated funds will be sufficient to repay
borrowings under the short-term credit facility. The Company will also
seek to issue long-term debt in 1994 which will be used to reduce
borrowings under the Revolving Credit Agreement. However, management
believes that internally generated funds and its existing banking
arrangements should be adequate to finance all planned capital
expenditures, which will be approximately $10.0 million in 1994, including
$3.9 million in expenditures to modify the HTMR System. These
modifications will be made using the Solid Waste Disposal Revenue Bond
funds held in trust.
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Results of Operations
Net sales increased by $8.7 million or 11.4% in the first quarter of 1994
compared to the first quarter of 1993, primarily as the result of a 2.0%
increase in steel shipments and an 11.0% increase in average selling prices
for steel products.
As discussed in Note 3 to the Consolidated Financial Statements, cost of
products sold in the first quarter of 1993 included a charge of $1.5
million for the Company's Stock Appreciation Rights Plans. In the first
quarter of 1994 there were no comparable charges.
Cost of products sold increased by $11.0 million or 16.0% in the first
quarter of 1994 compared to the first quarter of 1993, excluding the effect
of the charge for Stock Appreciations Rights Plans. The increase in cost
of products sold is proportionately higher than the increase in 1994 steel
shipments partially as a result of higher costs for the Company's basic raw
material, ferrous scrap.
In addition production costs in the first quarter 1994 were adversely
affected by a number of operating problems in January and February at the
Company's new downstream facilities as well as the Alton Plant. Severe
weather, particularly in the East, also played a role. In the month of
March, the Company achieved considerable improvement in overall production
costs, which management expects to sustain.
The Company successfully completed the installation of new equipment at
the Fremont Plant and plans to cease operations at the Alton Wire Mill by
the end of the second quarter. Full realization of the anticipated lower
oil tempered wire production costs will now depend on the progress made at
the Fremont Plant in improving productivity.
The Company continues to experience high demand for oil tempered wire.
Therefore, a decision was made to supplement Fremont's oil tempering
capacity by relocating some of the Alton wire equipment to the Memphis,
Tennessee Wire Mill. Installation of the
equipment will be completed by June 1994, when some sizes of oil tempered
wire will be added to the Memphis Plant's existing cold drawn wire
production. As a result of this change to the 1992 wire operations
restructuring plan, a credit of $397,000 was recorded in the first quarter
of 1994, representing the estimated net book value of the equipment to be
transferred. See Note 4 to the Consolidated Financial Statements for
additional discussion.
The $46.5 million charge for postretirement medical benefits in the first
quarter of 1993 is net of $28.5 million in deferred tax benefits. Non-
current assets at March 31, 1994 includes $27.1 million in net deferred
income taxes. In recording these deferred tax benefits, no valuation
allowance was deemed necessary as a result of management's evaluation of
the likelihood that all of the deferred tax assets will be realized. In
making
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this evaluation management considered historical earnings trends and the
impact which changes in operations are expected to have on future earnings.
Additionally, consideration was given to the inherent long-term nature of
the Company's most significant deferred tax asset for the related
postretirement medical benefit obligations ($31.0 million at March 31,
1994), for which recovery upon payment is expected to be spread over many
future years. Excluding special charges in 1992 pre-tax accounting income
for the most recent five fiscal years averaged $4.1 million. Taxable
income for the same period averaged $2.6 million.
This general level of historical earnings and taxable income, along with
expected improvements in future earnings as a result of actions taken by
management to implement its strategic plan for various cost reductions, is
expected to be sufficient to allow for utilization of all recorded net
deferred income tax assets, including net operating loss and minimum tax
carryovers, as they reverse or within the related expiration periods.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(4)(a) Registrant's Revolving Credit Agreement dated as of September
16, 1992. (Incorporated by reference to Exhibit (4) in
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1992.)
(4)(b) First Amendment dated July 20, 1993 to Registrant's Revolving
Credit Agreement. (Incorporated by reference to Exhibit
(4)(b) in Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1993.)
(4)(c) Second Amendment dated January 20, 1994 to Registrant's
Revolving Credit Agreement. (Incorporated by reference to
Exhibit (4)(c) in Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.)
Instruments with respect to long-term debt issues have been
omitted where the amount of securities authorized under such
instruments does not exceed 10% of the total consolidated
assets of the Registrant. Registrant hereby agrees to furnish
a copy of any such instrument to the Commission upon its
request.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter.
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SIGNATURES
Pursuant to the requirements of the
Securities and
Exchange Act of 1934, the Registrant
has duly caused
this report to be signed on its behalf
by the
undersigned thereunto duly authorized.
LACLEDE STEEL COMPANY
(Registrant)
/S/ MICHAEL H. LANE
Michael H. Lane
Vice President - Finance
Treasurer and Secretary
Duly Authorized Officer and
Principal Financial Officer
Date: May 6, 1994
