UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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
211 North Broadway
St. Louis, Missouri 63102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 425-1400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
$13.33 par value, Common Stock
(Title of class)
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 and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
At the date of filing of this report there were 4,056,140 shares
of $13.33 par value common stock outstanding. At March 8, 1996 the
aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $12,136,000.
Documents Incorporated by Reference
Definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders is incorporated herein by reference in Part III.<PAGE>
PART I
Item 1. Business.
(a) General Development of Business
Laclede Steel Company is a low cost manufacturer
of a wide range of carbon and alloy steel products, including
pipe and tubular products, hot rolled products (primarily special
quality bars), rod and wire products, and welded chain. The
Company's business strategy includes vertically integrating its
modernized steelmaking operations with low cost finishing
facilities. The Company has lower steelmaking costs afforded by
"mini-mill" technology and converts its semi-finished steel into
a variety of products through its finishing plants. Each of the
Company's downstream facilities is strategically located near its
end markets, is specialized by product to optimize efficiency,
and benefits from lower employment costs per ton.
The Company is one of three full-line domestic
producers of continuous weld pipe in the United States. In
addition, the Company believes it is a dominant North American
producer of oil tempered wire, which is used for applications
such as mechanical springs and overhead garage door springs. Oil
tempered wire has metallurgical properties that typically command
a price premium over commodity grades of wire, and therefore
produces higher profit margins. The Company's manufactured and
imported chain products give it a significant position in the
truck and automobile tire chain and the hardware and industrial
chain markets. The Company's special quality bars are primarily
sold to forgers for finishing into a variety of products.
Due to favorable energy costs and modernized
facilities, the Company is a low cost producer of semi-finished
steel at the Alton, Illinois Plant, which has a rated annual
steelmaking capacity of over 780,000 tons. Through 1995, the
Alton Plant has supplied nearly all of the semi-finished steel
used to finish products at the Company's downstream facilities.
The Company will begin purchasing rods for its two wire mills and
the Chain Company in the second half of 1996. In accordance with
the Company's business strategy, over the last eleven years the
Company has acquired or leased five additional finishing
facilities, constructed a new finishing facility and relocated
much of its labor-intensive work to lower cost labor areas. The
Company has also modified its continuous caster to eliminate its
reliance on the ingot process for production of tubular products
and therefore experiences significantly lower pipe production
costs. Upon the completion of a Ladle Furnace facility now under
construction, in the second quarter of 1996 the Company will
produce all of its steel by the more efficient continuous cast
method.
At December 31, 1995 Ivaco Inc. of Montreal,
Canada owned 2,018,650 shares of the Company's common stock or
49.8% of the total number of shares outstanding. On January 22,
1993 the Company was advised that Ivaco is exploring the
possibility of disposing of its interest in Laclede Steel
Company.
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(b) Financial Information
The following table sets forth certain financial
information relating to Registrant's operations:
Year Ended December 31,
(Thousands of Dollars) 1995 1994 1993
Net Sales $320,350 $341,289 $328,766
Earnings (Loss) Before
Cumulative Effect of Change
in Accounting Principle $(10,137) $ 4,462 $ 3,107
Cumulative Effect of Change
in Accounting Principle
for Postretirement Medical
Benefits, Net of Tax -- -- (46,543)
Net Earnings (Loss) $(10,137) $ 4,462 $(43,436)
Identifiable Assets $349,778 $343,251 $349,814
(c) Description of Business
The following table lists the Company's wide range
of steel products:
Pipe and Tubular Products: Continuous Weld Pipe
- A53 Standard and Extra Heavy
- API 5L Line Pipe
- Coupling Stock
- Fence Pipe
- Rigid Conduit Shells
Electric Resistance Weld Tubing
- A500 Structural
Hot Rolled Products: Carbon and Alloy SBQ Bars
Forging Billets
Special Shapes
Wire Products: Cold Drawn Wire
- High Carbon
- Oil Tempered
- Low Carbon
- Annealed Wire and Rod
Chain: Welded Chain
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The following table presents, for the years
indicated, the percentage of the Company's total sales by product
class:
Product 1995 1994 1993
Pipe and tube 40.8% 40.1% 35.7%
Hot Rolled 34.7 32.5 32.2
Wire 16.4 18.5 22.9
Chain 8.1 8.9 9.2
Total 100% 100% 100%
Pipe and Tubular Products. The Company's pipe and
tubular products are comprised of continuous butt weld ("CBW")
pipe and electric resistance weld ("ERW") tubing, which are sold
in the U.S. and Canada to distributors and manufacturers. Pipe
and tubular products are produced and finished at the Company's
Alton Plant; Benwood, West Virginia; Fairless Hills,
Pennsylvania; and Vandalia, Illinois Facilities. Prior to 1993,
the majority of the Company's CBW pipe was finished at the Alton
Plant or at the Fairless Facility, as discussed below. While
semi-finished pipe continues to be produced at the Alton Plant,
in 1993 the Company moved the majority of the Alton Plant's
finishing operations to the Company's new, lower cost Vandalia
Facility. By the end of 1993, the majority of CBW pipe was no
longer finished at the Alton Plant.
The Company is one of only three producers of CBW
pipe in the United States, due in part to the Company's long-term
lease from former competitor USX Corporation of its pipe
manufacturing facilities at the Fairless Facility.
In 1996 the Company will complete the final
modifications in the Melt Shop at the Alton Plant by installation
of a Ladle Furnace Facility that will allow the Company to shift
its entire production of steel used in pipe making from the ingot
process to continuous cast.
- 4 -<PAGE>
Hot Rolled Products. The Company's hot rolled
products are produced at the Alton Plant and consist primarily of
special quality ("SBQ") bars sold to manufacturers to be cold
drawn or forged. The Company's goal in 1996 is to increase
shipments of this high quality product.
Wire Products. The Company is a major
manufacturer of wire products. These products include high and
low carbon wire, oil tempered wire, and annealed wire. The
Company believes it is a dominant participant in the oil tempered
wire market. Wire products are currently manufactured and
finished at the Company's Memphis, Tennessee and Fremont, Indiana
Facilities. The Fremont Facility is the Company's state-of-the-art, stand-alone
oil tempered wire facility. In 1996 Fremont
will begin producing oil tempered wire for automobile suspension
springs and for brake springs. This is a recently developed new
product which is expected to have a positive effect on
profitability.
Chain Products. Laclede Chain, one of the
Company's wholly owned subsidiaries, produces welded chain and
also imports a significant amount of chain for resale. Laclede
Chain generated in excess of $26 million in sales in 1995,
approximately 41% of which was attributable to sales of anti-skid
devices for trucks and automobiles. The balance of the Company's
chain products sales is in the hardware and industrial chain
business.
At December 31, 1995 the Company had a sales
backlog of over $20 million. This backlog does not have
significant seasonal variation. Long-term sales commitments do
not represent a significant portion of the business. Because of
its size in relation to the industry and its diversified product
mix, in periods of normal demand, the Company expects to operate
near full steelmaking capacity. For further information and also
for discussion of future capital expenditure plans, please refer
to Management's Discussion and Analysis of Financial Condition
and Results of Operations (MD&A).
Research and development activities of the Company
have not been material.
The Company manufactures steel from steel scrap
generated in the course of its steel production and purchased in
the open market from numerous scrap suppliers. Since it does not
produce its own raw materials, the Company is subject to the
fluctuation in prices and availability of scrap.
- 5 -<PAGE>
The Company's business strategy has been to
modernize its basic steelmaking facilities at the Alton Plant
while growing and modernizing its lower cost, downstream
finishing facilities. The Company believes that the major
elements of this strategy are currently in place.
The center of the Company's business is the Alton
Plant, which has the advantages of a central location, low
utility costs, and good sources for raw materials. In addition,
the Alton Plant provides the necessary strategic flexibility to
manufacture the grades of steel needed to produce the Company's
various products. Each of the Company's downstream facilities is
strategically located near its end markets, is specialized by
product to optimize efficiency, and benefits from lower
employment costs per ton.
The Company began its business expansion with the
acquisition of a chain manufacturer in northwestern Missouri in
1984. Since 1984 the Company has acquired four additional
facilities and constructed one new facility. Most notable among
these new and/or expanded facilities are the Company's lease of
the pipe manufacturing facilities at the Fairless Facility, the
Company's expanded oil tempered wire operations at the Fremont
Facility, and the construction of the Vandalia Facility, a
tubular finishing plant.
Operations at the Fairless Facility began in May
1992, and have achieved an annual production rate in excess of
60,000 tons. The Fremont Facility was expanded in order to
handle the majority of oil tempered wire volume previously
produced at the Alton Plant's wire mill. Relatively minor
amounts of oil tempered wire are produced at the Memphis Plant.
The Vandalia Facility, constructed in 1992, processes semi-finished pipe
produced at the Alton Plant.
In December 1995 a decision was made to initiate
the final phase of the Company's strategic plan, leading to a
restructuring of the steel-making facilities at the Alton Plant.
When the Company's new Ladle Furnace Facility becomes operational
in the second quarter of 1996, all steel will be produced using
the more efficient continuous cast method. At that time the
Company will cease production of rods, and begin purchasing the
rod requirements for its wire operations on the open market, at a
significant reduction in costs.
In connection with this restructuring, the Company
will shut down its Blooming Mill and Rod Mill operations. The
Company believes that the shutdown of these facilities, together
with the move to 100% continuous cast steel, will result in much
more efficient operations at the Alton Plant, when fully
effective in the second half of 1996. The Company also expects
to lower inventory levels, improving cash flow.
- 6 -<PAGE>
Capital Improvements. While the Company has
expanded and improved its downstream finishing facilities, it has
also completed important capital improvements to the steelmaking
operations at the Alton Plant. The primary objective of these
improvements was to substantially reduce production costs and
also provide access to new markets.
Continuous caster modifications added the
capability to cast a slab suitable for the production of the
majority of pipe sizes. Previously, all pipe skelp, which is the
intermediate rolled strip used as input material for pipe
production, was produced from ingots, passing through a blooming
mill before entering the 22" rolling mill at the Alton Plant.
The modified caster adds the capability to feed continuous cast
slabs directly into the 22" rolling mill and the Fairless
Facility's 18" rolling mill. In 1995 the Company produced 76% of
its total steel output by the continuous cast process, compared
to 67% in 1994. The Company will become a 100% cast steel
producer in 1996.
Competition
Price sensitivity in markets for the Company's
products is driven by competitive factors and the cost of steel
production.
Domestic. The Company faces competition from
regional mini-mill companies and fully integrated steel mills,
and such competition can be expected to continue. However, the
Company believes its emphasis on producing higher grade steel
products, its competitive production costs, substantially
completed repositioning, established market positions, diverse
product lines, and strategic geographic locations will all enable
the Company to continue to compete effectively in its markets.
Foreign. The Company also faces competition from
foreign steel producers. However, in recent years increased
efficiency in the U.S. steel industry have improved the
competitive position of U.S. steel companies, including the
Company.
Environmental Matters
In general, the Company is subject to a broad
range of federal, state and local environmental regulations,
including those governing discharges into the air and water, the
handling and disposal of solid and/or hazardous wastes and the
remediation of contamination associated with the release of
hazardous substances. The domestic steel industry, including the
- 7 -<PAGE>
Company, has spent substantial amounts to comply with these
requirements. Although the Company believes it is in substantial
compliance with the various environmental regulations applicable
to its business, there can be no assurance that future changes in
environmental regulations will not require the Company to incur
significant costs in order to comply with such future
regulations.
Specifically, like all electric arc furnace (EAF)
steel producers, the Company generates EAF dust as part of the
steelmaking process. For some time, the EPA has classified EAF
dust as a designated hazardous waste. Over the past decade, the
Company has accumulated approximately 145,000 tons of this
material on site at the Alton Plant, pending development of
technology for economical treatment. Currently, approximately
45,000 tons of EAF dust are located in a building at the Alton
Plant (the "Indoor Pile") and the remaining 100,000 tons are
piled outdoors at the Alton Plant (the "Outdoor Pile"). The
Company believes that it has remained in compliance with EPA
regulations during this period of accumulation and believes that
it continues to be in compliance with current EPA regulations.
The Company has filed a modified closure plan for
disposition of existing EAF dust piles with the Illinois EPA
which provides for the closure of all piles in place at the
location of the Outdoor Pile, and has received approval in
principal. It appears that the cost of this plan will
approximate the $3.7 million liability existing at December 31,
1995 for the disposal of the existing EAF dust.
In 1989, the Company reached an agreement with
Elkem Technology ("Elkem") to construct the High Temperature
Metals Recovery (HTMR) System at the Alton Plant, intended to
treat newly generated EAF dust as well as the existing storage
piles. In 1990 the Company completed the permanent financing for
this facility through the issuance of $25 million in Solid Waste
Disposal Revenue Bonds.
In the second quarter of 1993 the Company was
advised by Elkem that the HTMR System would not be able to meet
its original goals, including the recovery of prime western grade
zinc, which was an essential criterion under the Company's
agreement with Elkem and, accordingly, commissioning of the
facility would cease. On May 17, 1993, the Company and Elkem
negotiated a settlement of the original contract, under which
Elkem refunded $13.6 million to the Company and relinquished
control of and legal title to the HTMR System. Under provisions
of the related Bond Agreement financing the project, funds
recovered from Elkem were deposited in trust in the Bond Project
Fund and used to modify the HTMR System. The remaining $8.1
million of unused funds were used to prepay a portion of the
Bonds under the terms of the Bond indenture. The Company's
investment in the HTMR System at December 31, 1995 is
approximately $16.7 million. The HTMR System is now used to
treat the current generation of dust with improving efficiency.
- 8 -<PAGE>
Employees. As of December 31, 1995, the Company
employed approximately 1,815 employees, 360 of whom are
classified as management, administrative and sales personnel.
The Company's 920 hourly employees at the Alton
Plant are covered by a collective bargaining agreement that
expires in September of 1997. The compensation for the majority
of the Company's employees is based partially on productivity in
accordance with various incentive plans. Less than 50 of the
Company's other employees are covered by a collective bargaining
agreement. The Company has never experienced a strike, and it
believes that its relations with its employees are good.
Item 2. Properties.
The Company's steelmaking facilities are located
on a 400-acre site in Alton, Illinois, and consist of two
electric furnaces with a combined rated production capacity of
over 780,000 net tons per year, a continuous bloom casting
facility, a roughing mill and 14-inch bar mill, soaking pits,
bloom rolling mill, billet rolling mill, 8-inch bar mill, rod
mill, 22-inch strip mill, facilities for the manufacture of
continuous butt-weld pipe and wire finishing facilities. The
Company also has a rail-water terminal at Alton, a pipe finishing
plant in Vandalia, Illinois, a chain manufacturing plant in
Maryville, Missouri, a wire mill in Memphis, Tennessee, a wire
oil tempering facility in Fremont, Indiana and an electric
resistance weld tubing mill in Benwood, West Virginia. The
Company operates a pipe mill in Bucks County, Pennsylvania which
is leased from USX Corporation. The lease expires September 30,
1996 with options to renew until September 30, 2006.
The Company's property is well maintained and
adequate for efficient production of its existing product line.
The majority of the Company's properties are owned in fee. For
its executive offices the Company presently leases space in the
Metropolitan Square Building in downtown St. Louis under a lease
expiring on April 30, 2004.
- 9 -<PAGE>
Item 3. Legal Proceedings.
There are various claims pending involving the
Company and its subsidiaries with respect to environmental,
hazardous substance, product liability, personal injury, and
other matters arising out of the routine conduct of it business.
The Company believes it has meritorious defenses with respect to
all claims and litigation and the ultimate disposition of such
matters will not materially affect its financial position or
results of operations.
Item 4. Submission of Matters to a Vote of Security
Holders.
NONE
* * * * * *
The executive officers of the Company and their
ages are as follows:
Name Age Position
John B. McKinney 63 President, Chief Executive Officer and Director
Michael H. Lane 53 Vice President-Finance, Treasurer and Secretary
J. William Hebenstreit 50 Vice President-Operations
Larry J. Schnurbusch 49 Vice President-Administration
H. Bruce Nethington 54 Vice President-Human Resources
John B. McKinney was elected President and Chief
Executive Officer of the Company in January 1983. Mr. McKinney
has been a director of the Company since 1981 and is also a
director of Boatmen's Trust Company and The Automobile Club of
Missouri.
Michael H. Lane was elected Vice President-Finance, Treasurer and Secretary
of the Company in 1983.
J. William Hebenstreit was elected Vice President-Operations of the Company
in 1983.
Larry J. Schnurbusch was elected Vice President-Administration in 1993.
Prior to 1993, he served as Director of Corporate Administration of the Company.
H. Bruce Nethington was elected Vice President-Human Resources in 1993.
Prior to 1993, he served as Director of Industrial Relations of the Company.
* * * * * *
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PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.
Laclede's common stock is traded on the NASDAQ
National Market System and the symbol is LCLD. As of January
1996 there were approximately 575 stockholders of record.
Market
Price Range 1995 1994
Quarter High Low High Low
First $12-1/2 $10 $18-3/4 $15-1/4
Second $12 $10-1/2 $16-3/4 $12-3/4
Third $14-1/2 $10-1/4 $14-3/4 $11-1/2
Fourth $10-3/4 $ 6-1/4 $12-1/2 $ 9-3/4
Dividends Per
Share Paid on
Common Stock 1995 1994
None None
<TABLE>
Item 6. Selected Financial Data.
Five-Year Financial Summary
(In Thousands of Dollars Except Per Share Data)
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Sales $320,350 $341,289 $328,766 $274,468 $260,938
Earnings (Loss) Before Cumulative
Effect of Change in Accounting
Principle $(10,137)* $ 4,462 $ 3,107 $ (7,547)** $ (8,332)
Net Earnings (Loss) $(10,137)* $ 4,462 $(43,436) $ (7,547)** $ (8,332)
Net Earnings (Loss) per share $ (2.50)* $ 1.10 $ (10.71) $ (1.86)** $ (2.05)
Other Financial Data
Total assets $349,778 $343,251 $349,814 $312,142 $301,724
Working capital 87,759 88,906 88,833 83,403 85,823
Capital expenditures 13,847 14,747 12,782 19,845 16,149
Long-term debt 118,791 100,801 100,926 103,908 93,179
Stockholders' equity 16,518 53,743 42,590 98,013 108,671
Stockholders' equity per share $ 4.07 $ 13.25 $ 10.50 $ 24.16 $ 26.79
Cash dividends per share $ -- $ -- $ -- $ -- $ .20
<FN>
* Includes restructuring, asset impairment and other charges which reduced net earnings
by $11.4 million or $2.81 per share.
** Includes special charges which reduced net earnings by $11.6 million or $2.86 per
share.
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Operating Results 1993 to 1995
Net earnings for 1995 were $1.3 million before the
effect of restructuring, asset impairment and other charges
described in Note 6 to the Consolidated Financial Statements.
The net loss for 1995 was $10.1 million after deducting the $11.4
million after tax effect of the special charges.
Net earnings for 1994 of $4.5 million represent a
44% increase over 1993 earnings before the cumulative effect of a
change in accounting principle of $3.1 million. As discussed in
Note 5 to the Consolidated Financial Statements, effective
January 1, 1993 the Company adopted the new accounting standard
for postretirement medical benefits which resulted in the
recording of a one-time after tax charge of $46.5 million. As a
result of this accounting change the Company incurred a net loss
for the year 1993 of $43.4 million.
The change in net sales for the last three fiscal
years is analyzed as follows:
(In Thousands)
1995 Vs. 1994 1994 Vs. 1993 1993 Vs.1992
Increase (Decrease)
in net sales $(20,939) $12,523 $54,298
Comprised of:
Increase (Decrease)
in volume $(24,788) $(14,044) $42,575
Increase in price $ 3,849 $ 26,567 $11,723
Steel Operations
In 1995 net sales decreased by $20.9 million as a
result of a 6.4% reduction in steel shipments. While sales
prices declined in the second half of 1995, average prices for
the year were slightly higher than 1994.
Cost of products sold decreased by 6.4% compared
to 1994, reflecting lower volume. As discussed below,
production costs in 1995 include the effects of further
increases in the cost of the Company's basic raw material,
ferrous scrap.
Net sales in 1994 increased by $12.5 million or
3.8% from 1993, reflecting a significant increase in average
selling prices partially offset by a lower volume of tons
shipped. Cost of products sold increased by $8.7 million or
2.9%, primarily as a result of higher ferrous scrap costs.
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Net sales in 1993 increased by $54.3 million or
19.8% from 1992, as a result of a 15.0% increase in steel
shipments and an increase in average sales prices of about 4.3%.
Cost of products sold increased by $53.9 million or 22.1% in
1993. The increase in cost of products sold is proportionately
higher than the increase in 1993 steel shipments, primarily as a
result of higher scrap costs.
As overall demand for steel increases, the
Company has experienced a sharp rise in the price of scrap. The
average scrap usage cost in 1994 and 1993 each represents an
increase over the prior year of approximately 25%. In 1995
scrap prices were approximately 5% higher than 1994.
In addition to demand for steel, there are other
factors affecting the supply of scrap that could be considered
structural factors, including the growth in electric furnace
production which is almost totally dependent on ferrous scrap as
a raw material.
In 1993, 1994 and the first half of 1995, the
Company was able to recover the increased scrap costs through
higher selling prices for its products. In the second half of
1995 however declining sales prices and lower volume had a
negative impact on product margins.
In December 1995 a decision was made to initiate
the final phase of the Company's strategic plan, leading to a
restructuring of the steel-making facilities at the Alton Plant.
When the Company's new Ladle Furnace Facility
becomes operational in the second quarter of 1996, all steel
will be produced using the more efficient continuous cast
method. At that time the Company will cease production of rods,
and begin purchasing requirements for its wire operations on the
open market, at a significant reduction in costs.
In connection with this restructuring, the
Company will shut down its Blooming Mill and Rod Mill
operations. The Company believes that the shutdown of these
facilities, together with the move to 100% continuous cast
steel, will result in much more efficient operations at the
Alton Plant, when fully effective in the second half of 1996.
The Company also expects to lower inventory levels, improving
cash flow.
As a result of this decision, accounting charges
totaling $9.8 million after taxes were recorded in the fourth
quarter of 1995. These charges, which are primarily non-cash in
nature, include recognition of impairment loss for equipment,
retirement costs for affected employees, and adjustments of rod
and wire inventories to market value.
- 13 -<PAGE>
The Company also recognized a charge of $1.6
million, after taxes, related to inventory write-downs in its
tubular product operations. This inventory adjustment, which
reduces the carrying cost to net realizable value, reflects
higher second half production costs together with significant
reductions in selling prices for tubular products since the end
of the third quarter. Pressure on sales prices has been caused
by lower prices for sheet steel, the raw material for the
Company's competitors in the pipe market.
Because of its size in relation to the steel
industry, as well as its diverse product mix, under normal
economic conditions the Company is able to operate at high
levels of capacity utilization.
The $46.5 million charge for postretirement
medical benefits in 1993 is net of $28.5 million in deferred tax
benefits. Non-current assets at December 31, 1995 includes
$44.1 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 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 assets for the related
pension liabilities and postretirement benefit obligations other
than pensions, for which recovery upon payment is expected to be
spread over many future years.
The general level of historical earnings, 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.
In order to comply with EPA regulations, since
1991 the Company has incurred costs for outside processing of
currently generated electric arc furnace dust, pending
completion and operation of the High Temperature Metals Recovery
(HTMR) facility at the Alton Plant. Such costs amounted to $2.1
million in 1993, $2.3 million in 1994 and $.6 million in the
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first quarter of 1995 at which time the HTMR plant began to
process the dust. See Note 9 to the Consolidated Financial
Statements and "Liquidity and Capital Resources" for further
discussion.
Slight increases in selling, general and
administrative expenses in 1994 and 1995 were primarily a result
of higher salaried employment costs. The increase in interest
expense in 1994 is primarily the result of an increase in short-term interest
rates. In 1995 the $3.2 million increase in
interest expense reflects higher borrowing rates under the
Company's loan agreement entered into in September 1994, as well
as an increase in long-term borrowings. In addition, in the
second quarter of 1995 the Company began expensing interest
costs on the Solid Waste Disposal Revenue Bonds used to finance
its High Temperature Metals Recovery System at the Alton Plant.
These interest costs had previously been capitalized until
modification of the facility was complete. See Note 9 to the
Consolidated Financial Statements and "Liquidity and Capital
Resources" for further discussion.
In 1994 the Company recorded a gain of $1.1
million related to the sale of various items of steel mill
equipment. In the second quarter of 1995 the Company completed
the sale of approximately 3% of the common stock of its
subsidiary, Laclede Mid America, Inc. Accordingly a non-taxable
gain of $728,000 representing the excess of the sales price over
the net book value of the stock sold, is included in the results
for 1995. Higher depreciation expense each year is a result of
increased capital expenditure levels.
General inflation and changing prices have not
had a significant effect on the Company's sales and revenues,
which are more related to factors such as domestic steel
capacity, currency levels, demand for the Company's products,
and the impact of foreign steel imports. Imported steel
typically has the greatest impact on the Company's tubular
products.
Divisions and Subsidiaries
The Company operates a cold drawn wire mill in
Memphis, Tennessee and an oil tempered wire facility in Fremont,
Indiana. In 1996 the Fremont Plant will begin producing oil
tempered wire for automotive suspension springs, a recently
developed new product which will have a positive effect on
earnings. The Memphis and Fremont Plants will benefit from
lower rod costs when the Company's restructuring program is
effective in the second half of 1996.
- 15 -<PAGE>
The Company's wholly-owned subsidiary, Laclede
Chain Manufacturing Company, operates a manufacturing plant in
Maryville, Missouri and a warehouse and sales operation in
Portland, Oregon. The Laclede Chain operation made a
significant contribution to consolidated earnings in the fourth
quarter of 1993 and 1994. Unusually mild weather in the
northwest adversely affected the Chain Company's tire chain
business in the fourth quarter of 1995. Severe weather in the
early part of 1996, however, will increase first quarter 1996
chain sales.
Laclede's Benwood, West Virginia Plant
manufactures electric resistance weld tubular products for the
structural pipe industry. This tubing is made using slabs from
the Alton Plant. Operating results of the Benwood facility
improved substantially in 1994 as a result of higher volume,
sales price increases, lower cost skelp produced from continuous
cast steel at the Alton Plant, and productivity improvements.
In 1995 demand for structural tubing diminished, affecting sales
prices and product margins.
In 1991, Laclede completed an agreement with USX
Corporation to purchase the pipe inventory and lease the Pipe
Mill Operations located at the Fairless Works in Bucks County,
Pennsylvania. The Company successfully began operation of one
of the two continuous weld mills with the production and
shipment of a substantial quantity of tubular products from this
low cost facility in the second half of 1992. Shipments of
continuous weld pipe from the Fairless Plant increased
significantly since that time and will increase again in 1996 as
the Company expands its pipe business.
In 1992 the Company constructed a tubular
finishing plant in Vandalia, Illinois. The Vandalia facility
processes semi-finished pipe produced at the Alton Pipe Mill.
Shipping from the Vandalia Plant began in the second half of
1992. In 1993 the Company completed the equipment installation
and transfer of all planned finishing operations from the Alton
Plant to this low cost processing plant. In 1994 and 1995 the
majority of Laclede's continuous weld pipe shipments were made
from either the Fairless or Vandalia Plants.
Liquidity and Capital Resources
At December 31, 1995 the Company had $87.8
million in net working capital with the ratio of current assets
to current liabilities at 2.5 to 1. During 1995 the Company
increased total long and short-term debt by approximately $18.0
million, reflecting increased inventories and the capital
spending program.
- 16 -<PAGE>
For the year 1995 net earnings before deducting
non-cash restructuring, asset impairment and other charges were
$1.3 million. After adjustment for deferred taxes, depreciation
and an unusual gain, cash flow generation was $9.5 million.
For the years 1994 and 1993 earnings before the
cumulative effect of a change in accounting principle plus
depreciation and the change in deferred taxes generated $ 13.8
million and $11.9 million in cash flow, respectively.
Inventories increased by $4.8 million in 1995,
after the effect of $7.6 million in write-downs, primarily as a
result of lower shipping levels in the second half of the year.
Accounts payable at December 31, 1995 were $4.8 million lower
than the balance at the beginning of the year, reflecting lower
scrap purchases in the fourth quarter. For the three years
ended December 31, 1995 inventories increased by $19.5 million,
while in the same period $28.3 million was contributed to the
Company's pension trust funds.
In September 1994 the Company entered into a new
five-year Loan and Security Agreement with three banks which
provided for a total availability of up to $95 million,
consisting of an $85.0 million revolving credit facility and a
$10.0 million term loan. The Agreement has been amended to
provide revolving credit availability of up to $100 million. In
January 1996, the banks agreed to modifications to the Agreement
related to the Company's restructuring of operations. See Note
4 to the Consolidated Financial Statements for additional
discussion. At December 31, 1995 $84.5 million in borrowings
and $2.6 million in letters of credit were outstanding under the
Revolving Credit Facility. At the beginning of 1996 average
interest rates under the Agreement are approximately 9%.
Management believes that internally generated funds and its
banking arrangements will be adequate to finance its operations
and all planned capital expenditures, which will be
approximately $10.0 million in 1996.
In the second quarter of 1993 the Company was
advised by the Contractor, Elkem Technology, that the High
Temperature Metals Recovery (HTMR) System to process electric
furnace dust at the Alton Plant would not be able to meet its
original goal to recover prime western grade zinc from the dust.
Accordingly, management negotiated a settlement of the contract
with Elkem and the Company received a refund of $13.6 million,
as well as title to the HTMR System. The Company has modified
the facility in order to treat current generation of dust
economically and in accordance with EPA standards. A portion of
- 17 -<PAGE>
the funds received from Elkem together with additional Company
funds was used to complete this modification of the HTMR System.
The remaining refund from Elkem of $8.1 million was applied as a
prepayment of a portion of the outstanding Solid Waste Disposal
Revenue Bonds in 1994. Refer to Note 9 to the Consolidated
Financial Statements for additional discussion of these issues.
The Company presently is not paying dividends on
its common stock. Restoration of common stock dividends will
depend on various factors including an improvement in business
conditions and sustained profitability.
The Company knows of no other trends, demands,
commitments, events or uncertainties that will or are likely to
materially affect its liquidity.
Item 8. Financial Statements and Supplementary Data.
The index to the Financial Statements of the
Company and the independent auditors' report of Deloitte &
Touche LLP appear on pages 19 and 41.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
NONE
PART III
As permitted by General Instruction G, with the
exception of information on Executive Officers of the Registrant
set forth in Part I hereof, information required in Part III is
incorporated by reference to the definitive proxy statement of
Registrant for the 1996 Annual Meeting which the Registrant will
file with the Commission no later than April 30, 1996.
- 18 -<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) Documents Filed as Part of This Report
The following is an index of the financial
statements and schedules included in this Report.
(1) Financial Statements
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Page
Consolidated Statements of Operations and Retained Earnings
for the years ended December 31, 1995, 1994 and 1993 . . . 22
Consolidated Balance Sheets, December 31, 1995 and 1994 . . 23
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . 26
Independent Auditors' Report on Financial Statements . . . . 41
(2) Consolidated Financial Statement Schedules
NONE
- 19 -<PAGE>
(3) Exhibits
The following is an index of the exhibits
included in this Report or incorporated herein by reference.
(3)(a) Registrant's Certificate of Incorporation as
amended October 7, 1988. (Incorporated by
reference to Exhibit (3)(a) in Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.)
(3)(b) By-laws of Registrant amended May 22, 1987.
(Incorporated by reference to Exhibit (3)(b) in
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
(4)(a) Registrant's Loan and Security Agreement dated as
of September 7, 1994. (Incorporated by reference
to Exhibit (4)(a) in Registrant's quarterly
report on Form 10-Q for September 30, 1994.)
(4)(b) First Amendment dated February 15, 1995 to
Registrant's Loan and Security Agreement.
(Incorporated by reference to Exhibit (4)(b) in
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.)
(4)(c) Second Amendment dated May 10, 1995 to
Registrant's Loan and Security Agreement.
(Incorporated by reference to Exhibit (4)(c) in
Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1995.)
(4)(d) Third Amendment dated June 1, 1995 to
Registrant's Loan and Security Agreement.
(Incorporated by reference to Exhibit (4)(c) in
Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1995.)
(4)(e) Fourth Amendment dated December 7, 1995 to
Registrant's Loan and Security Agreement.
(4)(f) Fifth Amendment dated January 26, 1996 to
Registrant's Loan and Security Agreement.
(10)(a)* Discretionary incentive compensation plan for
Executive Officers of the Registrant.
(Incorporated by reference to Exhibit (10)(a) in
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.)
(10)(b)* 1989 Stock Appreciation Rights Plan for Officers
of the Registrant. (Incorporated by reference to
Exhibit A of Registrant's Proxy Statement for the
1989 Annual Meeting of the Stockholders).
- 20 -<PAGE>
(10)(c)* Employment Agreements dated October 19, 1994,
between the Registrant and Messrs. John B.
McKinney, Michael H. Lane, J. William
Hebenstreit. H. Bruce Nethington and Larry J.
Schnurbusch.
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.)
(10)(d)* Key Employee Retirement Plan. (Incorporated by
reference to section entitled Benefit Plans from
Registrant's Proxy Statement for the 1996 Annual
Meeting of the Stockholders).
(22) Subsidiaries of Registrant.
NOTE
Copies of exhibits will be supplied upon
written request and payment of the
Registrant's fee of$.25 per page requested.
* Represents management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to
Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
During the quarter ended December 31, 1995, no
reports on Form 8-K were filed by Registrant.
- 21 -<PAGE>
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
and Retained Earnings
(In Thousands of Dollars except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
NET SALES $ 320,350 $ 341,289 $ 328,766
COSTS AND EXPENSES:
Cost of products sold 286,632 306,351 297,670
Selling, general and administrative expenses 14,209 14,039 13,755
Depreciation 8,151 7,625 7,464
Interest expense, net 10,125 6,940 4,866
Restructuring, asset impairment and other charges 18,422 ---- ----
Gain on sale of subsidiary stock (728) ---- ----
Gain on sale of equipment ---- (1,103) ----
Total costs and expenses 336,811 333,852 323,755
EARNINGS (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (16,461) 7,437 5,011
PROVISION (CREDIT) FOR INCOME TAXES (6,324) 2,975 1,904
EARNINGS (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (10,137) 4,462 3,107
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE FOR POSTRETIREMENT MEDICAL
BENEFITS, NET OF TAX ---- ---- (46,543)
NET EARNINGS (LOSS) (10,137) 4,462 (43,436)
RETAINED EARNINGS AT BEGINNING OF YEAR 7,822 3,360 46,796
RETAINED EARNINGS (DEFICIT) AT END OF YEAR $ (2,315) $ 7,822 $ 3,360
PER SHARE DATA:
Earnings (loss) before cumulative effect
of change in accounting principle $ (2.50) $ 1.10 $ 0.77
Cumulative effect of change in accounting principle
for postretirement medical benefits, net of tax ---- ---- (11.48)
Net earnings (loss) $ (2.50) $ 1.10 $ (10.71)
</TABLE>
See Notes to Consolidated Financial Statements.
- - 22 -
Consolidated Balance Sheets
Assets
(In Thousands of Dollars except Per Share Amounts)
December 31,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 161 $ 159
Accounts receivable, less allowances
of $2,224 in 1995 and $2,635 in 1994 37,287 45,587
Prepaid expenses 744 1,202
Income taxes recoverable 1,479 546
Inventories:
Finished 56,377 45,407
Semi-finished 28,683 26,193
Raw materials 8,415 15,853
Supplies 13,807 15,013
Total inventories 107,282 102,466
Total current assets 146,953 149,960
NON-CURRENT ASSETS:
Intangible pension asset 17,409 18,550
Other intangible assets 2,407 2,551
Bond funds in trust 2,385 2,385
Prepaid pension contributions 6,586 17,795
Deferred income taxes 44,062 21,726
Other 3,785 3,522
Total non-current assets 76,634 66,529
PLANT AND EQUIPMENT, AT COST:
Land 1,615 1,615
Buildings 28,478 29,559
Machinery and equipment 213,480 225,063
243,573 256,237
Less - accumulated depreciation 117,382 129,475
Net plant and equipment 126,191 126,762
TOTAL ASSETS $ 349,778 $ 343,251
- - 23 -
Liabilities and Stockholders' Equity
December 31,
1995 1994
CURRENT LIABILITIES:
Accounts payable $ 31,617 $ 36,462
Accrued compensation 7,667 9,798
Current portion of long-term debt 2,459 2,484
Accrued costs of pension plans 15,449 9,830
Other 2,002 2,480
Total current liabilities 59,194 61,054
NON-CURRENT LIABILITIES:
Accrued costs of pension plans 67,123 41,413
Accrued postretirement medical benefits 81,431 79,180
Other 6,721 7,060
LONG-TERM DEBT 118,791 100,801
COMMITMENTS AND CONTINGENCIES - NOTE 9 ---- ----
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, issued and outstanding 4,056,140 shares 54,081 54,081
Capital in excess of par 247 247
Retained earnings (deficit) (2,315) 7,822
Minimum pension liability adjustment (35,495) (8,407)
Total stockholders' equity 16,518 53,743
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $349,778 $343,251
See Notes to Consolidated Financial Statements.
- - 24 -
<PAGE>
LACLEDE STEEL COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (10,137) $ 4,462 $ (43,436)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle
for postretirement medical benefits ---- ---- 46,543
Depreciation 8,151 7,625 7,464
Gain on sale of subsidiary stock (728) ---- ----
Gain on sale of equipment ---- (1,103) ----
Restructuring, asset impairment and other charges 18,422 ---- ----
Change in deferred income taxes (6,185) 1,708 1,303
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 8,300 940 (5,897)
Inventories (12,483) (5,040) (1,959)
Accounts payable and accrued expenses (8,861) 11,601 (7,197)
Pension cost less than funding (2,526) (2,742) (5,723)
Accrued postretirement medical benefits 1,162 1,379 2,732
Net cash provided by (used in) operating activities (4,885) 18,830 (6,170)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,847) (14,747) (11,358)
Proceeds from sale of equipment ---- 1,000 ----
Net cash used in investing activities (13,847) (13,747) (11,358)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayments) under revolving credit loan 18,453 (16,412) 15,500
Proceeds from term loan ---- 10,000 ----
Proceeds from long term debt 2,000 ---- ----
Payments on long-term debt (2,488) (9,710) (929)
Proceeds from sale of stock of subsidiary 1,000 ---- ----
Proceeds from (additions to) bond funds in trust ---- 12,789 (11,707)
Refund under contract for HTMR facility ---- ---- 13,600
Payment of financing costs (231) (2,485) ----
Net cash provided by (used in) financing activities 18,734 (5,818) 16,464
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the year 2 (735) (1,064)
At beginning of year 159 894 1,958
At end of year $ 161 $ 159 $ 894
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 10,209 $ 7,147 $ 4,760
Income taxes paid, net of refunds $ 794 $ 1,218 $ 1,010
</TABLE>
See Notes to Consolidated Financial Statements.
- - 25 -
<PAGE>
Notes to Consolidated Financial Statements
Note 1
Nature of Operations:
Laclede Steel Company and Subsidiaries (the
Company) is a manufacturer of carbon and alloy steel products,
including pipe and tubular products, hot rolled products, wire
products and welded chain. The Company's pipe and tubular
products are comprised of continuous butt weld pipe and electric
resistance weld tubing, which are sold in the U.S. and Canada to
distributors and manufacturers. Hot rolled products consist
primarily of special quality bars sold to manufacturers to be
cold drawn or forged. Wire products include high and low carbon
wire, oil tempered wire used for mechanical springs, overhead
door springs and, in the future, automotive suspension and brake
springs, and annealed wire and rod. Laclede Chain Manufacturing
Company, a wholly owned subsidiary, produces chain products and
also imports a significant amount of chain. Approximately half
of the chain business is attributable to sales of anti-skid
devices for trucks and automobiles and the balance is in sales
of hardware and industrial chain.
Note 2
Accounting Policies:
The Company's significant accounting policies are
summarized as follows:
Principles of Consolidation
The consolidated financial statements include the
accounts of Laclede Steel Company and its wholly-owned
subsidiaries. All intercompany accounts and transactions have
been eliminated.
Cash Equivalents
The Company considers all highly liquid debt
instruments with a maturity of three months or less at date of
purchase to be cash equivalents.
Inventories
Inventories of finished and semi-finished
products, raw materials and supplies are stated at the lower of
cost, predominantly moving average, or market. Market
determination is based on the net realizable value of the total
of the components of each major category of inventory.
- 26 -<PAGE>
Plant and Equipment
Plant and equipment, consisting primarily of
steel making and related facilities, are carried at cost. Major
renewals and betterments are capitalized, while replacements,
rebuilding costs and repairs are charged to operations. The
cost of normal retirements is charged to accumulated
depreciation and salvage realized, if any, is credited thereto.
Depreciation
The Company follows the policy of providing for
depreciation of plant and equipment by charging operations with
amounts sufficient to amortize the cost over the following
estimated useful lives:
Buildings and improvements 20 to 45 years
Machinery and equipment 4 to 25 years
Office furniture and equipment 6 to 10 years
Depreciation is computed on the straight-line
method for financial reporting purposes. Accelerated
depreciation methods are used for tax purposes.
Long-Lived Assets
In 1995 the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The general requirements
of this statement are applicable to the properties and
intangible assets of the Company and require impairment to be
considered whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
See Note 6 for discussion of asset impairment charges in 1995.
Other Intangible Assets
Other intangible assets include the excess of the
purchase price of acquisitions over the fair value of the net
assets acquired and these amounts are amortized on a straight-line basis over
25 years.
Management periodically reviews the value of its
intangible assets to determine if an impairment has occurred or
whether changes have occurred that would require a revision to
the remaining useful life. In making such determination,
management evaluates the performance, on an undiscounted basis,
of the underlying operations or assets which give rise to such
amount. Based on this review, management does not believe that
any such impairment has occurred.
- 27 -<PAGE>
Income Taxes
Deferred income taxes are provided for the
temporary differences between the tax basis of the Company's
assets and liabilities and their financial reporting amounts at
each year end, utilizing currently enacted tax rates. See Note
3 for details of significant temporary differences.
Earnings Per Share
Earnings per common share are based on the
weighted average shares outstanding during the year. Weighted
average shares outstanding were 4,056,140 for 1995, 1994 and
1993.
Use of Estimates in the Preparation of Financial Statements
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.
Certain Significant Estimates
Amounts reported for pensions and postretirement
medical benefits and their related deferred tax assets are
subject to significant fluctuation due to changes in interest
rates. Estimates of environmental remediation-related
obligations are discussed in Note 9.
Current Vulnerability Due to Certain Concentrations
The Company manufactures steel from steel scrap
generated in the course of its steel production and purchased in
the open market from numerous scrap suppliers. Since it does
not produce its own raw materials, the Company is subject to the
fluctuation in prices and availability of scrap.
Approximately 62% of the Company's production
employees are covered by a collective bargaining agreement,
which extends beyond one year.
- 28 -<PAGE>
Note 3
Income Taxes:
Effective January 1, 1993 the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". This statement requires the use of the asset
and liability approach for financial accounting and reporting for income
taxes. The provision for income taxes represents an effective combined
federal and state tax rate of 40% for 1994 and 38% for 1995 and 1993. See
the reconciliation of these tax rates to the statutory rate below. The
provision (credit) for income taxes consists of the following (thousands of
dollars):
1995 1994 1993
Current income taxes $ (139) $ 1,268 $ 601
Deferred income taxes (6,185) 1,707 1,303
$ (6,324) $ 2,975 $ 1,904
In 1993 deferred taxes were recorded in the amount of $28,526,000 as a
result of the change in accounting principle for postretirement medical
benefits. Recognition of this tax benefit resulted in a net deferred tax
asset on the consolidated balance sheets.
Deferred tax assets were increased in 1995 by $16,151,000, decreased in
1994 by $3,650,000 and increased in 1993 by $7,348,000 as a result of the tax
effects of the minimum pension liability adjustment. These amounts are not
reflected in the tax provision of these years. See Note 5 for further
discussion. No deferred tax valuation allowance is deemed necessary as a
result of management's evaluation of the likelihood that all of the deferred
tax assets will be realized.
- 29 -
<PAGE>
Deferred tax assets and liabilities are comprised of the following at
December 31 (thousands of dollars):
1995 1994
Deferred tax liabilities:
Depreciation $ (26,966) $(27,064)
Accrued costs of pension plans (1,138) (327)
Total deferred tax liabilities (28,104) (27,391)
Deferred tax assets:
Minimum pension liability adjustment 21,756 5,605
Postretirement medical benefits 31,921 31,672
Active employee benefit liabilities 2,733 2,550
Environmental costs 1,456 1,524
Allowances on receivables 871 967
Net operating loss and alternative
minimum tax carryovers 11,536 5,901
Other 1,893 898
Total deferred tax assets 72,166 49,117
Net deferred tax assets $ 44,062 $ 21,726
The applicable statutory federal income tax rate of 34% for each of the
three years is reconciled to the effective income tax rate as follows
(thousands of dollars):
1995 1994 1993
Federal income tax provision
(credit) computed at statutory
tax rate $ (5,604) $ 2,529 $ 1,704
Non-taxable gain on sale of
subsidiary stock (277) -- --
State income taxes, net (542) 388 140
Other 99 58 60
Provision (credit) for
income taxes $ (6,324) $ 2,975 $ 1,904
- 30 -
<PAGE>
Note 4
Debt:
Long-term debt consists of the following at
December 31 (thousands of dollars):
1995 1994
Bank Loan and Security Agreement:
Revolving Loan $84,541 $66,088
Term Loan 8,209 9,642
Note Payable Due December 31, 2001 2,000 --
Solid Waste Disposal Revenue Bonds:
7.5% Bonds due August 1, 1995 -- 295
8.375% Bonds due from 1996 to 2008 6,930 6,930
8.5% Bonds due from 2015 to 2020 9,430 9,430
8% Pollution Control Revenue Bonds due
October 1, 2001 (annual sinking fund
payments began in 1993) 9,360 10,020
8% Industrial Development Revenue Bonds
due October 1, 2001 (annual sinking fund
payments began in 1992) 780 835
11% Industrial Revenue Bonds due in monthly
installments until March 1, 1995 -- 45
121,250 103,285
Less amounts payable within one year 2,459 2,484
$118,791 $100,801
The Company has a Loan and Security Agreement with
three banks, expiring in September 1999, which has been amended
to include a $100,000,000 Revolving Loan. It also includes a
$10,000,000 Term Loan, payable monthly through September 1999.
Interest on the Revolving Loan is payable at
either prime plus 1-1/2% or a Eurodollar rate, at the Company's
option. Interest on the Term Loan is payable at either prime
plus 2% or a Eurodollar rate, also at the Company's option. At
December 31, 1995, the interest rates ranged from 8.9% to 10%.
In October 1994 the Company entered into a two-year interest rate
cap agreement covering $40,000,000 in borrowings, which limits
interest costs if LIBOR rates reach 7%.
- 31 -<PAGE>
Under terms of the Loan and Security Agreement the
Company granted security interests in accounts receivable and
inventory to the participating banks to support the Revolving
Loan. The Term Loan is secured by certain Plant and Equipment.
The most restrictive provisions of the Company's
loan agreements, as amended, include the following:
A. The Company shall maintain specified net worth levels as
defined in the Loan and Security Agreement. As of December
31, 1995 the Company's consolidated net worth exceeded the
minimum required amount by approximately $500,000.
B. The Company shall maintain a consolidated fixed charge
coverage ratio, as defined, of not less than 1.1 to 1.0,
calculated at the end of each quarter for the preceding four
quarters. In connection with amendments related to the
Company's restructuring program, the coverage ratio was
suspended for the fourth quarter of 1995, and the first half
of 1996, and modified through 1997.
C. Payment of cash dividends is limited to 50% of cumulative
net earnings after December 31, 1993. As of December 31,
1995 no funds are available for dividends.
The Company has no compensating balance
arrangements. Excluding the Revolving Loan, aggregate maturities
of long-term borrowings at December 31, 1995 for the next five
years are as follows:
1996 $2,459,000
1997 2,484,000
1998 2,514,000
1999 5,062,000
2000 1,190,000
The Company estimates that the fair value of its
long-term debt in the aggregate approximates the carrying value
at December 31, 1995 and 1994.
- 32 -<PAGE>
Note 5
Employee Benefits:
DEFINED BENEFIT PENSION PLANS -
The Company has several non-contributory defined benefit pension plans
providing retirement benefits for substantially all employees. Benefits
under the plans are primarily based on years of service and employee's
compensation prior to retirement. Annual pension plan funding is based on
the range of deductible contributions permitted by ERISA regulations, taking
into account the Company's current income tax situation.
The components of pension cost are as follows (thousands of dollars):
1995 1994 1993
Service cost $ 1,538 $ 2,021 $ 1,904
Interest cost on projected
benefit obligation 14,767 13,340 14,219
Actual return on plan assets (22,502) 4,322 (11,409)
Net amortization and deferral 14,921 (14,003) 205
Net periodic pension cost 8,724 5,680 4,919
Curtailment loss recognized 2,966 -- --
Total pension cost $ 11,690 $ 5,680 $ 4,919
In the fourth quarter of 1995 the Company recorded a special
restructuring charge which included a $2,966,000 curtailment loss related to
planned work force reductions. See Note 6 to the Consolidated Financial
Statements for additional discussion.
The projected benefit obligations at December 31, 1995 and 1994 were
determined using assumed discount rates of 7.25% and 8.75%, respectively.
The assumed discount rate is based on market conditions and reflects annuity
purchase rates available to theoretically settle plan obligations. For all
plans other than the Alton Plant Hourly Employees' Plan, the assumed rate of
increase in compensation levels was 2% for all years. Reflecting the
Labor Agreement for Alton hourly employees, a 3% rate of increase in
compensation was assumed for 1993 and 1% thereafter. The weighted average
assumed long-term rate of return on the market-related value of plan assets
was 9.9% for 1995 and 11.7% for 1994 and 1993.
- 33 -
<PAGE>
A summary of the funded status of the plans is as follows (thousands of
dollars):
<TABLE>
<CAPTION>
December 31
1995 1994
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Total Benefits Exceed Assets Total
<S> <C> <C> <C> <C> <C> <C>
Actuarial present value
of accumulated benefit
obligation:
Vested $ (5,947) $ (186,296) $ (192,243) $ (40,394) $ (105,317) $ (145,711)
Non-Vested (258) (7,861) (8,119) (1,534) (6,280) (7,814)
Total $ (6,205) $ (194,157) $ (200,362) $ (41,928) $ (111,597) $ (153,525)
Projected benefit
obligation $ (7,249) $ (194,935) $ (202,184) $ (43,279) $ (111,943) $ (155,222)
Plan assets at fair value 7,210 113,560 120,770 43,830 61,956 105,786
Projected benefit
obligation (in excess of)
less than plan assets (39) (81,375) (81,414) 551 (49,987) (49,436)
Unrecognized net (asset)
obligation at transition
date, January 1, 1987 379 9,118 9,497 (1,151) 12,233 11,082
Unrecognized losses,
net 1,219 59,369 60,588 14,524 14,357 28,881
Unrecognized prior
service cost 3,087 6,916 10,003 2,280 6,307 8,587
Adjustment required to
recognize minimum
liability -- (74,660) (74,660) -- (32,562) (32,562)
Net pension cost
recorded on balance
sheet $ 4,646 $ (80,632) $ (75,986) $ 16,204 $ (49,652) $ (33,448)
</TABLE>
- 34 -
<PAGE>
In accordance with FASB Statement No. 87, the Company has recorded an
additional minimum pension liability for underfunded plans of $74,660,000 at
December 31, 1995 and $32,562,000 at December 31, 1994, representing the
excess of unfunded accumulated benefit obligations over previously recorded
pension cost liabilities. A corresponding amount is recognized as an
intangible asset except to the extent that these additional liabilities
exceed related unrecognized prior service cost and net transition obligation,
in which case the increase in liabilities is charged directly to stockholders'
equity. As of December 31, 1995, $57,251,000 of the excess minimum pension
liability resulted in a charge to equity, net of income taxes, of $35,495,000.
As of December 31, 1994, the excess minimum liability was $14,012,000 and the
after-tax charge to equity was $8,407,000.
PROFIT SHARING PLAN -
The Company maintains a defined contribution profit sharing thrift plan
covering a majority of its salaried employees. Company contributions for
1994 amounted to $684,000 and for 1993 amounted to $652,000. There was no
profit sharing contribution for 1995.
POSTRETIREMENT MEDICAL BENEFIT PLANS -
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for active and retired employees. A
significant portion of the Company's employees may become eligible for the
retiree benefits if they reach retirement age while working for the Company.
Effective January 1, 1993 the Company adopted FASB Statement No. 106,
"Employers' Accounting for Postretirement 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.
The components of net periodic postretirement medical benefit costs are as
follows (thousands of dollars):
1995 1994 1993
Service cost $ 638 $ 846 $ 759
Interest cost 5,708 5,658 6,612
Amortization of
unrecognized net gain (215) -- --
Net periodic cost 6,131 6,504 7,371
Curtailment loss recognized 1,089 -- --
Recognition of transition
obligation -- -- 75,069
Total cost $ 7,220 $ 6,504 $ 82,440
The actual postretirement medical benefits paid amounted to $4,969,000 in 1995,
$5,439,000 in 1994 and $4,863,000 in 1993. See Note 6 for discussion of
curtailment loss.
- 35 -
<PAGE>
A summary of the status of the plans is as follows (thousands of dollars):
December 31, December 31,
1995 1994
Accumulated postretirement
benefit obligation (APBO):
Retirees $(47,719) $(41,390)
Fully eligible active
employees (14,522) (15,709)
Other active employees (12,897) (13,944)
Total (75,138) (71,043)
Fair value of plan assets -- --
Funded status (75,138) (71,043)
Unrecognized net gain (6,293) (8,137)
Accrued postretirement
benefit cost $(81,431) $ (79,180)
The assumed discount rate used to measure the APBO was 7.25% at
December 31, 1995 and 8.75% at December 31, 1994. The assumed future health
care cost trend rate is approximately 9.5%, gradually declining to 3.25% in
nine years. A one percentage point increase in the assumed health care cost
trend rates for each future year would have increased the aggregate of the
service and interest cost components of the net periodic postretirement
benefit cost by $603,000 for 1995, $607,000 for 1994 and $716,000 for 1993,
and would have increased the APBO by $6,958,000 as of December 31, 1995 and
$5,924,000 as of December 31, 1994.
STOCK APPRECIATION RIGHTS PLANS -
In 1989, the Board of Directors adopted the 1989 Stock Appreciation Rights
Plan for Non-Officers and the 1989 Stock Appreciation Rights Plan for
Officers. All rights under the plans have been granted and as of
December 31, 1995, 26,400 rights had not been exercised. Compensation
expense of $849,000 was recorded in 1993 for the excess of market price over
grant prices on the Company's Stock Appreciation Rights Plans. There
was no expense for the plans in 1995 or 1994 and the market price is below
grant prices.
- 36 -
<PAGE>
Note 6
Restructuring, Asset Impairment and Other Charges:
In December 1995, the Company recorded a non-cash charge of
$18.4 million ($11.4 million after taxes), relating to the restructuring of its
operations, asset impairments and inventory write-offs. This charge is
primarily the result of a decision to initiate the final phase of the
Company's strategic plan, leading to a restructuring of the steel-making
facilities at the Alton Plant.
When the new Ladle Furnace Facility becomes operational in the
second quarter, all steel will be produced using the more efficient continuous
cast method. At this time the Company will also cease production of rods, and
begin purchasing requirements for its wire operations on the open market, at
a significant reduction in costs. In connection with this restructuring, the
Company will shut down its Blooming Mill and Rod Mill operations.
As a result of this decision, non-cash accounting charges
totaling $15.8 million were recorded, which are included in the $18.4 million
charge mentioned above. These charges include $6.2 million for recognition of
impairment loss for equipment and $4.6 million for employee termination
benefits and pension and postretirement benefit curtailment losses. In
addition inventories relating to these operations have been written-down by
$5.0 million to reduce their carrying cost to their net realizable value.
The Company also recognized a charge of $2.6 million related
to inventory write-downs in its tubular product operations, which are also part
of the $18.4 million charge. This inventory adjustment, which reduces the
carrying cost to net realizable value, reflects higher second half production
costs together with significant reductions in selling prices for tubular
products since the end of the third quarter of 1995.
Note 7
Interest Expense, Net:
Interest expense capitalized in 1995, 1994 and 1993 was
$484,000, $2,148,000 and $2,014,000, respectively. The majority of this
interest in 1994 and 1993 relates to the Solid Waste Disposal Revenue Bond
funds used to finance the construction of the HTMR facility.
- 37 -<PAGE>
Note 8
Quarterly Results of Operations: (Unaudited)
The results of operations by quarter for 1995 and 1994 were as follows (in
thousands of dollars except per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
1995 1994
Mar. 31 Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $87,327 $80,858 $76,561 $ 75,604 $84,697 $80,559 $85,308 $90,725
Cost of products
sold 76,115 70,807 70,569 69,162 77,614 72,457 77,153 79,127
Net sales less
cost of products
sold $11,212 $10,051 $ 5,992 $ 6,442 $ 7,083 $ 8,102 $ 8,155 $11,598
Net earnings
(loss) $ 2,094 $ 1,782 $(1,348) $(12,665) $ 127 $ 862 $ 763 $ 2,710
Net earnings
(loss)
per share $ 0.52 $ 0.44 $ (0.34) $ (3.12) $ 0.03 $ 0.21 $ 0.19 $ 0.67
</TABLE>
-38-<PAGE>
Note 9
Commitments And Contingencies:
The Company has non-cancelable operating leases
for office space and certain equipment through 2004. Future
minimum lease commitments required under these leases are as
follows:
1996 $2,635,800
1997 2,177,000
1998 1,784,800
1999 1,733,800
2000 1,492,000
Thereafter 3,631,400
TOTAL $13,454,800
Rent expense under all leases in 1995, 1994 and
1993 was $2,777,000, $2,578,000 and $2,333,000, respectively.
There are various claims pending involving the
Company and its subsidiaries with respect to environmental,
hazardous substance and other matters arising out of the routine
conduct of the business. Such claims either have not been
reduced to litigation or if suit has been filed are in the
discovery stage. Therefore the total liability on pending claims
at December 31, 1995, if any, cannot be determined.
The Company believes it has meritorious defenses
with respect to all claims and litigation and the ultimate
disposition of such matters will not materially affect its
financial position or results of operations.
In connection with its Melt Shop operations the
Company generates electric furnace dust, which the Environmental
Protection Agency (EPA) has designated as a hazardous waste.
Prior to August 1988, with EPA approval, the
Company had temporarily stored electric furnace dust on site at
the Alton Plant. In 1988 the EPA issued new regulations
requiring the Company to treat electric furnace dust prior to
disposition or permanent storage.
In 1989 the Company reached an agreement with
Elkem Technology to construct a High Temperature Metals Recovery
(HTMR) System at the Alton Plant intended to treat newly
generated dust as well as the existing storage pile, and reclaim
zinc in the process. Management's studies at the time indicated
that the amount of zinc recoveries from the process would
substantially reduce or even offset the facility's cost of
operations. The total cost of this project was estimated at
$25,000,000; however, the final capital cost was to be based on
performance tests prior to the Company's assuming control of the
operation.
- 39 -<PAGE>
In the second quarter of 1993 the Company was
advised by Elkem Technology that the HTMR System would not be
able to meet its original goals, including the recovery of prime
western grade zinc, which is an essential criterion under the
contract, and accordingly commissioning of the facility would
cease. On May 17, 1993, the Company and Elkem Technology
negotiated a settlement of the original contract, under which
Elkem refunded $13,600,000 to the Company and relinquished
control of and legal title to the HTMR System. A portion of the
funds received from Elkem together with additional Company funds
was used to modify the HTMR System in order to treat current
generation of dust economically, and in accordance with EPA
standards. The remaining refund from Elkem of $8,070,000 was
applied as a prepayment of a portion of the outstanding Solid
Waste Disposal Revenue Bonds in 1994. The Company's investment
in the HTMR System at December 31, 1995 is approximately
$16,700,000.
The Company's prior closure plan, approved by the
Illinois Environmental Protection Agency (IEPA), is based upon
utilization of the HTMR System to process existing electric
furnace dust piles. However, because the HTMR System did not
meet its original goal and is being modified to treat only
current generation of dust, the Company developed a modified
closure plan which has been approved in principal by the IEPA.
This plan provides for the closure of existing electric furnace
dust piles in place. Based on estimates provided by an
independent consultant it appears that the cost of this plan will
approximate the $3,716,000 amount included in non-current
liabilities at December 31, 1995 for the disposal of the existing
EAF dust.
- 40 -<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board Of Directors
And Stockholders Of
Laclede Steel Company:
We have audited the accompanying consolidated balance sheets
of Laclede Steel Company and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations
and retained earnings and of cash flows for each of the three
years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of Laclede Steel Company and subsidiaries as of December 31, 1995
and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 5 to the Consolidated Financial
Statements, effective January 1, 1993, the Company changed its
method of accounting for postretirement medical benefits to
conform with Statement of Financial Accounting Standards No. 106.
Deloitte & Touche LLP
January 26, 1996
St. Louis, Missouri
- 41 -<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
3/20/96 /s/ John B. Mckinney
Date John B. McKinney
President
Principal Executive Officer
Director
3/20/96 /s/ Michael H. Lane
Date Michael H. Lane
Vice President-Finance
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this amendment has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates includes.
3/21/96 /s/ Donald F. Gunning
Date Donald F. Gunning
Director
3/21/96 /s/ A. William Hager
Date A. William Hager
Director
Date E. Lawrence Keyes, Jr.
Director
3/25/96 /s/ Robert H. Quenon
Date Robert H. Quenon
Director
3/21/96 /s/ Lawrence K. Roos
Date Lawrence K. Roos
Director
Date Edwin J. Spiegel, Jr.
Director
Date Lester Varn, Jr.
Director
3/21/96 /s/ George H. Walker III
Date George H. Walker III
Director
EXHIBIT (4)(e)
AMENDMENT NO. 4
TO
LOAN AND SECURITY AGREEMENT
This Amendment No. 4 dated as of December 7, 1995 (this
"Amendment"), is entered into among BANKAMERICA BUSINESS CREDIT,
INC., a Delaware corporation ("BABC"), THE BANK OF NEW YORK
COMMERCIAL CORPORATION, a New York corporation ("BNYCC"), THE
BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking
association ("Boatmen's") (BABC, BNYCC, and Boatmen's and their
respective successors and assigns being sometimes hereinafter
referred to collectively as the "Lenders" and each of BABC,
BNYCC, and Boatmen's and its successors and assigns being
sometimes hereinafter referred to individually as a "Lender"),
BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, as
agent for the Lenders (in such capacity as agent, the "Agent"),
LACLEDE STEEL COMPANY, a Delaware corporation (the "Parent"), and
LACLEDE CHAIN MANUFACTURING COMPANY, a Delaware corporation
("Laclede Chain"), and LACLEDE MID AMERICA INC., an Indiana
corporation ("Laclede Mid America") (the Parent, Laclede Chain,
and Laclede Mid America being sometimes hereinafter referred to
collectively as the "Borrowers" and each of Parent, Laclede
Chain, and Laclede Mid America being sometimes hereinafter
referred to individually as a "Borrower").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders, and the Agent are
parties to a certain Loan and Security Agreement, dated as of
September 7, 1994 (the "Loan Agreement"); and
WHEREAS, the Loan Agreement was amended by Amendment No. 1
dated as of February 15, 1995 to Loan and Security Agreement,
Amendment No. 2 dated as of April 30, 1995, to Loan and Security
Agreement, and by Amendment No. 3 dated as of June 1, 1995, to
Loan and Security Agreement (the Loan Agreement, as amended,
supplemented, and modified to the date hereof being hereinafter
referred to as "Amended Loan Agreement"). Capitalized terms used
herein but not defined herein shall have the meanings provided in
the Amended Loan Agreement; and
WHEREAS, the Borrowers, the Lenders, and the Agent have
agreed to further amend the Amended Loan Agreement on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth
above, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Borrowers,
the Lenders, and the Agent hereby agree as follows:
Section 1. Amendment of Amended Loan Agreement.
Effective this date, subject to the fulfillment of the conditions
precedent set forth in Section 2 below, the Amended Loan
Agreement is hereby further amended as follows:
-1-<PAGE>
(a) The amount of "$5,300,000" which appears twice in
clause "(i)" of the definition of "Capital Expenditures"
contained in Section 1.1 is hereby replaced with the amount
"$10,000,000."
(b) The definition of "Eligible Inventory" contained
in Section 1.1 is hereby amended by the addition of the following
sentence:
"Notwithstanding the foregoing, the Inventory of Parent
consisting of repair parts, material handling
materials, packaging materials, and shipping materials
(hereinafter collectively, "Spare Parts and Packing
Inventory") will be included, to the extent otherwise
eligible, in the Eligible Inventory of the Parent,
until September 30, 1996, at which time and at all
times thereafter such Spare Parts and Packing Inventory
shall be excluded from Eligible Inventory."
(c) The definition of "Individual Maximum Revolver
Amount" contained in Section 1.1 is hereby amended by deleting
Subsection (1)(a)(ii) and inserting in lieu thereof the
following:
"(ii)the sum of
(A) eighty-five percent (85%) of the Net
Amount of the Eligible Accounts of the Parent; plus (B) the
sum of (x) sixty-five (65%) (as such percentage may be
reduced pursuant to Section 5.10) of the value of Eligible
Inventory of the Parent consisting of raw material or semi-finished or
finished goods plus (y) fifty percent (50%) (as
such percentage may be reduced pursuant to Section 5.10) of
the value of Eligible Inventory of the Parent consisting of
supplies and Spare Parts and Packing Inventory; provided (1)
at no time shall the sum of the outstanding Revolving Loans
to the Parent based upon the value of Eligible Inventory
exceed: $71,500,000 prior to March 31, 1996; $67,500,000
from March 31, 1996 to and including June 29, 1996;
$65,000,000 from June 30, 1996 to and including September
29, 1996, and $62,500,000 thereafter; and (2) at no time
shall the sum of the outstanding Revolving Loans to the
Parent based upon the value of Spare Parts and Packing
Inventory exceed: $5,000,000 prior to June 30, 1996;
$2,500,000 from June 30, 1996 to and including September 29,
1996, and $0 thereafter."
(d) The definition of "Maximum Revolver Amount"
contained in Section 1.1 is hereby amended by deleting Subsection
(a)(ii) and inserting in lieu thereof the following:
"(ii)the sum of
(A) eighty-five percent (85%) of the Net
Amount of the Eligible Accounts; plus (B) the sum of (x)
sixty-five (65%) (as such percentage may be reduced pursuant
to Section 5.10) of the value of Eligible Inventory
-2-<PAGE>
consisting of raw material or semi-finished or finished goods
plus (y) fifty percent (50%) (as such percentage may be
reduced pursuant to Section 5.10) of the value of Eligible
Inventory consisting of supplies and Spare Parts and Packing
Inventory; provided (1) at no time shall the sum of the
outstanding Revolving Loans based upon the value of Eligible
Inventory exceed $71,500,000 prior to March 31, 1996;
$67,500,000 from March 31, 1996 to and including June 29,
1996; $65,000,000 from June 30, 1996 to and including
September 29, 1996, and $62,500,000 thereafter; and (2) at no
time shall the sum of the Parent's outstanding Revolving Loans
based upon the value of Spare Parts and Packing Inventory
exceed: $5,000,000 prior to June 30, 1996; $2,500,000 from
June 30, 1996 to and including September 29, 1996; and $0
thereafter."
(e) Subsection 3.1(a) of the Loan Agreement is hereby
amended by the addition of a new subsection 3.1(a)(iii) which shall
read in its entirety as follows:
"(iii) For Revolving Loans to the Parent based
upon the value of Spare Parts and Packing Inventory at a per
annum rate equal to two and one-half percent (2.50%) plus the
Base Rate and such Revolving Loans may not be borrowed as or
converted into LIBOR Revolving Loans."
(f) Section 4.8 of the Loan Agreement is hereby amended
by the addition of the following language immediately after the
parenthetical phrase appearing in clause fourth:
", with such payments to be applied first in satisfaction of
any Revolving Loans which bear interest at a rate determined
by reference to subsection 3.1(a)(iii),"
(g) Section 8.24 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
"8.24 Consolidated Fixed Charge Coverage Ratio.
The Borrowers will maintain a Consolidated Fixed Charge
Coverage Ratio, determined as of the end of each fiscal
quarter for the four fiscal quarter period ending on such
date, of not less than (a) 1.0 to 1.0 for the period ending
December 31, 1995; (b) 0.9 to 1.0 for the periods ending March
31, 1996, and June 30, 1996; and (c) 1.1 to 1.0 as of the end
of each fiscal quarter thereafter.
Section 2. Conditions to Amendment. This Amendment shall
become effective upon the receipt by the Agent of the following:
(a) six counterparts of this Amendment, executed by each
Borrower, and each Lender;
(b) a certificate signed by the President or a Vice
President and the Chief Financial Officer or Treasurer of each
Borrower, in form and substance satisfactory to the Agent and the
Majority Lenders; and
-3-<PAGE>
(c) an amendment fee in the amount of $50,000 which fee
shall be distributed by the Agent to the Lenders in accordance with
each Lender's Pro Rata Share.
Section 3. Representations and Warranties. Each Borrower
hereby represents and warrants that (i) this Amendment constitutes
a legal, valid and binding obligation of such Borrower, enforceable
against such Borrower in accordance with its terms, (ii) the
representations and warranties contained in the Amended Loan
Agreement, are correct in all material respects as though made on
and as of the date of this Amendment, and (iii) no Event of Default
has occurred and is continuing.
Section 4. Reference to and Effect on the Amended Loan
Agreement.
(a) Upon the effectiveness of this Agreement, each
reference in the Amended Loan Agreement to "this Agreement,"
"hereunder," "hereof," "herein," or words of like import shall mean
and be a reference to the Amended Loan Agreement, as amended
hereby, and each reference to the Amended Loan Agreement in any
other document, instrument or agreement executed and/or delivered
in connection with the Amended Loan Agreement shall mean and be a
reference to the Amended Loan Agreement, as amended hereby.
(b) Except as specifically amended above, the Amended
Loan Agreement and all other documents, instruments, and agreements
executed and/or delivered in connection therewith shall remain in
full force and effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power, or
remedy of the Agent or the Lenders under the Amended Loan
Agreement, nor constitute a waiver of any provision of the Amended
Loan Agreement, except as specifically set forth herein.
Section 5. Execution of Counterparts. This Amendment may
be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument.
Section 6. Governing Law. This Amendment shall be
governed by and construed in accordance with the internal laws (as
opposed to the conflicts of laws provisions) of the state of
Illinois.
Section 7. Legal Fees. Borrower agrees to pay to the
agent, for its benefit, on demand, all costs and expenses that the
Agent pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and
termination of this Amendment, including, without limitation, the
allocated costs of Agent's in-house counsel fees.
-4-<PAGE>
Section 8. Section Titles. The section titles contained
in this Amendment are and shall be without substance, meaning or
content of any kind whatsoever and are not a part of the agreement
between the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of December 7, 1995.
LACLEDE STEEL COMPANY
By:
Michael H. Lane, Vice President
LACLEDE CHAIN MANUFACTURING COMPANY
By:
Michael H. Lane, Vice President
LACLEDE MID AMERICA INC.
By:
Michael H. Lane, Vice President
BANKAMERICA BUSINESS CREDIT, INC.,
as the Agent
By:
Michael J. Jasaitis, Vice President
BANKAMERICA BUSINESS CREDIT, INC.,
as a Lender
By:
Michael J. Jasaitis, Vice President
[SIGNATURES CONTINUED ON NEXT PAGE.]
-5-<PAGE>
THE BANK OF NEW YORK COMMERCIAL
CORPORATION, as a Lender
By:
Robert V. Love, Assistant Vice President
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
as a Lender
By:
Clyde F. Wendel, Senior Vice President
-6-
EXHIBIT (4)(f)
AMENDMENT NO. 5
TO
LOAN AND SECURITY AGREEMENT
This Amendment No. 5 dated as of January 26, 1996 (this
"Amendment"), is entered into among BANKAMERICA BUSINESS CREDIT,
INC., a Delaware corporation ("BABC"), THE BANK OF NEW YORK
COMMERCIAL CORPORATION, a New York corporation ("BNYCC"), THE
BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking
association ("Boatmen's") (BABC, BNYCC, and Boatmen's and their
respective successors and assigns being sometimes hereinafter
referred to collectively as the "Lenders" and each of BABC, BNYCC,
and Boatmen's and its successors and assigns being sometimes
hereinafter referred to individually as a "Lender"), BANKAMERICA
BUSINESS CREDIT, INC., a Delaware corporation, as agent for the
Lenders (in such capacity as agent, the "Agent"), LACLEDE STEEL
COMPANY, a Delaware corporation (the "Parent"), and LACLEDE CHAIN
MANUFACTURING COMPANY, a Delaware corporation ("Laclede Chain"),
and LACLEDE MID AMERICA INC., an Indiana corporation ("Laclede Mid
America") (the Parent, Laclede Chain, and Laclede Mid America being
sometimes hereinafter referred to collectively as the "Borrowers"
and each of Parent, Laclede Chain, and Laclede Mid America being
sometimes hereinafter referred to individually as a "Borrower").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders, and the Agent are parties
to a certain Loan and Security Agreement, dated as of September 7,
1994 (the "Loan Agreement"); and
WHEREAS, the Loan Agreement was amended by Amendment No. 1
dated as of February 15, 1995 to Loan and Security Agreement,
Amendment No. 2 dated as of April 30, 1995 to Loan and Security
Agreement, Amendment No. 3 dated as of June 1, 1995 to Loan and
Security Agreement, and by Amendment No. 4 to Loan and Security
Agreement, dated as of December 7, 1995 (the Loan Agreement, as
amended, supplemented, and modified to the date hereof being
hereinafter referred to as "Amended Loan Agreement"). Capitalized
terms used herein but not defined herein shall have the meanings
provided in the Amended Loan Agreement; and
WHEREAS, the Borrowers, the Lenders, and the Agent have agreed
to further amend the Amended Loan Agreement on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth
above, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Borrowers,
the Lenders, and the Agent hereby agree as follows:
Section 1. Amendment of Amended Loan Agreement. Effective
this date, subject to the fulfillment of the conditions precedent
set forth in Section 2 below, the Amended Loan Agreement is hereby
further amended as follows:
-1-<PAGE>
(a) The definition of "Capital Expenditures" contained
in Section 1.1 is hereby amended and restated to read in its
entirety as follows:
"Capital Expenditures" means, for any fiscal period, (a)
the cost of any fixed asset or improvement, or replacement,
substitution, or addition thereto, acquired during such period and
having a useful life of more than one year, including, without
limitation, those costs arising in connection with the direct or
indirect acquisition of such assets by way of increased product or
service charges or offset items or in connection with any Capital
Lease plus (b) the amount of any cash expended during such period
in consummating any Quasi Asset Acquisition."
(b) The definition of "Cash Available for Fixed Charges"
contained in Section 1.1 is hereby amended and restated to read in
its entirety as follows:
"Cash Available for Fixed Charges' means, with respect to
any fiscal period of the Parent and its consolidated Subsidiaries,
net earnings for such period, determined in accordance with GAAP
(but excluding gain or loss arising from extraordinary items, and
any gains arising from the sale or other disposition of any of the
Borrower's Fixed Assets which were written off by the Borrower
during its Fiscal Year ending on December 31, 1995, in connection
with the Borrower's shut down of its Bloom Mill and Rod Mill
facilities) and reported on the Financial Statements for such
fiscal period, plus to the extent deducted in computing net
earnings, (a) interest expense, (b) any provision for income taxes,
(c) depreciation expense, and (d) amortization expense, minus to
the extent included in computing net earnings, gain arising from
any other noncash non-recurring transaction."
(c) The definition of "Consolidated Adjusted Net Worth"
contained in Section 1.1 is hereby amended and restated to read in
its entirety as follows:
"Consolidated Adjusted Net Worth" means, at any date, the
amount at which Consolidated Stockholder's Equity and minority
interests would be shown on a balance sheet of the Parent and its
consolidated Subsidiaries at such date prepared in accordance with
GAAP; less the amount at which goodwill and other intangible assets
would be shown on such balance sheet; and plus the amount of
minimum pension liability recorded on such balance sheet as a
reduction to Consolidated Stockholder's Equity."
(d) The definition of "Consolidated Stockholder's
Equity" contained in Section 1.1 is hereby amended and restated to
read in its entirety as follows:
"Consolidated Stockholder's Equity" means, at any date,
the amount at which the total equity capitalization of the Parent
and its consolidated Subsidiaries would be shown on a balance sheet
of the Parent and its consolidated subsidiaries at such date
prepared in accordance with GAAP."
-2-<PAGE>
(e) The definition of "Margins" contained in Section
1.1 is hereby amended and restated to read in its entirety as
follows:
"Margins' means, collectively, the Base Rate Term
Margin, the Base Rate Revolving Margin, the LIBOR Term
Margin, the LIBOR Revolving Margin, and the Spare Parts
Loan Margin."
(f) Section 1.1 is hereby amended by the addition of
a new definition which shall read in its entirety as follows:
"Consolidated Pretax Loss" means, for any
fiscal period for the Parent and its consolidated
Subsidiaries, the net loss of the Parent and its
consolidated Subsidiaries for such period, determined
in accordance with GAAP, as reported on the Financial
Statements for such fiscal period, prior to any taxes
for such period."
(g) The following sentence is hereby added at the end
of Subsections 3.1(a)(i): "On and after February 10, 1996, the
Base Rate Term Margin shall be one and one-half percent (1.5%)
and the Base Rate Revolving Margin shall be one percent (1.0%)."
(h) The following sentence is hereby added at the end
of Subsection 3.1(a)(ii): "On and after February 10, 1996, the
LIBOR Term Margin shall be three and one-quarter percent (3.25%)
and the LIBOR Revolving Margin shall be three percent (3.0%)."
(i) Subsection 3.1(a)(iii) is hereby amended and
restated to read in its entirety as follows:
"(iii) For Revolving Loans to the Parent
based upon the value of Spare Parts and Packing
Inventory at a per annum rate equal to three percent
(3.0%) ('Spare Parts Loan Margin'), plus the Base Rate
and such Loans may not be borrowed as or converted into
LIBOR Revolving Loans."
(j) Section 3.1(c) is hereby amended by the addition
of the following provisions at the end of that section:
"In the event that the Consolidated Adjusted Net Worth
is greater than $31,000,000, as of the last day of any
fiscal quarter, beginning with the fiscal quarter
ending on March 31, 1996, then each of the Margins
shall be reduced by one-half of one percent (0.5%),
commencing on the first day of the month immediately
following receipt of the Financial Statements for the
prior fiscal quarter reflecting a Consolidated Adjusted
Net Worth greater than $31,000,000 and shall remain at
such level so long as such Consolidated Adjusted Net
Worth, computed as the end of each such fiscal quarter,
shall be more than $31,000,000. In the event that the
Margins were reduced as provided for in
-3-<PAGE>
the previous sentence and the Consolidated Adjusted Net
Worth thereafter is equal to or less than $31,000,000,
as of the last day of any fiscal quarter, then each of
the Margins shall be increased by one-half of one
percent (0.5%), commencing on the first day of the
month immediately following receipt of the Financial
Statements for the prior fiscal quarter reflecting a
Consolidated Adjusted Net Worth equal to or less than
$31,000,000."
(k) The phrase "eighteen (18) months" wherever
appearing in Subsection 5.10(b) is hereby amended and restated
to be "twenty-one (21) months."
(l) Section 8.24 is hereby amended and restated to
read in its entirety as follows:
"8.24 Consolidated Fixed Charge Coverage Ratio.
The Borrowers will maintain a Consolidated Fixed Charge
Coverage Ratio, determined as of the end of each period
listed below, for the period indicated of not less than
the ratio indicated opposite such period:
Period Ratio
01/01/95-12/31/95 No required ratio
01/01/96-03/31/96 No required ratio
04/01/96-06/30/96 No required ratio
07/01/96-09/30/96 0.65 to 1.00
10/01/96-12/31/96 1.00 to 1.00
01/01/97-03/31/97 1.10 to 1.00
01/01/97-06/30/97 1.10 to 1.00
01/01/97-09/30/97 1.10 to 1.00
01/01/97-12/31/97 1.10 to 1.00
and commencing on
03/31/98 and as of the
last day of each fiscal
quarter in each Fiscal
Year thereafter, for the
twelve-month period
ending on such date 1.10 to 1.00."
(m) Section 8.25 is hereby amended and restated to
read in its entirety as follows:
"8.25 Consolidated Adjusted Net Worth. The
Borrowers will maintain a Consolidated Adjusted Net
Worth, determined as of the last day of each fiscal
quarter in each Fiscal Year, in an amount which is not
less than the amount indicated opposite each of the
following dates:
-4-<PAGE>
Quarter Ending Date Amount
12/31/95 $32,000,000
03/31/96 $29,400,000
06/30/96 $27,400,000
09/30/96 $27,400,000
12/31/96 $27,700,000
03/31/97 $27,700,000
06/30/97 $27,700,000
09/30/97 $27,700,000
12/31/97 $27,700,000
Provided, however, in the event that the Consolidated
Adjusted Net Worth as of December 31, 1995 exceeds
$32,447,000, then each of the amounts of Consolidated
Adjusted Net Worth listed above shall thereupon be
automatically increased by an amount equal to such
excess. Beginning with the fiscal quarter ending March
31, 1998, the Borrowers will maintain a Consolidated
Adjusted Net Worth, calculated as of the last day of
each fiscal quarter in each Fiscal Year, of not less
than the sum of (a) $27,700,000 plus (b) an amount (to
the extent greater than zero and without deduction for
any losses) equal to fifty percent (50%) of
Consolidated Net Earnings for the Fiscal Year ending on
December 31, 1997, and fifty percent (50%) of the
Consolidated Net Earnings for each Fiscal Year
thereafter."
(n) Article 8 is hereby amended by the addition of a
new section, numbered 8.28, which shall read in its entirety as
follows:
"8.28 Consolidated Pretax Loss Amount. The
Borrowers shall not permit the Consolidated Pretax
Loss, calculated as of the last day of each period
specified below, to exceed for the period indicated the
amount indicated opposite such period:
Period Amount
01/01/96-03/31/96 ($4,300,000)
01/01/96-06/30/96 ($7,700,000)
01/01/96-09/30/96 ($7,700,000)
01/01/96-12/31/96 ($7,200,000)"
Section 2. Conditions to Amendment. This Amendment
shall become effective upon the receipt by the Agent of six
counterparts of this Amendment, executed by each Borrower, and
each Lender.
-5-<PAGE>
Section 3. Representations and Warranties. Each
Borrower hereby represents and warrants that (a) this Amendment
constitutes a legal, valid and binding obligation of such
Borrower, enforceable against such Borrower in accordance with
its terms, (b) the representations and warranties contained in
the Amended Loan Agreement, are correct in all material respects
as though made on and as of the date of this Amendment, and (c)
no Event of Default has occurred and is continuing.
Section 4. Reference to and Effect on the Amended Loan
Agreement.
(a) Upon the effectiveness of this Agreement, each
reference in the Amended Loan Agreement to "this Agreement,"
"hereunder," "hereof," "herein," or words of like import shall
mean and be a reference to the Amended Loan Agreement, as
amended hereby, and each reference to the Amended Loan Agreement
in any other document, instrument or agreement executed and/or
delivered in connection with the Amended Loan Agreement shall
mean and be a reference to the Amended Loan Agreement, as
amended hereby.
(b) Except as specifically amended above, the Amended
Loan Agreement and all other documents, instruments, and
agreements executed and/or delivered in connection therewith
shall remain in full force and effect and are hereby ratified
and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power, or
remedy of the Agent or the Lenders under the Amended Loan
Agreement, nor constitute a waiver of any provision of the
Amended Loan Agreement, except as specifically set forth herein.
Section 5. Execution of Counterparts. This Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same
instrument.
Section 6. Governing Law. This amendment shall be
governed by and construed in accordance with the internal laws
(as opposed to the conflicts of laws provisions) of the State of
Illinois.
Section 7. Legal Fees. Borrower agrees to pay to the
Agent, for its benefit, on demand, all costs and expenses that
the Agent pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and
termination of this Amendment, including, without limitation,
the allocated costs of Agent's in-house counsel fees.
Section 8. Section Titles. The section titles
contained in this Amendment are and shall be without substance,
meaning or content of any kind whatsoever and are not a part of
the agreement between the parties hereto.
-6-<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of January 26,
1996.
LACLEDE STEEL COMPANY
By:
Michael H. Lane, Vice President
LACLEDE CHAIN MANUFACTURING COMPANY
By:
Michael H. Lane, Vice President
LACLEDE MID AMERICA INC.
By:
Michael H. Lane, Vice President
BANKAMERICA BUSINESS CREDIT, INC.,
as the Agent
By:
Michael J. Jasaitis, Vice President
BANKAMERICA BUSINESS CREDIT, INC.,
as a Lender
By:
Michael J. Jasaitis, Vice President
THE BANK OF NEW YORK COMMERCIAL
CORPORATION, as a Lender
By:
Robert V. Love, Assistant Vice President
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
as a Lender
By:
Clyde F. Wendel, Senior Vice President
-7-
EXHIBIT (22)
Subsidiaries of Registrant
Laclede Chain Manufacturing Company - wholly-owned.
Laclede Mid America Inc. - wholly-owned.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> 12-MOS
<CASH> 161
<SECURITIES> 0
<RECEIVABLES> 39,511
<ALLOWANCES> 2,224
<INVENTORY> 107,282
<CURRENT-ASSETS> 146,953
<PP&E> 243,573
<DEPRECIATION> 117,382
<TOTAL-ASSETS> 349,778
<CURRENT-LIABILITIES> 59,194
<BONDS> 118,791
0
0
<COMMON> 54,081
<OTHER-SE> (37,563)
<TOTAL-LIABILITY-AND-EQUITY> 349,778
<SALES> 320,350
<TOTAL-REVENUES> 320,350
<CGS> 304,347
<TOTAL-COSTS> 312,498
<OTHER-EXPENSES> 14,209
<LOSS-PROVISION> 64
<INTEREST-EXPENSE> 10,125
<INCOME-PRETAX> (16,482)
<INCOME-TAX> (6,324)
<INCOME-CONTINUING> (10,158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,137)
<EPS-PRIMARY> (2.50)
<EPS-DILUTED> (2.50)
</TABLE>
