<PAGE> 1
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 SEPTEMBER 30, 2000
----------------------
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
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LACLEDE STEEL COMPANY
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(Exact name of Registrant as specified in its charter)
DELAWARE 43-0368310
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 NORTH 4TH STREET
SUITE 300
ST. LOUIS, MISSOURI 63102 - 2650
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 425-1400
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
$.01 PAR VALUE, COMMON STOCK
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(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 any amendment to this Form 10-K. [X]
At the date of filing of this report there were 4,056,140 shares of $.01
par value common stock outstanding. At November 27, 2000 the aggregate market
value of voting stock held by non-affiliates of the Registrant was approximately
$160,000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
NONE
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ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Laclede Steel Company and Subsidiaries ("Company") is a manufacturer
of a wide range of carbon and alloy steel products, including pipe and tubular
products, hot rolled products (primarily special quality bars), wire products,
and welded chain. The Company converts its semifinished steel into products
through its rolling mills and finishing plants. The Company produces wire
products and welded chain utilizing rods purchased on the open market. Each of
the Company's finishing facilities is located near its end markets and is
specialized by product to optimize efficiency.
PROCEEDINGS UNDER CHAPTER 11
On November 30, 1998, as a result of deterioration in steel demand and
selling prices, recurring losses, capital deficiency and funding requirements of
its defined benefit pension plans, Laclede Steel Company and subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code (the "Code"). The Company is operating as debtors-in-possession
under the Code, which protects it from its creditors pending reorganization
under the jurisdiction of the Bankruptcy Court. As debtors-in-possession, the
Company is authorized to operate its business but may not engage in transactions
outside the ordinary course of business without approval of the Bankruptcy
Court. A statutory creditors committee has been appointed in this Chapter 11
case. As part of the Chapter 11 reorganization process, the Company has
attempted to notify all known or potential creditors of the Chapter 11 filing
for the purpose of identifying all prepetition claims against the Company.
In the Chapter 11 case, substantially all of the liabilities as of the
filing date are subject to settlement under a plan of reorganization. On October
18, 2000 the Company filed a Plan of Reorganization with the Bankruptcy Court
and obtained the Court's approval to distribute the Plan, and the related
Disclosure Statement, to Creditors, Equity Security Holders and other Parties in
Interest. A hearing to consider confirmation of the Plan will be held on
December 15, 2000.
GENERAL
The Company is one of three full-line domestic producers of continuous
weld pipe in the United States. In addition, the Company believes its 97% owned
subsidiary, Laclede Mid America, Inc., is an important North American producer
of oil tempered wire, which is used for applications such as mechanical springs
and overhead garage door springs. With the approval of the Bankruptcy Court the
Company has entered into an agreement to sell all the assets of Laclede Mid
America to Leggett & Platt Incorporated (See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.) The Company's
wholly-owned subsidiary, Laclede Chain Manufacturing Co., manufactures and
imports chain products which 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.
The Company produces semi-finished steel at its Alton, Illinois Plant. Annual
steelmaking capacity is estimated at 680,000 net tons. To improve productivity
the Company is utilizing one electric furnace, which reduces production capacity
to approximately 580,000 net tons per year. The Company purchases rods for its
wire mill and the welded chain operation.
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(b) FINANCIAL INFORMATION
The following table sets forth certain financial information relating to the
Company's operations:
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month
Year Ended Year Ended Transition Period Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------
(Thousands of Dollars)
----------------------
<S> <C> <C> <C>
Net Sales $ 214,615 $ 241,582 $ 232,289
=============== =============== ===============
Net Loss $ (12,185) $ (21,353) $ (83,812)
=============== =============== ===============
Identifiable Assets $ 182,097 $ 190,071 $ 216,191
=============== =============== ===============
</TABLE>
(c) DESCRIPTION OF BUSINESS
The following table lists the Company's 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
- 10' Hardware Pipe
- CW-42 Oil Country
- CW-55 Oil Country
- A501 Structural
Hot Rolled Products: Carbon and Alloy SBQ Bars
Forging Billets
Special Shapes
Special Processing
Wire Products: Cold Drawn Wire
- High Carbon
- Low Carbon
Heat Treated Wire
- Carbon Oil Tempered
- Alloy Oil Tempered
- Annealed
Chain: Welded Chain
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The following table presents, for the periods indicated, the
percentage of the Company's total sales by product class:
<TABLE>
<CAPTION>
Nine-Month
Fiscal Fiscal Transition Period
Year Ended Year Ended Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------ ------------------ ------------------
Product
-------
<S> <C> <C> <C>
Pipe and Tube 37.2% 34.4% 35.5%
Hot Rolled 38.4% 41.1% 44.0%
Wire 12.6% 11.1% 11.8%
Chain 11.8% 13.4% 8.7%
----- ----- -----
Total 100% 100% 100%
===== ===== =====
</TABLE>
Pipe and Tubular Products. The Company's tubular products consist
primarily of continuous butt weld ("CBW") pipe which is sold in the U.S. and
Canada to distributors and manufacturers. The Company is one of only three full
line producers of CBW pipe in the United States. Pipe products have been
produced and finished at the Company's Alton, Illinois and Fairless Hills,
Pennsylvania Plants, and finished at the Vandalia, Illinois Facility. The Alton
Pipe Mill will be shut down by the end of December 2000 and in the future all
pipe will be produced at the Fairless Facility. The agreement with the United
Steelworkers of America (USWA) to the permanent shut down of the Alton Pipe and
Skelp Mills is contingent upon the Company successfully implementing its Plan of
Reorganization and exiting bankruptcy.
Hot Rolled Products. The Company's hot rolled products are produced at
the Alton Plant and consist primarily of special quality bars ("SBQ") sold to
manufacturers to be cold drawn or forged.
Wire Products. The Company is a major manufacturer of wire products
through its 97% owned subsidiary, Laclede Mid America, Inc.. These products
include high and low carbon wire, oil-tempered wire, and annealed wire, which
are manufactured and finished at the Company's Fremont, Indiana Facility. With
the approval of the Bankruptcy Court the Company has entered into an agreement
to sell all the assets of Laclede Mid America to Leggett & Platt Incorporated.
Chain Products. Laclede Chain Manufacturing Company, the Company's
wholly owned subsidiary, produces welded chain and also imports a significant
amount of chain for resale. In a normal year, approximately 50% of its annual
sales are attributable to sales of anti-skid devices for trucks and automobiles.
The balance of the Company's chain products sales are in the hardware and
industrial chain business.
At September 30, 2000 the Company had an estimated sales backlog of
approximately $15 million. Long-term sales commitments do not represent a
significant portion of the business. Research and development activities of the
Company have not been material.
The Company manufactures steel from steel scrap 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. See Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") for additional discussion.
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Capital Improvements. The Company has specific future plans for
important capital improvements to the steelmaking operations at the Alton Plant.
The primary objective of these improvements is to substantially reduce
production costs and provide access to new markets. Because of the bankruptcy
filing, and liquidity issues, the Company's capital expenditures were minimal in
recent years. For further information and for discussion of future capital
expenditure plans, please refer to MD&A.
COMPETITION
The Company believes that the principal competitive factors affecting
its business are price, quality and customer service. Price sensitivity in
markets for the Company's products is primarily driven by competitive factors.
Domestic. The Company faces competition from regional mini-mill
companies and fully integrated steel mills, and such competition can be expected
to continue. Moreover, the presence of extensive sheet capacity in the industry
has had and will continue to have a favorable impact on raw material costs of
the Company's tubular product competitors. The Company also expects continued
competition in its bar product business from low cost domestic producers.
Foreign. The Company also faces competition from foreign steel
producers. Foreign competition increased in 1998 and early 1999 to unprecedented
levels, declining somewhat in 2000. Foreign competition may further increase in
the future, due to factors such as changes in currency exchange rates, repeal of
duties on foreign-produced steel or the enactment of restrictive or burdensome
regulations or taxes that affect domestic but not foreign steel manufacturers.
Many foreign steel producers are owned, controlled or subsidized by their
governments and their decisions with respect to production and sales may be
influenced more by political and economic policy considerations than by
prevailing market conditions.
SUSPENSION OF STEEL MAKING OPERATIONS
On March 31, 2000, a structural failure occurred at the Company's Melt
Shop at its Alton Plant. While the operating furnace and related equipment were
not damaged, extensive damage was done to the structure of the building and the
surrounding area. In addition, furnace dust (K601), which is regulated as
hazardous waste, escaped from collapsed ductwork, but was confined to the site.
As a result of this accident, steel production at the Alton Plant was
suspended until late July 2000. The suspension of operations only affected the
steel production facilities at the Alton Plant. All other operations, including
finishing operations at the Alton Plant continued while utilizing existing
semi-finished and finished inventories. The Company also purchased semi-finished
steel to support its bar and pipe operations.
The Company has settled its insurance claim with respect to the
accident for $27.5 million, which includes property damage, business
interruption and environmental clean-up costs. The clean up has been completed,
and the steel production facility recommenced operations July 27, 2000.
SALE OF LACLEDE MID AMERICA, INC.
The Company has entered into an agreement with Leggett & Platt
Incorporated for the sale of the assets of Laclede Mid America for $24.5 million
plus the assumption of certain post petition ordinary course of business
liabilities. The net proceeds received from the sale of the assets of Laclede
Mid America will be used for the benefit of Laclede's future liquidity needs.
The purchase price is subject to adjustments in certain circumstances. The
Company believes the sale to Leggett & Platt, Inc. will be consummated before
December 31, 2000. Three hundred thousand of the purchase price will be held
back for one year following closing to secure certain matters per the sale
agreement.
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ALTON PIPE AND SKELP MILLS
In August the Company's hourly work force at the Alton and Vandalia
Plants approved modifications to the Labor Agreement previously negotiated with
the United Steelworkers of America, which includes the shutdown of the Alton
Pipe and Skelp Mills and permits the Company to consolidate its pipe-making
operations at its Fairless Hills plant. This consolidation of operations, which
will affect approximately 100 hourly employees at the Alton Plant, will be
completed in December 2000. The agreement with the United Steelworkers of
America (USWA) to the permanent shut down of the Alton Pipe and Skelp Mills is
contingent upon the Company successfully implementing its Plan of Reorganization
and exiting bankruptcy.
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 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 a period
of years, the Company accumulated approximately 145,000 tons of this material
on-site at the Alton Plant, pending development of technology for economical
treatment. The Company received approval of a modified closure plan for
disposition of this existing EAF dust from the Illinois EPA, and has completed
the closure of all piles in place.
EMPLOYEES
As of September 30, 2000, the Company employed approximately 1,150
employees, approximately 200 of whom are classified as management,
administrative and sales personnel.
Approximately 525 hourly employees at the Alton Plant and 50 employees
at the Vandalia Plant are covered by a collective bargaining agreement that
expires on October 1, 2003. None of the Company's other employees are covered by
a collective bargaining agreement with the USWA. Although as part of its Plan of
Reorganization, the Company has entered into a neutrality agreement with the
USWA for all of its facilities. The Company has never experienced a strike, and
it believes that its relations with its employees are good. The compensation for
the majority of the Company's employees is based partially on productivity in
accordance with various incentive plans.
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 casting production
capacity of over 680,000 net tons per year, a ladle metallurgy facility, a
continuous bloom casting facility, a roughing mill and 14-inch bar mill and
8-inch bar mill. To improve productivity the Company is utilizing one electric
furnace, which reduces production capacity to approximately 580,000 net tons per
year. In the future, all pipe will be produced at the Fairless Facility, which
is leased from USX Corporation under an agreement that expires September 30,
2001, with an option to renew until September 30, 2006. The Company also has a
pipe finishing plant in Vandalia, Illinois and a chain manufacturing plant in
Maryville, Missouri. The Company has entered into an agreement to sell its Wire
Plant in Fremont, Indiana. (See item 1, Business - Sale of Laclede Mid America)
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The Company's property is well maintained and adequate for production
of its existing product line. The majority of the Company's properties are owned
in fee. In connection with its reorganization under the Bankruptcy Code, the
Company rejected its lease for space for corporate offices in the Metropolitan
Square Building and now leases space at 440 North Fourth Street in downtown St.
Louis under a lease expiring on November 30, 2001, with an option to extend to
November 30, 2004.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries, Laclede Chain Manufacturing Company
and Laclede Mid America, Inc., filed voluntary petitions seeking reorganization
under Chapter 11 of the United States Bankruptcy Code on November 30, 1998.
Additional information related to the filing is set forth under Part 1, Item 1
and Part II, Item 7 of this Form 10-K and Note 1 of the Notes to Consolidated
Financial Statements. Such information is incorporated herein by reference.
There are other 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 its business. Such claims that arose prior to November 30, 1998 are subject
to the automatic stay of the United States Bankruptcy Code.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Laclede's common stock is traded on the OTC Bulletin Board System and
the symbol is LCLDQ. As of December 14, 2000 there were 476 stockholders of
record. . See Item 7 for discussion of the cancellation of equity ownership
interests upon the effectiveness of the Plan of Reorganization.
MARKET
PRICE RANGE 2000 1999
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BY QUARTER HIGH LOW HIGH LOW
---------- ---- --- ---- ---
First $ 1-3/4 $ 5/16 $ 5/8 $ 5/32
Second 1-5/8 5/8 1/2 7/32
Third 1 3/8 11/16 3/8
Fourth 1/2 9/32 1-7/8 7/16
2000 1999
---- ----
Dividends Per Share Paid on Common Stock None None
Payment of dividends on common stock was limited by the Company's Loan
and Security Agreement and is prohibited by the covenants in the DIP Facility.
See Note 6 to the Company's Consolidated Financial Statements. In addition, the
Certificate of Designation for the Company's outstanding Series A Preferred
Stock provides that the Company shall not declare or pay any dividends on the
Company's common stock unless full cumulative dividends have been paid or
declared on the Series A Preferred Stock. At this date, full cumulative
dividends have not been paid or declared on the Series A Preferred Stock.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine-Month
Fiscal Fiscal Transition
Year Ended Year Ended Period Ended Years Ended December 31
September 30, September 30, September 30 ------------------------
2000 1999 1998 1997 1996
------------- ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 214,615 $ 241,582 $ 232,289 $ 325,029 $ 335,381
Restructuring, Asset Impairment
and other Charges (Credits) $ (4,450) $ 7,177 $ 27,646 $ (987) $ 1,559
Net Loss $ (12,185) $ (21,353) $ (83,812) $ (3,007) $ (9,985)
Basic and Diluted Net Loss Per
Common Share $ (3.00) $ (5.28) $ (20.73) $ (0.83) $ (2.50)
Other Financial Data:
Total Assets $ 182,097 $ 190,071 $ 216,191 $ 313,820 $ 331,110
Working Capital 14,504 20,476 (78,734) 55,899 62,001
Capital Expenditures 5,463 1,510 3,848 3,016 10,726
Long-Term Debt (Subject to
Compromise in 2000 and 1999) 25,990 25,990 -- 109,157 107,889
Stockholders' Equity (Deficit) (89,259) (85,986) (103,019) 21,101 17,245
Stockholders' Equity (Deficit)
Per Common Share $ (22.01) $ (21.20) $ (25.40) $ 5.20 $ 4.25
Cash Dividends
Per Common Share $ -- $ -- $ -- $ -- $ --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
On November 30, 1998, as a result of deterioration in steel demand and
selling prices, recurring losses, capital deficiency and funding requirements of
its defined benefit pension plans, Laclede Steel Company and subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code. The Company is operating as debtors-in-possession under the
Code, which protects it from its creditors pending reorganization under the
jurisdiction of the Bankruptcy Court. As debtors-in-possession, the Company is
authorized to operate its business but may not engage in transactions outside
the ordinary course of business without approval of the Bankruptcy Court. A
statutory creditors committee has been appointed in this Chapter 11 case. As
part of the Chapter 11 reorganization process, the Company has attempted to
notify all known or potential creditors of the Chapter 11 filing for the purpose
of identifying all prepetition claims against the Company.
In the Chapter 11 case, substantially all of the liabilities as of the
filing date are subject to settlement under a plan of reorganization. On October
18, 2000 the Company filed a Plan of Reorganization with the
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Bankruptcy Court and obtained the Court's approval to distribute the Plan, and
the related Disclosure Statement, to Creditors, Equity Security Holders and
other Parties in Interest. A hearing to consider confirmation of the Plan will
be held on December 15, 2000.
The Plan is the result of extensive negotiations among the Company,
the Unsecured Creditors' Committee, the United Steelworkers of America, the
Pension Benefit Guaranty Corporation ("PBGC"), and their advisors. In general,
it provides for the cancellation of Company indebtedness in exchange for new
equity interests; the discharge of other prepetition claims; the cancellation of
all equity ownership interests existing immediately prior to the effectiveness
of the Plan of Reorganization; and the assumption of certain executory contracts
and unexpired leases to which the Company is a party. If the Plan is confirmed
and consummated in accordance with its terms, substantially all of the common
stock and other securities of the Company will initially be owned by prepetition
creditors and employees.
The Company expects the PBGC to assume its obligations under its
defined benefit pension plans for its salaried and hourly employees. The
termination of these plans is an integral part of the plan of reorganization,
and on November 1, 2000 the Company provided participants in the hourly and
salaried pension plans with a notice of its intent to terminate these plans. As
of November 30, 1998, the Company had a significant unfunded obligation related
to these pension plans. The Company has made no contributions to the pension
plans since filing Chapter 11.
Pursuant to the provisions of the Bankruptcy Code, the Company
continues to incur the cost of the postretirement medical plans. Under the Plan
of Reorganization the Company's postretirement medical obligations will continue
on a modified basis, reflecting negotiations with the United Steelworkers of
America.
The Bankruptcy Court has approved the payment of certain prepetition
liabilities such as employee wages and benefits. The Bankruptcy Court has also
allowed for the retention of legal and financial professionals. These
professional fees represent the majority of reorganization items recorded in the
consolidated statements of operations and, to the extent unpaid, are liabilities
not subject to compromise.
At the time of filing Chapter 11, the Company's receivables,
inventory, and certain plant and equipment were pledged as collateral under a
Loan and Security Agreement with a bank group. Subsequent to the filing, with
the approval of the Bankruptcy Court, the Company entered into an amended Loan
and Security Agreement with the banks (the "DIP Facility"), which provides for
borrowing up to $85 million. The DIP Facility provides for revolving credit
based on eligible receivables and inventory similar to the previous Loan and
Security Agreement. In addition, virtually all assets of the Company have been
granted as collateral to the Loan and Security Agreement, except for certain
assets of Laclede Chain Manufacturing Company. As of November 30, 2000 the
Company had unused availability under the DIP Facility of approximately $4.1
million. The Company's DIP Facility is scheduled to terminate on December 31,
2000.
The Company is seeking financing to replace the DIP Facility and
provide additional liquidity upon exit from bankruptcy ("exit financing"). A
non-binding commitment letter has been signed, but additional lenders must be
secured before the loan can be agreed to. At this time there can be no assurance
that such financing will be available. In the event such exit financing cannot
be secured, the Company may not be able to successfully reorganize.
The Company's consolidated financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants (AICPA)
Statement of Position 90-7 (SOP 90-7), "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code". In addition the consolidated
financial statements have been prepared using accounting principles applicable
to a going concern, which contemplates the realization of assets and the payment
of liabilities in the ordinary course of business. As a result of the Chapter 11
filing, such realization of assets and liquidation of liabilities is subject to
uncertainty. The financial statements include reclassifications made to reflect
the liabilities which have been deferred under the Chapter 11 proceedings as
"Liabilities Subject to Compromise". Certain
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accounting and business practices have been adopted that are applicable to
companies that are operating under Chapter 11.
The Company's continued existence is dependent on its ability to
achieve future profitable operations, the assumption of the Company's
obligations under its defined benefit plans by the PBGC, continued compliance
with all debt covenants under the DIP Facility, and obtaining exit financing.
The Company has also developed a capital program to improve the operating
efficiency of the Melt Shop and 14" Bar Mill at the Alton Plant. Implementation
of this program will also depend upon obtaining adequate exit financing.
OPERATING RESULTS 1998 TO 2000
On October 22, 1998 the Company changed its fiscal year end from
December 31 to September 30. Accordingly, results of operations for the
transition period ended September 30, 1998 cover a nine-month period.
In the twelve months ended September 30, 2000 the Company incurred a
net loss of $12.2 million. Included in the net loss is $1.4 million for
reorganization expenses (primarily professional fees incurred in connection with
the bankruptcy proceedings), $4.9 million in non-cash periodic pension costs in
excess of current service costs, and $4.5 million in other credits, primarily
the insurance recovery recognized with respect to the structural failure at the
Alton Melt Shop. As discussed in Note 7 to the Consolidated Financial
Statements, termination of the Company's hourly and salaried pension plans will
be an integral part of the plan of reorganization. Management believes that
existing pension liabilities will be assumed by the PBGC.
In the twelve months ended September 30, 1999 the Company incurred a
net loss of $21.4 million. Included in the net loss is accruals of $6.1 million
for reorganization expenses (primarily professional fees incurred in connection
with the bankruptcy proceedings), $11.7 million in pension curtailment losses,
and $6.2 million in non-cash periodic pension costs in excess of current service
costs. In fiscal 1999 the Company also recorded income of $4.6 million,
recognizing settlements of class action lawsuits involving electrode
manufacturers.
The net loss for the nine-month transition period ended September 30,
1998 was $83.8 million. In 1998 the Company recorded asset impairment and other
charges of $27.6 million, including losses of approximately $4.6 million and
$15.4 million related to the shutdown of its Memphis plant and HTMR facility,
respectively. Additionally, the Company also recorded charges of $7.6 million in
connection with the retirements of several officers of the Company and certain
restructuring expenses. Included in this amount is approximately $5.8 million in
primarily non-cash settlement and curtailment expenses relating to the Company's
Key Employee Retirement Plan.
The Company also recorded a provision for income taxes in 1998 of
$31.1 million, reflecting a valuation allowance for deferred tax assets. See
Note 5 to the Consolidated Financial Statements for additional discussion.
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The change in net sales for the last three fiscal periods is analyzed
as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------------------------------------------------
Nine-Month Transition
Period Ended
September 30, 1998 Vs.
Twelve months ended September 30, Nine Months Ended
--------------------------------
2000 vs 1999 1999 vs 1998 September 30, 1997
------------ ------------ ------------------
<S> <C> <C> <C>
Decrease in net sales $(26,967) $(70,380) $(13,067)
-------- -------- --------
Comprised of:
Decrease in volume $(27,839) $(52,151) $ (5,562)
Increase (Decrease) in price $ 872 $(18,229) $ (7,505)
</TABLE>
In the twelve months ended September 30, 2000 total steel shipments
declined by 12.8% compared to the twelve-month period ended September 30, 1999.
This was partially related to the suspension of steel operations for
approximately four months. Average selling prices for pipe and tubular products
increased by 3.5%, while prices for hot rolled and semi-finished products
declined by 1.6% and 0.5%, respectively. Shipments of chain products decreased
by 14.6% in 2000 over the prior twelve-month period, reflecting lower sales of
anti-skid devices as the result of an abnormally warm winter season.
Cost of products sold decreased by $18.5 million, or 8.2%, in the year
ended September 30, 2000, compared to the preceding twelve months, reflecting
the reduction in steel shipments of 12.8%. The effects of lower shipment levels
were partially offset by the increased costs for the Company's principal raw
material, ferrous scrap, of approximately 21%.
In the twelve months ended September 30, 1999 total steel shipments
declined by 21.1% compared to the twelve-month period ended September 30, 1998.
Average selling prices for pipe and tubular products decreased by 8.6%, while
prices for hot rolled and semi-finished products declined by 5.6% and 3.8%,
respectively. Shipments of chain products increased by 2.8% in 1999 over the
prior twelve-month period.
Cost of products sold decreased by $86.0 million, or 27.7%, in the
year ended September 30, 1999, compared to the preceding twelve months. This
reflects the reduction in steel shipments and a decline in average scrap prices
of approximately 26%. In addition, in fiscal 1999 there were significant
productivity improvements and reductions in maintenance costs and plant overhead
costs at the Alton Plant.
In the 1998 transition period, the decrease in net sales of $13.1
million compared to nine months ended September 30, 1997 reflects a 2.6%
decrease in steel shipments, which primarily occurred in the third quarter. In
the third quarter of 1998 steel shipments declined 14.0% when compared to the
third quarter of 1997. This reflects the overall decline in demand for steel
products and the unprecedented increase in foreign imports.
For the nine-month transition period ended September 30, 1998 pipe and
tubular selling prices declined about 4.5%. This was partially offset by higher
price realizations on hot rolled and wire products.
Selling, general and administrative expenses decreased by $0.8 million
in the year ended September 30, 2000 when compared to the proceeding
twelve-month period. Selling, general and administrative expenses decreased by
$2.7 million in the year ended September 30, 1999 when compared to the
proceeding twelve-month period. The reduction in Alton Plant overhead expenses
mentioned above, and the decrease in selling general and administrative
expenses, is primarily due to a continual reduction in
-11-
<PAGE> 12
salaried employees since early 1998. Selling, general and administrative
expenses increased slightly in the nine-month transition period ended September
30, 1998 due to higher professional fees related to restructuring.
Interest expense decreased approximately $0.5 million in the year
ended September 30, 2000 when compared to the previous same period for 1999.
There was also a decrease in interest expense of approximately $4.1 million in
the fiscal year ended September 30, 1999 when compared to the proceeding
twelve-month period. This reflects a decrease in borrowings under the Company's
debtor-in-possession financing facility, and the discontinuance of recording
interest expense on unsecured and undersecured prepetition debt pursuant to
AICPA Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7").
General inflation has 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, demands 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's 97% owned subsidiary, Laclede Mid America Inc. operates
an oil tempered wire facility in Fremont, Indiana. In 1998 the Fremont Plant
increased its production of certain higher grades of oil tempered wire,
utilizing technology developed in connection with the project to produce wire
for suspension springs. In fiscal 2000 the Company completed the installation of
an additional oil tempered line, which has increased overall plant capacity by
approximately 15%. With the approval of the Bankruptcy Court the Company has
entered into an agreement to sell all the assets of Laclede Mid America to
Leggett & Platt Incorporated.
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. Due to mild weather in the Northwest
during the 1999-2000 winter season, Laclede Chain experienced abnormally low
sales of anti-skid devices. Typically, Laclede Chain makes a significant
contribution to Company operating results as it did in the year ended September
1999, when traction chain sales in the winter of 1998-1999 were at more normal
levels.
Under an agreement with USX Corporation the Company leases the Pipe
Mill Operations located at the Fairless Works in Bucks County, Pennsylvania. In
the future, all pipe will be produced at the Fairless Facility. The Company also
operates a tubular finishing plant in Vandalia, Illinois. The Alton Pipe Mill
will be shut down by the end of December 2000 and in the future all pipe will be
produced at the Fairless Facility. The agreement with the USWA to the permanent
shut down of the Alton Pipe and Skelp Mills is contingent upon the Company
successfully implementing its Plan of Reorganization and exiting bankruptcy.
LIQUIDITY AND CAPITAL RESOURCES
For the year ended September 30, 2000 operating activities provided
approximately $10.4 million in cash. Cash flow from financing activities used
$5.5 million in cash, primarily as the result of a reduction in borrowing under
the Company's bank facility. Investing activities used $4.8 million in cash flow
in the period, primarily reflecting capital expenditures. At September 30, 2000,
$56.4 million in borrowings were outstanding under the Company's bank facility.
For the year ended September 30, 1999 operating activities provided
approximately $19.0 million in cash. Cash flow from financing activities used
$18.3 million in cash, primarily as the result of a reduction in borrowing under
the Company's bank facility. Investing activities used $.7 million in cash flow
in the
-12-
<PAGE> 13
period. At September 30, 1999, $61.9 million in borrowings were outstanding
under the Company's bank facility.
In connection with the DIP facility, as amended, the Company must
maintain compliance with several restrictive covenants, including the
maintenance of specified levels of operating cash flow and minimum operating
contributions from the Alton Steel Operations, as defined.
The Company's projections indicate that availability under the
debtor-in-possession facility should be adequate to finance its operations and
its minimal planned capital expenditures until exit from bankruptcy, which is
assumed to occur by December 31, 2000.
The Company has filed claims for refunds for its tax years 1995, 1996
and 1998 with respect to the allowance of the carry-back of certain expenses
over a period of ten (10) years. The Internal Revenue Service has informed the
Company that it disputes such claims. The Company and the Internal Revenue
Service have settled this dispute, subject to the entry of an order by the
Bankruptcy Court confirming the Plan of Reorganization and acceptance of the
settlement by the Joint Congressional Committee on Internal Revenue Taxation. If
either of these subsequent events do not occur, then such settlement would be
ineffective and the parties would have the rights available to them prior to the
settlement. In such case, the Company may owe a material amount of taxes and
interest to the Internal Revenue Service.
The Company has prepared a plan of reorganization to reorganize the
Company's businesses and to restructure the Company's obligations. In connection
with this plan the Company anticipates obtaining exit financing which will be
adequate to finance its operations after emerging from bankruptcy. At this time
there can be no assurance that such financing will be available. In the event
such exit financing cannot be secured, the Company may not be able to
successfully reorganize.
The Company is seeking financing to replace the DIP Facility and
provide additional liquidity upon exit from bankruptcy ("exit financing"). A
non-binding commitment letter has been signed, but additional lenders must be
secured before the loan can be agreed to. At this time there can be no
assurance that such financing will be available. In the event such exit
financing cannot be secured, the Company may not be able to successfully
reorganize. Although the Company believes that the anticipated cash flow from
future operations and borrowings under the DIP Facility and anticipated exit
financing should provide sufficient liquidity for the Company to meet its debt
service requirements and fund ongoing operations, there can be no assurance
these or other possible sources will be adequate.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis and other portions
of this report on Form 10-K, contain various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Sections 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations or beliefs concerning future events, including the
following: statements regarding the overall demand for steel; statements
regarding the ability to maintain sales prices; statements regarding
productivity improvement programs; statements regarding the Company's
profitability; statements regarding future borrowing capacity; statements
regarding future pension funding requirements; and statements involving the
Company's exit financing. In addition, statements containing expressions such as
"believes", "anticipates" or "expects" used in the Company's periodic reports on
Forms 10-K, 10-Q and 8-K filed with the SEC are intended to identify
forward-looking statements. Forward-looking statements by the Company and its
management are based on estimates, projections, beliefs and assumptions of
management and are not guarantees of future performance. The Company disclaims
any obligation to update or revise any forward-looking statement based on the
occurrence of future events, the receipt of new information, or otherwise. The
Company cautions that these and similar statements included in this report and
in previously filed periodic reports including reports filed on Forms 10-K, 10-Q
and 8-K are further qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statement,
including, without limitation, the following: decline in sales prices for steel
products; increases in the cost of steel scrap; failure to obtain significant
benefits from the Company's cost reduction and productivity improvement
programs; increased domestic or foreign steel competition; decreases in the
market value of the Company's qualified pension plan assets; increases in
financing costs, labor relations, and adverse
-13-
<PAGE> 14
developments arising from the Chapter 11 proceedings and adverse developments in
the timing or results from the Company's current business plan and adverse
developments with respect to exit financing.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company considered the provision of Financial Reporting Release
No. 48 "Disclosure of Accounting Policies for Derivative Financial Instruments
and Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity Instruments".
The Company had no holdings of derivative financial or commodity instruments at
September 30, 2000. A review of the Company's other financial instruments and
risk exposures at that date revealed that the Company had exposure to interest
rate risk due to the floating rate DIP Facility debt of $56.4 million. The
Company utilized sensitivity analyses to assess the potential effect of this
risk and concluded that near-term changes in interest rates should not
materially adversely affect the Company's financial position, results of
operations or cash flow.
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 21 and 47,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
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<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
(a) Certain information with respect to each of the directors of the
Company is set forth below, including any positions they hold with the Company
and their business experience the past five years:
<TABLE>
<CAPTION>
NAME, AGE, OTHER POSITIONS WITH THE COMPANY, SERVED AS A
PRINCIPAL OCCUPATION AND DIRECTORSHIPS OF OTHER COMPANIES DIRECTOR SINCE
--------------------------------------------------------- --------------
<S> <C>
David A. Higbee, 57 .................................................................................... 2000
President and Chief Executive Officer, (July 2000 - date); President, Sawhill Tubular Division of
Armco, (1995 - 2000)
Michael H. Lane, 57 .................................................................................... 1997
Executive Vice President, Chief Financial Officer (January 1999 - date); Vice President - Finance,
Treasurer and Secretary (1983 - 1999).
Wayne P. E. Mang, 63 ................................................................................... 1997
President and Chief Operating Officer, Russel Metals (steel product processor and distributor)
(1982 - 1997). Director of Wainbee Holdings, Inc. and Maverick Tube Corporation.
Philip R. Morgan, 52 ................................................................................... 1997
President, Chief Executive Officer and Director, Morgan Construction Company (supplier of steel
rolling mill technology and equipment) (1986 - date).
Robert H. Quenon, 72 ................................................................................... 1992
Mining Consultant (1991 - date); Chairman of the Board, Federal Reserve Bank of St. Louis (1993 -
1995); Chairman (1990 - 1991) and President and Chief Executive Officer (1983 - 1990) of Peabody
Holding Company, Inc. (coal mining and sales); Director of Ameren Corporation, and Director of
Newmont Mining Corporation.
George H. Walker III, 69 ............................................................................... 1990
Chairman of the Board, Stifel Financial Corp. (investment banking firm) and its principal
subsidiary, Stifel, Nicolaus & Company, Incorporated (stock brokerage firm) (1979 - date);
Director of Laidlaw Corp., Western & Southern Life Insurance Company and Macroeconomic Advisers.
</TABLE>
The executive officers of the Company and their ages are as follows:
NAME AGE POSITION
---- --- --------
David A. Higbee 57 President and Chief
Executive Officer
Michael H. Lane 57 Executive Vice President
Chief Financial Officer
Ralph M. Cassell 57 Vice President
James T. Caporaletti 58 Vice President
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<PAGE> 16
David A. Higbee was named President and Chief Executive Officer in
July 2000. Previously he had served as the President of the Sawhill Tubular
Division of Armco (currently AK Steel) since 1995.
Michael H. Lane was elected Executive Vice President and Chief
Financial Officer in 1999 and Vice President - Finance, Treasurer and Secretary
of the Company in 1983. Mr. Lane was elected to the Board of Directors in 1997.
Ralph M. Cassell was appointed President Laclede Wire Company (Laclede
Mid America) and Laclede Chain Manufacturing Company on October 28, 1998. Mr.
Cassell is Vice President of Laclede Steel Company. Prior to October 1998 Mr.
Cassell served as Vice President and General Manager of Laclede Wire Company and
also as Director Quality Management for Laclede Steel Company.
James T. Caporaletti was appointed Vice President and General Manager
of Tubular Products on September 30, 1999. Mr. Caporaletti was appointed
Director of Tubular Operations in April 1999, Manager - Tubular Operations in
July 1998, and Plant Manager - Fairless Works in October 1991.
ITEM 11. EXECUTIVE COMPENSATION
The following table presents summary information concerning
compensation for services rendered to the Company during the fiscal year ended
September 30, 2000 and the last three fiscal years by those persons who at
September 30, 2000 were the Chief Executive Officer and the other executive
officers.
Annual Compensation
<TABLE>
<CAPTION>
Other Annual All Other
Name and Fiscal Bonus Compensation Compensation
Principal Position Year Salary ($) ($) (2) ($) (3) ($) (4)
------------------ ------ ----------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
David A. Higbee (5) 2000 $ 81,249 $ -- $ -- $ 2,031
President and Chief
Executive Officer
Thomas E. Brew (6) 2000 $ 530,599 $ -- $ -- $ --
President and Chief 1999 673,373 -- -- --
Executive Officer 1998 (1) 439,808 -- -- --
Michael H. Lane (7) 2000 $ 254,003 $ -- $ 13,319 $ 18,142
Executive Vice President, 1999 243,504 -- 13,188 18,157
Chief Financial Officer 1998 (1) 182,628 -- -- 17,252
1997 243,504 -- 13,101 19,773
James T. Caporaletti (7) 2000 $ 130,008 $30,000 $ -- $ 3,323
Vice President 1999 102,461 -- -- 2,570
1998 (1) 61,304 -- -- 1,463
1997 75,323 -- -- 1,800
Ralph M. Cassell (7) 2000 $ 150,000 $ -- $ -- $ 2,927
Vice President 1999 148,334 -- -- 3,008
1998 (1) 91,170 -- -- 3,332
1997 111,000 28,860 -- 3,733
</TABLE>
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<PAGE> 17
(1) The 1998 fiscal year is the nine-month transition period beginning
January 1, 1998 and ending September 30, 1998.
(2) No bonuses were earned under the Company's Discretionary Incentive
Compensation Plan for the years reported. Mr. Cassell's 1997 bonus was
earned based on results from wire operations. Mr. Caporaletti's 2000 bonus
payment was related to his continuing employment during bankruptcy.
(3) Amounts in this column relate to tax payments on permanent life insurance
premiums and tax assistance.
Certain perquisites which the executive officers received in the years
reported the aggregate amount of which did not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus, are not included
in other Annual Compensation.
(4) The amounts shown represent life insurance premiums paid by the Company on
behalf of the executive officers and matching amount paid by the Company
under a defined contribution plan.
(5) David A. Higbee became President and Chief Executive Officer in July 2000.
Mr. Higbee has entered into an employment agreement with the Company, see
"Employment Contracts" below.
(6) Payments were made to Argus Management Corporation, which employs Mr. Brew
who was engaged by the Board of Directors in February 1998. He is the
Executive Vice President of Argus Management Corporation. Mr. Brew resigned
in July 2000.
(7) Mr. Lane has entered into an amendment to his employment agreement with the
Company; and Mr. Cassell and Caporaletti have entered into retention
agreements with the Company, see "Employment Contracts" below.
BENEFIT PLANS
The Company maintains the Laclede Salaried Employees' Pension Plan
(the "Pension Plan"), a defined benefit plan which provides a monthly pension to
salaried employees of the Company (excluding employees covered by a collective
bargaining agreement) who retire or terminate with vested rights in accordance
with the provisions of the Pension Plan. Benefits are based upon years of
credited service and covered compensation offset by the participant's Primary
Insurance Amount under the Federal Social Security Act. In connection with the
bankruptcy proceedings the PBGC will terminate the Pension Plan and assume
responsibility for payment of pension benefits, which could result in a
reduction of benefits for some participants, including executive officers.
The Company also maintained the Key Employee Retirement Plan (the
"Supplement Plan"), the purpose of which is to provide additional retirement
income to certain key employees of the Company, including certain of the
executive officers. Benefits for former executive officers McKinney, Hebenstreit
and Nethington were fully funded at the time of their retirement. The Company,
therefore, had no further payment requirements as the result of their
retirement. Benefits for former Vice President-Administration, Larry J.
Schnurbusch, were partially funded and he has filed a claim with the Bankruptcy
Court for unpaid benefits under the Plan of approximately $925,000.
Under the Supplement Plan, the eligible employees were guaranteed that
the total amount received by them each year during retirement from the Pension
Plan, Federal Social Security and the Supplement Plan would be equal to 65% of
the average of their highest aggregate three consecutive calendar year salary
and bonus during their last 10 years of employment with the Company ("Salary
Level"), assuming retirement at age 60. If the employee retires prior to age 60,
the applicable percentage of the Salary Level will be reduced 2.5% for each year
of retirement age below age 60. Upon termination of employment, a covered
employee
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<PAGE> 18
or his beneficiary at any time prior to commencement of benefits under the
Supplement Plan may select the payment of all benefits due under the Supplement
Plan in one lump sum payment. The Supplement Plan's funds are held and invested
by a trustee. Pursuant to the November 14, 1990 amendment to the Supplement Plan
(the "1990 Amendment") the funds held under the Supplement Plan for then
participants were transferred to a separate trust under which the employees
participating in the Supplement Fund were the direct beneficiaries.
Mr. Lane is the only remaining key employee participating in the
Supplement Plan. He has accumulated 28 years of credited service, and his
current salary level eligible for benefits under the Supplement Plan is
$326,193. The aggregate annual benefits payable to him pursuant to the Pension
Plan, the Supplement Plan and Federal Social Security at his present age is
approximately $190,000. Because of the transfer of funds in connection with the
1990 Amendment, the Company has no payment requirement with respect to future
termination of employment of Mr. Lane.
The Company also maintains the Laclede Steel Company Salaried
Employees' Profit Sharing Plan (the "Profit Sharing Plan") for the purposes of
encouraging eligible employees to develop initiative and productivity and
providing employees with additional retirement benefits. The Profit Sharing Plan
is intended to qualify as a cash deferred compensation arrangement under Section
401(k) of the Internal Revenue Code. Salaried employees of the Company are
eligible to participate in the Profit Sharing Plan.
COMPENSATION OF DIRECTORS
Directors who are not otherwise employed by the Company receive a
$1,125 monthly retainer and a per diem fee of $1,125, plus expenses, for Board
or committee meetings attended. The Chairman of the Board, Wayne P. E. Mang,
receives a $2,250 monthly retainer fee.
EMPLOYMENT CONTRACTS
On February 25, 1999 the United States Bankruptcy Court for the
Eastern District of Missouri entered an order approving each of (a) LACLEDE's
Key Employee Incentive Retention Plan; (b) the assumption of the Consulting
Agreement with Argus Management Corporation and Thomas E. Brew, Jr., then
President of the Company; and (c) the assumption of the Amended and Restated
Employment Agreements between LACLEDE, Michael H. Lane and Larry J. Schnurbusch.
Mr. Schnurbusch retired from LACLEDE during 1999 and, as a result his Restated
Employment Agreement terminated. Present participants in the Key Employee
Incentive Retention Plan are Michael H. Lane, Executive Vice President of
LACLEDE and Vice President of each of LACLEDE CHAIN AND LACLEDE MID-AMERICA and
Ralph M. Cassell, Vice President of LACLEDE and President of each of LACLEDE
CHAIN AND LACLEDE MID-AMERICA. This plan calls for the payment of one year's
salary as a retention bonus to each of the covered individuals upon successful
confirmation of a Plan of Reorganization by the Bankruptcy Court. Payment is due
upon confirmation. There are no interim payments and no payment is made to a
participant (i) unless he remains in the employ of LACLEDE, or in Mr. Cassell's
case, at least one of its subsidiaries, on the date of confirmation or (ii) if
the employee is terminated with cause prior to that time. If LACLEDE, or in Mr.
Cassell's case, LACLEDE CHAIN and LACLEDE MID-AMERICA, is converted to a
liquidation under Chapter 7 of the United States Bankruptcy Code, then the
retention bonus paid to such employee is reduced to one-half salary and is
payable on conversion of the bankruptcy case. Mr. Lane's bonus upon a successful
reorganization of LACLEDE currently would be $275,000. Mr. Cassell's bonus upon
a successful reorganization of LACLEDE CHAIN or LACLEDE MID-AMERICA would
currently be $150,000.
On June 27, 2000 the Bankruptcy Court approved an Employment Agreement
for David A. Higbee, who succeeded Mr. Brew as President and Chief Executive
Officer, an Amended Employment for Mr. Lane, and Retention Agreements for Mr.
Cassell and James T. Caporaletti, Vice President and General Manager-Tubular
Products.
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<PAGE> 19
Mr. Higbee's agreement is for a period of one year, which on
confirmation increases to three years. Mr. Higbee's annual salary is $325,000
under the agreement together with a performance bonus of 25% to 30% of that
compensation on his first anniversary of employment based on objectives and
goals to be set by the Board of Directors. Thereafter, the agreement includes a
bonus opportunity of 30% to 40% of base compensation based upon a strategic plan
setting specific goals and objectives, which is approved by the Board of
Directors. In addition, Mr. Higbee's agreement calls for certain other benefits,
including a stock purchase opportunity. Mr. Higbee's agreement is subject to
certain non-competition and non-solicitation covenants.
Mr. Lane's agreement with LACLEDE was amended to include LACLEDE CHAIN
and LACLEDE MID-AMERICA in recognition of the fact that he serves as Chief
Financial Officer as well as holds a number of other responsibilities for each
of those companies. The agreement is for the period ending December 31, 2000 and
upon confirmation of a Plan of Reorganization is automatically extended through
December 31, 2001. Thereafter, it continues until any party gives ninety days
written notice of termination. Under the amended agreement Mr. Lane's annual
salary is $275,000 together with a bonus opportunity commencing with the fiscal
year beginning October 1, 2000 of 20% to 30% of that compensation based upon a
strategic plan setting specific goals and objectives, which is approved by the
Board of Directors. In addition, Mr. Lane's agreement calls for certain other
benefits and for a severance payment if Mr. Lane remains with any of LACLEDE,
LACLEDE CHAIN or LACLEDE MID-AMERICA for at least ninety days subsequent to
emergence from bankruptcy. Mr. Lane's agreement is subject to certain
non-competition and non-solicitation covenants.
Mr. Cassell's Retention Agreement with LACLEDE CHAIN and LACLEDE
MID-AMERICA entitles him to a Retention bonus equal to one year's salary,
currently $150,000, if Mr. Cassell is terminated, other than for cause, within
one year following confirmation of a Plan of Reorganization or conversion of the
Bankruptcy to a Chapter 7 Liquidation. In addition, the payment would be due Mr.
Cassell under certain other circumstances, such as reduction in his base salary,
benefits, responsibilities or relocation without his consent.
Mr. Caporaletti's Retention Agreement with LACLEDE entitles him to a
Retention bonus equal to one year's salary, currently $130,000, if Mr.
Caporaletti is terminated, other than for cause, within one year following
confirmation of a Plan of Reorganization or conversion of the Bankruptcy to a
Chapter 7 Liquidation. In addition, the payment would be due Mr. Caporaletti
under certain other circumstances, such as reduction in his base salary,
benefits or responsibilities.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished with respect to each person
known by management of the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock of the Company, each director of the Company, each
executive officer of the Company and all directors and executive officers as a
group. The information is furnished as of November 10, 2000. See Item 7 for
discussion of the cancellation of equity ownership interests upon the
effectiveness of the Plan of Reorganization.
-19-
<PAGE> 20
<TABLE>
<CAPTION>
Shares of Series
Shares of A Preferred
Common Stock Stock
Name and Address of Beneficially Percent of Beneficially Percent of
Beneficial Owner Owned (1) Class Owned (1) Class
------------------- ------------ ---------- ----------------- ----------
<S> <C> <C> <C> <C>
Birmingham Steel Corporation(2) 1,029,325 25.38% 183,334 44.00%
1000 Urban Center Drive, Suite 300
Birmingham, AL 35242
Ivaco Inc.(2) 1,009,325 24.88% 183,333 44.00%
Place Mercantile
770 Rue Sherbrooke ouest
Montreal, Quebec, Canada H3A 1G1
James T. Caporaletti -- --
Ralph M. Cassell 50 * --
Michael H. Lane 10,600 * 5,000 1.20%
Wayne P. E. Mang 100 * --
David A. Higbee 4,000 * --
Philip R. Morgan 1,000 * --
Robert H. Quenon 300 * --
George H. Walker III(3) 1,000 * --
All Directors and Executive 17,050 * 5,000 1.20%
Officers as a Group (8 persons)
</TABLE>
* Represents less than one percent of the outstanding Common Stock of the
Company.
(1) Beneficial ownership of shares, as determined in accordance with applicable
Securities and Exchange Commission rules, includes shares as to which a person
directly or indirectly has or shares voting power and/or investment power.
Unless otherwise indicated, each holder has sole voting and investment power
over the shares reported.
(2) On September 26, 1997, a subsidiary of Ivaco Inc. ("Ivaco"), sold one-half
of the Ivaco investment in the Company to a wholly owned subsidiary of
Birmingham Steel Corporation ("Midwest Holdings"). The securities of the Company
sold consisted of 1,009,325 common shares and 183,334 shares of the Company's
Series A preferred stock.
(3) Does not include 1,000 shares of Common Stock owned by Mr. Walker's wife.
Mr. Walker disclaims beneficial ownership of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to January 1, 1998, the Company was self-insured for workers'
compensation liabilities. Ivaco Inc. guaranteed a $4.0 million surety bond
covering such liabilities. Claims paid subsequent to December 31, 1997 related
to pre-1998 occurrences have been charged against the surety bond guaranteed by
Ivaco Inc.
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<PAGE> 21
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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Consolidated Balance Sheets, September 30, 2000 and 1999 ................................................... 24-25
Consolidated Statements of Operations for the fiscal years ended September 30,
2000 and 1999, and the nine-month transition period ended September 30, 1998 ............................... 26
Consolidated Statements of Stockholders' Deficit for the fiscal years ended September 30, 2000
and 1999, and the nine-month transition period ended September 30, 1998 .................................... 27
Consolidated Statements of Cash Flows for the years ended September 30, 2000 and 1999, and the
nine-month transition period ended September 30, 1998 ...................................................... 28
Notes to Consolidated Financial Statements ................................................................. 29-46
Independent Auditors' Report ............................................................................... 47-48
</TABLE>
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
NONE
(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 restated October 28,
1996. (Incorporated by reference to Exhibit(3) in Registrant's
Quarterly Report on Form 10-Q for September 30, 1996.)
(3) (b) By-laws of Registrant amended October 21, 1998. (Incorporated by
reference to Exhibit (3)(b) in Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1998.)
(4) (a) Registrant's Postpetition Loan and Security Agreement dated
December 1, 1998. (Incorporated by reference to Exhibit (4)(e) in
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.)
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<PAGE> 22
(4) (b) First Amendment to Postpetition Loan and Security Agreement dated
December 23, 1998. (Incorporated by reference to Exhibit (4)(f) in
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.)
(4) (c) Second Amendment to Postpetition Loan and Security Agreement dated
July 1, 1999. (Incorporated by reference to Exhibit (4)(e) in
Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 1999.)
(4) (d) Third Amendment to Postpetition Loan and Security Agreement dated
December 17, 1999. (Incorporated by reference to Exhibit (4)(d) in
Registrant's Quarterly Report on Form 10-K for the period ended
September 30, 1999.)
(4) (e) Fourth Amendment to Postpetition Loan and Security Agreement dated
June 27, 2000. (Incorporated by reference to Exhibit (4)(e) in
Registrant's Quarterly Report on Form 10-Q for the period ended
June 30, 2000.)
(4) (f) Fifth Amendment to Postpetition Loan and Security Agreement dated
October 3, 2000.
(4) (g) Certificate of Designation of Series A Preferred Stock dated
July 30, 1996. (Incorporated by reference to Exhibit (4)(i) in the
Registrant's Quarterly Report on Form 10-Q for June 30, 1996.)
(10) (a) Stock Purchase Agreement dated July 30, 1996 between Ivaco Inc. and
Laclede Steel Company. (Incorporated by reference to Exhibit(10)(a)
of Registrant's Quarterly Report on Form l0-Q for June 30, 1996.)
(10) (b) Management Stock Purchase Agreements dated July 30, 1996 between
Laclede Steel Company and John B. McKinney, Michael H. Lane, J.
William Hebenstreit, Larry J. Schnurbusch and H. Bruce Nethington.
(Incorporated by reference to Exhibit (10)(b) of Registrant's
Quarterly Report on Form 10-Q for June 30, 1996.)
(10) (c) Registration Rights Agreement dated July 30, 1996 between Laclede
Steel Company and Ivaco Inc., John B. McKinney, Michael H. Lane, J.
William Hebenstreit, Larry J. Schnurbusch and H. Bruce Nethington.
(Incorporated by reference to Exhibit (10)(d) of Registrant's
Quarterly Report on Form 10-Q dated June 30, 1996.)
(10) (d) Restated Key Employee Retirement Plan dated October 16, 1996.
(Incorporated by reference to Exhibit (10)(g) in Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.)
(10) (e) Consulting Agreement dated November 23, 1998 between Argus
Management Corporation, Thomas E. Brew, Jr. and Laclede Steel
Company. (Incorporated by reference to Exhibit (10)(j) in
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.)
(10) (f) Restated Employment Agreement dated June 1, 2000 between the
Company and Michael H. Lane. (Incorporated by reference to Exhibit
(10)(a) of Registrant's Quarterly Report on Form 10-Q dated
June 30, 2000.)
(10) (g) Employment Agreement dated July 1, 2000 between the Company and
David A. Higbee. (Incorporated by reference to Exhibit (10)(b) of
Registrant's Quarterly Report on Form 10-Q dated June 30, 2000.)
-22-
<PAGE> 23
(10) (h) Executive Retention Agreements dated July 1, 2000 between the
Company and Ralph M. Cassell and James Caporaletti. (Incorporated
by reference to Exhibit (10)(c) of Registrant's Quarterly Report on
Form 10-Q dated June 30, 2000.)
(22) Subsidiaries of Registrant.
(27) Financial Data Schedule.
Instruments with respect to long-term debt issues have been omitted
where the amount of securities authorized under such instruments does not exceed
10% of the total consolidated assets of the Registrant. Registrant hereby agrees
to furnish a copy of any such instrument to the Commission upon its request.
NOTE
Copies of exhibits will be supplied upon written request and payment of
the Registrant's fee of $.25 per page requested.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the three
months ended September 30, 2000.
-23-
<PAGE> 24
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
At September 30, 2000 and September 30, 1999
(In Thousands, Except Share Amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 2000 1999
-------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 205 $ 205
Accounts receivable - less allowances of $2,191 in 2000
and $2,849 in 1999 28,739 37,956
Prepaid expenses 4,559 4,130
Inventories:
Finished 35,385 34,298
Semi-finished 9,407 7,082
Raw materials 3,931 4,627
Supplies 11,150 11,593
-------- --------
Total inventories 59,873 57,600
-------- --------
Total current assets 93,376 99,891
-------- --------
OTHER NON-CURRENT ASSETS 6,539 6,353
-------- --------
PLANT AND EQUIPMENT - At cost:
Land 1,168 1,253
Buildings 24,928 26,418
Machinery and equipment 195,137 190,656
-------- --------
221,233 218,327
Less accumulated depreciation 139,051 134,500
-------- --------
Total plant and equipment 82,182 83,827
-------- --------
TOTAL $182,097 $190,071
======== ========
</TABLE>
See notes to consolidated financial statements.
-24-
<PAGE> 25
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 2000 1999
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 14,149 $ 10,421
Accrued compensation 4,310 4,162
Current portion of long-term debt 56,354 61,877
Other 4,059 2,955
--------- ---------
Total current liabilities 78,872 79,415
--------- ---------
NON-CURRENT LIABILITIES:
Income tax contingency 7,061 5,759
Other 710 633
--------- ---------
Total non-current liabilities 7,771 6,392
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE:
Accounts payable and accrued expenses 50,220 50,294
Accrued costs of pension plans 37,496 40,341
Accrued postretirement medical benefits 68,113 70,626
Long-term debt 25,990 25,990
Other 2,894 2,999
--------- ---------
Total liabilities subject to compromise 184,713 190,250
--------- ---------
STOCKHOLDERS' DEFICIT:
Convertible preferred stock, no par value, authorized 2,000,000 shares;
issued and outstanding 416,667 shares (liquidation preference of $6,250) 83 83
Common stock, $.01 par value, authorized 25,000,000 shares;
issued and outstanding 4,056,140 shares 41 41
Capital in excess of par 59,420 59,420
Accumulated deficit (132,657) (120,472)
Accumulated other comprehensive loss (16,146) (25,058)
--------- ---------
Total stockholders' deficit (89,259) (85,986)
--------- ---------
TOTAL $ 182,097 $ 190,071
========= =========
</TABLE>
See notes to consolidated financial statements.
-25-
<PAGE> 26
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FISCAL YEAR ENDED SEPTEMBER 30, 2000 AND 1999, AND THE
NINE-MONTH TRANSITION PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
2000 1999 1998
(nine months)
--------- --------- ------------
<S> <C> <C> <C>
NET SALES $ 214,615 $ 241,582 $ 232,289
--------- --------- ---------
COSTS AND EXPENSES:
Cost of products sold 206,430 224,953 233,585
--------- --------- ---------
Selling, general and administrative expenses 10,648 11,482 10,466
--------- --------- ---------
Depreciation 6,166 6,251 5,081
--------- --------- ---------
Interest expense (contractual interest - $7,816 in 2000 and $8,365 in 1999 ) 6,361 6,910 8,183
--------- ---------
Asset impairments and other charges (credits) (4,450) 7,177 27,646
--------- --------- ---------
Total costs and expenses 225,155 256,773 284,961
--------- --------- ---------
Reorganization costs 1,420 6,052 --
--------- --------- ---------
LOSS BEFORE INCOME TAXES (11,960) (21,243) (52,672)
PROVISION FOR INCOME TAXES 225 110 31,140
--------- --------- ---------
NET LOSS (12,185) (21,353) (83,812)
PREFERRED STOCK DIVIDEND REQUIREMENT -- (62) (281)
--------- --------- ---------
(contractual dividends - $375 in 2000 and 1999)
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS (12,185) (21,415) (84,093)
OTHER COMPREHENSIVE INCOME (LOSS) NET OF INCOME TAXES:
Minimum pension liability adjustment 8,912 38,448 (40,027)
--------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ (3,273) $ 17,033 $(124,120)
========= ========= =========
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (3.00) $ (5.28) $ (20.73)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE> 27
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FISCAL YEAR ENDED SEPTEMBER 30, 2000 AND 1999, AND THE
NINE-MONTH TRANSITION PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCK (416,667 shares issued) $ 83 $ 83 $ 83
--------- --------- ---------
COMMON STOCK (4,056,140 shares issued) 41 41 41
--------- --------- ---------
CAPITAL IN EXCESS OF PAR VALUE:
Beginning balance 59,420 59,482 59,763
Dividend requirement on convertible preferred stock -- (62) (281)
--------- --------- ---------
Ending balance 59,420 59,420 59,482
--------- --------- ---------
ACCUMULATED DEFICIT:
Beginning balance (120,472) (99,119) (15,307)
Net loss (12,185) (21,353) (83,812)
--------- --------- ---------
Ending balance (132,657) (120,472) (99,119)
--------- --------- ---------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Beginning balance (25,058) (63,506) (23,479)
Other comprehensive income (loss) 8,912 38,448 (40,027)
--------- --------- ---------
Ending balance (16,146) (25,058) (63,506)
--------- --------- ---------
TOTAL STOCKHOLDERS' DEFICIT $ (89,259) $ (85,986) $(103,019)
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE> 28
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30, 2000 AND 1999, AND THE
NINE-MONTH TRANSITION PERIOD ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999 1998
(nine months)
-------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,185) $(21,353) $(83,812)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation 6,166 6,251 5,081
Reorganization items 1,420 6,052 --
Asset impairments and other charges (credits) (627) 11,738 25,260
Change in deferred income taxes -- -- 31,010
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 9,216 1,805 521
Inventories (2,273) 8,266 16,940
Accounts payable, accrued expenses and other assets 6,909 4,366 12,961
Pension cost greater than (less than) funding 6,121 7,031 (1,066)
Accrued postretirement medical benefits (2,513) (2,844) (2,394)
-------- -------- --------
Net cash provided by operating activities before Reorganization Items 12,234 21,312 4,501
Operating Cash Flow from Reorganization Items -
Bankruptcy related professional fees paid (2,623) (2,342) --
-------- -------- --------
Net cash provided by operating activities 10,365 18,970 4,501
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,463) (1,510) (3,848)
Proceeds from sale of assets 1,375 834 4,818
-------- -------- --------
Net cash provided by (used in) investing activities (4,088) (676) 970
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under revolving credit loan (5,523) (18,181) (4,087)
Payments on long-term debt -- -- (1,378)
Payment of financing costs -- (100) --
-------- -------- --------
Net cash used in financing activities (5,523) (18,281) (5,465)
-------- -------- --------
CASH:
Net increase during the year -- 13 6
At beginning of year 205 192 186
-------- -------- --------
At end of year $ 205 $ 205 $ 192
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 6,408 $ 7,198 $ 8,309
Income tax payments (refunds) - net (1,045) (6,800) 130
See notes to consolidated financial statements.
</TABLE>
-28-
<PAGE> 29
LACLEDE STEEL COMPANY AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 2000 AND 1999, AND THE
NINE-MONTH TRANSITION PERIOD ENDED SEPTEMBER 30,1998
--------------------------------------------------------------------------------
1. BANKRUPTCY PROCEEDINGS
On November 30, 1998, as a result of deterioration in steel demand and
selling prices, recurring losses, capital deficiency and funding
requirements of its defined benefit pension plans, Laclede Steel Company
and subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Code"). The Company
is operating as debtors-in-possession under the Code, which protects it
from its creditors pending reorganization under the jurisdiction of the
Bankruptcy Court. As debtors-in-possession, the Company is authorized to
operate its business but may not engage in transactions outside the
ordinary course of business without approval of the Bankruptcy Court. A
statutory creditors committee has been appointed in this Chapter 11 case.
As part of the Chapter 11 reorganization process, the Company has
attempted to notify all known or potential creditors of the Chapter 11
filing for the purpose of identifying all prepetition claims against the
Company.
In the Chapter 11 case, substantially all of the liabilities as of the
filing date are subject to settlement under a plan of reorganization. On
October 18, 2000 the Company filed a Plan of Reorganization with the
Bankruptcy Court and obtained the Court's approval to distribute the Plan,
and the related Disclosure Statement, to Creditors, Equity Security
Holders and other Parties in Interest. A hearing to consider confirmation
of the Plan is scheduled to be held on December 15, 2000.
The Plan is the result of extensive negotiations among the Company, the
Unsecured Creditors' Committee, the United Steelworkers of America, the
Pension Benefit Guaranty Corporation ("PBGC"), and their advisors. In
general, it provides for the cancellation of Company indebtedness in
exchange for new equity interests; the discharge of other prepetition
claims; the cancellation of all prepetition equity ownership interests
existing immediately prior to the effectiveness of the Plan of
Reorganization; and the assumption of any executory contracts and
unexpired leases to which the Company is a party. If the Plan is confirmed
and consummated in accordance with its terms, substantially all of the
common stock and other securities of the Company will initially be owned
by prepetition creditors, and employees.
The Company expects the Pension Benefit Guaranty Corporation to assume its
obligations under its defined benefit pension plans for its salaried and
hourly employees, which would result in the PBGC becoming one of its
largest unsecured creditors. The termination of these plans is an integral
part of the plan of reorganization, and on November 1, 2000 the Company
provided participants in the hourly and salaried pension plans with a
notice of its intent to terminate these plans. As of November 30, 1998,
the Company had a significant unfunded obligation related to these pension
plans. The Company has made no contributions to the pension plans since
filing Chapter 11.
Pursuant to the provisions of the Bankruptcy Code, the Company continues
to incur the cost of the postretirement medical plans. Under the Plan of
Reorganization the Company's postretirement medical obligations will
continue on a modified basis, reflecting negotiations with the United
Steelworkers of America. The Bankruptcy Court has approved the payment of
certain prepetition liabilities such as employee wages and benefits. The
Bankruptcy Court has also allowed for the retention of legal and financial
professionals. These professional fees represent the majority of
reorganization items recorded in the consolidated statements of operations
and, to the extent unpaid, are liabilities not subject to compromise.
-29-
<PAGE> 30
At the time of filing Chapter 11, the Company's receivables, inventory,
and certain plant and equipment were pledged as collateral under a Loan
and Security Agreement with a bank group. Subsequent to the filing, with
the approval of the Bankruptcy Court, the Company entered into an amended
Loan And Security Agreement with the banks (the "DIP Facility"), which
provides for borrowing up to $85 million. The DIP Facility provides for
revolving credit based on eligible receivables and inventory similar to
the previous Loan and Security Agreement. In addition, virtually all
assets of the Company have been granted as collateral to the Loan and
Security Agreement, except for certain assets of Laclede Chain
Manufacturing Company. As of November 30, 2000 the Company had unused
availability under the DIP Facility of approximately $4.1 million. The
Company's DIP Facility is scheduled to terminate on December 31, 2000.
The Company is seeking financing to replace the DIP Facility and provide
additional liquidity upon exit from bankruptcy ("exit financing"). A
non-binding commitment letter has been signed, but additional lenders must
be secured before the loan can be agreed to. At this time there can be no
assurance that such financing will be available. In the event such exit
financing cannot be secured, the Company may not be able to successfully
reorganize.
The Company's consolidated financial statements have been prepared in
accordance with the American Institute of Certified Public Accountants
(AICPA) Statement of Position 90-7 (SOP 90-7), "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code". In addition the
consolidated financial statements have been prepared using accounting
principles applicable to a going concern, which contemplates the
realization of assets and the payment of liabilities in the ordinary
course of business. As a result of the Chapter 11 filing, such realization
of assets and liquidation of liabilities is subject to uncertainty. The
financial statements include reclassifications made to reflect the
liabilities which have been deferred under the Chapter 11 proceedings as
"Liabilities Subject to Compromise". Certain accounting and business
practices have been adopted that are applicable to companies that are
operating under Chapter 11.
The Company's continued existence is dependent on its ability to achieve
future profitable operations, the assumption of the Company's obligations
under its defined benefit plans by the PBGC, continued compliance with all
debt covenants under the DIP Facility, and obtaining exit financing. The
uncertainty related to these matters and the Company's bankruptcy status
raise substantial doubt about its ability to continue as a going concern.
2. NATURE OF OPERATIONS
The Company is a manufacturer of carbon and alloy steel products,
including pipe products, hot rolled products, wire products and welded
chain. The Company's continuous butt weld pipe is 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. Laclede Chain Manufacturing Company, a wholly owned subsidiary,
produces chain products and also imports a significant amount of chain.
Approximately one-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.
-30-
<PAGE> 31
Wire products include high and low carbon wire, oil tempered wire used for
mechanical springs, overhead door springs, automotive suspension and brake
springs, and annealed wire and rod. The Company has entered into an
agreement for the sale of the assets of its wire products subsidiary,
Laclede Mid America, Inc., to Leggett & Platt Incorporated. (See NOTE 13.)
3. CHANGE IN FISCAL YEAR
Effective September 30, 1998 the Company changed its year-end from
December 31 to September 30. The consolidated statements of operations and
comprehensive income (loss), stockholders' deficit, and cash flows are
presented for the fiscal year ended September 30, 2000 and 1999 and the
nine-month transition period ended September 30, 1998.
4. 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 subsidiaries. All
intercompany accounts and transactions have been eliminated.
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.
PLANT AND EQUIPMENT - Plant and equipment, consisting primarily of
steelmaking and related facilities, are carried at cost. Major renewals
and betterments are capitalized, while replacements, rebuilding costs and
repairs are charged to operations.
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 2 to 10 years
Depreciation is computed on the straight-line method for financial
reporting purposes.
IMPAIRMENT OF LONG-LIVED ASSETS AND OTHER INTANGIBLE ASSETS - Management
periodically reviews the carrying value of its long-lived tangible and
intangible assets to determine if an impairment has occurred or whether
changes in circumstances 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. See Note 8 for
further discussion of impairment charges.
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 5 for further discussion and a
description of significant temporary differences.
PER SHARE DATA AND PREFERRED STOCK DIVIDENDS - Per share amounts for the
fiscal year ended September 30, 2000 and 1999 and the nine-month
transition period ended September 30, 1998 have been calculated based on
weighted average shares outstanding of 4,056,140. Net loss per common
share was computed by dividing the net loss, after deducting convertible
preferred dividend requirements $62,000 in 1999 and $281,000 in 1998 by
the weighted average shares outstanding.
-31-
<PAGE> 32
Per share amounts do not reflect the impact of additional shares of the
convertible preferred stock of 1,954,168 as to do so would be
antidilutive.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS - The Company
manufactures steel from steel scrap purchased in the open market from
numerous scrap suppliers and generated in the course of its steel
production. Since it does not produce its own raw materials, the Company
is subject to the fluctuation in prices and availability of scrap.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Trade accounts receivable, trade
accounts payable and accrued liabilities are financial instruments for
which the carrying value approximates fair value because of the short-term
maturity of these instruments. The Company's debt approximates fair market
value due to the interest rates approximating current market rates for
similar instruments. As a result of the Company's Chapter 11 filing, a
limited market has developed for the trading of financial instruments
included as liabilities subject to compromise. Since the market for such
claims against the Company under Chapter 11 is not well developed, no
reliable source of market price is available.
NEW ACCOUNTING PRONOUNCEMENTS - The Securities and Exchange Commission has
recently issued Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue
Recognition in Financial Statements. The Company has adopted SAB 101 and
the effect on the financial statements is not material.
In June 1998, The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting
and reporting standards for derivative instruments including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives) and hedging activities. The Statement requires an
entity to recognize all derivatives as either assets of liabilities in the
statement of financial position and measure those instruments at fair
value. The Statement is effective for the Company's financial statements
for the fiscal year ending September 30, 2001 in accordance with SFAS No.
137 which delayed the effective date of SFAS No. 133 by one year. The
adoption of this statement is not expected to have a material impact on
the Company's consolidated financial statements.
5. INCOME TAXES
During the nine-month transition period ended September 30, 1998,
significant operating losses caused management to no longer believe that
operating income would be sufficient to realize the Company's tax
benefits. Consequently, a valuation allowance of $72.5 million was
recorded, of which $48.3 million was reflected in the provision for income
taxes and the remaining amount was reflected as an adjustment to the
minimum pension liability, reported as an increase of stockholder's
deficit.
-32-
<PAGE> 33
Federal and state income taxes are associated with operating income
(loss), as well as other comprehensive income (loss) (additional minimum
pension liabilities). The Company's provision for (benefit from) income
taxes for both statement of operations and other comprehensive income
(loss) is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month
Year Year Transition Period
Ended Ended Ended
September 30, September 30, September 30,
2000 1999 1998
------------- ------------- -----------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Current and deferred tax benefit $ (4,255) $ (7,186) $(17,205)
Valuation allowance 4,480 7,296 48,345
-------- -------- --------
Total $ 225 $ 110 $ 31,140
-------- -------- --------
OTHER COMPREHENSIVE INCOME (LOSS):
Current and deferred tax benefit 3,387 14,610 (9,742)
Valuation allowance (3,387) (14,610) 24,132)
-------- -------- --------
Total -- -- 14,390
-------- -------- --------
TOTAL $ 225 $ 110 $ 45,530
======== ======== ========
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month
Year Year Transition Period
Ended Ended Ended
September 30, September 30, September 30,
2000 1999 1998
------------- ------------ -----------------
<S> <C> <C> <C>
Current state income tax provision $ 225 $ 110 $ 130
-------- -------- --------
Deferred income tax benefit (exclusive of the
effect of the valuation allowance) (4,480) (7,296) (17,335)
Increase in valuation allowance for deferred tax 4,480 7,296 48,345
-------- -------- --------
Provision for income taxes $ 225 $ 110 $ 31,140
======== ======== ========
</TABLE>
-33-
<PAGE> 34
Deferred tax assets and liabilities are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal
Year Year
Ended Ended
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Deferred tax assets:
Pension liabilities $ 14,249 $ 15,311
Postretirement medical benefits 25,883 26,838
Net operating loss and alternative minimum tax carryovers 43,469 38,709
Allowances on receivables 883 1,083
Other 2,959 4,791
-------- --------
Total deferred tax assets 87,443 86,732
-------- --------
Deferred tax liabilities:
Depreciation (21,187) (21,569)
-------- --------
Net deferred tax asset 66,256 65,163
Valuation allowance (66,256) (65,163)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
</TABLE>
In connection with the Alternative Minimum Tax Rules ("AMT"), the Company
had available AMT credit carryforwards of approximately $2.5 million,
which may be used indefinitely to reduce regular federal income taxes.
Additionally, for regular tax purposes, the Company had available as of
September 30, 2000, NOL carryforwards of approximately $107.8 million.
These NOL carryforwards expire in various amounts from 2008 through 2020.
During 1998 and 1999, the Company filed federal and state refund claims
based upon the carryback of $27.6 million of specified liability losses
under Section 172(f) of the Internal Revenue Code ("Code") from the tax
years December 31, 1995 through September 30, 1998. The carryback claims,
if fully recovered, would provide a current tax benefit of approximately
$10.1 million, plus interest. In addition, if the carryback claims are
fully recovered, the Company's regular tax NOL carryforwards would be
reduced to approximately $80.2 million and additional deferred tax assets
would be recharacterized from tax loss carryforwards to alternative
minimum tax credit carryforwards. The Internal Revenue Service is
currently examining the refund claims for the tax years ended December 31,
1995 through September 30, 1998. The Company and the Internal Revenue
Service have reached a tentative resolution regarding the refund claims,
subject to the Company's emergence from bankruptcy under Chapter 11, where
the Company will be able to retain a significant portion of the cash
refunds that the Company has received. The Company has not yet recognized
any of the potential tax benefit because of the contingencies, principally
the Company's emergence from bankruptcy under Chapter 11, inherent in the
tentative resolution. There exists the potential that part or all of the
refunds received by the Company (plus applicable interest) may be subject
to recapture by the Internal Revenue Service. During the year ended
September 30, 2000, the Company received refunds of $1.3 million in
connection with the carryback claims.
The applicable statutory federal income tax rate of 34% for the fiscal
years ended September 30, 2000 and 1999, and the nine-month transition
period ended September 30, 1998 is reconciled to the effective income tax
rate as follows (in thousands):
-34-
<PAGE> 35
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month
Year Year Transition
Ended Ended Period Ended
September 30, September 30, September 30,
2000 1999 1998
------------- ------------ -------------
<S> <C> <C> <C>
Federal income tax benefit computed at statutory tax rate $ (4,066) $ (7,223) $(17,908)
Change in valuation allowance 4,480 7,296 48,345
State income taxes net 225 110 --
Other (414) (73) 703
-------- -------- --------
Provision (benefit) for income taxes $ 225 $ 110 $ 31,140
======== ======== ========
</TABLE>
Under Section 382 of the Internal Revenue Code of 1986, as amended, if the
percentage of stock (by value) of a corporation (the "Loss Corporation")
that is owned by one or more "five-percent shareholders" has increased by
more than 50 percentage points over the lowest percentage of stock owned
by the same shareholders during a three year testing period (an "Ownership
Change"), the use of pre-ownership change net operating losses of the Loss
Corporation following such Ownership Change will be limited based on the
value of the Loss Corporation immediately before the Ownership Change
occurs (a "Section 382 Limitation"). Although the Company believes that
the transactions consummated pursuant to the Purchase Agreement between
Ivaco and Birmingham Steel on September 26, 1997, in which Birmingham
Steel acquired approximately 25% of the Company's common stock from Ivaco,
should not result in an Ownership Change, future transactions involving
persons who are not or who during the ensuing thirty-six month period
become "five-percent shareholders" as defined in Section 382 may trigger
an Ownership Change. If such an Ownership Change occurs, the Company's use
of its existing net operating loss carryovers at such time will be subject
to a Section 382 Limitation based on the value of the Company on the date
of such an Ownership Change.
There are numerous and complex tax issues associated with the Company's
filing for protection under Chapter 11 of the Bankruptcy Code and the
future reorganization, such as potential abandonment of assets, discharge
of indebtedness or sale of property. The impact of these tax issues will
effect the amount of tax attribute carryforwards and deferred taxes;
however, such impact cannot be determined at this time.
-35-
<PAGE> 36
6. DEBT
The components of the Company's debt are as follows (in thousands):
<TABLE>
<CAPTION>
September 30
------------------
2000 1999
------- --------
<S> <C> <C>
SECURED DEBT:
Bank Loan and Security Agreement:
Revolving Loan $52,267 $55,221
Term Loan 4,087 6,656
------- -------
56,354 61,877
UNSECURED AND UNDERSECURED DEBT:
Solid Waste Disposal Revenue Bonds:
8.375% Bonds 5,905 5,905
8.500% Bonds 9,430 9,430
8% Pollution Control Revenue Bonds 8,040 8,040
8% Industrial development Revenue Bonds 615 615
Notes payable 2,000 2,000
------- -------
Total Debt 82,344 87,867
Less: Debt Classified as Current 56,354 61,877
------ ------
Unsecured and Undersecured Debt
Classified as Subject to Compromise $25,990 $25,990
======= =======
</TABLE>
SECURED DEBT - Prior to 1999, the Company had a Loan and Security
Agreement with its banks, which had been amended and restated to provide a
total credit facility, subject to a borrowing base formula, of up to $85.0
million and a term loan of $7.6 million. Under the terms of the Loan and
Security Agreement, the Company granted security interests in accounts
receivable and inventory to the participating banks. The Term Loan was
secured by certain plant and equipment.
In connection with the Company's bankruptcy filing, the Bankruptcy Court
authorized the Company to borrow funds under an amended and restated Loan
and Security Agreement (the "DIP Facility"). The DIP Facility provides for
revolving credit based on eligible accounts receivable and inventory
similar to the previous Loan and Security Agreement. At September 30, 1999
and 2000 the Company had approximately $61.9 million and $56.4 million,
respectively, outstanding under the facility. In connection with an
amendment to the DIP Facility the termination date has been extended to
December 31, 2000. As of September 30, 2000 the Company had unused
availability under the DIP Facility of approximately $3.5 million.
The Company is seeking financing to replace the DIP Facility and provide
additional liquidity upon exit from bankruptcy. However, at this time
there can be no assurance that such financing will be available. In the
event such exit financing cannot be secured, the Company may not be able
to successfully reorganize.
-36-
<PAGE> 37
Interest is payable monthly on postpetition revolving loans which bear
interest, at the Company's option, at a floating rate (which is based on
2% plus the Bank of America reference rate ("Prime") or a Eurodollar rate
at the Company's option) which was approximately 11% at September 30,
2000.
As security for all postpetition obligations and prepetition liabilities,
virtually all assets of the Company and subsidiaries have been granted as
collateral to the Loan and Security Agreement, except for certain assets
of Laclede Chain Manufacturing Company described below.
In connection with the Loan and Security Agreement, as amended, the
Company must maintain compliance with several restrictive financial
covenants, including the maintenance of specified levels of operating cash
flow and minimum operating contributions from the Alton Steel operations,
as defined.
UNSECURED AND UNDERSECURED DEBT - As part of the modifications to the Loan
and Security Agreement in existence at September 30, 1998, the Company
received in 1997 the approval of parties to the Solid Waste Revenue Bonds
to eliminate certain negative financial covenants contained therein and to
substitute certain collateral. Subsequent to that substitution, the only
remaining negative financial covenant with respect to the Solid Waste
Revenue Bonds is that the Company may not without the prior written
consent of the Issuer of the Bonds (i) borrow from its subsidiary, Laclede
Chain Manufacturing Company, or (ii) take cash advances from Laclede Chain
Manufacturing Company, except to the extent that the aggregate principal
amount of all such borrowings and cash advances at any one time do not
exceed $7,000,000. Collateral granted to the Trustee of the Solid Waste
Revenue Bonds for the benefit of the bondholders consists of (i) all of
the issued and outstanding shares of Laclede Chain Manufacturing Company
and (ii) all of Laclede Chain Manufacturing Company's machinery and
equipment now owned or thereafter acquired.
Effective May 22, 1995 a subsidiary of the Company entered into a Note
Agreement for $2,000,000 bearing interest of Citibank NY Prime rate plus
1%. Principal is due upon the original maturity date of May 22, 2001 and
interest is payable monthly.
In connection with the Pollution Control Bonds, the Company is required to
comply with various covenants relating to limits on liabilities as defined
in the Bond Agreement dated October 1, 1976. At September 30, 1998, the
Company was not in compliance with these covenants. Additionally, the
Company failed to make the required payments and consequently, effective
as of October 1, 1998, the Company was in default under the Agreement.
The Company was party to a Paying Agent Agreement in which the Paying
Agent assisted the Company in purchasing certain raw material. The terms
of this agreement required the Company to pay a commission of 1.5% on all
purchases plus a fee on the invoice amount. Amounts purchased under this
agreement were included in accounts payable subject to compromise and
amounted to $9,877,000 as of September 30, 2000 and 1999. As of September
30, 1998, the Paying Agent has terminated this agreement.
In accordance with the Bankruptcy Code and AICPA Position 90-7 the Company
has not accrued interest on Unsecured and Undersecured Debt since the
bankruptcy filing on November 30, 1998.
At September 30, 2000 and 1999 all unsecured and undersecured outstanding
debt of the Company is subject to compromise. In accordance with the Plan
of Reorganization outstanding debt secured by assets of the Company will
be unaffected. Unsecured debt holders will receive their pro rata share of
new common stock of the reorganized Company.
-37-
<PAGE> 38
7. EMPLOYEE BENEFITS
DEFINED BENEFIT PENSION PLANS - The Company has several noncontributory
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 has been based on the range of deductible
contributions permitted by ERISA regulations, taking into account the
Company's income tax situation.
As a result of its filing under Chapter 11 on November 30, 1998, the
Company is not permitted to make contributions to the pension plans
related to prepetition liabilities. Due to the size of the underfunding of
the hourly and salaried pension plans, the Company expects the plans will
be terminated and the pension obligations assumed by the PBGC.
Accordingly, in accordance with SFAS No. 88, due to the probability of
plan terminations the Company has recorded a curtailment loss of
approximately $11.7 million in fiscal 1999, representing prior service
costs and unamortized transition obligations (See Note 8). The Company
continues to record the periodic pension costs as set forth in SFAS No.
87, of which $4.9 million in 2000 and $6.2 million in 1999 is in excess of
current service cost. Neither the amounts recorded as curtailment loss or
periodic pension cost in excess of current service costs for the hourly
and salaried plans will be funded because of the expected plan
terminations.
The components of net periodic pension cost are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month Transition
Year Year Period
Ended Ended Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------ ------------------ ---------------------
<S> <C> <C> <C>
Service cost $ 1,206 $ 1,462 $ 1,265
Interest cost on projected benefit
obligation 13,208 12,812 10,184
Expected return on plan assets (10,417) (10,853) (8,778)
Net amortization of:
Unrecognized transition net (asset)
or obligation (229) 62 1,398
Unrecognized net loss 2,351 3,906 2,456
Unrecognized prior service costs 2 239 1,255
-------- -------- --------
Net periodic pension cost 6,121 7,628 7,780
Settlement and curtailment losses
recognized -- 11,738 5,813
-------- -------- --------
Total net periodic pension cost $ 6,121 $ 19,366 $ 13,593
======== ======== ========
</TABLE>
Included in total pension cost for the nine-month transition period ended
September 30, 1998 is an expense of $5.8 million recognized in connection
with the write-off of all remaining deferred costs of the Company's Key
Employee Retirement Plan. As discussed in Note 8, several officers of the
Company retired or terminated services during the period. In addition, any
remaining deferred cost associated with the Plan was charged to expense as
a result of the change in the actuarial calculation relating to estimated
future service years for the two employees remaining in the Plan at
September 30, 1998.
-38-
<PAGE> 39
The projected benefit obligations at September 30, 2000 and 1999 were
determined using assumed discount rates of 8.0% and 7.75%, respectively.
For all plans other than the Laclede Hourly Employees Pension Plan, the
average assumed rate of increase in compensation levels was 2% for all
years. Reflecting the Labor Agreement for Alton hourly employees, a 1%
rate of increase in compensation was assumed for all years for such plan.
The weighted average assumed long-term rate of return on the
market-related value of plan assets was 10% for all years.
A summary of the funded status and changes in the funded status of the
Plans, is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal
Year Year
Ended Ended
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period $ 175,928 $ 195,974
Service cost 1,206 1,462
Interest cost 13,208 12,812
Actuarial losses (gains) 2,153 (10,239)
Benefits paid (22,621) (24,081)
--------- ---------
Benefit obligation at end of period $ 169,874 $ 175,928
========= =========
Change in plan assets:
Fair value of plan assets at beginning of period $ 134,412 $ 123,035
Actual return (loss) on plan assets 34,350 34,858
Employer contribution -- 600
Benefits paid (22,621) (24,081)
--------- ---------
Fair value of plan assets at end of period $ 146,141 $ 134,412
========= =========
Funded status $ (23,734) $ (41,515)
Unrecognized net transition obligation (asset) (295) (525)
Unrecognized actuarial loss 2,675 26,806
Unrecognized prior service cost 4 5
--------- ---------
Net amount recognized $ (21,350) $ (15,229)
========= =========
Amounts recognized in the consolidated balance sheet consist of:
Prepaid pension cost (reflected in other non-
current assets) $ -- $ 49
Accrued benefit liability (37,496) (40,341)
Intangible asset -- 5
Accumulated other comprehensive income 16,146 25,058
--------- ---------
Net amount recognized $ (21,350) $ (15,229)
========= =========
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $169.7 million, $169.5 million,
and $146.0 million, respectively, as of September 30, 2000 and $174.9
million, $173.5 million and $133.2 million, respectively, as of September
30, 1999.
-39-
<PAGE> 40
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability for underfunded plans of $16.1 million at
September 30, 2000 and $25.1 million at September 30, 1999, representing
the excess of unfunded accumulated benefit obligations over previously
recorded pension cost liabilities. The reduction in minimum pension
liability at September 30, 2000 from September 30, 1999 is primarily due
to investment performance of plan assets, with the actual return on assets
substantially exceeding the assumed rate of return. The increase in the
assumed discount rate used to determine the accumulated benefit obligation
from 7.75% to 8.0% also caused a reduction in the minimum pension
liability.
The minimum pension liability 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 (deficit). This charge amounted to $16.1 million at September 30,
2000. As of September 30, 1999, $25.1 million of the excess minimum
pension liability resulted in a charge to equity. A valuation allowance
for the corresponding deferred tax asset resulting from the additional
minimum liability is recorded as it does not appear likely that the
deferred tax assets will be realized under present circumstances (See Note
5).
PROFIT SHARING PLAN - The Company maintains defined contribution profit
sharing 401(k) plans covering a majority of its salaried employees. In
1996 the Plan was amended to provide for a minimum Company matching
contribution regardless of the level of Company profitability. Company
contributions for the years ended September 30, 2000 and 1999 amounted to
$331,000 and $209,000, respectively and for the nine-month transition
period ended September 30, 1998 amounted to $326,000. There is also a plan
covering the collective bargaining agreement employees, which does not
have a match.
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.
The components of net periodic postretirement medical benefit costs are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month
Year Year Transition
Ended Ended Period Ended
September 30, September 30, September 30,
2000 1999 1998
------------- ------------- --------------
<S> <C> <C> <C>
Service cost $ 356 $ 473 $ 327
Interest cost 3,875 3,712 2,872
Amortization of unrecognized prior service
credits (1,721) (960) (719)
Amortization of unrecognized net gain (404) (699) (599)
------- ------- -------
Net periodic costs $ 2,106 $ 2,526 $ 1,881
======= ======= =======
</TABLE>
-40-
<PAGE> 41
A summary of the changes in the status of the plans is as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal
Year Year
Ended Ended
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Benefit obligations at beginning of period $ 56,404 $ 57,607
Service cost 356 473
Interest cost 3,875 3,712
Actuarial (gains) losses 5,239 (35)
New prior service credit base due to a negative plan amendment (9,592) --
Benefits paid (4,619) (5,353)
-------- --------
Benefit obligations at end of period $ 51,663 $ 56,404
======== ========
Funded status $(51,663) $(56,404)
Unrecognized actuarial gain (2,413) (8,056)
Unrecognized prior service credit (14,037) (6,166)
-------- --------
Accrued post-retirement benefit obligation $(68,113) $(70,626)
======== ========
</TABLE>
The assumed discount rates used to measure the accumulated postretirement
benefit obligation were 8.0% at September 30, 2000 and 7.75% at September
30, 1999. The assumed future health care cost trend rate for the September
30, 2000 calculation was 6.58% gradually declining over a four-year period
to 4.25% and for the September 30, 1999 calculation was 6.36% gradually
declining over a five-year period to 3.25%. A one percentage point
increase in the health care trend rates would have increased the aggregate
of the service and interest cost components of the net periodic
postretirement benefit cost by $423,000 for the year ended September 30,
2000, $517,000 for the year ended September 30, 1999 and $444,000 for the
nine-month transition period ended September 30, 1998, and would have
increased the accumulated postretirement benefit obligation by $5.5
million as of September 30, 2000 and 1999.
The new prior service credit base reflects the effect of changes in the
hourly and salaried retiree healthcare benefits premium structure, a
negative plan amendment, which was implemented on May 1, 2000.
A one percentage point decrease in the health care trend rates would have
decreased the aggregate of the service and interest cost components of the
net periodic postretirement benefit cost by $355,000 in 2000, $460,000 for
1999 and $390,000 for the nine-month transition period ended September 30,
1998, and would have decreased the accumulated postretirement benefit
obligation by $4.7 million as of September 30, 2000 and by $5.0 million as
of September 30, 1999.
-41-
<PAGE> 42
8. ASSET IMPAIRMENT, OTHER CHARGES AND CREDITS (In Thousands)
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month
Year Year Transition
Ended Ended Period Ended
September 30, September 30, September 30,
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Gain on Involuntary Conversion $ (3,823) $ -- $ --
Sale of Memphis, Tennessee Facility (254) -- --
Sale of Madison, Illinois Facility (373) -- --
Lawsuit Settlement -- (4,561) --
Curtailment Loss - Pension (See Note 7) -- 11,738 --
Impairment Loss
- HTMR Facility -- -- 15,362
- Memphis Plant -- -- 4,650
Executive Retirements and Other 7,634
-------- -------- --------
$ (4,450) $ 7,177 $ 27,646
======== ======== ========
</TABLE>
On March 31, 2000, a structural failure occurred at the Company's Melt
Shop at its Alton Plant. While the operating furnace and most of the
related equipment were not damaged, a small portion of the building and
ductwork were damaged. In addition, furnace dust, which is regulated as
hazardous waste, escaped from collapsed ductwork, but was confined to the
site.
As a result of this accident, steel production at the Alton Plant was
suspended until July 23, 2000 when furnace operations resumed. The
suspension of operations affected only the steel production facilities at
the Alton Plant. All other operations, including finishing operations at
the Alton Plant, utilized existing semi-finished and finished inventories.
In addition, the Company purchased semi-finished steel to support its bar
and pipe operations.
The Company has settled its insurance claim with respect to the accident
for $27.5 million. The insurance recovery includes reimbursement for
property damage, business interruption, and environmental clean-up costs.
The Company recognized a gain of $700 thousand as a result of the
property loss portion of the claims. The company also recognized a gain
of approximately $3.1 million related to business interruption.
-42-
<PAGE> 43
In July 2000, the Company sold the remaining portion of its Memphis,
Tennessee facility for $754,000 which resulted in a gain of $254,000. In
December 1999, the Company sold its Madison, Illinois facility for
$621,000 which resulted in a gain of $373,000.
Due to the probability that the hourly and salaried pension plans will be
terminated by the PBGC, the Company has recorded an $11.7 million
curtailment loss in the year ended September 30, 1999. (See Note 7). The
Company recorded income of $4.6 million in fiscal 1999 from settlements in
connection with class action lawsuits involving electrode manufacturers.
In December 1997, the Company idled its High Temperature Metal Recovery
("HTMR") facility after the facility was damaged in an accident. This
facility was previously used to dispose of the EAF dust generated in the
Melt Shop at the Alton Plant. Subsequent to the accident, the Company
disposed of the EAF dust through alternative methods. During 1998,
management completed an evaluation of the HTMR facility to determine the
economic feasibility of repairing and operating the unit, and determined
that the HTMR facility currently could not function on an economically
feasible basis. As there is a limited market for this type of facility,
the entire carrying cost of $15.4 million was written off and recorded as
an impairment loss.
In June 1998, management implemented its program to consolidate the wire
operations at its Fremont facility and to shut down the Memphis Wire
Plant. In connection with the shut down, the Company recorded a charge of
approximately $6.0 million of which $4.6 million is reflected in the
accompanying consolidated statements of operations as asset impairments
and other charges. The impairment loss on property, plant and equipment
reflects the difference between the carrying value at the time of
write-off of approximately $6.3 million and an estimated fair value less
costs to sell of approximately $2.2 million. Operations have ceased and
the majority of the assets were sold. Net proceeds of approximately $2.0
million were received in connection with such sales. Also included in the
charge is $0.5 million relating to the write-off of goodwill associated
with this operation. The remaining write-off associated with the closing
of the Memphis Wire Plant of approximately $1.4 million relates to
inventory losses and termination shutdown costs incurred which have been
reflected in cost of products sold.
Professional fees associated with the Company's potential restructuring
were also recorded in the nine-month transition period ended September 30,
1998. The Company recorded charges of approximately $6.4 million in
connection with the retirement severance of several officers of the
Company during the nine-month transition period ended September 30, 1998.
Included in this charge is approximately $5.8 million in primarily noncash
settlement and curtailment expenses relating to the Company's Key Employee
Retirement Plan.
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<PAGE> 44
9. COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for office space and certain equipment
through 2007. Future minimum lease commitments required under these leases
are as follows (in thousands):
Lease
Commitments
------------------------------
2001 $ 3,285
2002 1,017
2003 782
2004 765
2005 361
Thereafter 577
--------
TOTAL $ 6,787
========
Rent expense under all leases in 2000, 1999, and 1998 was $4.6 million,
$5.2 million, and $4.9 million, respectively. In connection with its
reorganization under the Bankruptcy Code, the Company rejected its lease
for space for corporate offices in the Metropolitan Square Building and
now leases space at 440 North Fourth Street in downtown St. Louis under a
lease expiring on November 30, 2001, with an option to extend to November
30, 2004. A decision with respect to the assumption, rejection or
assignment of other leases in accordance with the Bankruptcy Code has not
as yet been made by the Company.
There are various claims pending involving the Company with respect to
environmental, hazardous substances, product liability and other matters
arising out of the routine conduct of the business. The Company believes
the ultimate disposition of such matters will not materially affect its
financial position or results of operations. Such claims which arose
prior to November 30, 1998 are subject to automatic stay of Bankruptcy
Code and, if applicable, will be settled in accordance with the terms of
the Plan of Reorganization.
In August 2000 the Company's hourly work force at the Alton and Vandalia
Plants ratified a modification to the Labor Agreement previously
negotiated with the United Steelworkers of America, which includes the
shutdown of the Alton Pipe and Skelp Mills and permits the Company to
consolidate its pipe-making operations at its Fairless Hills plant. This
consolidation of operations, which will affect approximately 100 hourly
employees at the Alton Plant, will be completed in December 2000. The
agreement of the United Steelworkers of America (USWA) to the permanent
shut down of the Alton Pipe and Skelp Mills is contingent upon the Company
successfully implementing its Plan of Reorganization and exiting
bankruptcy.
The Company has filed claims for refunds for its tax years 1995, 1996 and
1998 with respect to the allowance of the carry-back of certain expenses
over a period of ten (10) years. The Internal Revenue Service has
informed the Company that it disputes such claims. The Company and the
Internal Revenue Service have settled this dispute, subject to the entry
of an order by the Bankruptcy Court confirming the Plan of Reorganization
and acceptance of the settlement by the Joint Congressional Committee on
Internal Revenue Taxation. If either of these events do not occur, then
such settlement would be ineffective and the parties would have the
rights available to them prior to the settlement. In such case, the
Company would owe a material amount of taxes and interest to the Internal
Revenue Service.
-44-
<PAGE> 45
10. PREFERRED STOCK
In July 1996, the Company issued 416,667 shares of Series A 6%
convertible preferred stock to Ivaco Inc. and the executive officers of
the Company for $6,090,000, after expenses. This transaction resulted in
an increase in capital in excess of par value of $6,007,000. On October
28, 1996, at a special meeting of the stockholders, an amendment was
approved to the Company's Certificate of Incorporation which reduced the
par value of each share of common stock from $13.33 per share to $.01 per
share and increased the number of authorized common stock shares from
5,000,000 shares to 25,000,000 shares. The stockholders also approved the
recapitalization of the Company's Series A 6% preferred stock. At such
time each share of the preferred stock became convertible into common
stock at the option of the holder at a conversion price of $3.20 into
4.69 shares of common stock. In the event of voluntary or involuntary
liquidation of the Company, the holders of shares of Series A Preferred
Stock are entitled to receive liquidating distributions in the amount of
$15.00 per share plus accrued and unpaid dividends (which total $875,000
or $2.10 per share) before payment is made to holders of common stock.
The Company has not accrued dividends on the preferred stock since the
bankruptcy filing. As of September 30, 2000 and 1999, Birmingham Steel
and Ivaco, Inc. each owned approximately 44% of the issued shares of
convertible preferred stock.
11. RELATED PARTY TRANSACTIONS
The Company has transactions in the normal course of business with Ivaco
Inc. or affiliated companies. As of September 30, 2000 Ivaco Inc. owned
approximately 25% of the Company's outstanding common stock. For the year
ended September 30, 2000 and 1999 the Company purchased rods at market
prices totaling $1,995,200 and $2,979,000 respectively, from affiliates of
Ivaco. Prior to January 1, 1998, the Company was self-insured for workers'
compensation liabilities. Ivaco Inc. issued a $4.0 million guaranty bond
covering such liabilities.
The Company also has transactions in the normal course of business with
Birmingham Steel or affiliated companies. As of September 30, 2000
Birmingham Steel beneficially owned approximately 25% of the Company's
outstanding common stock. In 1999 the Company purchased rods and
participated in rod conversion arrangements with affiliates of Birmingham
Steel at market prices, which totaled $6,346,000. In 2000 such purchases
totaled $3,039,445.
12. INFORMATION BY PRODUCT LINE
The Company operates in one business segment as a manufacturer of carbon
and alloy steel products. Its primary product lines consist of pipe and
tubular products, wire, hot rolled bars and welded chain sold
predominantly in the United States. The following table presents, for the
periods indicated, the Company's revenue by product class (in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Nine-Month Transition
Year Ended Year Ended Period Ended
September 30, 2000 September 30, 1999 September 30, 1998
------------------ ------------------ ---------------------
<S> <C> <C> <C>
Pipe And tubular $ 82,306 $ 83,045 $ 82,463
Hot Rolled 79,861 99,198 102,207
Wire 26,953 26,788 27,410
Chain 25,495 32,551 20,209
-------- -------- --------
Total $214,615 $241,582 $232,289
======== ======== ========
</TABLE>
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<PAGE> 46
13. SALE OF LACLEDE MID AMERICA, INC.
The Company has entered into an agreement with Leggett & Platt
Incorporated for the sale of the assets of Laclede Mid America for $24.5
million plus the assumption of certain post petition ordinary course of
business liabilities. The net proceeds received from the sale of the
assets of Laclede Mid America will be used for the benefit of Laclede's
future liquidity needs. As a result of the proposed sale, the Company
expects to record a gain in the period in which the purchase is
consummated. The purchase price is subject to adjustments in certain
circumstances. The Company believes the sale to Leggett & Platt,
Inc. will be consummated before December 31, 2000. Of the purchase price,
$300 thousand will be held back for one year following closing pending
resolution of the final purchase price.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The results of operations by quarter for 2000 and 1999 were as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
2000
--------------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 59,409 $ 58,040 $ 49,729 $ 47,437
Cost of products sold 56,554 55,258 49,923 44,695
-------- -------- -------- --------
Net sales less cost of
products sold $ 2,856 $ 2,782 $ (193) $ 2,743
======== ======== ======== ========
Net loss $ (4,217) $ (3,996) $ (1,784) $ (2,188)
======== ======== ======== ========
Basic and fully diluted net
loss
per share $ (1.04) $ (0.98) $ (.44) $ (0.54)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 68,108 $ 59,901 $ 56,354 $ 57,219
Cost of products sold 62,953 54,434 52,117 55,449
-------- -------- -------- --------
Net sales less cost of
products sold $ 5,155 $ 5,467 $ 4,237 $ 1,770
======== ======== ======== ========
Net loss $(12,956) $ (2,428) $ (2,982) $ (2,987)
======== ======== ======== ========
Basic and fully diluted net
loss
per share $ (3.21) $ (0.60) $ (0.73) $ (0.74)
======== ======== ======== ========
</TABLE>
-46-
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Laclede Steel Company and Chapter 11
Trustee of Laclede Steel Company:
We have audited the accompanying consolidated balance sheets of Laclede Steel
Company and Subsidiaries (Debtors-in-Possession) as of September 30, 2000 and
1999, and the related consolidated statements of operations and comprehensive
income (loss), stockholders' deficit and cash flows for the years ended
September 30, 2000 and 1999 and the nine month transition period ended September
30, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 at September 30, 2000 and 1999, and the results of their operations
and their cash flows for the years ended September 30, 2000 and 1999 and the
nine month transition period ended September 30, 1998, in conformity accounting
principles generally accepted in the United States of America.
As discussed in Note 1, on November 30, 1998, the Company filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying
consolidated financial statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such consolidated
financial statements do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; or (d) as to operations, the effect of any changes that may be made
in its business.
-47-
<PAGE> 48
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company's bankruptcy filing, recurring losses, and capital deficiency raise
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also discussed in Note 1. The consolidated
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
Deloitte & Touche LLP
St. Louis, Missouri
December 12, 2000
-48-
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
December 14, 2000 /s/ David A. Higbee
--------------------------------- ---------------------------------
Date David A. Higbee
President
Principal Executive Officer
December 12, 2000 /s/ Michael H. Lane
--------------------------------- ---------------------------------
Date Michael H. Lane
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Director
Pursuant to the requirements of the Securities and 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 indicated.
December 14, 2000 /s/ Wayne P. E. Mang
--------------------------------- ---------------------------------
Date Wayne P. E. Mang
Chairman of the Board
December 14, 2000 /s/ Philip R. Morgan
--------------------------------- ---------------------------------
Date Philip R. Morgan
Director
December 14, 2000 /s/ Robert H. Quenon
--------------------------------- ---------------------------------
Date Robert H. Quenon
Director
December 14, 2000 /s/ George H. Walker III
--------------------------------- ---------------------------------
Date George H. Walker III
Director
-49-
