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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993 COMMISSION FILE NUMBER: 33-22603
BAYOU STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 72-1125783
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
P.O. BOX 5000
RIVER ROAD
LAPLACE, LOUISIANA 70069
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 652-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Class A Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
-------------------
Senior Secured Notes due 1998
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No /_/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value and the number of voting shares of the
registrant's common stock outstanding on November 13, 1993 was:
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SHARES OUTSTANDING HELD BY MARKET VALUE
TITLE OF EACH CLASS --------------------------- HELD BY
OF COMMON SHARE AFFILIATES NON-AFFILIATES NON-AFFILIATES
------------------- ---------- -------------- --------------
<S> <C> <C> <C>
Class A, $.01 par value......... 1,561,880 9,051,500 $24,326,000
Class B, $.01 par value......... 2,271,127 0 N/A
Class C, $.01 par value......... 100 0 N/A
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1994 Annual
Meeting of Shareholders are incorporated herein by reference in Part III.
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BAYOU STEEL CORPORATION
TABLE OF CONTENTS
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PAGE
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PART I
ITEM 1. BUSINESS.................................................... 1
General..................................................... 1
Manufacturing Process and Facilities........................ 1
Products.................................................... 2
Customers................................................... 2
Distribution................................................ 3
Markets and Sales........................................... 3
Strategy.................................................... 4
Competition................................................. 7
Raw Materials............................................... 8
Energy...................................................... 8
Environmental Matters....................................... 9
Strike and Impact Upon the Company.......................... 10
Employees................................................... 12
ITEM 2. PROPERTIES.................................................. 13
ITEM 3. LEGAL PROCEEDINGS........................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON STOCK AND RELATED
STOCKHOLDER MATTERS........................................ 14
ITEM 6. SELECTED FINANCIAL DATA..................................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 21
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........ 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS............................ 34
ITEM 11. EXECUTIVE COMPENSATION...................................... 34
ITEM 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....... 34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K........................................................ 35
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PART I
ITEM 1. BUSINESS
GENERAL
Bayou Steel Corporation (the "Company") is a leading producer of light
structural steel products. The Company owns and operates a steel minimill
strategically located on the Mississippi River in LaPlace, Louisiana, 35 miles
northwest of New Orleans. The minimill, constructed at a cost of $243 million
in 1981, is one of the most modern facilities in the world in its product line
and utilizes state-of-the-art equipment and technology. The Company produces a
variety of shapes, including angles, flats, channels, standard beams and wide
flange beams. The shapes produced by the Company have a wide range of
commercial and industrial applications, including the construction and
manufacturing of petrochemical plants, barges and light ships, railcars, trucks
and trailers, rack systems, tunnel and mine support products, joists, sign and
guardrail posts for highways, power and radio transmission towers, and bridges.
The Company sells its products to approximately 600 customers, most of which
are steel service centers, in 44 states, Canada, Mexico and overseas. The
Company also sells excess billets (which have not been rolled into shapes) on a
worldwide basis to other steel producers for their own rolling or forging
applications. In fiscal 1993, the Company sold 403,274 tons of shapes and
59,604 tons of billets.
According to the American Iron and Steel Institute ("AISI"), the domestic
market demand for all structural steel shapes products in 1992 was 5.1 million
tons. The Company estimates that its share of the total domestic shapes market
was approximately 8% in 1992. The Company also believes that its share of the
light structural steel shapes market (the primary market in which the Company
competes) is much higher, and that it is one of the five largest producers of
light structural steel shapes in the U.S.
The term "minimill" refers to a relatively low-cost steel production facility
which uses steel scrap, rather than iron ore, as its basic raw material. In
general, minimills recycle scrap using electric arc furnaces, continuous
casters and rolling mills. The Company's minimill, which was owned and operated
by Voest-Alpine until it was purchased by the Company in September 1986,
includes a Krupp computer-controlled, electric arc furnace utilizing water-
cooled sidewalls and roofs, two Voest-Alpine four-strand continuous casters, a
computer supervised, Italimpianti reheat furnace and a 15-stand Danieli rolling
mill (a second Krupp furnace is currently not in operation, but is available
for additional production).
In August 1988, the Company completed an initial public offering of its Class
A Common Stock which shares are traded on the American Stock Exchange. The
Company was incorporated under the laws of the State of Louisiana in 1979 and
was reincorporated in Delaware in 1988 in connection with its public offering.
In March 1993, following the expiration of its existing labor contract, the
United Steelworkers of America Local 9121 (the "Union") initiated a strike
against the Company after the Company and the Union failed to reach agreement
on a new labor contract.
The Company filed a registration statement on Form S-1 with the Securities
and Exchange Commission for issuance of $75,000,000 First Mortgage Notes (the
"Offering"). If the Company is successful with the Offering, the proceeds will
be used for redemption of the 14.75% Notes outstanding, payment of the current
borrowings under the line of credit, capital expenditures, and working capital.
The address of the Company's principal place of business is River Road, P.O.
Box 5000, LaPlace, Louisiana 70069 and its telephone number is (504) 652-4900.
MANUFACTURING PROCESS AND FACILITIES
In its production process, the Company uses steel scrap which is received by
barge, rail, and truck, and then stored in a scrap receiving yard. The scrap is
transported to the Company's melt shop by rail car or truck and loaded into its
furnace. The steel scrap is melted with electricity in a 75-ton capacity
electric arc furnace which heats the scrap to approximately 3100(degrees)F.
During the scrap melting and refining process,
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impurities are removed from the molten steel. After the scrap reaches a molten
state, it is poured from the furnace into ladles, where adjustments of alloying
elements and carbon are made to obtain the desired chemistry. The ladles of
steel are then transported to one of two four-strand continuous casters in
which the molten steel is solidified in water-cooled molds. The casters produce
long strands of steel which are cut by torch into billets and moved to a
cooling bed and marked for identification. After cooling, the billets are
transferred to the rolling mill for further processing. In the rolling mill,
the billets are reheated in a walking beam furnace with recuperative burners.
Once the billets are heated to approximately 2000(degrees)F, they are rolled
through up to fifteen mill stands which mold the billets into the dimensions
and sizes of the finished products. The heated finished shapes are placed on a
cooling bed and then straightened and cut into the appropriate customer
lengths. The shapes are sprayed to prevent surface rust and then bundled into 2
1/2- to 5-ton stacks and placed in a climate controlled warehouse where they
are subsequently shipped to the Company's stocking locations via barge, or to
customers directly via truck, rail, or barge.
The Company is currently able, using only one of its two furnaces, to produce
more billets than it can consume in its rolling mill. Prior to 1991, the
Company operated both of its furnaces and produced a much greater tonnage of
billets for sale in the billet market than it currently produces. The Company
discontinued this practice in 1991 due to declining margins on such products
and has been operating only one of its two furnaces since then. The Company
believes that it could restart its other furnace with an expenditure of less
than $1 million. As a result, the Company believes that it has significant
additional capacity to produce more billets if conditions in the worldwide
billet market improve or if the Company obtains additional rolling mill
capacity.
PRODUCTS
Finished Steel. The Company produces a variety of light structural steel
products (including angles, flats, channels, standard beams and wide-flange
beams) that are collectively referred to as "shapes." The Company currently
produces and sells shapes in the forms of equal leg angles (2"x 2" through
6"x 6"), unequal leg angles (4"x 3" through 7"x 4"), channels (3" through 8"),
flats (3" through 8"), standard beams (3" through 6"), and wide flange beams
(4" through 8"). The shapes produced by the Company have a wide range of
commercial and industrial applications, including the construction and
manufacturing of petrochemical plants, barges and light ships, railcars, trucks
and trailers, rack systems, tunnel and mine support products, joists, sign and
guardrail posts for highways, power and radio transmission towers, and bridges.
The Company's shapes are produced to various national specifications, such as
those set by the American Society for Testing and Materials ("ASTM"). In
addition, the Company is one of a few minimills that is approved by the
American Bureau of Shipping ("ABS") and certified for nuclear applications. The
Company's products are also certified for state highway and bridge structures.
The Company is currently in the approval process for ISO-9000 certification,
the new international steel standard.
The Company's shape products are distinguishable from bar mill products which
include hot rolled bars, cold finished bars and reinforcing bars. The
manufacture of structural steel products is generally more labor intensive and
technically demanding than the manufacture of steel bar mill products.
Semi-finished Steel. The Company sells its excess billets on a worldwide
basis to other steel producers for their own rolling or forging applications.
The billets are sold both domestically and worldwide through supply contracts
or on an occasional and selective basis. During fiscal 1993, the Company
produced in excess of 25 grades and 5 sizes (120 mm to 200 mm square or
rectangle) of billets.
CUSTOMERS
The Company has approximately 600 customers in 44 states, Canada, Mexico and
overseas. The majority of the Company's shape products (approximately 74% in
fiscal 1993) are sold to steel service centers, while the remainder are sold to
original equipment manufacturers (approximately 15% in fiscal 1993) and export
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customers (approximately 11% in fiscal 1993). Steel service centers purchase
nearly 30% of all carbon industrial steel products produced in the United
States. Steel service centers warehouse steel products from various minimills
and integrated mills and sell combinations of products from different mills to
their customers. Some steel service centers also provide additional labor
intensive value added services such as fabricating, cutting or selling steel by
the piece rather than by the bundle.
In fiscal 1993, the Company's top ten customers accounted for approximately
30% of total sales, and no one customer accounted for more than 6% of total
sales. The Company believes that it is not dependent on any customer and that
it could, over time, replace lost sales attributable to any one customer.
DISTRIBUTION
The Company's steelmaking facility, which includes a deep-water dock, is
strategically located on the Mississippi River, which the Company believes
gives it transportation cost advantages because it can ship its product by
barge, the least costly method of transportation in the steel industry.
Furthermore, the Company operates three inventory stocking warehouses in
Chicago, Tulsa and Pittsburgh, which supplement its operations in Louisiana.
These facilities, each of which includes an inland waterway dock, enable the
Company to significantly increase its marketing territory by providing storage
capacity for its finished products in three additional markets and by allowing
the Company to meet customer demand far from its minimill facility on a timely
basis. The Company believes that the location of its minimill on the
Mississippi River, and its network of inland waterway warehouses, enable it to
access markets for its products that would otherwise be unavailable to the
Company.
The Company's deep-water dock at its manufacturing facility enables the
Company to load vessels or ocean-going barges for overseas shipments, giving
the Company low cost access to overseas markets. Since the minimill is only 35
miles from the Port of New Orleans, smaller quantities of shapes or billets can
be shipped overseas on cargo ships from that port. In addition, the Company
makes rail shipments to some customers, primarily those on the West Coast and
in Mexico. Relative to its domestic competitors, the Company believes it has a
$25 per ton or more freight cost advantage over land-locked minimills in
serving the export market. This advantage permits the Company to compete with
foreign minimills in certain export markets.
The Company believes that the elimination of current duties in Canada and
Mexico as a result of the passage of the North American Free Trade Agreement
("NAFTA") will increase the competitiveness of the Company's products compared
to locally produced products in such countries. During fiscal 1993 and 1992,
2.9% and 3.4%, respectively, of the Company's tons shipped were exported to
Canada and Mexico. There can be no assurance, however, that there will be an
increase in the Company's shipments to Canada and Mexico as a result of the
passage of NAFTA.
MARKETS AND SALES
According to the AISI, the domestic market demand for all structural steel
shape products in 1992 was 5.1 million tons. The Company estimates that its
share of the total domestic shapes market was approximately 8% in 1992. The
Company believes that its share of the light structural steel shapes market
(the primary market in which the Company competes) is much higher, and that it
is one of the five largest producers in this market of light structural steel
shapes in the U.S.
The Company's shape products are sold domestically and in Canada, Mexico and
overseas on the basis of price, availability, quality and service. The Company
maintains a real-time computer information system, which tracks prices offered
by competitors, as well as freight rates from its customers to both the
Company's stocking locations and the nearest competitive facilities. In
addition, the Company maintains a full product assortment at its stocking
locations to ensure availability of its product and operates on a predetermined
production schedule that is provided to customers to assist customers in
scheduling their purchases.
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Although sales of shapes tend to be slower during the winter months due to
the impact of winter weather on construction and transportation, and during the
late summer due to planned plant shutdowns of end-users, seasonality has not
been a material factor in the Company's business. The Company's backlog of
unfilled cancelable purchase orders for shapes, which typically are filled in
approximately three months, totaled $24.3 million as of September 30, 1993 as
compared to $14.3 million as of September 30, 1992. As of December 31, 1993,
the Company's backlog totaled $25.2 million.
The level of billet sales to third parties is dependent on the Company's
internal billet requirements and worldwide market conditions, which may vary
greatly from year to year. In the past three fiscal years, shipments of billets
to third parties have ranged from 8% to 13% of the Company's total tonnage
sales, as compared to 35% in fiscal 1990. The Company is currently able, using
only one of its two furnaces, to produce more billets than it can consume in
its rolling mill. Prior to 1991, the Company operated both of its furnaces and
produced a much greater tonnage of billets for sale in the billet market than
it currently produces. The Company discontinued this practice in 1991 in
response to a decision by foreign governments to resume the practice of heavily
subsidizing their steel-making industries. This decision precipitated a sharp
decline in worldwide billet prices, as foreign steel-making companies produced
more billets for export. Due to current margins, the Company has chosen to sell
its excess billets through supply contracts or on an occasional and selective
basis. If the market for billets were to improve, the Company could increase
its billet production by restarting its idled second furnace.
STRATEGY
The Company's principal operating strategy is to improve operating results by
reducing labor costs and increasing sales of higher margin shape products. In
addition, upon completion of the Offering the Company intends to implement a
two-year, $8.6 million capital expenditure program to reduce its production
costs and increase its rolling mill capacity. If the Offering is unsuccessful,
the Company plans to implement the capital expenditure program but over a
longer period. The Company may also consider strategic acquisitions which
complement or expand the Company's current operations, such as businesses
engaged in the metals field or recycling operations.
Operating Efficiencies. The Company believes that it can lower its labor
costs by as much as $7 per ton from fiscal 1993 levels by making
operational changes and operating the minimill with fewer workers. The
Company began to implement many operational changes in fiscal 1993, but
their impact is not fully reflected in fiscal 1993 results since these
changes were implemented over the course of the year. In connection with
the foregoing, the Company recently increased its melt shop operations by
changing from three to four shifts (and by operating seven days a week
rather than six) as part of its cost savings program. Labor costs per ton
in fiscal 1993 also were somewhat distorted by the effects of the strike,
which resulted in periods of lower production and productivity, periods of
substantially increased overtime and the Company's need to temporarily use
outside contractors.
The Company has committed to developing a Total Quality Management work
culture. Through extensive training and individual development efforts, the
Company will attempt to reinforce its basic values of employee improvement,
teamwork, and increased individual accountability. The Company believes
that the workforce, through this program, will have an impact in achieving
operational and productivity improvements. The Total Quality Management
program does not involve the terms and conditions of the workplace and is
therefore not subject to the collective bargaining process. As a result,
the Company has begun implementing the Total Quality Management Program
with its supervisory personnel and intends to begin implementing the
program with the remainder of its workforce in the near-term.
Capital Improvements. From fiscal 1987 through fiscal 1993, the Company
spent an aggregate of approximately $48 million on capital projects. Most
of these expenditures were directed toward establishing its stocking
location distribution system, establishing a controlled warehouse
environment
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to minimize surface rust, extending its product line by adding equipment to
roll wide-flange beams and complying with changing environmental
regulations.
In contrast to prior years, capital expenditures in the next three years
will primarily be directed toward efficiency and cost reduction within its
manufacturing facility. In addition to normal maintenance programs, upon
successful completion of the Offering, the Company intends to implement a
two-year, $8.6 million capital expenditure program to reduce its production
and operating costs and increase its rolling mill capacity. The principal
elements of this program are (i) an automobile shredder to enable the
Company to shred car bodies on-site and reduce scrap costs, (ii) a steel
straightener to improve production capacity in the rolling mill, (iii) an
off-line sawing system and conveyor to further improve production capacity
in the rolling mill, (iv) a second overhead crane to reduce product
changeover time in the rolling mill and (v) a shipping bay rail spur to
reduce the handling of finished products. The Company believes that these
capital projects, when fully implemented, would result in annual operating
cost savings of approximately $7.10 per ton.
The following table summarizes the capital expenditures and estimated
production cost savings (excluding depreciation and additional interest
expense) associated with the Company's capital expenditure program.
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ESTIMATED
TOTAL PRODUCTION
ESTIMATED COST
CAPITAL ANNUAL SAVINGS
PROJECT EXPENDITURE SAVINGS(1) (PER TON)(2)
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(IN MILLIONS, EXCEPT PER TON AMOUNTS)
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Automobile Shredder...... $4.2 $1.7 $3.70
Steel Straightener....... 1.9 0.7 1.50
Off-Line Sawing
System/Conveyor......... 1.3 0.5 1.10
Overhead Crane........... 0.6 0.2 0.40
Shipping Bay Rail Spur... 0.6 0.2 0.40
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Total.................. $8.6 $3.3 $7.10
==== ==== =====
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(1) Assumes production and sales of 433,000 tons of shapes and 30,000 tons of
billets, for an aggregate of 463,000 tons. In fiscal 1993, the Company
produced and sold 462,878 tons, which included 403,274 tons of shapes and
59,604 tons of billets. The annual savings include increases in gross
profits relating to a shift to higher margin shape sales. The assumption
does not include any increased production that might result from
implementation of the Company's capital expenditure projects.
(2) Estimated cost savings per ton are based on certain estimates of historical
operating data. Estimated savings related to the automobile shredder may
vary depending on fluctuations in the market price for scrap.
Automobile Shredder. The proposed automobile shredder, which would
operate at the LaPlace site, would enable the Company to prepare car bodies
and sheet material into shredded material ready for the melting process,
thereby providing the Company with shredded scrap at a lower cost than it
currently procures such scrap. In addition, the Company believes that the
automobile shredder would produce scrap of a consistently higher quality
than purchased shredded scrap. The Company believes that on-site
preparation of scrap would enhance the efficiency of the dock in handling
finished goods since fewer shipments of scrap by barge would arrive. The
Company estimates that the purchase and installation of the on-site
shredder would require $4.2 million of capital expenditures. Assuming
production and sales levels of 463,000 tons per year, the estimated annual
cost savings will be approximately $1.7 million or $3.70 per ton.
Steel Straightener. The proposed steel straightener would replace the
Company's existing steel straightener and would contain enhanced features
which would allow it to operate more rapidly, thereby
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eliminating the bottleneck caused by the existing straightener in the
rolling mill. The steel straightener, together with the off-line sawing
system and conveyor, would expand the capacity of the rolling mill and
permit the production of light bar shape products (2"x2" angles), which
historically are products with a strong demand, but which the Company
previously dropped from its production schedule due to the rolling mill's
inability to produce such products efficiently. The Company estimates that
the purchase and installation of the steel straightener would require $1.9
million of capital expenditures. Assuming production and sales levels of
463,000 tons per year, the estimated annual cost savings relating to the
steel straightener will be approximately $0.7 million or $1.50 per ton.
Off-Line Sawing System and Conveyor. The proposed off-line sawing system
would allow the rolling mill to operate more rapidly by removing the
bottleneck that currently exists when shape products are cut into lengths
less than 40 feet. The off-line sawing system will include a conveyor to
move shapes from the last rolling mill operation to shipping bays. The off-
line sawing system and conveyor, together with the steel straightener,
would expand the capacity of the rolling mill and permit the production of
light bar shape products. The Company estimates that the purchase and
installation of the off-line sawing system and conveyor would require $1.3
million of capital expenditures. Assuming production and sales levels of
463,000 tons per year, the estimated annual cost savings relating to the
off-line sawing system and conveyor will be approximately $0.5 million or
$1.10 per ton.
Overhead Crane. The proposed overhead crane, along with the existing
overhead crane in the rolling mill, would allow both product changeovers
and routine maintenance to occur simultaneously, thereby reducing
changeover time between production runs. The Company estimates that the
purchase and installation of an additional overhead crane would require
capital expenditures of $0.6 million. Assuming production and sales levels
of 463,000 tons per year, the estimated annual cost savings will be
approximately $0.2 million or $0.40 per ton.
Shipping Bay Rail Spur. The proposed rail spur in the shipping bay would
move finished products from the Company's warehouse to the rail lines
adjacent to the minimill without loading and unloading such products into
and from trucks. The Company believes that its labor costs and operating
and capital costs of mobile equipment would be reduced by installation of
the shipping bay rail spur, as well as reduce damage to its finished
products. The Company estimates that the installation of the shipping bay
rail spur would require $0.6 million of capital expenditures. Assuming
production and sales levels of 463,000 tons per year, the estimated annual
costs savings will be approximately $0.2 million or $0.40 per ton.
Other Projects. The Company is currently evaluating the construction of a
rail system that would permit the movement of scrap from the Company's
deep-water dock, which is located approximately 500 yards from the
minimill, to the scrap inventory area and the movement of finished goods
from the warehouse to the dock without loading and unloading the scrap and
finished goods into and from trucks. The Company believes that its labor
costs, contracted services, truck and crane rentals and fuel requirements
would be reduced by the implementation of the rail system. After
preliminary review, the Company estimates that construction of the rail
system would require $11.0 million of capital expenditures. The Company
will continue to analyze the feasibility and potential cost savings of this
project. In addition, the Company is considering modification of the
furnace shell and tapping hole to increase productivity and reduce
consumption of refractory material. The Company is currently considering
various designs for such modifications. After preliminary review, the
Company estimates that it may be able to effect such modifications for less
than $1.0 million of capital expenditures. The Company believes that the
potential cost savings of such project could be significant relative to the
capital expenditures required.
Since the estimated operating cost savings from the Company's expected
operating efficiencies and planned capital improvements are based upon a number
of assumptions, estimated operating cost savings are not necessarily indicative
of the Company's expected financial performance and increases in the cost of
raw materials and other conversion costs may offset any operating cost savings
to cause actual results to vary
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significantly. In addition, although the Company believes its assumptions with
respect to its planned capital expenditure program to be reasonable, there can
be no assurance that the estimated production cost savings of the Company's
capital expenditure program will actually be achieved, sufficient demand for
structural steel products will exist for the additional capacity, or other
difficulties will not be encountered in completing the capital expenditure
program, or that the projects can be installed or constructed at the estimated
prices.
Acquisition Program and Tax Benefits. The Company may, from time to time,
seek strategic acquisitions in order to accelerate its growth, focusing on
businesses which complement or expand the Company's current operations, such as
businesses in the metals field or involving recycling operations. The Company
is not presently engaged in negotiations with respect to any acquisition. As of
September 30, 1993, the Company had approximately $310 million of NOLs which
could be used to offset taxable earnings of the Company, including the earnings
of acquired entities, subject to certain limitations imposed by the Internal
Revenue Code of 1986, as amended (the "Tax Code"). See the Notes to the
Financial Statements.
COMPETITION
The Company's location on the Mississippi River, as well as its stocking
locations in three additional regions of the country, provide it with access to
vast markets in the eastern, midwestern, southern, and central portions of the
United States. As a result, the Company competes in the shape market with
several major domestic minimills in each of these regions. Depending on the
region and product, the Company competes with, among others, Nucor Corporation,
Structural Metals, Inc., North Star Steel Co., Northwestern Steel and Wire
Company, and Lake Ontario Steel Corporation. The Company does not currently
compete with minimills producing flat rolled or rebar products, nor does it
compete with any domestic integrated steel producers.
Foreign steel producers historically have not competed significantly with the
Company in the domestic market for shape sales due to higher freight costs in
the relatively low priced shape market. Foreign competition could increase,
however, as a result of changes in currency exchange rates and increased steel
subsidies by foreign governments.
The Company is currently able, using only one of its two furnaces, to produce
more billets than it can consume in its rolling mill. Prior to 1991, the
Company operated both of its furnaces and produced a much greater tonnage of
billets for sale in the billet market than it currently produces. The Company
discontinued this practice in 1991 in response to a decision by foreign
governments to resume the practice of heavily subsidizing their steel-making
industries. This decision precipitated a sharp decline in worldwide billet
prices, as foreign steel-making companies produced more billets for export. Due
to current margins, the Company has chosen to sell its excess billets on a
supply contract or on an occasional and selective basis. Since most steel
companies produce billets, the Company competes with steel companies that may
also have an excess billet supply at any particular time.
RAW MATERIALS
The Company's major raw material is steel scrap, which is generated
principally from industrial, automotive, demolition, railroad and other scrap
sources and is primarily purchased directly by the Company in the open market
through a large number of steel scrap dealers. The Company is able to
efficiently transport scrap from suppliers throughout the inland waterway
system and through the Gulf of Mexico, permitting it to take advantage of scrap
purchasing opportunities far from its minimill, and to protect itself from
supply imbalances that develop from time to time in specific local markets. In
addition, unlike many other minimills, the Company, through its own scrap
purchasing staff, buys scrap directly from scrap dealers and contractors rather
than through brokers. The Company believes that its enhanced knowledge of scrap
market conditions gained by being directly involved in scrap procurement on a
daily basis, coupled with management's long experience in metals recycling
markets, gives the Company a competitive advantage. The Company does not
currently depend upon any single supplier for its scrap. The Company, on
average, maintains a 25-day inventory of steel scrap.
7
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The Company has initiated a program of buying directly from local scrap
peddlers and small dealers for cash. Through this program, the Company has
procured approximately 20% of its scrap at prices lower than those of large
scrap dealers.
The cost of steel scrap is subject to market forces, including demand by
other steel producers. The cost of steel scrap to the Company can vary
significantly, and product prices generally cannot be adjusted in the short-
term to recover large increases in steel scrap costs. Over longer periods of
time, however, product prices and steel scrap prices have tended to move in the
same direction.
The long-term demand for steel scrap and its importance to the domestic steel
industry may be expected to increase as steel makers continue to expand steel
scrap-based electric arc furnace capacity. For the foreseeable future, however,
the Company believes that supplies of steel scrap will continue to be available
in sufficient quantities at competitive prices. In addition, a number of
technologies exist for the processing of iron ore into forms which may be
substituted for steel scrap in electric arc furnace-based steelmaking. Such
forms include direct-reduced iron, iron carbide and hot-briquetted iron. While
such forms may not be cost competitive with steel scrap at present, a sustained
increase in the price of steel scrap could result in increased implementation
of these alternative technologies.
In addition to steel scrap, the Company consumes smaller quantities of
additives, alloys and flux ("AAF"), a substantial portion of which is imported
through the Port of New Orleans. As a result of its proximity to the port, the
Company believes it has a freight advantage over competitors when procuring
alloys. The Company does not currently depend upon a single supplier for its
AAF requirements.
The Company has not experienced any shortages or significant delays in
delivery of these materials. The Company believes that an adequate supply of
raw materials will continue to be available.
ENERGY
The Company's manufacturing process consumes large amounts of electrical
energy. The Company purchases its electrical service needs from Louisiana Power
and Light ("LPL") pursuant to a contract originally executed in 1980 and
extended in 1991 for a five year period. The base contract is supplemented to
provide lower cost off-peak power and known maximums in higher cost firm demand
power. In addition, the Company receives discounted peak power rates in return
for LPL's right to periodically curtail service during periods of peak demand.
These curtailments are generally limited to a few hours and during the last
several years have had negligible impact on operations. Although the
supplemental contract with LPL expires February 1, 1996, the Company has no
reason to believe that this contract will not be renewed upon substantially
similar terms. To a lesser extent, the Company's manufacturing facility
consumes quantities of natural gas. The Company purchases its natural gas on a
month-to-month basis from a variety of suppliers. Due to the effect of a fuel
adjustment provision in the contract with LPL and price increases in natural
gas, the Company's energy expense increased by $2.0 million in fiscal 1993
compared to fiscal 1992. Historically, the Company has been adequately supplied
with electricity and natural gas and does not anticipate any curtailment in its
operations resulting from energy shortages.
The Company believes that its utility rates are very competitive in the
domestic minimill steel industry. As one of LPL's largest customers, the
Company is able to obtain competitive rates from LPL.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local laws and
regulations, including, among others, the Clean Air Act, the 1990 amendments to
the Clean Air Act (the "1990 Amendments"), the Resource Conservation and
Recovery Act, the Clean Water Act and the Louisiana Environmental Quality Act,
and the regulations promulgated in connection therewith, concerning the
discharge of contaminants which may be emitted into the air and discharged into
the waterways, and the disposal of solid and/or hazardous waste such as
electric arc furnace dust.
8
<PAGE>
In addition, in the event of a release of a hazardous substance generated by
the Company, the Company could be potentially responsible for the remediation
of contamination associated with such a release. In the last five years, the
only environmental penalty assessed to the Company was a fine in the amount of
$43,000 levied in 1989 in conjunction with a Hazardous Waste Compliance Order
issued by the Louisiana Department of Environmental Quality with respect to
hazardous waste management violations. At this time, the Company is in
compliance in all material respects with applicable environmental requirements.
The Company has a full-time compliance officer who is responsible for
monitoring the Company's procedures for compliance with such rules and
regulations. The Company does not anticipate any substantial increase in its
costs for environmental remediation or that such costs will have a material
adverse effect on the Company's competitive position, operations or financial
condition.
The Company plans to close two storm-water retention ponds at the LaPlace
minimill. The Company has tested the effluents running into and out of the
ponds and these tests do not indicate the potential for contamination. Based on
this preliminary analysis, the Company does not believe that future clean up
costs, if any, will be material. The Company has proposed a sampling plan to
the Louisiana Department of Environmental Quality to analyze the contents of
the pond sediments. The results of such sampling could indicate a greater level
of contaminants than suggested by the Company's more limited testing. In such
case, the costs of clean up could be much higher than the Company believes.
Until such sampling is completed, it is impossible to estimate such costs.
The Company's minimill is classified, in the same manner as similar steel
mills in the industry, as generating hazardous waste due to the production of
dust that contains lead, cadmium and chromium. The Resource Conservation and
Recovery Act regulates the management of such emission dust from electric arc
furnaces. The Company currently collects the dust resulting from its melting
operation through an emissions control system and disposes of it through an
approved waste recycling firm. The dust disposal costs were approximately $1.5
million in fiscal 1993, and are estimated to be approximately the same for
fiscal 1994. In fiscal 1990, a small quantity of dust containing very low
emissions of radioactive material inadvertently entered the scrap stream on one
occasion. All of the dust containing such material was captured by the
emissions control system and is being held pending decision as to appropriate
disposal. The Company has estimated that the ultimate cost of disposal of such
dust will be approximately $500,000.
The Company's future expenditures for installation of environmental control
facilities are difficult to predict. Environmental legislation, regulations and
related administrative policies are constantly changing. Environmental issues
are also subject to differing interpretations by the regulated community, the
regulating authorities and the courts. Consequently, it is difficult to
forecast expenditures needed to comply with future regulations, such as those
forthcoming as a result of the 1990 Amendments. Comprehensive regulations
applicable to the Company have yet to be promulgated under the authority of the
1990 Amendments. Therefore, at this time, the Company cannot estimate those
costs associated with compliance and the effect the upcoming regulations will
have on the Company's competitive position, operations or financial condition.
In fiscal 1994, the Company intends to spend approximately $300,000 on various
environmental capital projects, including those related to the 1990 Amendments.
As part of its corporate campaign the Union engaged a consulting company
which conducted what was characterized as an environmental audit of the
Company's facilities. The Union's consultant did not visit the minimill, speak
with any officer of the Company or review any corporate records. The Union
consultant's report states that it was based on a review of the Louisiana
Department of Environmental Quality files and the Company's written operating
procedures. The report also states that the consulting company interviewed
Union members employed by the Company. Based on this review, the Union
consultant issued a report which states that its purpose was to identify areas
of concern regarding the Company's environmental compliance. The report alleges
that the Company, among other things, impermissibly manages hazardous waste
(including incineration of flue dust without a permit, operation of a waste
pile to manage hazardous wastes without a permit, long-term storage of mixed
waste without a permit, and improper training of personnel in waste
management), bypasses its air emissions control systems (by venting flue dust
directly into the atmosphere in violation of its air permit and releasing
fugitive emissions greatly in excess of the level of emissions permitted
9
<PAGE>
through its control systems), violates its wastewater discharge permit (by
discharging hazardous waste into ponds at its facility) and violates various
reporting requirements (with respect to releases of hazardous substances by
failing to report the amount of hazardous waste being treated on-site). The
Company believes that the Union has submitted this report to the Louisiana
Department of Environmental Quality and the Louisiana Board of Commerce and
Industry and perhaps to other government agencies.
The Company believes the Union consultant's allegations are without merit and
were made to further the efforts of the Union in the strike. The Company's
minimill is subject to regular inspections by the Department of Environmental
Quality. At the request of the Board of Commerce and Industry in connection
with the Company's next tax abatement renewal, the Louisiana Department of
Environmental Quality issued a letter dated February 7, 1994 stating that there
were no environmental enforcement actions outstanding against the Company. The
Company believes it is in compliance in all material respects with applicable
environmental requirements.
STRIKE AND IMPACT UPON THE COMPANY
General. The Company's six-year labor contract with the Union expired on
February 28, 1993. On March 21, 1993, after three short contract extensions,
the Union initiated a strike by its 338 bargaining unit employees after the
parties failed to reach agreement on a new labor contract due to differences on
economic issues. Initially, the Company had to curtail its operations (for six
weeks the Company operated at 50% capacity), which resulted in reduced
production, higher per ton conversion costs and lost sales, all of which
adversely affected the Company's profitability, particularly in the early weeks
of the strike.
During its negotiations with the Union, the Company developed a strategic
contingency plan to maintain continued operation of the plant in the event of a
work stoppage. As a result of such planning, the Company was able to avoid
complete suspension of operations by operating the minimill with fewer workers
and by utilizing a combination of temporary replacement workers, Union
employees who returned to work and salaried employees. As a result of such
measures, the Company is currently operating at full capacity and since July
1993 overall production and productivity have been near pre-strike levels.
As of December 31, 1993, the Company has incurred approximately $3.6 million
in out-of-pocket costs for security, legal matters and other services related
to the strike ($2.5 million of which was incurred during the first three months
of the strike). Although uncertainties inherent in the strike generally make it
impossible to predict the duration or ultimate cost of the strike to the
Company, the Company expects that future strike-related costs will not exceed
$100,000 per month.
Injunction. The Company obtained an injunction from a Louisiana state court
on April 1, 1993 imposing constraints on the number of picketers and regulating
conduct on the picket line. As a result of violations of the injunction, the
Company has obtained contempt orders against the violators, as well as
additional injunctive relief to further regulate picketing activity. Assault
and battery charges have been filed against several striking Union members, as
well as non-striking Company employees. Access to the minimill has been
generally unimpaired since the injunction was issued (with the exception of a
court imposed 90-second per vehicle waiting time) and the Company has been
allowed by the court to open additional gates to its facility. The injunctive
relief has also permitted the Company to significantly reduce its out-of-pocket
expenses for security and housing of temporary replacement workers.
Unfair Labor Practice Charge. On May 4, 1993, the Union filed unfair labor
practice charges against the Company with the regional office of the National
Labor Relations Board (the "NLRB"), which charges were amended on May 20, 1993
and July 15, 1993. In late January, the Regional Director of the NLRB informed
the Company that it had sufficient grounds to issue a complaint against the
Company and order a trial with respect to eight of these allegations, which
included charges by the Union that the Company: withdrew from, or altered the
terms of, tentatively agreed-upon bargaining proposals in retaliation against
the Union's announcing or taking part in activity protected under the NLRA;
offered bargaining proposals
10
<PAGE>
which contained unlawful limitations on engaging in protected Union activity on
work time; threatened to unilaterally change the terms and conditions of
employment for employees in the bargaining unit without bargaining in good
faith with the Union; offered regressive bargaining proposals at advanced
stages of bargaining in bad faith; offered bargaining proposals which required
the Union to reopen the contracting out clause without providing for its right
to strike in order to frustrate bargaining or to prevent the reaching of an
agreement; made regressive bargaining proposals in retaliation for filing
charges with the NLRB; and interfered with, restrained and coerced employees in
the exercise of their rights guaranteed by Section 7 of the NLRA. In order to
avoid a lengthy and expensive trial, the Company agreed to negotiate a
settlement agreement with the NLRB.
The proposed settlement agreement does not contain an admission by the
Company that it engaged in any unfair labor practices. The settlement agreement
requires the Company to post a notice stating that it will not engage in any of
the actions specified in the eight allegations described above. The other 14
allegations will be dismissed concurrently with the approval by the NLRB of the
settlement agreement. As part of the proposed settlement agreement, the Company
would also agree to accord all eligible striking employees, who have not
engaged in unprotected activity, upon unconditional application, full
reinstatement to their former jobs, or if their jobs no longer exist, to
substantially equivalent positions, without prejudice to their seniority or
other rights or privileges of employment. Since the strike began, the Company
has permitted any striking employee who wished to return to his job upon the
terms of the expired contract the opportunity to do so (and the temporary
replacement workers have been operating under the terms of the expired
contract). The Company has signed the proposed settlement agreement but has
been informed by the NLRB that the Union will not sign the proposed agreement.
The Company has been informed by the NLRB that the NLRB will unilaterally
approve the settlement agreement and the Company expects such approval by the
end of February. The Company expects that the Union will appeal the settlement
agreement and the dismissal of the 14 other charges. However, even if the
appeal were successful and a trial were ordered, the Company does not believe
that the ultimate outcome would have a material affect on the Company's
operations.
The settlement agreement is not expected to cover two separate charges filed
on December 30, 1993 and January 14, 1994, respectively. These outstanding
charges include allegations that the Company bargained in bad faith by not
reducing to writing a specific alleged agreement concerning job security for
those employees adversely affected by contracting out proposals of the Company,
that it failed to provide certain employee safety and health documents, and
that the Company denied the Union access to the minimill. The Union is seeking
a finding that the Company negotiated in bad faith which, under the NLRA, could
convert the strike from an "economic" strike to an "unfair labor practice"
strike. If the Company were found to have engaged in an "unfair labor practice"
strike, the Company would be precluded from hiring permanent replacement
workers and from declaring an impasse. If the Company were to hire permanent
replacement workers or declare an impasse prior to the time of such decision,
the NLRB could reverse such actions. Furthermore, if the strike was deemed an
"unfair labor practice" strike and the Company refused to re-employ striking
workers who made an unconditional offer to return to work, the Company could be
subject to exposure for back-pay. The Company believes that it possesses
meritorious defenses to such unfair labor practice charges. The settlement
agreement, or a finding by the NLRB that the Company engaged in unfair labor
practices with respect to any charges not covered by the settlement agreement,
may result in the strengthening of the strikers' commitment to their
negotiating position, the work stoppage and the corporate campaign. Any
hardening of the strikers' positions could affect the length of the strike and
the resolution of the labor contract disputes. The settlement agreement or an
adverse decision by the NLRB on the outstanding charges could also delay and
impair the Company's labor initiatives because the Company would be unable to
implement all or part of its last proposed labor agreement until it returned to
the bargaining process and remedied the unfair labor practices, and until such
time as either an agreement with the Union was ratified or impasse in the
bargaining process was reached.
The Company does not expect a settlement agreement or an adverse decision by
the NLRB on the outstanding charges to have a material long-term effect on the
Company. Since the strike began, the Company
11
<PAGE>
has permitted any striking employee who wished to return to his job upon the
terms of the expired contract the opportunity to do so (and the temporary
replacement workers have been operating under the terms of the expired
contract). Since the Company has not replaced any of the striking workers with
permanent replacement employees and has not implemented any of its proposed
contract terms, a return of striking workers upon the terms of the expired
contract would have no financial effect on the Company's operations, although
it could disrupt operations for a time.
Status of Negotiations. Union and Company representatives have continued to
hold negotiating meetings since March 21, 1993 in attempts to reach a
resolution of the outstanding issues. However, no progress has been made since
August 11, 1993. The Company made a contract proposal to the Union on November
22, 1993 which was rejected by the Union. The NLRA provides that a company, in
the absence of unfair labor practices in connection with the negotiations, may
implement all or individual parts of its last labor agreement proposal in the
event that the bargaining process reaches impasse. The determination of impasse
is strictly dependent on the facts of each individual case. The Company has not
made a determination that it is at an impasse and any such determination would
be subject to review by the NLRB. If the Company were to implement its last
proposed labor agreement and the NLRB were to subsequently find that the
Company had engaged in unfair labor practices, the Company would be liable to
make the employees economically whole with respect to those labor agreement
provisions that adversely affected such workers since the Company could not
have been at impasse if it were found to have bargained in bad faith.
While the Company and the Union currently remain apart on several issues with
respect to the proposed labor contract, the Company believes that the following
issues are significant in reaching agreement on a new labor contract:
Health Benefits. The Company has proposed a managed health care plan
which would require employees to contribute $20 per week to the plan for
family coverage. In addition, any future increases in the cost of the plan
would be shared equally by the Company and employees. The Union
alternatively has proposed that employees be required to contribute only
$6.92 per week, that employees bear no responsibility for future increases
in the cost of the plan and that the obligation to make contributions not
become effective until three years from the date of adoption of the
contract.
Incentive Plan. The Company has proposed an incentive plan and profit
sharing plan for its employees as the primary basis for increases in
compensation, the components of which would be subject to change at the
discretion of the Company. The Union is proposing that these plans be
subject to the grievance and arbitration procedure under the contract (and
therefore not subject to amendment at the Company's discretion).
Contract Labor. The Company has proposed a provision granting the Company
the right to utilize contract labor and outside contractors, although no
employee directly affected would be terminated or suffer a loss of pay rate
as a result of using contract labor. The Union is seeking a more
restrictive provision limiting the Company's ability to utilize such
contractors.
Bargaining Unit Work. The Company has proposed reduced limitations on
non-bargaining unit employees, primarily supervisors, from performing
bargaining unit work. The Union's proposal maintains past restrictions
contained in the expired contract, in addition to more severe penalties in
the event of future violations.
Union Representatives. The Company and the Union disagree as to which
party should be responsible for the compensation of union representatives
for the performance of Union duties during Company hours.
Picket Line Misconduct. The Company maintains that it has a right to
subject picketers who have engaged in picket line misconduct (meeting the
criteria established by the NLRB as behavior not protected by the NLRA) to
disciplinary action, including termination of employment. The Union demands
that all striking employees, even those who have engaged in such
misconduct, be returned to their positions at the cessation of the strike.
12
<PAGE>
Corporate Campaign. In August 1993 the Union announced a corporate campaign
designed to bring pressure on the Company from individuals and institutions
with direct financial or other interests in the Company. After the public
announcement that the Company was negotiating a settlement agreement with the
NLRB with respect to unfair labor practice charges filed by the Union, the
intensity of the corporate campaign strengthened. Although the Company believes
the corporate campaign has not had, and is not expected to have, an effect on
its operations, the potential impact of such a campaign is difficult to assess.
As part of its corporate campaign the Union engaged a consulting company
which conducted what was characterized as an environmental audit of the
Company's facilities. The Union's consultant did not visit the minimill, speak
with any officer of the Company or review any corporate records. The Union
consultant's report states that it was based on a review of the Louisiana
Department of Environmental Quality files, Company internal memoranda that were
available to it and the Company's written operating procedures. The report also
states that the consulting company interviewed Union members employed by the
Company. Based on this review, the Union consultant issued a report which
states that its purpose was to identify areas of concern regarding the
Company's environmental compliance. The report alleges that the Company, among
other things, impermissibly manages hazardous waste, bypasses its air emissions
control systems, violates its wastewater discharge permit and violates various
reporting requirements. The Company believes that the Union has submitted this
report to the Louisiana Department of Environmental Quality and the Louisiana
Board of Commerce and Industry and perhaps to other government agencies.
The Company believes the Union consultant's allegations are without merit and
were made to further the efforts of the Union in the strike. The Company
believes it is in compliance in all material respects with applicable
environmental requirements. See "Business--Environmental Matters."
EMPLOYEES
As of September 30, 1992, the Company had 491 employees, of whom 153 were
salaried office, supervisory, and sales personnel, and 338 were hourly
employees. 20 salaried non-exempt employees and 329 hourly employees were
covered by a collective bargaining contract which expired on February 28, 1993
between the Company and the Union. 9 hourly employees are covered by a
collective bargaining contract which expires on July 31, 1994 between the
Company and the Union. As of December 31, 1993, the Company had 418 non-
striking employees, of whom 148 were salaried office, supervisory, and sales
personnel, and 270 were hourly employees. As of December 31, 1993, the Company
had utilized 196 temporary replacement workers to perform certain of the
services of striking workers. Of the original 337 bargaining unit employees, 98
have returned to work, nine have resigned and 230 remain on strike.
The strike has not prevented the Company from committing to develop a Total
Quality Management work culture, which is a managerial philosophy that
encourages employee participation, employee empowerment, teamwork and increased
individual accountability. The Company intends to accomplish this through
extensive training and individual development efforts. The Total Quality
Management program does not involve the terms and conditions of the workplace
and is therefore not subject to the collective bargaining process. As a result,
the Company has begun implementing the Total Quality Management Program with
its supervisory personnel and intends to begin implementing the program with
the remainder of its workforce in the near-term.
13
<PAGE>
ITEM 2. PROPERTIES
The Company's principal operating properties are listed in the table below.
The Company believes that its properties and warehouse facilities are suitable
and adequate to meet its needs and that the size of its warehouse facilities is
sufficient to store the level of inventory necessary to support its level of
distribution.
<TABLE>
<CAPTION>
LOCATION PROPERTY
-------- --------
<S> <C>
LaPlace, Louisiana Approximately 287 acres of land, including a melt
shop, rolling mill, related equipment, a new 75,000
square foot warehouse, and dock facilities situated
on state-leased waterbottom in the Mississippi Riv-
er.
Chicago, Illinois Approximately 7 acres of land, a dock on the Calumet
River and buildings, including a recently renovated
100,000 square foot warehouse.
Tulsa, Oklahoma 63,500 square foot warehouse facility with a dock on
the Arkansas River system. Located on land under a
long-term lease. The original term of the lease is
from April 1, 1989 through March 31, 1999; the Com-
pany has two 10-year renewal options through March
31, 2019.
Pittsburgh, Pennsylvania 112,000 square foot leased warehouse facility with a
dock on the Ohio River. The original term of the
lease was from January 1, 1987 through June 30,
1992; the Company is in the first of three 5-year
renewal options through June 30, 2007.
Knoxville, Tennessee Approximately 25 acres of undeveloped land along the
Tennessee River, available for future use as a
stocking location.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
See "Business--Strike and Impact Upon the Company" for a description of the
NLRB proceedings. The Company is not involved in any pending legal proceedings
which involve claims for damages exceeding 10% of its current assets. The
Company is not a party to any material pending litigation which, if decided
adversely, would have a significant impact on the business, income, assets or
operation of the Company, and the Company is not aware of any material
threatened litigation which might involve the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the third and
fourth quarters of fiscal year ending September 30, 1993.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market Information and Stock Price
The principal market in which the Class A Common Stock of the Company is
traded is the American Stock Exchange (AMEX) under the symbol BYX. The
approximate number of stockholders of record on October 29, 1993 was 347. The
stock has been trading since July 27, 1988. The closing price per share on
October 29, 1993 was $3.5625. The following tables set forth the high and low
closing prices for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1993 SALES 1992 SALES
PRICE PRICE
----------- -----------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
October-December.................................. 3.688 2.125 2.625 1.750
January-March..................................... 5.375 3.375 4.125 2.125
April-June........................................ 6.000 3.875 3.500 2.500
July-September.................................... 3.563 2.938 2.875 2.125
</TABLE>
Dividends
The Company is restricted from paying dividends on its capital stock under
the terms of its tax abatement agreement with the State of Louisiana, which
expires in September 1995. Further, the Company's ability to pay dividends is
subject to restrictive covenants under both the Indenture pursuant to which the
Company's 14.75% Senior Secured Notes due 1998 (the "14.75% Notes") were issued
and the Company's line of credit. At such time as the Company is permitted to
pay dividends, the Board of Directors will determine whether such action would
be appropriate based on the Company's results of operations, financial
condition, capital requirements, and other circumstances.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is summary financial information for the Company since 1987,
the Company's first full year of operations following the acquisition of the
Company from Voest-Alpine.
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER TON DATA)
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales.............. $136,008 $119,772 $131,271(1) $183,563 $208,962 $189,849 $134,729
Cost of Sales.......... 128,033 109,116 124,436 170,998 187,132 152,148 117,997
-------- -------- -------- -------- -------- -------- --------
Gross Profit........... 7,975 10,656 6,835 12,565 21,830 37,701 16,732
Selling, General and
Administrative........ 3,986 4,071 4,125 4,582 4,323 4,409 4,249
Non-Production Strike
Expenses.............. 3,162(2) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Operating Income....... 827 6,585 2,710 7,983 17,507 33,292 12,484
Interest Expense....... (8,261) (8,977) (8,821) (9,514) (11,131) (9,639) (9,445)
Interest Income........ 193 486 638 1,850 1,540 649 61
Miscellaneous.......... 502 554 902 1,380(3) 421 (734) 88
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Taxes................. (6,739) (1,352) (4,571) 1,699 8,337 23,568 3,188
Provision (Benefit) for
Income Taxes.......... -- -- -- (116) 281 237 --
-------- -------- -------- -------- -------- -------- --------
Income (Loss) Before
Cumulative Effect of
Accounting Change and
Extraordinary Gain.... (6,739) (1,352) (4,571) 1,815 8,056 23,331 3,188
Cumulative Effect on
Prior Years of
Accounting Change..... -- -- -- (1,572) -- -- --
Extraordinary Gain..... 585 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net Income (Loss)...... $ (6,154) $ (1,352) $ (4,571) $ 243 $ 8,056 $ 23,331(4) $ 3,188(4)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working Capital........ $ 32,389 $ 57,167 $ 57,532 $ 64,386 $ 77,266 $ 74,478 $ 34,142
Total Assets........... 138,280 149,381 148,669 162,411 165,518 162,098 110,867
Total Debt............. 54,817 62,057 62,355 67,440 66,364 66,021 61,020
Stockholders' Equity... $ 61,231 $ 67,385 $ 68,737 $ 73,308 $ 73,064 $ 65,008 $ 274
</TABLE>
- --------
(1) In fiscal 1991 the Company decided to reduce its melting capacity by
discontinuing the operation of one of its two electric furnaces and
ceasing the practice of exporting large quantities of billets. In prior
years, billet sales contributed small margins; however, the margins on
billets sales virtually disappeared as a result of worldwide market
conditions in late 1990. The Company believes its decision to stop
producing large quantities of billets for export resulted in a decline in
sales of approximately $40 million.
(2) In fiscal 1993, Non-Production Strike Expenses includes $3.2 million in
expenses for security, legal matters and other services related to the
strike.
(3) In fiscal 1990, Miscellaneous includes income in connection with a
favorable settlement of a lawsuit for $1.3 million.
(4) In fiscal 1988 and 1987, income applicable to common shares after
accretion and dividends accrued on preferred stock was $19.8 million and
$0.5 million, respectively.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported a net loss of $6.2 million in fiscal 1993. The 1993 net
loss was primarily caused by the strike and by sharp increases in scrap costs.
The strike has adversely affected the Company in four ways. First, as of
November 30, 1993, the Company has incurred approximately $3.5 million in out-
of-pocket expenses for security, legal, and other services related to the
strike ($2.5 million of which was incurred during the first three months of the
strike). Second, a reduction in production of approximately 27,000 tons in the
melt shop and approximately 30,000 tons in the rolling mill during the initial
phases of the strike resulted in higher fixed costs per ton produced during
that period. As the inventory produced during this period was sold, the
allocation of fixed charges to the cost of that inventory resulted in higher
cost of sales for fiscal 1993 of $1.2 million. Third, the impact of training
new employees affected productivity and led to higher consumption of materials
for several months. Fourth, reduced production during the early weeks of the
strike resulted in lost sales due to reduced inventory levels. The increase in
scrap costs during the year was only partially offset by increases in selling
prices, resulting in reduced metal margins.
In fiscal 1992, the net loss of $1.4 million was $3.2 million less than the
loss incurred in fiscal 1991. This improvement, despite fewer shipments and
lower selling prices, was accomplished by a reduction in operating costs per
ton.
The following table sets forth shipment and sales data for the fiscal years
indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Shape Shipment Tons.................................. 403,274 372,943 381,069
Average Shape Selling Price Per Ton.................. $300 $296 $307
Billet Shipment Tons................................. 59,604 31,962 43,557
Average Billet Selling Price Per Ton................. $209 $204 $210
Net Sales (in thousands)............................. $136,008 $119,772 $131,271
</TABLE>
SALES
Net sales increased in fiscal 1993 compared to fiscal 1992 due to an increase
in shipments and selling prices for both shapes and billets, whereas net sales
decreased in fiscal 1992 compared to fiscal 1991 for the same reasons.
Shapes. In 1993, the improvement in domestic shape shipments was mainly due
to an improving economy and the Company's efforts to recapture market share
which had been lost in prior years due to the presence of excessive surface
rust on the Company's products. The Company lost some sales in fiscal 1993 due
to a temporary disruption in shipments out of LaPlace and the stocking
locations and curtailed production due to the strike. Despite these factors,
the Company's total shipments increased in fiscal 1993 compared to fiscal 1992.
Export shape shipments in fiscal 1993 were 11.1% of shape shipments as compared
to 9.7% for the previous year. Export shipments to Canada and the Far East
improved while shipments to Mexico declined. Even though there were extreme
pressures on prices in the form of rebates and discounting, the average selling
price for the Company's shape products rose approximately $4 per ton in fiscal
1993. These higher prices were primarily in response to sharp increases in raw
material costs; however, the price increases only partially offset the raw
material increases. The Company anticipates a slight improvement in the economy
in fiscal 1994 which should result in increased sales. In 1992, the prevailing
recessionary conditions, decreased demand, and the reluctance of steel mills to
reduce rolling capacity, caused an oversupply of shape products relative to
demand, resulting in continued competitive pricing and reductions in shipments.
Even though demand for shape products was weak, the Company continued to
improve its position with customers because of the improved surface condition
of its products; however, the Company did not completely regain in fiscal 1992
the market share it lost in fiscal 1991 and fiscal 1990. Export shape shipments
were 9.7% of shape shipments in fiscal 1992 and 10% in fiscal 1991.
17
<PAGE>
Billets. In fiscal 1990, foreign governments resumed the practice of heavily
subsidizing their steel-making industries, precipitating a sharp decline in
worldwide billet prices as foreign steel-making companies produced more billets
for export. Unable to sell billets at acceptable margins, the Company curtailed
excess billet production by discontinuing the operation of one of its two
furnaces. Since that time, the Company has increased the productivity of its
one-furnace melt shop, including a 7% increase in 1993. As a result of this
increased productivity, the Company was able to take advantage of several
seasonal export opportunities in the last half of fiscal 1991 and the first
half of fiscal 1992. In fiscal 1993, the Company increased shipped tons of
billets by 86% as compared to fiscal 1992. The average selling price of billets
improved in fiscal 1993 compared to fiscal 1992 due to an increase in domestic
shipments, which carry a higher selling price than export shipments, and
increasing raw material prices which were partially passed on to billet
customers. In fiscal 1994, the Company will continue to ship billets on a
supply contract or on an occasional and selective basis to domestic and export
customers.
COST OF SALES
Cost of sales was 94.1% of sales in fiscal 1993 compared to 91.1% in fiscal
1992 and 94.8% in fiscal 1991. The significant decrease in fiscal 1992 compared
to fiscal 1991 was due to lower scrap costs and conversion costs (the cost of
converting raw materials into shapes). The cost of sales increase in fiscal
1993 compared to fiscal 1992 was primarily due to increases in the same two
factors. Also contributing to the increase in cost of sales as a percentage of
sales were higher per ton production costs caused by the curtailment of
operations during the initial phases of the strike and higher costs for
electricity, natural gas and electrodes.
The major component of cost of sales is scrap. In fiscal 1992, scrap cost
decreased 8.4% compared to fiscal 1991, but shape prices dropped $2 per ton
more than scrap prices, reducing margins. In the first quarter of fiscal 1993,
scrap prices bottomed out and began rising sharply over the remainder of the
fiscal year. Scrap costs increased an average of 14.6% in fiscal 1993 compared
to fiscal 1992. Overall, in fiscal 1993, scrap cost per ton increased $10 more
than the increase in the shape selling prices, further reducing margins. For
fiscal 1993, the average metal margin was 4.0% below the average metal margin
in fiscal 1992.
Another significant portion of cost of sales is conversion costs, which
include the labor, energy, maintenance material, and supplies used to convert
raw materials into billets and billets into shapes. Conversion costs per ton,
which include fixed and variable costs, decreased 9.0% in fiscal 1992 compared
to fiscal 1991, but increased by 3.0% in fiscal 1993 compared to fiscal 1992.
The decrease in conversion costs per ton for fiscal 1992 was due to the
Company's cost reduction efforts. The Company reduced conversion costs by
operating at a higher level of capacity, implementing capital improvements,
reducing overhead, and renegotiating several major supply contracts. Also,
during the later part of fiscal 1992, the rolling mill operation went from a
six day per week operation to operating at full capacity without additional
staff.
The increase in per ton conversion costs in fiscal 1993 was due to the strike
and increased energy costs. The inability to operate at full capacity during
the initial phases of the strike resulted in reduced production of
approximately 27,000 tons in the melt shop and approximately 30,000 tons in the
rolling mill. As a result, each ton produced during this period included a
higher level of fixed costs than in comparable periods. Conversion costs per
ton also increased due to overtime wages paid to workers as a result of reduced
staffing and training new employees during the strike period. The Company
believes that, without the effect of the strike, conversion costs per ton would
have declined in fiscal 1993 compared to fiscal 1992. Compared to fiscal 1992,
the price of the fuel adjustment component of power increased 28% and the
prices of natural gas and electrodes increased 32% and 9%, respectively,
further increasing conversion costs. Increased consumption of certain supplies
and materials, particularly as new employees were trained, also contributed to
higher per ton conversion costs. The Company is currently operating at full
capacity and since July 1993 overall production and productivity have been near
pre-strike levels. With only a slight improvement in the economy expected in
fiscal 1994, the Company will continue to emphasize cost reductions to be
achieved through operating efficiencies and capital projects.
18
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were relatively stable for
fiscal 1993, 1992, and 1991.
NON-PRODUCTION STRIKE EXPENSES
In fiscal 1993, the Company incurred $3.2 million ($2.5 million of which was
incurred during the first three months of the strike) of non-production strike
expenses, such as legal, security, and other services during the strike. The
Company expects that future strike-related costs will not exceed $100,000 per
month. See "Business--Strike and Impact Upon the Company."
INTEREST EXPENSE & MISCELLANEOUS
Interest expense decreased in fiscal 1993 compared to fiscal 1992 by $0.7
million as the Company purchased $11.1 million aggregate principal of its
14.75% Notes at a purchase price of $10.4 million. Interest expense for fiscal
1992 and 1991 was relatively stable.
Interest income decreased in fiscal 1993 compared to fiscal 1992 and did not
significantly change in fiscal 1992 compared to fiscal 1991. In fiscal 1993,
the Company had less cash to invest following its purchases of the 14.75% Notes
and interest rates were lower compared to fiscal 1992.
Miscellaneous income in fiscal 1993 and 1992 was approximately $0.5 million.
Miscellaneous income in fiscal 1991 of $0.9 million included a favorable
adjustment due to the execution of a renewal contract with the State of
Louisiana to abate state franchise taxes and state sales and use taxes. The
agreement applied retroactively to the prior fiscal year. This contract
agreement, from which the Company derives a benefit of approximately $0.9
million per year, expires in 1995.
The Company enjoys the benefits of tax abatements under a Louisiana tax
exemption program that provides tax relief for companies that expand their
manufacturing facilities. These abatements are initially granted for five years
and are renewable for another five years. The Company currently has 10 separate
abatements which come up for renewal from 1994 through 1997 with the first such
renewal to be considered by the Louisiana Board of Commerce and Industry on
February 23. In the past, such renewals have been routinely granted and the
Company has had all 11 of its prior renewal requests approved. The Union and,
according to materials published by the Union, an environmental group and a tax
policy fairness group, have challenged the Company's next tax abatement renewal
at a public hearing. In addition, the council of St. John the Baptist Parish
adopted a resolution to the effect that the abatement should not be renewed if
the Company were found to have violated Rule 1 under the tax exemption program.
Rule 1, in essence, requires a company to give purchasing preferences to
products made in Louisiana and hiring preferences to Louisiana residents. The
Company believes, based on materials published by the Union, that the Union's
basis for challenging the tax abatement renewals are allegations that the
Company has hired out-of-state employees and that it is not in compliance with
environmental laws. The Louisiana Department of Economic Development has
stated, in a letter to the Board of Commerce and Industry, that the Company did
not violate Rule 1 by hiring too many out-of-state employees. The Louisiana
Department of Environmental Quality has stated, in a letter to the Board of
Commerce and Industry, that the Company has no environmental enforcement
compliance actions outstanding. Subsequently, the Company believes that its
upcoming renewal request will be approved. If such renewal request were not
approved and if all nine subsequent renewals were not approved, the Company
would be required to pay additional taxes of $13,596 in 1994; $141,986 in 1995;
$243,576 in 1996; $385,249 in 1997; $413,699 in 1998; $400,103 in 1999;
$271,713 in 2000; $171,123 in 2001; and $28,450 in 2002.
INCOME TAX
The Company has not incurred income tax expense for fiscal 1993, 1992 and
1991 due to a net loss in each of these years.
19
<PAGE>
NET LOSS
The net loss increased by $4.8 million in fiscal 1993 compared to fiscal
1992. The primary reasons for the increase are strike-related matters, lower
average metal margin and higher prices for energy compared to fiscal 1992.
The net loss in fiscal 1992 decreased by $3.2 million from fiscal 1991 due to
reductions in per ton conversion costs resulting from operational improvements.
Cost of goods sold as a percentage of sales was 91.1% in fiscal 1992 compared
to 94.8% in fiscal 1991 largely due to lower scrap costs and conversion costs.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $24.8 million to $32.4 million in fiscal 1993.
The decrease in fiscal 1993 was due to the reclassification of $9.0 million of
the 14.75% Notes from long-term debt to a current liability, the decrease in
inventories as a result of reduced production during the strike and reductions
in cash caused by the purchase of $11.1 million in principal of the 14.75%
Notes, offset partially by an increase of $6.2 million in receivables.
Net cash used in operations was $0.9 million in fiscal 1993 mainly due to the
net loss and the increase in receivables. The increase in receivables was
primarily due to the increased billet and shape sales in August and September
1993 as compared to the prior year. This was partially offset by the decrease
in inventories and increase in accounts payable. Despite higher accounts
receivable at year end, based on a better aging profile of the Company's
outstanding accounts and reductions in the number of accounts older than 60
days, the Company's allowance for doubtful accounts has decreased compared to
prior periods.
Capital expenditures amounted to $3.2 million in fiscal year 1993. These
expenditures were used for minor upgrades to the plant and major maintenance
projects. The Company intends to implement a two-year, $8.6 million capital
expenditure program.
Cash flow from financing activities decreased cash by $6.6 million in fiscal
1993 due to a purchase of $11.1 million aggregate principal amount of the
14.75% Notes for $10.4 million. This was partially offset by $4.0 million of
short-term borrowings.
On November 23, 1993, the Company entered into an amendment and restatement
of the Credit Facility, which is a three-year line of credit that permits loans
to be made to the Company thereunder, on a secured basis, of up to $30 million.
As of December 31, 1993, there was $5.9 million borrowed under the Credit
Facility. Interest rates under the Credit Facility are prime plus 1% or LIBOR
plus 2% at the Company's option. The Company's Credit Facility contains certain
covenants, such as the Interest Expense Coverage Ratio, which become more
restrictive over time. Under the Credit Facility, the Interest Expense Coverage
Ratio for the quarter ending September 30, 1994 is 1.25 to 1.00 and becomes
increasingly more restrictive for the quarters thereafter. For the quarter
ended December 31, 1993, the Company's Interest Expense Coverage Ratio on a pro
forma basis (assuming completion of the Offering) would have been 1.05 to 1.00.
In the event of a default under the Credit Facility, the Company would not be
permitted to borrow under the Credit Facility and the lenders thereunder may
accelerate payment of all amounts then outstanding and terminate their
commitments. A default under the Credit Facility may cause a default under the
Indenture. If the Company's operations measured on a quarterly basis do not
improve over its results for the first quarter of fiscal 1994, it will not be
able to satisfy the Interest Expense Coverage Ratio at September 30, 1994. In
such event, the Company would seek a waiver of the covenant from its lenders
under the Credit Facility or otherwise renegotiate the terms of its Credit
Facility. There can be no assurance that the Company will be
20
<PAGE>
able to obtain any necessary waivers or be able to renegotiate the terms of the
Credit Facility. However, the Company believes that its normal operations
(assuming a 3% improvement in shipments over the next 15 months and metal
margins equal to their historical average) will be sufficient to satisfy these
covenants, although there can be no assurance that other events will not occur
that will affect the Company's ability to satisfy such covenants. See
"Description of Certain Indebtedness--Credit Facility." The Company will use
the proceeds of this Offering to defease and redeem the $48.9 million of
outstanding 14.75% Notes and repay the then outstanding loans under the Credit
Facility. The Company believes that current cash balances, internally generated
funds and the Credit Facility will provide adequate funds for the Company's
operating requirements. In addition, the Indenture contains a covenant which
restricts the Company's ability to incur additional indebtedness. Under the
Indenture, the Company may not incur additional indebtedness unless its EBITDA
Ratio would be greater than 2.00 to 1.00 after giving effect to such
incurrence.
There are no financial obligations with respect to post-employment or post-
retirement benefits.
OTHER COMMENTS
ENVIRONMENTAL MATTERS
See "Business--Environmental Matters" for a description of the Company's
environmental matters.
STRIKE
See "Business--Strike and Impact Upon the Company" for a description of the
strike.
INFLATION
The Company is subject to increases in the cost of energy, supplies, salaries
and benefits, additives, alloy and scrap due to inflation. Shape prices are
influenced by supply, which varies with steel mill capacity and utilization,
and market demand.
ACCOUNTING FOR INCOME TAXES
The Company has $310 million of NOLs to offset against regular taxes. The
NOLs expire in varying amounts through fiscal 2008. A substantial portion of
the available NOLs, approximately $200 million, expires by fiscal 2000. In
addition, the Company has $30.2 million of future tax benefits attributable to
the Tax Lease Agreement which expires in 1996 (see Note 8 to the Financial
Statements) and which may, to the extent of taxable income in the year such tax
benefit is produced, be utilized prior to the NOLs. Even though management
believes the Company will be profitable in the future and will be able to
utilize a portion of the NOLs, management does not believe that it is likely
that all of the NOLs will be utilized. In February 1992, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("FAS 109"), which will require the
Company to change its method of accounting for income taxes for financial
reporting purposes for the fiscal year beginning October 1, 1993. FAS 109
requires, among other things, recognition of future tax benefits, subject to a
valuation allowance based on the likelihood of realizing such benefits.
Preliminary calculations indicate that deferred tax assets of approximately
$118 million (NOLs and other temporary timing differences multiplied by the
federal income tax rate) and deferred tax liabilities of approximately $8
million will be recorded upon adoption of FAS 109 in fiscal 1994. However, in
recording these deferred assets, FAS 109 requires the Company to determine
whether it is "more-likely-than-not" that the Company will realize such
benefits and that all negative and positive evidence be considered (with more
weight given to evidence that is "objective and verifiable") in making the
determination. FAS 109 indicates that "forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years"; therefore, the Company has determined that
it will be required by the provisions of FAS 109 to establish a valuation
allowance for all of the recorded net deferred tax assets at the time the
standard is adopted. In view of the fact that this determination was based
primarily on historical losses with no regard for the impact of proposed
capital expenditures and business plans, future favorable adjustments to the
valuation allowance may be required if and when circumstances change and the
Company returns to profitability. Adoption of FAS 109 will have no material
adverse impact on income for financial reporting or tax purposes.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BAYOU STEEL CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1993 1992
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments................ $ 517,900 $ 11,149,702
Receivables, net of allowance for doubtful accounts
of $543,000 in 1993 and $943,000 in 1992.......... 18,676,907 12,339,576
Inventories........................................ 48,486,409 53,751,954
Prepaid expenses................................... 222,277 257,058
------------ ------------
Total current assets............................. 67,903,493 77,498,290
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land............................................... 2,750,398 2,411,182
Machinery and equipment............................ 76,257,285 73,623,878
Plant and office building.......................... 14,036,845 13,825,104
------------ ------------
.................................................. 93,044,528 89,860,164
Less--Accumulated depreciation..................... 23,785,624 19,624,375
------------ ------------
Net property, plant and equipment................ 69,258,904 70,235,789
------------ ------------
OTHER ASSETS......................................... 1,117,788 1,646,784
------------ ------------
Total assets..................................... $138,280,185 $149,380,863
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............... $ 9,282,156 $ 391,797
Borrowings under line of credit.................... 4,000,000 --
Accounts payable................................... 17,671,926 14,837,557
Accrued liabilities................................ 4,560,249 5,101,568
------------ ------------
Total current liabilities........................ 35,514,331 20,330,922
------------ ------------
LONG-TERM DEBT....................................... 41,534,625 61,664,977
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--
Class A: 24,271,127 authorized and
10,613,380 outstanding shares............. 106,134 106,134
Class B: 4,302,347 authorized and
2,271,127 outstanding shares.............. 22,711 22,711
Class C: 100 authorized and outstanding shares..... 1 1
------------ ------------
Total common stock............................... 128,846 128,846
Paid-in capital.................................... 44,890,554 44,890,554
Retained earnings.................................. 16,211,829 22,365,564
------------ ------------
Total stockholders' equity....................... 61,231,229 67,384,964
------------ ------------
Total liabilities and stockholders' equity....... $138,280,185 $149,380,863
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
22
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................ $136,008,039 $119,771,725 $131,270,887
------------ ------------ ------------
COST OF SALES........................ 128,032,556 109,115,193 124,435,433
------------ ------------ ------------
GROSS PROFIT......................... 7,975,483 10,656,532 6,835,454
------------ ------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE.. 3,985,564 4,071,154 4,125,008
NON-PRODUCTION STRIKE EXPENSES....... 3,162,325 -- --
------------ ------------ ------------
827,594 6,585,378 2,710,446
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense................... (8,260,775) (8,976,619) (8,821,364)
Interest income.................... 192,821 485,557 638,189
Miscellaneous...................... 501,084 554,015 901,699
------------ ------------ ------------
(7,566,870) (7,937,047) (7,281,476)
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES &
EXTRAORDINARY GAIN.................. (6,739,276) (1,351,669) (4,571,030)
PROVISION FOR INCOME TAXES........... -- -- --
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
GAIN................................ (6,739,276) (1,351,669) (4,571,030)
EXTRAORDINARY GAIN................... 585,541 -- --
------------ ------------ ------------
NET INCOME (LOSS).................... $ (6,153,735) $ (1,351,669) $ (4,571,030)
============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary
gain.............................. $ (.52) $ (.10) $ (.35)
Extraordinary gain................. .04 -- --
------------ ------------ ------------
Income (loss) per common share..... $ (.48) $ (.10) $ (.35)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1993 1992 1991
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss)........................ $ (6,153,735) $(1,351,669) $(4,571,030)
Extraordinary gain................... (585,541) -- --
Depreciation and amortization........ 4,616,286 4,308,936 3,803,291
Provision for losses on accounts
receivable.......................... (174,994) (233,025) 373,323
Changes in working capital:
(Increase) decrease in receivables.. (6,162,337) 2,219,855 2,338,345
Decrease (increase) in inventories.. 5,265,545 (3,740,480) 7,765,127
Decrease (increase) in prepaid
expenses........................... 34,781 92,839 (7,567)
Increase (decrease) in accounts
payable............................ 2,834,369 1,517,447 (5,326,494)
(Decrease) increase in accrued
liabilities........................ (541,319) 845,253 1,238,887
------------ ----------- -----------
Net cash (used in) provided by
operations........................ (866,945) 3,659,156 5,613,882
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant and
equipment........................... (3,184,364) (3,234,659) (7,374,083)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit...... 4,000,000 -- --
Payments of long-term debt........... (10,836,789) (625,887) (5,691,567)
Proceeds from issuance of long-term
debt................................ 256,296 327,214 2,098,232
(Payment of) accrued interest on
unpaid dividends.................... -- -- (1,490,918)
(Increase) in other assets........... -- -- (41,677)
------------ ----------- -----------
Net cash used in financing
activities........................ (6,580,493) (298,673) (5,125,930)
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... (10,631,802) 125,824 (6,886,131)
CASH AND CASH EQUIVALENTS, beginning
balance............................... 11,149,702 11,023,878 17,910,009
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, ending
balance............................... $ 517,900 $11,149,702 $11,023,878
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDERS'
CLASS A CLASS B CLASS C CAPITAL EARNINGS EQUITY
-------- ------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
October 1, 1990........ $106,134 $22,711 $ 1 $44,890,554 $28,288,263 $73,307,663
Net loss.............. -- -- -- -- (4,571,030) (4,571,030)
-------- ------- ---- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1991..... 106,134 22,711 1 44,890,554 23,717,233 68,736,633
Net loss.............. -- -- -- -- (1,351,669) (1,351,669)
-------- ------- ---- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1992..... 106,134 22,711 1 44,890,554 22,365,564 67,384,964
Net loss.............. -- -- -- -- (6,153,735) (6,153,735)
-------- ------- ---- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1993..... $106,134 $22,711 $ 1 $44,890,554 $16,211,829 $61,231,229
======== ======= ==== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1993 AND 1992
1. OWNERSHIP:
Bayou Steel Corporation (of LaPlace) was incorporated in Louisiana in 1979.
On September 5, 1986, Bayou Steel Acquisition Corporation (BSAC) acquired
substantially all of the capital stock of Bayou Steel Corporation (of LaPlace)
from the former stockholders (the Acquisition) for $75,343,000. Simultaneously
with the Acquisition, BSAC merged into Bayou Steel Corporation (of LaPlace)
(the Company) with the Company being the surviving corporation. The Company
reincorporated as a Delaware corporation on July 19, 1988 and changed its name
from Bayou Steel Corporation (of LaPlace) to Bayou Steel Corporation on August
3, 1988.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories are carried at the lower of cost (last-in, first-out) or market
except mill rolls, operating supplies, and other which are stated at average
cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired as part of the Acquisition was
recorded based on the purchase price (see Note 1). Betterments and improvements
on property, plant and equipment are capitalized at cost. Interest during
construction of significant additions is capitalized. Interest of $115,000,
$107,000 and $264,000 was capitalized during the years ended September 30,
1993, 1992 and 1991, respectively. Repairs and maintenance are expensed as
incurred. Depreciation is provided on the units-of-production method for
machinery and equipment and on the straight-line method for buildings over an
estimated useful life of 30 years.
STATEMENT OF CASH FLOWS
The Company considers investments purchased with an original maturity of
generally three months or less to be cash equivalents.
Cash payments for interest and Federal income taxes during the three years
ended September 30, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- -----------
<S> <C> <C> <C>
Interest...................................... $8,444,066 $9,083,712 $10,792,024
Income taxes.................................. -- -- --
</TABLE>
TAXES
The Company has not incurred income tax expense for fiscal 1993, 1992 and
1991 due to a net loss in each of these years.
CREDIT RISK
The Company extends credit to its customers primarily on 30 day terms and
encourages discounting. The Company believes that the credit risk is minimal
due to the ongoing review of its customers' financial
26
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
conditions and its requirement of letters of credit on some orders. Also, the
Company invests its excess cash in high-quality short-term financial
instruments.
OPERATING LEASE COMMITMENTS
The Company has no significant operating lease commitments that would be
considered material to the financial statement presentation.
3. INVENTORIES:
Inventories, as of September 30, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Scrap steel........................................ $ 3,187,963 $ 3,449,093
Billets............................................ 3,918,223 3,830,571
Finished product................................... 25,242,294 25,920,243
LIFO adjustments................................... (324,303) 3,764,072
----------- -----------
32,024,177 36,963,979
Mill rolls, operating supplies, and other.......... 16,462,232 16,787,975
----------- -----------
$48,486,409 $53,751,954
=========== ===========
</TABLE>
Decrements in the last-in, first-out ("LIFO") inventories had the effect of
decreasing net loss by $124,000 or $0.01 per share in fiscal 1993. There was an
increment in the last-in, first-out inventories in fiscal 1992. At September
30, 1993 and 1992, the first-in, first-out ("FIFO") inventories were $32.3
million and $33.2 million, respectively. A lower of cost or market evaluation
of the carrying value of inventory was done at the end of each fiscal year. For
all years presented, market value was in excess of the carrying value of the
LIFO and FIFO inventories.
4. PROPERTY, PLANT AND EQUIPMENT:
Depreciation expense during the years ended September 30, 1993, 1992 and 1991
was allocated as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Inventory.................................. $ -- $ 87,193 $ --
Cost of sales.............................. 4,156,851 3,884,913 3,467,871
Selling, general and administrative........ 4,398 4,347 4,326
---------- ---------- ----------
$4,161,249 $3,976,453 $3,472,197
========== ========== ==========
</TABLE>
5. OTHER ASSETS:
Other assets consist of costs associated with the issuance of the 14.75%
Notes and the line of credit (see Notes 6 and 7) which are being amortized over
the lives of the related debt. Amortization expense was approximately $458,000,
$332,000 and $331,000 for the years ended September 30, 1993, 1992 and 1991,
respectively.
27
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT:
Long-term debt of the Company as of September 30, 1993 and 1992 included the
following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Senior Secured Notes (see below).................... $48,900,000 $60,000,000
Other notes payable, due monthly, bearing interest
from 8.5% to 10.50% secured by Company assets...... 1,916,781 2,056,774
----------- -----------
50,816,781 62,056,774
Less--current maturities............................ 9,282,156 391,797
----------- -----------
$41,534,625 $61,664,977
=========== ===========
</TABLE>
The 14.75% Notes are secured by a mortgage (the Mortgage) covering real
property, plant and equipment. The 14.75% Notes bear interest at the nominal
rate of 14.75% per annum (subject to increase as stated below) payable on March
15 and September 15 of each year. If operating income, as defined, plus
depreciation and amortization, exceeds $20,000,000 for any fiscal year ending
September 30, the interest rate for the following calendar year only is to be
increased by 0.02% for each $50,000 of such excess. The nominal interest rate
and such excess rate cannot exceed a maximum rate of 20.75% per annum if the
14.75% Notes remain secured by the Mortgage on February 15 of the year for
which the excess interest rate is being determined or 23.50% per annum if on
such date the 14.75% Notes are no longer secured by the Mortgage. For fiscal
1993 and 1992, the Company accrued interest at a rate of 14.75%.
The 14.75% Notes may be redeemed, at the Company's option, in whole or in
part at specified redemption prices plus accrued interest to the date of
redemption. This redemption price was 115% of principal amount at September 30,
1993 and is to decline at a rate of 5% per year. Beginning October 1, 1995, the
outstanding principal can be redeemed at par. The Company is required to redeem
$9,000,000 of the 14.75% Notes on March 15 in each of the years 1994, 1995,
1996 and 1997, with a $24,000,000 balloon payment due March 15, 1998. During
fiscal 1993, the Company purchased $11.1 million in principal of the 14.75%
Notes at a net discount. While the Company has the right to apply the purchased
the 14.75% Notes to any redemption date, it has not decided which redemption
the purchased the 14.75% Notes will be applied against. The $9.0 million
principal payment due in March 1994 has been classified as a current liability
on the Company's balance sheet.
The result of the 14.75% Note purchases at a net discount, reduced by the
write-off of the related unamortized deferred cost (see Note 5), has been
reflected in the accompanying statement of income as an extraordinary gain.
There was no tax effect related to this transaction.
7. SHORT-TERM BORROWING ARRANGEMENT:
On June 28, 1989, the Company arranged a five-year $40,000,000 line of credit
with a group of banks which will be used for general corporate purposes. The
Company can borrow against the line of credit at market rates. The amount that
may be advanced to the Company is limited to $40,000,000 less the balance of
outstanding letters of credit and unpaid loans under the line. Based on these
criteria, the amount available as of September 30, 1993 and 1992 was
$34,475,016 and $38,475,016, respectively. Amounts borrowed under the line of
credit are secured by a lien on the Company's receivables, inventory and
certain contract rights. There were no borrowings under the line of credit for
fiscal 1992 and the only borrowing for fiscal 1993 of $4,000,000 occurred on
September 15, 1993 and remained outstanding at a rate of 3.75% through
September 30, 1993.
28
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On November 23, 1993, the Company entered into an amendment and restatement
of its line of credit agreement. The terms of the new agreement call for
available borrowings up to $30 million, secured by inventory and accounts
receivable, at interest rates of prime plus 1% or LIBOR plus 2%.
8. INCOME TAXES:
The Company is subject to United States Federal income taxes. The primary
difference between book and tax reporting of income relates to the allocation
of the carrying cost of property, plant and equipment to operations due to (a)
different depreciation methods used for tax and financial reporting purposes,
(b) a writedown of the carrying value of property, plant and equipment to
estimated net realizable value recorded for financial reporting purposes in
prior years, and (c) the sale of tax benefits discussed below.
In 1981, the Company (pre-Acquisition) entered into lease agreements with an
unrelated corporation whereby certain tax benefits were transferred to the
unrelated corporation as allowed under the provisions of the Economic Recovery
Tax Act of 1981. These agreements, the last of which will expire in late 1996,
include various covenants not to dispose of the property covered by the
agreement and indemnification of the unrelated corporation by the former
majority stockholder against any losses which might result from a breach of the
Company's warranties and covenants, including those related to the Federal
income tax implications of the transaction. Pursuant to the Acquisition and as
a result of the merger (see Note 1) and the Mortgage, the Company agreed to
require any purchaser of the property subject to such Mortgage to take the
property subject to such agreements and to ensure that any disposition of the
property upon a foreclosure of the Mortgage would not constitute a
"disqualifying event" within the meaning of the regulations promulgated under
Section 168(f)(8) of the Internal Revenue Code as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982. The result
of this and other related agreements may be to limit the marketability of the
property upon a foreclosure of the Mortgage. The Company will recognize
interest income of $8.2 million and rent expense of $38.4 million for tax
reporting purposes in fiscal years 1994 through 1997 based upon the foregoing
agreements.
As of September 30, 1993, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $310.5 million and $284.5 million
available to offset against regular tax and alternative minimum tax,
respectively. Due to the fact that book and tax losses were generated in 1993,
1992 and 1991, there was no provision for income taxes in any of these years.
The NOLs will expire in varying amounts through fiscal 2008. A substantial
portion of the available NOLs, approximately $200 million, expires by fiscal
2000. In addition, the Company has $30.2 million of future tax benefits
attributable to its tax benefit lease which expires in 1996 and which may, to
the extent of taxable income in the year such tax benefit is produced, be
utilized prior to the NOLs. Even though management believes the Company will be
profitable in the future and will be able to utilize a portion of the NOLs,
management does not believe that it is likely that all of the NOLs will be
utilized. In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"), which will require the Company to change its method of
accounting for income taxes for financial reporting purposes for the fiscal
year beginning October 1, 1993. FAS 109 requires, among other things,
recognition of future tax benefits, subject to a valuation allowance based on
the likelihood of realizing such benefits. Preliminary calculations indicate
that deferred tax assets of approximately $118 million (NOLs and other
temporary timing differences multiplied by the federal income tax rate) and
deferred tax liabilities of approximately $8 million will be recorded upon
adoption of FAS 109 in fiscal 1994. However, in recording these deferred
assets, FAS 109 requires the Company to determine whether it is "more-likely-
than-not" that the Company will realize such benefits and that all negative and
positive evidence be considered (with more weight given to evidence that is
"objective and verifiable") in
29
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
making the determination. FAS 109 indicates that "forming a conclusion that a
valuation allowance is not needed is difficult when there is negative evidence
such as cumulative losses in recent years"; therefore, the Company has
determined that it will be required by the provisions of FAS 109 to establish a
valuation allowance for all of the recorded net deferred tax assets at the time
the standard is adopted. In view of the fact that this determination was based
primarily on historical losses with no regard for the impact of proposed
capital expenditures and business plans, future favorable adjustments to the
valuation allowance may be required if and when circumstances change and the
Company returns to profitability. Adoption of FAS 109 will have no material
adverse impact on income for financial reporting or tax purposes.
The Company and an individual controlling the current majority stockholder
agreed to indemnify the former majority stockholder for any payments required
to be made to the unrelated corporation caused by the Company's failure to
comply with the foregoing agreements. The former stockholder retains ownership
of the Company's Class C Common Stock which carries certain limited voting
rights including the holders' right to prevent certain transactions
(liquidation and certain mergers) which could result in liability to the former
majority stockholder under its indemnification to the unrelated corporation.
The Company's Class B Common Stock carries these same voting rights.
9. COMMITMENTS AND CONTINGENCIES:
CONTRACT WITH KEY EMPLOYEE
The Company entered into an employment arrangement in 1986 with the Chief
Executive Officer (CEO). The agreement provides that the CEO's annual
compensation will be limited to the higher of a specified amount or a
percentage of the Company's pretax net income earned in the previous year. The
CEO has agreed not to pursue any steel-related acquisition activities other
than through the Company, and all other acquisition activities, to the extent
required by his fiduciary duty as a direct or indirect controlling stockholder
and director of the Company, must be through the Company, giving effect to the
legal doctrine of "corporate opportunity."
EMPLOYEE STOCK OPTION PLAN
The Board of Directors and the Stockholders approved the 1991 Employees Stock
Option Plan (the "1991 Plan") for the purpose of attracting and retaining key
employees. The 1991 Plan provides for granting up to 600,000 shares of Class A
Common Stock, over a ten year period, from the Company's authorized and
unissued shares or from Treasury Stock. No options have been granted.
STRIKE
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike against the Company. Negotiations on a new contract
have continued, but differences have thus far precluded an agreement. The
Company cannot predict the impact that a new collective bargaining contract
will have on the Company's results. However, the Company believes a new
contract will not have a material effect on the Company's results. Also, the
Union has filed charges with the National Labor Relations Board alleging that
the Company has violated the National Labor Relations Act relating to its
bargaining conduct. The Company believes it has meritorious defenses to these
charges and has responded timely to all of these allegations and believes that
it has negotiated in good faith with the Union. An unfavorable decision by the
National Labor Relations Board, however, should not materially affect the
Company.
30
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
ENVIRONMENTAL
The Company is subject to various Federal, state and local laws and
regulations concerning the discharge of contaminants which may be emitted into
the air, discharged into waterways, and the disposal of solids and/or hazardous
wastes such as electric arc furnace dust. In addition, in the event of a
release of a hazardous substance generated by the Company, the Company could be
potentially responsible for the remediation of contamination associated with
such a release. In the past, the Company's operations in some respects have not
met all of the applicable standards promulgated pursuant to such laws and
regulations. At this time, the Company believes that it is in compliance in all
material respects with applicable environmental requirements and that the cost
of such continuing compliance will not have a material adverse effect on the
Company's competitive position, operations or financial condition, or cause a
material increase in currently anticipated capital expenditures. The Company
currently has no mandated expenditures to address previously contaminated sites
and does not anticipate any infrequent or non-recurring clean-up expenditures.
Also, the Company is not designated as a Potential Responsible Party ("PRP")
under the Superfund legislation.
OTHER
The Company does not provide any post-employment or post-retirement benefits
to its employees other than those described in Note 10.
There are various claims and legal proceedings arising in the ordinary course
of business pending against or involving the Company wherein monetary damages
are sought. It is management's opinion that the Company's liability, if any,
under such claims or proceedings would not materially affect its financial
position.
10. EMPLOYEE RETIREMENT PLANS:
Effective October 1, 1991, the Company implemented two defined benefit
retirement plans (the "Plan(s)"), one for employees covered by the contracts
with the United Steelworkers of America ("hourly employees") and one for
substantially all other employees ("salaried employees"). The Plan for the
hourly employees provides benefits of stated amounts for a specified period of
service. The Plan for the salaried employees provides benefits based on
employees' years of service and average compensation for a specified period of
time before retirement. The Company follows the funding requirements under the
Employee Retirement Income Security Act of 1974 ("ERISA").
The net pension cost for both non-contributory Company sponsored pension
plans consists of the following components for fiscal year 1993 and 1992:
The actuarial present value of future benefit obligations:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Vested benefit obligation.............................. $ 490,977 $ 246,271
Non-vested benefit obligation.......................... 17,960 16,593
--------- ---------
Accumulated benefit obligation......................... $ 508,937 $ 262,864
========= =========
Projected benefit obligation........................... $ 776,582 $ 369,070
Plan assets at fair value.............................. (473,305) --
--------- ---------
Funded Status.......................................... 303,277 $ 369,070
Unrecognized net loss.................................. (118,300) (82,708)
Adjustment for additional liability.................... 23,319 16,297
--------- ---------
Accrued pension liability.............................. $ 208,296 $ 302,659
========= =========
</TABLE>
31
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Determination of net periodic pension cost:
<TABLE>
<S> <C> <C>
Service cost........................................... $ 336,676 $ 298,332
Interest cost.......................................... 27,216 --
Experience loss........................................ (14,203) (11,970)
Net amortization....................................... 2,838 --
Deficiency in accumulated benefit obligation........... 23,319 16,297
--------- ---------
Total net periodic pension cost........................ $ 375,846 $ 302,659
========= =========
</TABLE>
The primary actuarial assumptions used in determining the above benefit
obligation amounts were established on the September 30, 1993 and 1992
measurement dates and include a discount rate of 7.5% per annum on valuing
liabilities; long-term expected rate of return on assets of 9% per annum;
salary increases of 5% per annum for salaried employees; and an inflation rate
of 5% per annum.
11. MAJOR CUSTOMERS:
No single customer accounts for 10% or more of the total sales for the years
ended September 30, 1993, 1992 and 1991.
12. RELATED PARTY TRANSACTIONS:
SERVICE AGREEMENT WITH RELATED PARTIES
The Company and related parties controlled by a stockholder entered into a
Service Agreement dated September 5, 1986 (the Service Agreement), pursuant to
which the related parties provide certain assistance and services (research and
development, industrial and labor relations, engineering, legal, etc.) to the
Company for a fee. Costs charged for these services were approximately $87,000
for the year ended September 30, 1993, $107,000 for the year ended September
30, 1992, and $84,000 for the year ended September 30, 1991. The Service
Agreement may be terminated by either the Company or the related parties on 90
days' prior written notice to the other party.
OTHER AGREEMENTS WITH STOCKHOLDERS
The Company entered into an agreement on May 28, 1987 with a stockholder to
provide certain investment banking services to the Company over the next 7
years on a competitive, first refusal basis. Although services were provided,
no obligations were incurred in fiscal years 1993 and 1992. On June 20, 1991
and December 16, 1992, another minority shareholder entered into an arms length
success fee agreement with the Company with respect to merger and acquisition
advisory and private placement services in connection with a possible corporate
acquisition by the Company. During fiscal 1992, the Company paid $25,000 for
out-of-pocket expenses; during fiscal 1993 the Company paid $25,000 for
services under such agreement.
13. COMMON STOCK:
Income per common share is based on the average number of common shares
outstanding of 12,884,607 for the years ended September 30, 1993, 1992 and
1991, respectively.
Other than for voting rights, all classes of Common Stock have similar
rights. With respect to voting rights, Class B Common Stock has 60% and Class A
and Class C Common Stock have 40% of the votes except for special voting rights
for Class B and Class C Common Stock on liquidation and certain mergers
32
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(see Note 8). The Company's ability to pay dividends is subject to restrictive
covenants under both the Indenture pursuant to which the Company's 14.75 Notes
were issued and the Company's line of credit (see Notes 6 and 7).
14. MISCELLANEOUS:
Miscellaneous income/(expense) as of September 30, 1993, 1992 and 1991
included the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Discount earned.................................. $149,648 $211,200 $ 68,122
Allowance for doubtful accounts.................. 174,994 233,025 (373,323)
Tax abatement refund FY'90....................... -- -- 813,186
Power company refund FY'81....................... -- -- 152,950
Other income..................................... 176,442 109,790 240,764
-------- -------- --------
$501,084 $554,015 $901,699
</TABLE>
15. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL YEAR 1993 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales.......................... $ 31,833 $ 33,408 $ 34,485 $ 36,282
Gross Profit....................... 3,634 2,040* 745 1,556
Net Income (Loss) Before
Extraordinary Gain (Loss)......... 347 (1,697) (4,078) (1,311)
Extraordinary Gain (Loss).......... 756 -- -- (170)
Net Income (Loss).................. 1,102 (1,697) (4,078) (1,481)
Income (Loss) Per Common Share
Before Extraordinary Gain (Loss).. .03 (.13) (.32) (.10)
Extraordinary Gain (Loss) Per
Common Share...................... .06 -- -- (.01)
Income (Loss) Per Common Share..... .09 (.13) (.32) (.11)
<CAPTION>
FISCAL YEAR 1992 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales.......................... $ 29,211 $ 29,037 $ 31,050 $ 30,474
Gross Profit....................... 2,386 2,759 2,618 2,893
Net Income (Loss).................. (699) (352) (504) 203
Income (Loss) Per Common Share..... (.05) (.03) (.04) .02
</TABLE>
- --------
* Amount has been restated to conform with the 3rd and 4th quarter's 10-Q
presentation of strike-related expenses.
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation:
We have audited the accompanying balance sheets of Bayou Steel Corporation (a
Delaware corporation) as of September 30, 1993 and 1992, and the related
statements of income (loss), cash flows, and changes in equity for the years
ended September 30, 1993, 1992, and 1991. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bayou Steel Corporation as of
September 30, 1993 and 1992 and the results of its operations and its cash
flows for the years ended September 30, 1993, 1992, and 1991 in conformity with
generally accepted accounting principles.
Arthur Andersen & Co.
New Orleans, Louisiana
November 24, 1993
34
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding Directors and Executive Officers is incorporated by
reference to the "Directors" section of the Company's Proxy Statement for the
1994 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference to
the "Executive Compensation" section of the Company's Proxy Statement for the
1994 Annual Meeting of Shareholders.
ITEM 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The beneficial ownership of the Company's Common Stock as of October 29,
1993, by persons, other than directors and officers, known to the Company to be
beneficial owners of more than 5% of the outstanding Common Stock is
incorporated by reference to the "Voting Securities and Security Ownership"
section of the Company's Proxy Statement for the 1994 Annual Meeting of
Shareholders.
Security Ownership of Management and Directors
The beneficial ownership of the Company's Common Stock of all Directors and
Officers is incorporated by reference to the "Board of Directors" section of
the Company's Proxy Statement for the 1994 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information regarding certain relationships and related
transactions is incorporated by reference to the "Agreement Concerning Change
in Control" and "Service Agreement" and "Agreements with Allen & Company
Incorporated" and "Agreements with MMG Patricof & Co." sections of the
Company's Proxy Statement for the 1994 Annual Meeting of Shareholders and to
the "Notes to Financial Statements" section of the 1993 Annual Report.
35
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(A) (I) FINANCIAL STATEMENTS
Consolidated Financial Statements:
Balance Sheets at September 30, 1993 and 1992........................... 21
Statements of Operations for each of the three years ended September 30,
1993................................................................... 22
Statements of Cash Flows for each of the three years ended September 30,
1993................................................................... 23
Statements of Changes in Stockholders' Equity for the three years ended
September 30, 1993..................................................... 24
Notes to Financial Statements........................................... 25
Report of Independent Public Accountants................................. 33
(II) FINANCIAL STATEMENT SCHEDULES
Schedule V--Property, Plant and Equipment for the three years ended Sep-
tember 30, 1993......................................................... 39
Schedule VI--Accumulated Depreciation for the three years ended September
30, 1993................................................................ 40
Schedule VIII--Valuation and Qualifying Accounts for the three years
ended September 30, 1993................................................ 41
Schedule X--Supplementary Income Statement Information for the three
years ended
September 30, 1993...................................................... 42
Auditor's Opinion Relating to Schedules.................................. 43
</TABLE>
Schedules not listed above are omitted because of the absence of conditions
under which they are required or because the required information is
included in the financial statements submitted.
(B)REPORTS ON FORM 8-K
Form 8-K was filed on March 21, 1993 under Item 5, "Other Events".
36
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
3.1 Second Restated Certificate of Incorporation of the Company
(incorporated by reference herein to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-10745)).
3.2 By-laws of the Company (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
4.1 Specimen Certificate for Class A Common Stock (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-10745)).
4.2 Stockholders Agreement dated July 26, 1988 between the Company and the
holders of the Class A Common Stock and Class B Common Stock
outstanding prior to July 26, 1988 (incorporated herein by reference to
Post Effective Amendment No. 1 to Registration Statement on Form S-1
(No. 33-10745)).
4.3 Agreement between RSR, the Company and Howard M. Meyers dated July 26,
1988 (incorporated herein by reference to Post Effective Amendment No.
1 to Registration Statement on Form S-1 (No. 33-10745)).
4.4 Indenture dated September 5, 1986, between the Company and First
National Bank of
Commerce, as Trustee (incorporated herein by reference to Registration
Statement on Form S-1 (No.33-10745)).
4.5 Act of First Supplemental Indenture dated March 25, 1988 from the
Company to First National Bank of Commerce, as Trustee (incorporated
herein by reference to Registration Statement on Form S-1 (No. 33-
22603)).
4.6 Real and Chattel Mortgage and Collateral Assignment of Leases dated
September 5, 1986, between the Company and First National Bank of
Commerce, as Trustee (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-10745)).
4.7 Senior Secured Note Purchase Agreement dated as of September 5, 1986,
between the Company and the original purchasers of the Senior Secured
Notes Due 1998 (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-10745)).
4.8 Form of Senior Secured Note Due 1998 (incorporated herein by reference
to Registration Statement on Form S-1 (No. 33-10745)).
4.9 Amendment No. 1 to Exhibit 4.6, dated April 9, 1987 (incorporated
herein by reference to Registration Statement on Form S-1 (No. 33-
22603)).
4.10 Amendment No. 2 to Exhibit 4.6, dated January 21, 1988 (incorporated
herein by reference to Registration Statement on Form S-1 (No. 33-
22603)).
4.11 Amendment No. 3 to Exhibit 4.6, dated March 17, 1988 (incorporated
herein by reference to Registration Statement on Form S-1 (No. 33-
22603)).
4.12 Amendment No. 4 to Exhibit 4.6, dated July 21, 1988 (incorporated
herein by reference to Registration Statement on Form S-1 (No. 33-
22603)).
4.13 Act of Second Supplemental Indenture and Act of Amendment No. 5 to Real
and Chattel Mortgage and Collateral Assignment of Leases dated
September 2, 1988, between Bayou Steel Corporation and First National
Bank of Commerce, as Trustee. [Amendment No. 5 to Exhibit 4.6 and
second Amendment to Exhibit 4.7.] (Incorporated herein by reference to
the Company's Annual Report on Form 10-K for the year ended September
30, 1988.)
4.14 Amendment No. 6 to Exhibit 4.6, dated September 13, 1988 (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1989).
4.15 Third Supplemental Indenture and Act of Amendment No. 7 to Real &
Chattel Mortgage and Collateral Assignment of Leases by Bayou Steel
Corporation in favor of First National Bank of Commerce, as Trustee,
dated July 27, 1989. [Third Amendment to Exhibit 4.5 and Amendment No.
7 to Exhibit 4.6.] (Incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended September 30, 1989.)
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
4.16 Amendment No. 8 to Exhibit 4.6, dated October 30, 1989 (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1989).
4.17 Amendment No. 9 to Exhibit 4.6, dated April 27, 1990 (incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990).
4.18 Amendment No. 10 to Exhibit 4.6, dated May 9, 1990 (incorporated herein
by reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990).
4.19 Amendment No. 11 to Exhibit 4.6, dated May 22, 1990 (incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1990).
4.20 Amendment No. 12 to Exhibit 4.6, dated September 18, 1991 (incorporated
herein by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1991).
4.21 Stock Purchase Agreement dated August 28, 1986, between BSAC and the
purchasers of the Company's Class A Common Stock and Preferred Stock
(incorporated herein by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-10745)).
4.22 Stock Purchase Agreement dated August 28, 1986, between BSAC and RSR,
the sole purchaser of the Company's Class B Common Stock (incorporate
herein by reference to Registration Statement on Form S-1 (No. 33-
22603)).
4.23 Stock Purchase Agreement dated August 28, 1986, between BSAC and Allen
& Company, Incorporated (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-22603)).
4.24 Agreement between the Company and the holders of Preferred Stock dated
as of July 26, 1988 (incorporated herein by reference to Post-Effective
Amendment No. 1 to Registration Statement on Form S-1 (No. 33-10745)).
10.1 Employment Letter dated July 26, 1988, between Howard M. Meyers and the
Company (incorporated herein by reference to Post-Effective Amendment
No. 1 to Registration Statement on Form S-1 (No. 33-10745)).
10.2 (i) Agreement dated November 11, 1981, between Amoco Tax Leasing I
Corporation ("Amoco") and the Company, (ii) letter dated December 7,
1981 from Voest-Alpine A.G. ("VA") and Voest-Alpine International
Corporation ("VAIC") to Amoco, and (iii) letter dated November 11, 1981
from VAIC, Honen Investissements SARL, Barzel Investissements SARL,
Anku Foundation, Raphaely Steel Investments, N.V., Landotal Properties,
Inc., Canota Investments, Ltd., S.A. and Beruga Establishment and VA to
Amoco (incorporated herein by reference to Registration Statement on
Form S-1 (No. 33-10745)).
10.3 Release of Federal Income Tax Ownership and Agreement dated September
5, 1986, among the Company, First National Bank of Commerce, Bayou
Steel Acquisition Corporation, VA and Howard M. Meyers (incorporated
herein by reference to Registration Statement on Form S-1
(No. 33-10745)).
10.4 Service Agreement dated September 5, 1986, between the Company and RSR
Corporation and the assignment by RSR Corporation of a portion of its
interest in the Service Agreement to RSR Holding Corp., now known as
Quexco Incorporated (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-10745)).
10.5 Letter Agreement dated May 28, 1987 between the Company and Allen &
Company Incorporated relating to investment banking services
(incorporated herein by reference to Registration Statement on Form S-1
(No. 33-10745)).
10.6 Agreement dated June 20, 1991 among the Company, MMG Patricof & Co.,
Inc., and MMG Placement Corp. relating to investment banking services
(incorporated herein by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form S-1 (No. 33-10745)).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
10.8 Warehouse (Stocking Location) Leases.
(i) Leetsdale, Pennsylvania (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
(ii) Catoosa, Oklahoma (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1989).
10.9 Tax Abatement Agreement dated July 10, 1985 between the Company and the
Louisiana Board of Commerce and Industry (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-22603)).
10.10 Tax Abatement Renewal Agreement dated August 22, 1990 between the
Company and the State of Louisiana Board of Commerce and Industry
(incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1989).
10.11 Credit Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named
therein, and Chemical Bank, as agent (the "Credit Agreement")
(incorporated herein by reference to the Company's Registration
Statement on Form S-1 (No. 33-72486)).
10.12 Security Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named in the
Credit Agreement, and Chemical Bank, as agent (incorporated herein by
reference to the Company's Registration Statement on Form S-1
(No. 33-72486)).
10.13 Intercreditor Agreement dated as of November 23, 1993 between First
National Bank of Commerce and Chemical Bank as agent under the Credit
Agreement (incorporated herein by reference to the Company's
Registration Statement on Form S-1 (No. 33-72486)).
10.15 First Amendment dated as of November 22, 1993 to the Loan Agreement
dated as of January 9, 1991 between the Company and Hibernia National
Bank (incorporated herein by reference to the Company's Registration
Statement on Form S-1 (No. 72486)).
10.17 First Amendment dated as of November 22, 1993 to Mortgage, Security
Agreement and Financing Statement dated as of January 9, 1991 by the
Company in favor of Hibernia National Bank (incorporated herein by
reference to the Company's Registration Statement on Form S-1
(No. 33-72486)).
10.18 Intercreditor Agreement dated as of November 23, 1993 between Chemical
Bank and Hibernia National Bank (incorporated herein by reference to
the Company's Registration Statement on
Form S-1 (No. 33-72486)).
10.19 Security Agreement dated as of November 22, 1993 between the Company
and Hibernia National Bank (incorporated herein by reference to the
Company's Registration Statement on Form S-1
(No. 33-72486)).
10.21 Incentive Compensation Plan for Key Employees dated March 3, 1988
(incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended September 30, 1991).
10.22 1991 Employees' Stock Option Plan dated April 18, 1991 with technical
amendments (incorporated herein by reference to Post-Effective
Amendment No. 4 to Registration Statement on Form S-1
(No. 33-10745)).
10.23 Pension Plan for Bargained Employees and the Employees Retirement Plan
(incorporated herein by reference to Post-Effective Amendment No. 5 to
the Company's Registration Statement on
Form S-1 (No. 33-10745)).
18.1 Letter from Arthur Andersen & Co. regarding change in accounting method
from first-in, first-out (FIFO) to last-in, first-out (LIFO) method of
accounting for inventories (incorporated herein by reference to the
Annual Report on Form 10-K for the year ended September 30, 1989).
18.2 Letter from Arthur Andersen & Co. regarding change in method of
accounting for interest from the effective interest method to another
acceptable method (incorporated herein by reference to the Annual
Report on Form 10-K for the year ended September 30, 1990).
</TABLE>
39
<PAGE>
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS RECLASSIFICATIONS END OF
CLASSIFICATION OF PERIOD AT COST AND RETIREMENTS PERIOD
-------------- ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Year Ended September 30,
1993
Land.................. $ 2,411,182 $ 339,216 $ -- $ 2,750,398
Machinery and Equip-
ment................. 71,119,778 1,834,903 -- 72,954,681
Plant and Office
Building............. 12,394,461 1,642,384 -- 14,036,845
Construction-in-Pro-
gress................ 3,934,743 2,761,076 (3,393,215) 3,302,604
----------- ----------- ------------ -----------
TOTAL............... $89,860,164 $ 6,577,579 $ (3,393,215) $93,044,528
=========== =========== ============ ===========
Year Ended September 30,
1992
Land.................. $ 2,411,182 $ -- $ -- $ 2,411,182
Machinery and Equip-
ment................. 69,031,413 2,119,651 (31,286) 71,119,778
Plant and Office
Building............. 8,614,736 3,779,725 -- 12,394,461
Construction-in-Pro-
gress................ 6,590,768 3,243,351 (5,899,376) 3,934,743
----------- ----------- ------------ -----------
TOTAL............... $86,648,099 $ 9,142,727 $ (5,930,662) $89,860,164
=========== =========== ============ ===========
Year Ended September 30,
1991
Land.................. $ 2,111,182 $ 300,000 $ -- $ 2,411,182
Machinery and Equip-
ment................. 62,002,031 7,464,798 (435,416) 69,031,413
Plant and Office
Building............. 3,698,639 4,916,097 -- 8,614,736
Construction-in-Pro-
gress................ 11,731,454 7,240,209 (12,380,895) 6,590,768
----------- ----------- ------------ -----------
TOTAL............... $79,543,306 $19,921,104 $(12,816,311) $86,648,099
=========== =========== ============ ===========
</TABLE>
40
<PAGE>
SCHEDULE VI--ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS RECLASSIFICATIONS END OF
CLASSIFICATION OF PERIOD AT COST AND RETIREMENTS PERIOD
-------------- ----------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Year Ended September 30,
1993
Machinery and Equip-
ment.................. $18,759,410 $3,917,892 $ -- $22,677,302
Plant and Office Build-
ing................... 864,965 243,357 -- 1,108,322
----------- ---------- --------- -----------
TOTAL................ $19,624,375 $4,161,249 $ -- $23,785,624
=========== ========== ========= ===========
Year Ended September 30,
1992
Machinery and Equip-
ment.................. $15,037,292 $3,744,712 $ (22,594) $18,759,410
Plant and Office Build-
ing................... 633,224 231,741 -- 864,965
----------- ---------- --------- -----------
TOTAL................ $15,670,516 $3,976,453 $ (22,594) $19,624,375
=========== ========== ========= ===========
Year Ended September 30,
1991
Machinery and Equip-
ment.................. $11,984,762 $3,321,822 $(269,292) $15,037,292
Plant and Office Build-
ing................... 482,849 150,375 -- 633,224
----------- ---------- --------- -----------
TOTAL................ $12,467,611 $3,472,197 $(269,292) $15,670,516
=========== ========== ========= ===========
</TABLE>
41
<PAGE>
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED BALANCE
BEGINNING TO AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) PERIOD
----------- ---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
September 30, 1993
Allowance for doubtful ac-
counts....................... $ 943,267 $(174,994) $225,548 $ 542,725
---------- --------- -------- ----------
September 30,1992
Allowance for doubtful ac-
counts....................... $1,213,720 $ (36,096) $234,357 $ 943,267
---------- --------- -------- ----------
September 30, 1991
Allowance for doubtful ac-
counts....................... $1,420,690 $ 373,323 $580,293 $1,213,720
---------- --------- -------- ----------
</TABLE>
- --------
(1) Write-off of uncollectible accounts.
42
<PAGE>
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
DESCRIPTION 1993 1992 1991
----------- ---------- ---------- ----------
<S> <C> <C> <C>
Maintenance and Repairs....................... $9,001,320 $8,827,799 $8,944,936
Depreciation
Inventory................................... $ -- $ 87,193 $ --
Cost of Sales............................... 4,156,851 3,884,913 3,467,871
Selling, General and Administrative......... 4,398 4,347 4,326
Amortization--
Loan Acquisition Costs(1)................... $ 457,770 $ 332,483 $ 331,094
</TABLE>
- --------
(1) Represents amortization of costs associated with the issuance of the Senior
Secured Notes entered into on September 5, 1986 and the line of credit
entered into on June 28, 1989.
43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in Bayou Steel Corporation's annual report to
stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated November 24, 1993. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedules listed in the index above are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements. The schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen & Co.
New Orleans, Louisiana
November 24, 1993
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
Bayou Steel Corporation
/s/ Howard M. Meyers
By___________________________________
Howard M. Meyers
Chairman of the Board,
Chief Executive Officer, and
President
Pursuant to the requirements of the Securities Act of 1934, this amendment
has been signed below by the following persons on behalf of the registrant and
in the capacities on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Howard M. Meyers
- ------------------------------------
Howard M. Meyers Chairman of the Board, Chief
Executive Officer,
President, and Director February 18, 1994
/s/ Richard J. Gonzalez
- ------------------------------------
Richard J. Gonzalez Vice President, Treasurer,
and Chief Financial Officer February 18, 1994
/s/ John A. Canning, Jr.
- ------------------------------------
John A. Canning, Jr. Director February 18, 1994
/s/ Lawrence E. Golub
- ------------------------------------
Lawrence E. Golub Director February 18, 1994
/s/ Melvyn N. Klein
- ------------------------------------
Melvyn N. Klein Director February 18, 1994
/s/ Albert P. Lospinoso
- ------------------------------------
Albert P. Lospinoso Director February 18, 1994
/s/ Alan J. Patricof
- ------------------------------------
Alan J. Patricof Director February 18, 1994
/s/ Stanley S. Shuman
- ------------------------------------
Stanley S. Shuman Director February 18, 1994
</TABLE>
45
