<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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.)
River Road, P.O. Box 5000, LaPlace, Louisiana 70069
----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(504) 652-4900
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING AT DECEMBER 31, 1994
- -------------------------------------- ---------------------------------------
<S> <C>
Class A Common Stock, $.01 par value 10,613,380
Class B Common Stock, $.01 par value 2,271,127
Class C Common Stock, $.01 par value 100
----------
12,884,607
==========
</TABLE>
<PAGE>
BAYOU STEEL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
--------------------- ------
<S> <C>
Item 1. Financial Statements
Balance Sheets -- December 31, 1994
and September 30, 1994 3
Statements of Income (Loss) --
Three Months Ended
December 31, 1994 and 1993 5
Statements of Cash Flows -- Three
Months Ended December 31, 1994 and 1993 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
Results of Operations 12
Liquidity and Capital Resources 14
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BAYOU STEEL CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
DECEMBER 31, SEPTEMBER 30,
1994 1994
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 9,320,249 $ 8,903,413
Trade receivables 18,833,498 18,781,222
Other receivables 454,155 375,185
Inventories 60,867,610 57,145,550
Prepaid expenses 861,280 188,452
------------ ------------
Total current assets 90,336,792 85,393,822
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 4,333,542 4,333,542
Machinery and equipment 75,855,608 75,855,608
Plant and office building 13,125,589 13,125,589
Construction in progress 3,890,051 2,462,312
Less-Accumulated depreciation (29,801,169) (28,504,307)
------------ ------------
Net property, plant and equipment 67,403,621 67,272,744
------------ ------------
OTHER ASSETS 3,240,680 3,401,103
------------ ------------
Total assets $160,981,093 $156,067,669
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BAYOU STEEL CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
DECEMBER 31, SEPTEMBER 30,
1994 1994
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 15,431,045 $ 16,540,005
Accrued liabilities 6,011,801 3,327,480
Current maturities of long-term debt 342,363 340,232
------------ ------------
Total current liabilities 21,785,209 20,207,717
------------ ------------
LONG-TERM DEBT:
Senior secured notes 75,000,000 75,000,000
Notes payable 649,891 735,924
------------ ------------
Total long-term debt 75,649,891 75,735,924
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A 106,134 106,134
Class B 22,711 22,711
Class C 1 1
------------ ------------
Total common stock 128,846 128,846
Paid-in capital 44,890,554 44,890,554
Retained earnings 18,526,593 15,104,628
------------ ------------
Total stockholders' equity 63,545,993 60,124,028
------------ ------------
Total liabilities & stockholders'
equity $160,981,093 $156,067,669
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
DECEMBER 31,
1994 1993
----------- -----------
<S> <C> <C>
NET SALES $43,851,785 $36,778,489
COST OF SALES 37,223,071 34,558,324
----------- -----------
GROSS PROFIT 6,628,714 2,220,165
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 1,170,135 889,849
NON-PRODUCTION STRIKE EXPENSES 259,017 399,181
----------- -----------
OPERATING INCOME 5,199,562 931,135
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (1,917,360) (1,884,614)
Interest income 119,601 20,447
Miscellaneous 54,727 (39,899)
----------- -----------
(1,743,032) (1,904,066)
----------- -----------
INCOME (LOSS) BEFORE TAXES 3,456,530 (972,931)
PROVISION FOR INCOME TAXES 34,565 -
----------- -----------
NET INCOME (LOSS) $ 3,421,965 $ (972,931)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 12,884,607 12,884,607
=========== ===========
INCOME (LOSS) PER COMMON SHARE $.27 $(.08)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BAYOU STEEL CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,421,965 $ (972,931)
Depreciation and amortization 1,458,797 1,250,086
Provision for losses on accounts
receivable 44,469 112,369
Changes in working capital:
(Increase) decrease in receivables (175,715) 4,016,754
(Increase) in inventories (3,722,060) (5,444,415)
(Increase) in prepaid expenses (672,828) (580,631)
(Decrease) increase in accounts payable (1,108,960) 1,496,001
Increase in accrued liabilities 2,684,321 2,280,097
----------- -----------
Net cash provided by operations 1,929,989 2,157,330
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant
and equipment (1,427,739) (413,498)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit - 1,900,000
Payments of long-term debt (83,902) (572,847)
(Increase) in other assets (1,512) (514,948)
----------- -----------
Net cash provided by (used in)
financing activities (85,414) 812,205
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 416,836 2,556,037
CASH AND CASH EQUIVALENTS,
beginning balance 8,903,413 517,900
----------- -----------
CASH AND CASH EQUIVALENTS,
ending balance $ 9,320,249 $ 3,073,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(UNAUDITED)
1) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations. Although Bayou Steel Corporation (the Company) believes that
disclosures made are adequate to ensure that information presented is not
misleading, it is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report, Form 10-K, filed with the SEC on December 6,
1994 under File Number 33-22603.
In the opinion of the Company, the accompanying unaudited financial
statements present fairly the Company's financial position as of December 31,
1994 and September 30, 1994 and the results of its operations for the three-
month periods ended December 31, 1994 and 1993 and the cash flow statements for
the three-month periods ended December 31, 1994 and 1993.
The results of operations for the three-month periods ended December 31,
1994 and 1993 are not necessarily indicative of the results for the full year.
2) INVENTORIES
Inventories as of December 31, 1994 and September 30, 1994 consisted of the
following:
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
DECEMBER 31, SEPTEMBER 30,
1994 1994
------------- --------------
<S> <C> <C>
Scrap steel $ 3,781,615 $ 3,811,616
Billets 1,849,984 1,854,211
Finished product 39,809,586 35,651,158
LIFO adjustments (661,612) (931,213)
----------- -----------
$44,779,573 $40,385,772
Mill rolls, operating
supplies and other 16,088,037 16,759,777
----------- -----------
$60,867,610 $57,145,549
=========== ===========
</TABLE>
7
<PAGE>
The inventory valuations are based on LIFO estimates of year-end levels and
prices. The actual LIFO inventories will not be known until year-end quantities
and indices are determined.
Shapes, billets, scrap steel, and certain production supplies are pledged
as collateral against the Company's revolving line of credit.
3) PROPERTY, PLANT AND EQUIPMENT
Capital expenditures totaled $1.4 million and $.4 million during the three-
month periods ended December 31, 1994 and 1993, respectively. As of December
31, 1994, the estimated costs to complete authorized projects under construction
or contract amounted to $6.7 million.
Betterments, improvements, and additions to property, plant and equipment
are capitalized at cost. Interest during construction of significant additions
is capitalized. Interest of $30,000 and $15,000 was capitalized during the
three-month periods ended December 31, 1994 and 1993, respectively. Interest of
$69,000 was capitalized during the fiscal year ended September 30, 1994.
4) OTHER ASSETS
Other assets consist of costs associated with the issuance of the 10.25%
First Mortgage Notes (the "10.25% Notes") and the Company's revolving line of
credit (see Notes 5 and 6) which are being amortized over the respective lives
of the related debt. Amortization expense was $162,000 and $86,000 for the
three-month periods ended December 31, 1994 and 1993. Amortization expense was
$553,000 for the fiscal year ended September 30, 1994.
5) LONG-TERM DEBT
On March 3, 1994, the Company issued $75 million of the 10.25% Notes. The
proceeds were used to redeem and defease the Company's 14.75% Notes and to repay
the borrowings under the new revolving line of credit. The remaining proceeds
were used to implement a two year capital expenditure program directed toward
cost reduction and general working capital purposes.
As of December 31, 1994 and 1993, the Company accrued interest at a rate of
10.25% and 14.75%, respectively.
6) SHORT-TERM DEBT
On November 23, 1993, the Company entered into an amendment and restatement
of its revolving line of credit agreement. The terms of the amended and
restated agreement call for available borrowings up to $30 million including
outstanding letters of credit. The agreement is secured by inventory and
accounts receivable at interest rates of prime plus 1% or LIBOR plus 2%.
There were no outstanding borrowings under the line of credit as of December
31, 1994.
8
<PAGE>
7) TAXES
As of September 30, 1994, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $319.0 million and $292.9 million
available to offset against regular tax and alternative minimum tax,
respectively.
The NOLs will expire in varying amounts through fiscal 2009. A substantial
portion of the available NOLs, approximately $203 million, expires by fiscal
2000. In addition, the Company has $22.0 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. The current provision for income taxes for the
three-month period ended December 31, 1994 represents the alternative minimum
tax estimated to be due based on the current quarter's income.
8) MISCELLANEOUS
Miscellaneous for the three-month periods ended December 31, 1994 and 1993
included the following:
<TABLE>
<CAPTION>
DECEMBER 1994 DECEMBER 1993
------------- -------------
<S> <C> <C>
Discounts earned $ 42,927 $ 59,221
Provision for bad debts (44,469) (112,368)
Other 56,269 13,248
---------- --------
$ 54,727 $ (39,899)
=========== =========
</TABLE>
9) COMMON STOCKHOLDERS' EQUITY
Common Stock as of December 31, 1994 and 1993 consisted of:
<TABLE>
<CAPTION>
Class A Class B Class C
---------- --------- -------
<S> <C> <C> <C>
Authorized 24,271,127 4,302,347 100
Outstanding, at end of
quarter 10,613,380 2,271,127 100
Average outstanding for
quarter 10,613,380 2,271,127 100
</TABLE>
10) COMMITMENTS AND CONTINGENCIES
STRIKE
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike against the Company. Both the strike and the
negotiations on a new contract have continued, but differences have thus far
precluded an agreement. The Company cannot predict the impact that a new
9
<PAGE>
collective bargaining contract will have on the Company's results. However, the
Company believes a new contract will not have a negative material effect on the
Company's results. Also, the Union has filed charges with the National Labor
Relations Board (the "NLRB") 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, has responded timely to all charges,
and believes that it has negotiated in good faith with the Union. The General
Counsel's Office of Appeals of the NLRB has upheld the decision of the NLRB to
dismiss the allegations filed by the Union for unfair bargaining. The Union has
filed for reconsideration of the decision with the General Counsel's Office of
Appeals, which will continue to delay the NLRB's final decision on the charge.
The Company is still faced with other allegations of unfair bargaining initiated
by the USWA. An unfavorable decision by the NLRB, however, should not
materially affect the Company. In addition, the Union has initiated an
inspection of the Company's facilities and records by the Environmental
Protection Agency (the "EPA"), which was completed in June of 1994, and the
Occupational & Safety Health Administration (the "OSHA"), which was completed in
November of 1994. The results of these inspections have not been received. It
is possible that the Company may be subject to fines as a result of the EPA or
OSHA inspections. Due to its wide discretion in assessing proposed civil
penalties, OSHA may initially propose fines which could be material in nature
and amount but which may be reduced through negotiation in informal proceedings
with OSHA or after independent administrative or judicial review. The Company
has accrued a loss contingency for its estimate of the ultimate liability
arising from these inspections as of December 31, 1994. This estimate is based
on the Company's observations of the items identified by EPA and OSHA, expert's
experience in handling OSHA citations, the ability to negotiate reductions in
proposed fines in informal proceedings with OSHA, and access to independent
administrative or judicial review, if any. As a result, the Company does not
expect any such fines to have a material adverse financial effect on the
Company.
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. At December 31, 1994, the Company has accrued
a loss contingency for environmental matters.
10
<PAGE>
OTHER
The Company does not provide any post-employment or post-retirement benefits
to its employees.
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 effect its financial
position.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The Company earned $3.4 million in the first quarter of fiscal 1995
compared to a loss of $1.0 million for the comparable period of fiscal 1994.
The $4.4 million improvement in the Company's results was due to three
significant factors. First, metal margin, the difference between shape selling
price and raw material ("scrap") cost, increased 15%. Second, shape shipments
increased 13.3%. And third, conversion cost, the cost to convert scrap metal
into shapes, decreased 5%.
The following table sets forth shipment and sales data for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1994 1993
-------- --------
<S> <C> <C>
Net Sales (in thousands) $ 43,852 $ 36,778
Shape Shipment Tons 116,855 103,168
Shape Selling Price Per Ton $ 352 $ 321
Billet Shipment Tons 9,112 13,375
Billet Selling Price Per Ton $ 237 $ 224
</TABLE>
A. SALES
Net sales increased in the first quarter of fiscal 1995 by 19.3% or $7.1
million compared to the same period of fiscal 1994. The increase was the result
of increasing shape shipments and prices.
SHAPES - The 13.3% increase in shape shipments in the first quarter of
fiscal 1995 compared to the same period of fiscal 1994 is attributable to a
strong economy and to an improved inventory (in terms of product mix and
availability) which enabled the Company to respond to customer demand.
(Inventory in the prior year quarter was at low levels due to operating at less
than full capacity during the initial months of the strike which was initiated
on March 21, 1993 and continues today.) The first quarter is normally the
slowest shipping period; however, this was the best first quarter for shipments
in seven years. The backlog of orders at December 31, 1994 is 130% higher than
a year earlier. Shipments going into the second fiscal quarter are expected to
be strong.
Shape prices increased by 9.7% or $31 per ton in the first quarter of
fiscal 1995 compared to the same period of fiscal 1994. These higher prices
were primarily in response to a strong market demand and a better mix of
products sold. The selling price of shapes, towards the end of fiscal 1994 and
into fiscal 1995, began to be influenced more by the strong market and less by
scrap cost as was the case during the first half of fiscal 1994, resulting in an
improvement in metal margin. The metal margin for the first fiscal quarter is
the highest since the second quarter of fiscal 1989. Metal margin is expected
to level off or decrease slightly in the second fiscal quarter.
12
<PAGE>
BILLETS - Shipments of billets, the Company's semi-finished product,
decreased 4,264 tons in the first quarter period of fiscal 1995 compared to the
same period of fiscal 1994 due to lack of availability of billets for sale.
More billets were used in the Company's rolling mill due to higher production
levels, resulting in fewer billets available for customers. The overall selling
price of billets increased in the first quarter of fiscal 1995 compared to the
same period of fiscal 1994 by 5.8%, or $13 per ton, due to the price increases
of billets lagging behind scrap price increases in the first quarter of fiscal
1994. Billet sales are expected to be minimal in the second fiscal quarter due
to the high productivity of the rolling mill and the pending acquisition (see
"OTHER COMMENTS- Acquisition of Assets"), which will increase the Company's
rolling capacity.
B. COST OF SALES
Cost of sales was 84.9% of sales for the first quarter of fiscal 1995
compared to 93.6% of sales for the same period of fiscal 1994. The improvement
of 8.7% was due to shape selling prices increasing more than the scrap price
increases. Also, contributing to the improvement in cost of sales was the
reduction in conversion costs (the cost to convert raw materials into shapes)
and increases in shipments with no significant increase in shipping costs. Cost
of sales has been favorably impacted by approximately $0.25 million per quarter
due to a contract with the State of Louisiana to abate state sales tax. This
agreement expires at the end of the second fiscal quarter of 1995.
The major component of cost of sales is scrap. Scrap cost in the first
quarter of fiscal 1995 remained relatively unchanged compared to the same period
last year. Scrap prices and supply may be effected by poor weather conditions
in the north and mid-west during the winter months. Also, there is an industry-
wide shortage of available barges which may delay delivery of scrap or result in
higher freight cost. Another component of raw material cost is additive,
alloys, and flux ("AA&F"). AA&F cost decreased by 8.3% due to consumption.
Another significant portion of cost of sales is conversion costs, which
include labor, energy, maintenance materials and supplies used to convert raw
materials into billets and billets into shapes. Conversion cost per ton in the
first quarter of fiscal 1995 compared to the same period of fiscal 1994
decreased by 5% per ton. The primary decrease in conversion cost was due to the
reduced per ton fixed costs resulting from increased production and productivity
and lower variable costs resulting from reduced spending. The productivity in
the melt shop for the first quarter of fiscal 1995 was the best in the Company's
history. The Company implemented a productivity incentive plan for salaried
employees (similar to the one proposed to the Union) at the beginning of the
fiscal quarter. Lower consumption and cost of power and natural gas resulted in
reduced spending in the first quarter of fiscal 1995 compared to the same period
of last year.
C. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased in the first quarter
of fiscal 1995 compared to the same period of the last fiscal year by $200,000
due to increases in consulting fees and franchise tax.
13
<PAGE>
D. NON-PRODUCTION STRIKE EXPENSES
Strike-related expenses were $260,000 for the first quarter of fiscal 1995
compared to $399,000 for the same period last year. Strike expenses were
primarily for security coverage and legal advice on both strike issues and the
Union's on-going corporate campaign. For the first quarter of fiscal 1995, the
Company's strike-related expenses averaged approximately $87,000 per month.
Future strike expenses should not exceed $100,000 per month.
E. OTHER INCOME (EXPENSE)
Interest expense increased in the first quarter of fiscal 1995 compared to
the same period of fiscal 1994. The Company accrued interest on $48.9 million
of the now redeemed 14.75% Senior Secured Notes in the first quarter of fiscal
1994 at a rate of 14.75%. The Company accrued interest on $75 million 10.25%
First Mortgage Notes due 2001 ("the Notes") at a rate of 10.25% during the first
quarter of 1995. Interest income improved in the first fiscal quarter of fiscal
1995 compared to the same period last year due to an increase in overall cash to
invest and improved short-term interest rates. Miscellaneous expenses were
approximately the same in both quarters.
F. NET INCOME
The Company's results improved by $4.4 million in the first fiscal quarter
of 1995 compared to the same period of fiscal 1994. The primary reasons for the
improvement are increased shipments and margins, lower conversion cost per ton,
and record productivity in the melt shop.
LIQUIDITY AND CAPITAL RESOURCES
A. CASH AND WORKING CAPITAL
The Company ended the first fiscal quarter with $9.3 million in cash and
temporary cash investments and with current assets exceeding current liabilities
by a ratio of 4.15 to 1. Working capital increased by $3.4 million to $68.6
million during the three months ended December 31, 1994. The increase in
working capital was due to increases in cash, replenishment of inventory,
increases in prepaid expenses, and decreases in accounts payable. These
increases in working capital were partially offset by increases in accrued
liabilities.
In the first three months of fiscal 1995, cash provided by operations was
$1.9 million which was the result of net income and increases in accrued
liabilities. This was partially offset by the increase in inventories. The
seasonal increase in shape inventory was also impacted by the high productivity
of the rolling mill which produced more product than expected. Raw material
inventory is expected to increase in the second fiscal quarter of fiscal 1995 by
approximately $1.5 million. Shape inventory is also expected to increase by
approximately $1.3 million over the next three months and then decrease in May
with the planned shutdown for major maintenance and capital improvements.
14
<PAGE>
B. CAPITAL EXPENDITURES
Capital expenditures amounted to $1.4 million in the first quarter of
fiscal 1995. This is the beginning of the $9.2 million capital program directed
toward cost reduction. Of the $9.2 million commitment for five capital
projects, $2.5 million has been spent cumulative through December 31, 1994. The
remaining expenditures are expected to be made during the fiscal year.
C. FINANCING
In fiscal 1994, the Company entered into an amendment and restatement of
its existing credit facility, which is a three-year line of credit that permits
loans to be made to the Company, on a secured basis, of up to $30 million. There
have been no borrowings under the credit facility since March 1994. Interest
rates under the credit facility are prime plus 1% or LIBOR plus 2%, at the
Company's option. The Company's existing credit facility contains certain
covenants, such as an Interest Expense Coverage Ratio, which become increasingly
more restrictive over time. The Interest Expense Coverage Ratio covenant will be
1.80 to 1.00 for the four quarters ending September 30, 1995. The Company's
Interest Expense Coverage Ratio for the quarter ended December 31, 1994 was 3.70
to 1.00. In the event of a default under the credit facility, the Company would
seek a waiver of the covenant or otherwise renegotiate the terms under the
credit facility. The Company does not anticipate any difficulty in obtaining
another secured line of credit upon the expiration of the current revolving line
of credit in November of 1996.
All of the $75 million 10.25% Notes are classified as long-term debt. There
are no principal payments due on the 10.25% Notes until maturity in 2001. The
Company believes that current cash balances, internally generated funds, the
credit facility, and additional purchase money mortgages are adequate to meet
the
15
<PAGE>
foreseeable short-term and long-term liquidity needs. The Company currently
intends to refinance the 10.25% Notes on or before the maturity date in 2001.
The Indenture under which the Notes are issued (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 Interest Expense Coverage Ratio for the trailing 12 months, would be greater
than 2.00 to 1.00 after giving effect to such incurrence. As of December 31,
1994, the Interest Expense Coverage Ratio was 2.92 to 1.00. If additional funds
are required to accomplish long-term expansion of its production facility or
significant acquisitions, the Company believes funding can be obtained from a
secondary equity offering or additional indebtedness.
There are no financial obligations with respect to post-employment or post-
retirement benefits.
OTHER COMMENTS
ACQUISITION OF ASSETS
The Company has entered into a letter of intent with Tennessee Valley Steel
Corporation ("TVS") to acquire all of the assets of TVS for a purchase price of
$30.5 million. TVS's rolling mill, which had been in operation for only 14
months, produced both rebar and merchant bar. The merchant bar product mix of
TVS will extend and complement the Company's product line. The Company intends
to use its idle second furnace to produce billets to supply TVS's rolling mill.
On November 11, 1994, TVS filed for protection under Chapter 11 of the
United States Bankruptcy Code. The purchase of assets, which are currently idle,
will be subject to the approval of the Bankruptcy Court as well as regulatory
approvals, definitive documentation of the transaction, and other conditions.
The Bankruptcy Court has established bidding procedures to be followed by
any other bidder interested in acquiring the assets. Such procedures require
that other bidders bid at least $1.5 million more than the purchase price
contemplated by the letter of intent with additional bids required to be in at
least $500,000 increments. In addition, if another bidder is successful, TVS is
required to reimburse the Company for its expenses (up to $1 million) incurred
in connection with its offer to purchase the assets. The Company's due
diligence work is nearly complete and financing options are being reviewed.
Final approval from the Bankruptcy Court, for the sale of the assets to the
highest bidder, is expected by the end of February.
STRIKE
See "Notes to the Financial Statements" for a description of the Strike.
ENVIRONMENTAL AND SAFETY
See "Notes to the Financial Statements" for a description of the Company's
environmental and safety issues.
16
<PAGE>
OTHER
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.
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.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<C> <S>
99 - Letter of Intent to Purchase Tennessee Valley Steel
Corporation. (Incorporated herein by reference to 8-K
filed December 9, 1994.)
</TABLE>
(b) Reports on Form 8-K
Item 5 OTHER EVENTS
- News Release announcing the intent to purchase TVS.
(Dated December 9, 1994.)
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAYOU STEEL CORPORATION
By /s/ Richard J. Gonzalez
--------------------------------------
Richard J. Gonzalez
Vice President, Treasurer,
Chief Financial Officer, and Secretary
Date: January 30, 1995
18
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