UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 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.)
138 HIGHWAY 3217
P.O. BOX 5000
RIVER ROAD
LAPLACE, LOUISIANA 70069
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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
101/4% First Mortgage Notes due 2001
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 October 31, 1997 was:
SHARES OUTSTANDING HELD BY MARKET VALUE
TITLE OF EACH CLASS ------------------------------- HELD BY
OF COMMON STOCK AFFILIATES NON-AFFILIATES NON-AFFILIATES
- ----------------------- ----------- -------------- --------------
Class A, $.01 par value..... 1,307,198 9,306,182 $31,408,364
Class B, $.01 par value..... 2,271,127 0 N/A
Class C, $.01 par value..... 100 0 N/A
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders are incorporated herein by reference in Part III and
portions of the registrant's 1997 Annual Report filed as an exhibit, are
incorporated herein by reference in Part II hereof.
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BAYOU STEEL CORPORATION
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS.....................................................
General.....................................................
Manufacturing Process and Facilities........................
Products....................................................
Customers...................................................
Distribution................................................
Markets and Sales...........................................
Strategy....................................................
Competition.................................................
Raw Materials...............................................
Energy......................................................
Environmental Matters.......................................
Safety and Health Matters...................................
Strike/Corporate Campaign Impact Upon the Company...........
Employees...................................................
ITEM 2. PROPERTIES...................................................
ITEM 3. LEGAL PROCEEDINGS............................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON STOCK AND
RELATED STOCKHOLDER MATTERS..................................
ITEM 6. SELECTED FINANCIAL DATA......................................
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.........
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS.............................
ITEM 11.EXECUTIVE COMPENSATION.......................................
ITEM 12.OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...................................................
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.....................................................
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PART I
ITEM 1. BUSINESS
GENERAL
Bayou Steel Corporation (the "Company") owns and operates a steel minimill
located on the Mississippi River in LaPlace, Louisiana ("BSCL"), four stocking
locations along the inland waterway system and a rolling mill in Harriman,
Tennessee ("BSCT").
BSCL is a leading producer of structural steel products. The Louisiana
minimill, constructed at a cost of $243 million in 1981, has an electric arc
furnace, a rolling mill, climate-controlled warehouse facilities, and a dock on
the Mississippi River. BSCL produces a variety of shapes, including angles,
flats, channels, standard beams, and wide flange beams at the Louisiana
facility. In addition, the Company operates an automobile shredder to produce
some of the scrap metal required by the electric arc furnace.
During fiscal 1995, the Company purchased substantially all of the assets of
Tennessee Valley Steel Corporation ("TVSC") located in Harriman, Tennessee, 37
miles west of Knoxville. The assets are owned by a wholly owned subsidiary named
"Bayou Steel Corporation (Tennessee)". BSCT's rolling mill produces merchant bar
shapes, including angles, flats, rounds, and squares. BSCT also has the
capability to produce rebar. The merchant bar product mix of BSCT extends and
complements BSCL's product line. BSCT began operation in July 1995.
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. BSCL's minimill, which was owned and operated by
Voest-Alpine A.G. until it was purchased by the Company in September 1986,
includes a Krupp computer-controlled, electric arc furnace utilizing
water-cooled sidewalls and roof, two Voest-Alpine four-strand continuous
casters, a computer supervised Italimpianti reheat furnace, and a 15-stand
Danieli rolling mill. The rolling mill at BSCT includes a computer supervised
reheat furnace, a 16-stand rolling mill, an automated straightening, continuous
cut-to-length, stacking and bundling equipment.
The Company sells its products to over 551 customers, most of which are steel
service centers, in 44 states, Canada, Mexico, and overseas. In the past, the
Company has also sold excess billets (which have not been rolled into shapes at
BSCL or BSCT) on a worldwide basis to other steel producers for their own
rolling or forging applications.
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.
The address of the Company's principal place of business is 138 Highway 3217,
P.O. Box 5000, LaPlace, Louisiana 70069 and its telephone number is (504)
652-4900.
MANUFACTURING PROCESS AND FACILITIES
In its production process, BSCL uses steel scrap which is received by barge,
rail, and truck, and then stored in a scrap receiving yard. With the use of a
newly installed automobile shredder, the Company is able to process
approximately 12% of its steel scrap requirements. The scrap is transported to
BSCL's melt shop by rail car or truck and loaded into its furnace. The steel
scrap is melted in an 80-ton capacity alternating current electric arc furnace
which heats the scrap to approximately 3100oF. During the scrap melting and
refining process, impurities are removed from the molten steel. After the scrap
reaches a molten state at a predetermined temperature, 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
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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 (semi-finished product) and moved to a cooling bed and marked for
identification. After cooling, the billets are transferred to the Louisiana
rolling mill for further processing. Billets, in excess of BSCL's rolling mill
requirements, are either shipped to BSCT via rail or sold to other processors.
In the Louisiana rolling mill, the billets are reheated in a walking beam
furnace with recuperative burners. Once the billets are heated to approximately
2000oF, they are rolled through up to fifteen mill stands which form 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 either
standard 40 foot lengths or specific customer lengths. The shapes are stacked
into 21/2 to 5-ton bundles, processed (if needed) through an off-line saw to 20
foot standard lengths, and placed in a climate-controlled warehouse where they
are subsequently shipped to the Company's climate-controlled stocking locations
via barge or to customers directly via truck, rail, or barge.
The Tennessee rolling mill uses steel billets which will be received by rail,
truck, or barge and then stored in a billet yard. The billets are reheated in a
pusher reheat furnace with recuperative burners before being rolled. Once the
billets are heated to approximately 2000oF, they are rolled through up to
sixteen mill stands which form 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
then stacked into 21/2 ton bundles and placed in a climate-controlled warehouse
where they are subsequently shipped to customers directly via truck or rail.
PRODUCTS
The Louisiana facility produces a variety of structural steel products and
the Tennessee facility produces a wide range of merchant bar shapes and rebar.
SIZE RANGE (IN INCHES)
------------------------------
PROFILE TENNESSEE LOUISIANA
------------------------------- --------- ---------
Equal Angles .................. 3/4-2 3-6
Flats ......................... 1-4 4-8
Channels ...................... N/A 3-8
Squares ....................... 1/2-11/2 N/A
Rounds ........................ 1/2-2 N/A
Unequal Angles ................ N/A 4-7
Rebar (#3-#11) ................ 3/8-13/8 N/A
Standard Beams ................ N/A 3-6
Wide Flange Beams ............. N/A 4&6
The merchant bar shapes, rebar, and structural shapes produced by the Company
have a wide range of commercial and industrial applications, including the
construction and maintenance 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. Rebar is used in highway and bridge construction, concrete
structures such as parking garages, and home construction for driveways,
sidewalks and swimming pools.
The Company plans to continue to emphasize the production of merchant bar
shapes and structural shapes. Rebar was last produced in 1995. Shape margins are
historically considerably higher than those of rebar. BSCT will
opportunistically produce rebar.
The Company's shapes are produced to various national specifications, such as
those set by the American Society for Testing and Materials ("ASTM"), or to
specific customer specifications which have more stringent quality criteria. In
addition, the Company is one of a few minimills that is approved by the American
Bureau of Shipping ("ABS") and is certified for nuclear applications. The
Company's products are also certified for state
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highway and bridge structures.
CUSTOMERS
The Company has over 551 customers in 44 states, Canada, Mexico, and
overseas. The majority of the Company's shape products (approximately 71% in
fiscal 1997) are sold to domestic steel service centers, while the remainder are
sold to original equipment manufacturers (approximately 19% in fiscal 1997) and
export customers (approximately 10% in fiscal 1997). 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. Much of the merchant bar product from the Tennessee rolling mill is sold
to the Company's existing customer base. Rebar, when produced, will be
selectively sold to a few customers who are not necessarily part of the existing
customer base.
In fiscal 1997, the Company's top ten customers accounted for approximately
39% of total shipments. No single customer accounted for greater than 10% 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
BSCL's steelmaking facility in Louisiana, which includes a deep-water dock,
is strategically located on the Mississippi River, which the Company believes
gives it flexibility in transportation because it can ship its product by barge,
normally the least costly method of transportation in the steel industry.
Furthermore, BSCL operates three inventory stocking warehouses in Chicago,
Tulsa, and Pittsburgh, which supplement its operations in Louisiana and
Tennessee. 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 Louisiana
minimill and Tennessee rolling mill facilities 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 uneconomical to the Company. From these
locations, product is primarily distributed by truck. In addition, the Company
makes rail shipments to some customers, primarily those on the West Coast and in
Mexico. With the recent completion of a rail spur into the Louisiana warehouse,
the Company has expanded rail shipment.
BSCL's deep-water dock enables the Company to load vessels or ocean-going
barges for overseas shipments, giving the Company low cost access to overseas
markets. (Additionally, the dock enables the Company to access scrap from the
Caribbean and South and Central America.) 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. Relative to its domestic
competitors, the Company believes it has a 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. Due to
strong domestic margins, the Company has only occasionally accessed overseas
market.
BSCT's mill in east Tennessee fills a geographic void for the Company. BSCT
provides access for the Company to the Appalachian states and the lower midwest,
plus additional access to the upper midwest, the southeast and the mid-Atlantic.
BSCT's product line can be distributed through the Company's LaPlace facility or
through its distribution centers in Chicago, Pittsburgh, and Tulsa. Currently,
BSCT is only using the Chicago stocking location. BSCT's location is accessible
by all forms of transportation; the plant is in close proximity to two major
interstate highways, four miles from a barge dock, and is situated on the main
line of Norfolk Southern Railroad.
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 1997, 1996, and
1995, 10%, 9% and 10% respectively, of the Company's tons shipped were exported
to Canada and Mexico. There can be no
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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 American Iron and Steel Institute, the domestic market
demand for all structural steel shape products in 1996 was 5.7 million tons
while the market for bar mill products was 7.2 million tons. The Company
estimates that its share of the total domestic shapes market was approximately
10% in 1996. The Company believes that its share of the 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 structural steel
shapes in the U.S. The Company is marketing BSCT's merchant bar shapes mainly
through its existing steel service center customer base and is expanding to new
customers, such as OEM's and fabricators.
The Company's products are sold domestically and in Canada, Mexico, and
overseas on the basis of availability, quality, service, and price. 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. A new
system that allows the customer to manage its inventory needs at the Company was
recently implemented at a major customer. This system interfaces with the
customer's system which results in less clerical effort and increases sales for
the Company. The system also provides the customer with just-in-time inventory
capabilities. The Company expects to expand use of this system and believes that
this system gives it a competitive advantage.
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 orders for shapes totaled $110 million as of September 30,
1997 and $63 million as of September 30, 1996. As of October 31, 1997, the
Company's backlog totaled $112 million.
The level of billet sales to third parties is dependent on the Company's
billet requirements at BSCL and BSCT, and worldwide market conditions, which may
vary greatly from year to year. In the past three fiscal years the Company has
consumed substantially all of its billet production resulting in minimal billet
sales to third parties.
STRATEGY
The Company's strategy is to improve operating efficiencies and to reduce
costs through improved processes, utilization, and capital at BSCL and BSCT. The
Company will also consider strategic acquisitions, such as the acquisition of
the assets of TVSC, which complement or expand the Company's current operations,
and/or captures finished goods or raw material capacity.
A. BSCL
The Company's principal operating strategy for BSCL is to improve
operating results by continuing to increase productivity and reduce costs,
including labor cost per ton, and increasing sales of higher margin shape
products.
OPERATING EFFICIENCIES. BSCL has lowered its labor cost per ton by $15
since fiscal 1992. The Company believes that it can continue to lower its
labor costs per ton from fiscal 1997 levels by increasing productivity and
shipments, reducing overtime, and the new labor contract.
The Company continues its commitment to developing a high performance work
culture. Through extensive training and individual development efforts, the
Company will further 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.
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CAPITAL IMPROVEMENTS. The Company wants to increase billet production so
as to supply most of BSCT's billet requirements. In fiscal 1997, BSCL
produced 582,333 tons of billets. In fiscal 1998, as part of its short-term
strategy, the Company expects to commit approximately $10 million in capital
to increase melt shop capacity to 650,000 tons and to improve overall plant
operations. The Company is currently evaluating options for its long-term
strategy. In order to increase annual capacity to 850,000 tons, the Company
would have to commit approximately $20 million over 24 months. Both fixed
cost per ton and variable cost per ton could be reduced by employing this
increased capacity strategy.
B. BSCT
OPERATING CAPACITY. The Company's operating strategy for the rolling mill
at BSCT continued to focus on expanding its merchant bar shape production. In
fiscal 1997, BSCT produced 144,609 tons or a 51% increase over prior year.
BSCT's production is expected to reach above 185,000 tons in 1998. However,
this projection can vary and will depend on market demand and new sections to
be introduced during the fiscal year. The total annual capacity of the plant
is estimated at 225,000 tons depending on the product mix.
BSCT produced only merchant bar shapes and customer specific sections
in fiscal 1997. BSCT also has the ability to produce rebar. However, bar
shape products have historically higher profit margins than rebar and the
shapes produced at BSCT complement and enhance BSCL's existing range of
structural shapes.
CAPITAL IMPROVEMENTS. The Company expects to commit approximately $4
million on various capital projects at the Tennessee facility in fiscal 1998
on operations to reduce costs and increase productivity. The Company
continues to look at long term capital spending needs that will benefit
production while reducing costs.
C. ACQUISITION PROGRAM AND TAX BENEFITS
The Company may, from time to time, seek strategic acquisitions, such as
the acquisition of the rolling mill from TVSC, 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. As of September 30, 1997, the Company had approximately
$280 million of regular net operating loss carryforwards 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.
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 since increases in the cost of
raw materials and other conversion costs may offset any operating cost savings
to cause actual results to vary significantly. 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 or
sufficient demand for structural steel products will exist for the additional
capacity.
COMPETITION
The Company does not currently compete with minimill flat rolled or most
domestic integrated steel producers.
STEEL STRUCTURAL SHAPES. BSCL's location on the Mississippi River, as well as
its stocking locations in three additional regions of the country, provide
access to vast markets in the eastern, midwestern, southern, and central
portions of the United States. As a result, the Company competes in the
structural shape market with several major domestic minimills in each of these
regions. Depending on the region and product, the Company primarily competes
with Nucor Corporation, Structural Metals, Inc., North Star Steel Co.,
Northwestern Steel and
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Wire Company, Lake Ontario Steel Corporation, Birmingham Steel, and AmeriSteel,
among others.
BAR SHAPES. In fiscal 1998, the Company expects to sell BSCT's yearly
production of bar shape products in a market that has ranged between 5.1 and 8.6
million tons during the last 10 years. Competitors in the region are AmeriSteel,
Structural Metals, Inc., Nucor Corporation, Birmingham Steel, Roanoke Electric,
North Star Steel Co., SMI/Owen Steel, and Marion Steel.
REBAR. BSCT will produce rebar in varying quantities depending on economic
and market trends. BSCT's main competitor will be AmeriSteel in Knoxville, TN.
AmeriSteel, however, fabricates a large portion of its rebar in competition with
independent fabricators who would be the target customers of BSCT. Independent
fabricators opting not to buy from a competitor may create a significant niche
for BSCT's rebar. Other competitors include SMI/Owen Steel, Birmingham Steel,
Nucor Corporation, and New Jersey Steel.
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.
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 extensive experience in metals recycling
markets, gives the Company a competitive advantage. The Company does not
currently depend upon any single supplier for its scrap. No single vendor
supplies more than 10% of the Company's scrap needs. The Company, on average,
maintains a 25-day inventory of steel scrap.
The Company has a program of buying directly from local scrap dealers and
small peddlers for cash. Through this program, the Company has procured
approximately 25% of its scrap at prices lower than those of large scrap
dealers. The Company has also installed an automobile shredder, which is located
at a site adjacent to the Louisiana facility, to produce shredded steel scrap,
one of several types used by the Company. Mississippi River Recycling ("MRR"), a
division of the Company, began operating the automobile shredder in late fiscal
1995. It is the Company's intention to expand MRR's business activities to
processing other types of unprepared scrap which would be used by the Company
decreasing the Company's demand on third parties for prepared scrap metal.
During fiscal 1997, MRR supplied 12% of the Company's total scrap requirements.
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
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
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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.
BSCT currently purchases billets on the open market to supply part of its
billet requirements. The Company currently has competitive billet supply
contracts with several vendors which expire on December 31, 1997. The Company
currently is negotiating with several suppliers for calendar year 1998. The
Company does not anticipate a problem with securing competitively priced billet
contracts.
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 at BSCL consumes large amounts of
electrical energy and natural gas. The Company purchases its electrical service
needs from Entergy pursuant to a contract originally executed in 1980 and
extended in 1995 for a six 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 Entergy's right to periodically curtail service during periods of peak
demand. These curtailments are generally limited to a few hours and, in prior
years, have had negligible impact on operations; however, BSCL experienced an
unusual number and duration of power curtailments in the fourth quarter of
fiscal 1996 and 1997 due to generating and transmission failures at Entergy.
BSCL's contract with Entergy contains a fuel adjustment clause which allows
Entergy to pass on to their customers any increases in price paid for the
various fuels used in generating electrical power and other increases in
operating costs. This fuel adjustment applies to all of Entergy's consumers. In
the fourth quarter of fiscal 1997, the Company experienced high fuel adjustment
cost due to Entergy passing on the cost for an extended nuclear unit shutdown.
If the price that Entergy pays for fuel, such as natural gas, increases, then
BSCL's energy expense could increase. The Company believes that its utility
rates at BSCL are competitive in the domestic minimill steel industry. As one of
Entergy's largest customers, the Company has been able to obtain competitive
rates. To a lesser extent, BSCL's manufacturing facility consumes quantities of
natural gas via two separate pipelines serving the facility. BSCL purchases its
natural gas on a month-to-month basis from a variety of suppliers. Natural gas
expense increased slightly from 1996 to 1997. Historically, BSCL has been
adequately supplied with electricity and natural gas and does not anticipate any
significant curtailments in its operations resulting from energy shortages.
BSCT's manufacturing process consumes both electricity and natural gas. BSCT
purchases its electricity from Tennessee Valley Authority ("TVA"). Historically,
TVA has had one of the lowest power rates in the country. In 1995, the Company
negotiated a ten year contract at a favorable rate with TVA and has no reason to
believe that a similar contract will not be renewed upon similar terms. The
Harriman, Tennessee area is served by only two gas pipelines, (Tennessee
Pipeline and East Tennessee Pipeline), both owned by Tenneco. Currently, BSCT
does not have a direct interconnect with either pipeline so all gas for the
plant must be purchased from a Local Distribution Company ("LDC"). Thus, BSCT
must pay the wellhead price plus transportation charges and the LDC mark up. The
Company believes this premium adds approximately $1 per ton to BSCT's cost
structure. (This is not an uncommon arrangement throughout the industry.) In
fiscal 1997, natural gas prices per ton charged increased by $1 per ton due
largely to market forces.
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
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emitted into the air and discharged into the waterways, and the disposal of
solid and/or hazardous waste such as electric arc furnace dust.
In the event of a release or discharge of a hazardous substance to certain
environmental media, the Company could be responsible for the costs of
remediating the contamination caused by such a release or discharge. In the last
five years, the only environmental penalty assessed to the Company was a $2,500
fine levied in 1996 in conjunction with an Air Quality Notice of Violation
issued by the Louisiana Department of Environmental Quality (the "LDEQ"). During
fiscal 1997 the United States Public Interest Research Group ("USPIRG") filed a
lawsuit in Louisiana against the Company for alleged violations of air quality
regulations. USPIRG is asking the courts to award them their appropriate legal
fees and assess appropriate penalties against the Company. The Company believes
it has meritorious defenses to these charges. The Company believes it is in
compliance, in all material respects, with applicable environmental
requirements. The Company has a full-time manager 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 BSCL's
minimill. The Company has conducted limited analysis of the effluents running
into and out of the ponds. This analysis confirms there is little 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 been
working with the LDEQ to develop a sampling plan 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 limited testing. In such case, the
costs of clean up could be higher than the Company now believes. Until such
sampling is completed, however, 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 manages it through an approved
waste recycling firm. The dust management costs were approximately $2.0 million
in fiscal 1995, $2.0 million in fiscal 1996 and $1.3 million in fiscal 1997. The
recycling costs declined in fiscal 1997 due to increases in recycling
competition and implementation of a new dust recycling contract. In fiscal 1990,
a small quantity of dust containing very low concentrations 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 a decision as to its 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. 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 1997, the Company spent
approximately $200,000 on various environmental capital projects. In fiscal
1998, the Company intends to spend approximately $900,000 on various
environmental capital projects.
TVSC, the prior owners of the BSCT facility, had entered into a Consent
Agreement and Order (the "Voluntary Consent Order") under the Tennessee
Department of Environment and Conservation's voluntary clean-up program. The
Company, in acquiring the assets of TVSC, has entered into a Voluntary Consent
Order. The Company's Voluntary Consent Order is supplemental to the previous
TVSC Consent Order and does not effect the continuing validity of the TVSC order
and agreement. The ultimate remedy and clean-up goals will be dictated by the
results of human health and ecological risk assessment which are components of a
required, structured investigative, remedial, and assessment process. The
definitive asset purchase agreement between the Company and TVSC provided for
$2.0 million of the purchase price to be held in escrow and applied to costs
incurred by the Company for activities pursuant to the Voluntary Consent Order
(with an additional $1.0 million to be held
8
<PAGE>
for one year for such costs and other costs resulting from a breach of TVSC's
representations and warranties in the agreement). As of September 30, 1997,
investigative, remedial, and risk assessment activities have resulted in
expenses of approximately $1.3 million. At this time, the Company does not
expect the costs of resolution of the Voluntary Consent Order to exceed monies
provided by the escrow agreement.
SAFETY AND HEALTH MATTERS
The Company is subject to various regulations and standards promulgated under
the Occupational Safety and Health Act, which are administered by the
Occupational Safety and Health Administration ("OSHA"). These regulations and
standards are minimum requirements for employee protection and health. It is the
Company's policy to meet or exceed these minimum requirements in all of the
Company's safety and health policies, programs, and procedures.
The Company knows of no other material safety or health issues.
STRIKE/CORPORATE CAMPAIGN IMPACT UPON THE COMPANY
GENERAL. On March 21, 1993, the United Steelworkers of America Local 9121
(the "Union") initiated a strike after the parties failed to reach agreement on
a new labor contract due to differences on economic issues. As a result of a
strategic contingency plan, 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, strikers who returned to work, and
salaried employees. On September 23, 1996, the Company and Union entered into a
settlement agreement which, among other issues, resulted in a new six year labor
contract. The Company considers the contract terms to be favorable. The Company
incurred in fiscal 1997 some one-time expenditures, such as employment physicals
and drug tests, training for returning workers and existing workers, extra
security, and legal expenses for arbitration cases related to disciplinary
action.
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. The Company filed a lawsuit in federal court
in Delaware under the Racketeer Influenced Corrupt Organizations Act ("RICO")
against the Union for their conduct in connection with this campaign. On October
29, 1997, the Company reached an agreement with the Union, the effect of which
was not material to the financial position or results of operations of the
Company.
The Company incurred non-production strike and corporate campaign expenses of
$1.0 million in fiscal year 1995, $1.8 million in fiscal year 1996, and $3.3
million in fiscal year 1997. Non-production strike and corporate campaign
expenses should be minimal after the first quarter of 1998 due to the resolution
of the strike and RICO lawsuit.
In conjunction with the acquisition of the assets of TVSC the Union filed
certain charges with the National Labor Relations Board ("NLRB"). On August 16,
1996, the Company reached a settlement with the Union which was approved by the
NLRB. A seven and one half year labor agreement was negotiated and ratified on
May 16, 1997. The Company considers the contract terms to be favorable.
EMPLOYEES
As of September 30, 1997, the Company had 563 employees, of whom 151 were
salaried office, supervisory, sales personnel and non-exempt workers, and 412
were hourly employees. Approximately 400 are covered by labor contracts. During
the later part of October and early November of 1996, the Company began the
process of bringing back the eligible employees that were previously on strike.
All returning employees have been integrated into the work force and there are
no cases in arbitration relative to employment status and the Company believes
that employee relations are good.
9
<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.
LOCATION PROPERTY
LaPlace, Louisiana Approximately 287 acres of land, including a
shredder, melt shop, rolling mill, related
equipment, a 75,000 square foot warehouse,
and dock facilities situated on state-leased
waterbottom in the Mississippi River.
Harriman, Tennessee Approximately 198 acres of land, 175,000
square feet of steel mill buildings,
including a melt shop (which the Company
does not intend to use), warehouse, a
rolling mill, and related equipment.
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 Company 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 second of three 5-year renewal
options through June 30, 2007.
Louden County, Tennessee Approximately 25 acres of undeveloped land
along the Tennessee River, available for
future use as a stocking location.
ITEM 3. LEGAL PROCEEDINGS
See "Business--Strike/Corporate Campaign and Impact Upon the Company",
"Business--Environmental Matters", "Business--Safety and Health Matters" , and
"Footnotes to Consolidated Financial Statements" for fiscal 1997. 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 fourth
quarter of fiscal year ended September 30, 1997.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION AND STOCK PRICE
The Class A Common Stock of the Company is traded on the American Stock
Exchange (AMEX) under the symbol BYX. The approximate number of stockholders of
record on October 31, 1997 was 371. In addition, there are approximately 3,000
shareholders whose stock is held in street name. The stock has been trading
since July 27, 1988. The closing price per share on October 31, 1997 was $3.375.
The following tables set forth the high and low prices for the periods
indicated.
SALES PRICE PER SHARE
---------------------------------------------
FISCAL YEAR 1997 FISCAL YEAR 1996
------------------- -------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
October-December ... $4.000 $2.500 $5.375 $3.813
January-March ...... 3.250 2.250 4.750 3.875
April-June ......... 3.688 2.125 4.500 3.625
July-September ..... 5.625 3.375 4.000 2.750
There is no public trading market for the Class B Common Stock and the Class
C Common Stock.
DIVIDENDS
The Company's ability to pay dividends to Class A Common Stock stockholders
is subject to restrictive covenants under the Indenture pursuant to which the
Company's 101/4% First Mortgage Notes due 2001 (the "101/4% Notes") were issued,
the Preferred Stock and Warrant Purchase Agreement, and the Company's line of
credit. See "Notes 6, 7, 14, and 15 of the Consolidated Financial Statements"
section of the 1997 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is summary consolidated financial information for the Company
since 1993.
11
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales ...................................................... $ 232,161 $ 204,426 $ 185,772 $ 160,823 $ 136,008
Cost of Sales .................................................. 209,930 188,453 162,158 144,314 128,033
--------- --------- --------- --------- ---------
Gross Profit ................................................... 22,231 15,973 23,614 16,509 7,975
Selling, General and Administrative ............................ 6,311 6,273 5,312 3,925 3,986
Non-Production Strike and Corporate Campaign Expenses .......... 3,323 1,768 1,000 996 3,162
--------- --------- --------- --------- ---------
Operating Income ............................................... 12,597 7,932 17,302 11,588 827
Interest Expense ............................................... (8,962) (8,635) (7,821) (7,670) (8,261)
Interest Income ................................................ 12 147 543 280 193
Miscellaneous .................................................. 187 871 431 162 502
--------- --------- --------- --------- ---------
Income (Loss) Before Taxes ..................................... 3,834 315 10,455 4,361 (6,739)
Provision for Taxes ............................................ 50 0 118 -- --
--------- --------- --------- --------- ---------
Income (Loss) Before Cumulative Effect of Accounting
Change and Extraordinary Items ............................... 3,784 315 10,337 4,361 (6,739)
Extraordinary Items ............................................ -- -- -- (5,468) 585
--------- --------- --------- --------- ---------
Net Income (Loss) .............................................. $ 3,784 (1) $ 315 (1) $10,337 (1) $ (1,107) $ (6,154)
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working Capital ................................................ $ 72,031 $ 70,090 $ 73,301 $ 65,186 $ 32,389
Total Assets ................................................... 196,465 199,272 197,076 156,068 138,280
Total Debt ..................................................... 83,540 85,142 85,751 76,076 54,817
Preferred Stock ................................................ 13,089 10,489 12,239 -- --
Common Stockholders' Equity .................................... $ 71,512 $ 70,382 $ 72,605 $ 60,124 $ 61,231
</TABLE>
(1) In fiscal 1995, 1996, and 1997 income (loss) applicable to common shares
after dividends accrued and accretion on Preferred Stock was $9.6, ($2.3),
and $1.2 million, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
The requirements to satisfy these items are incorporated by reference to the
"Management's Discussion and Analysis" section of the 1997 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement and supplementary data information required by this
item is incorporated by reference to the "Consolidated Financial Statements" and
"Footnotes to Consolidated Financial Statements" sections of the 1997 Annual
Report.
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 "Information with respect to Board of Directors" section of the
Company's Proxy Statement for the 1998 Annual Meeting of Stockholders.
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
1998 Annual Meeting of Stockholders.
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 31,
1997, 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 "Security Ownership of Certain Beneficial
Owners" section of the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
12
<PAGE>
The beneficial ownership of the Company's common stock of all Directors and
Executive Officers is incorporated by reference to the "Information with respect
to Board of Directors" section of the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information regarding certain relationships and related
transactions is incorporated by reference to the "Certain Transaction" section
of the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders and
to the "Notes to Consolidated Financial Statements" section of the 1997 Annual
Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(I) FINANCIAL STATEMENTS
The Consolidated Financial Statements are incorporated herein by reference to
the Company's 1997 Annual Report to Stockholders and the Accountant's Report
relating to the Consolidated Financial Statements and Notes thereto.
(II) FINANCIAL STATEMENT SCHEDULES 10-K PAGE
Auditor's Opinion Relating to Schedule.............................. 15
Schedule II Valuation and Qualifying Accounts for the three years
ended September 30, 1997........................................... 17
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 Consolidated Financial Statements submitted.
(B)REPORTS ON FORM 8-K
No reports were filed on Form 8-K by the Registrant during the fourth quarter of
fiscal year 1997.
LIST OF EXHIBITS
NUMBER EXHIBIT
3.1 Third 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 Restated 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)).
4.1A Form of Indenture (including form of First Mortgage Note) between the
Company and First National Bank of Commerce as trustee (the "Trustee")
(incorporated herein by reference to Amendment No. 4 to Registration
Statement on Form S-1 (No 33-72-486)).
4.2 Form of Mortgage granted by the Company and Subsidiary Guarantors to the
Trustee (Louisiana) (incorporated herein by reference to Amendment No. 1
to Registration Statement on Form S-1 (No. 33- 72486)).
4.3 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from the Company to the Trustee (Non-Louisiana) (incorporated herein by
reference to Amendment No. 1 to Registration Statement on Form S-1 (No.
33-72486)).
4.4 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from Subsidiary Guarantors to the Trustee (Non-Louisiana) (incorporated
herein by reference to Amendment No. 1 to this Registration Statement on
Form S-1 (No. 33-72486)).
4.5 Form of Security Agreement between the Company and the Trustee
(incorporated herein by reference to Amendment No. 1 to Registration
Statement on Form S-1 (No 33-72486)).
4.6 Form of Subsidiary Security Agreement between Subsidiary Guarantors and
the Trustee (incorporated herein by reference to Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-72486)).
4.7 Form of Intercreditor Agreement between the Trustee and Chemical Bank,
as agent under the Credit Agreement (incorporated herein by reference to
Amendment No. 1 to Registration Statement on Form S-1 (No. 33-72486)).
4.8 Form of Subsidiary Guarantee between each recourse subsidiary of the
Company and the Trustee (incorporated herein by reference to Amendment
No. 1 to Registration Statement on Form S-1 (No 33- 72486)).
4.9 Form of Release of Federal Income Tax Ownership and Agreement between
the Trustee and the Company, Voest-Alpine A.G. and Howard M. Meyers
(incorporated by reference to Amendment No. 1 to Registration Statement
on Form S-1 (No. 33-72486)).
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)).
10.8 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).
10.12 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 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 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 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 Registration Statement on Form S-1 (No. 33-72486)). 13
<PAGE>
NUMBER EXHIBIT
10.18 Intercreditor Agreement dated as of November 23, 1993 between Chemical
Bank and Hibernia National Bank (incorporated herein by reference to
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 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)).
10.24 Amendment among the Company, Bayou Scrap Corporation River Road Realty
Corporation, the Lenders named in the Credit Agreement and Chemical
Bank, as agent (incorporated herein by reference to Amendment No. 4 to
Registration Statement on Form S-1 (No. 33-72486)).
10.25 Asset purchase Agreement, dated as of January 30, 1995, among Tennessee
Valley Steel Corporation, TV Acquisition Corp., Bayou steel Corporation,
BT Commercial Corporation and NationsBank N.A. (Carolinas) (incorporated
herein by reference to Form 8-K dated March 8, 1995 (No. 33-22603)).
10.26 Amendment No. 1 to the Preferred Stock and Warrant Purchase Agreement,
dated as of June 13, 1995, by and between the Company and Rice Partners
II, L.P. (incorporated herein by reference to the Company's quarterly
report on Form 10-Q for the quarter ending June 30, 1996 (No.
33-22603)).
10.27 Shareholder Agreement, dated as of June 13, 1995, by and among the
Company, Bayou Steel Properties Limited, Howard M. Meyers and Rice
Partners II, L.P. (incorporated herein by reference to Form 8-K dated
June 20, 1995 (No. 33-22603)).
10.28 Credit Agreement dated as of June 28, 1989, as amended and restated
through June 1, 1995, among the Company, the Lenders named therein, and
Chemical Bank, as agent ("the Credit Agreement") (incorporated herein by
reference to Form 8-K dated June 20, 1995 (No. 33-22603)).
10.29 Term Loan Agreement, dated as of June 1, 1995, among Bayou Steel
Corporation (Tennessee), the several term loan lenders from time to time
parties thereto, and Chemical Bank, as agent (incorporated herein by
reference to Form 8-K dated June 20, 1995 (No. 33-22603)).
13.1 Annual Report filed with this report.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements as of September 30, 1997 and 1996 and for
each of the three years in the period ended September 30, 1997 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 19, 1997. Our
audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the preceding
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
November 19, 1997
15
<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BAYOU STEEL CORPORATION
By /S/ HOWARD M. MEYERS
Howard M. Meyers
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities on the date indicated.
SIGNATURE TITLE DATE
/S/ HOWARD M. MEYERS Chairman of the Board, Chief December 8, 1997
Howard M. Meyers Executive Officer and Director
/S/ JERRY M. PITTS President, Chief Operating December 8, 1997
Jerry M. Pitts Officer and Director
/S/ RICHARD J. GONZALEZ Vice President, Chief Financial December 8, 1997
Richard J. Gonzalez Officer, Treasurer and Secretary
/S/ LAWRENCE E. GOLUB Director December 8, 199
Lawrence E. Golub
/S/ MELVYN IN. KLEIN Director December 8, 1997
Melvyn in. Klein
/S/ ALBERT P. LOSPINOSO Director December 8, 1997
Albert P. Lospinoso
/S/ STANLEY S. SHUMAN Director December 8, 1997
Stanley S. Shuman
/S/ JEFFREY P. SANGALIS Director December 8, 1997
Jeffrey P. Sangalis
16
<PAGE>
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO AT END OF
DESCRIPTION PERIOD EXPENSES OTHER(1) PERIOD
-------- --------- -------- --------
<S> <C> <C> <C> <C>
September 30, 1997
Allowance for doubtful accounts .................... $352,965 $ 143,393 $ 4,101 $500,459
-------- --------- -------- --------
September 30, 1996
Allowance for doubtful accounts .................... $567,970 $(186,039) $(28,966) $352,965
-------- --------- -------- --------
September 30, 1995
Allowance for doubtful accounts .................... $617,497 $ (53,204) $ 3,677 $567,970
-------- --------- -------- --------
</TABLE>
(1) (Write-offs)/recoveries of uncollectible accounts.
17
<TABLE>
<CAPTION>
Exhibit 13.1
BAYOU STEEL
CORPORATION
ANNUAL REPORT
19
<PAGE>
1997
20
<PAGE>
Bayou Steel Corporation owns and operates a steel minimill located on
the Mississippi River in LaPlace, Louisiana, 35 miles northwest of New Orleans,
Louisiana and a rolling mill in Harriman, Tennessee, 37 miles west of Knoxville.
The Company's principal raw material, scrap steel, is melted in electric
arc furnaces and continuously cast into billets, then rolled on its two rolling
mills into a variety of bar and structural steel shapes. Currently, the Company
rolls angles, channels, flats, standard beams, wide-flange beams, rounds, and
squares. These products are sold principally to steel service centers that
supply various end-users in manufacturing and construction. The Company has over
551 customers in 44 states, Canada, and Mexico. The Company also, occasionally,
ships both billets and shapes overseas.
The Company has four modern warehouses located at strategic points along
the inland waterway system and an additional warehouse in Tennessee, creating a
wide geographic market for product distribution. The Company ships substantial
quantities of billets and structural steel shapes and receives scrap steel using
barge transportation. The Company also utilizes technologically advanced
equipment, resulting in product flexibility and significant operating
efficiencies. The high productivity of its employees, together with the modern
equipment, enable the Company to produce high quality products at a low cost.
21
<PAGE>
YEAR ENDED SEPTEMBER 30, 1997 1996 PERCENT CHANGE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR:
Net Sales $ 232,161,116 $ 204,425,858 + 14
Net Income 3,784,147 314,600 + 1,103
Income (Loss) Per Equivalent Common Share .09 (.17) --
EBITDA(1) $ 20,144,526 $ 16,373,900 + 23
Interest Coverage Ratio 2.24 1.93 + 16
- ------------------------------------------------------------------------------------------------------------
AT YEAR END:
Cash Equivalent $ 971,477 $ 748,608 + 30
Working Capital 72,031,082 70,090,008 + 3
Net Property, Plant and Equipment 90,138,299 90,334,397 --
Total Assets 196,465,054 199,271,685 - 1
Long-Term Debt 80,500,073 83,540,331 - 4
Common Stockholders' Equity 71,511,805 70,327,577 + 2
Stockholders' Equity per Share 5.22 5.13 + 2
Stock Price per Share $ 4.88 $ 3.63 + 34
- ------------------------------------------------------------------------------------------------------------
OTHER DATA:
Shape Shipment Tons 663,675 580,069 + 14
Billet Shipment Tons 241 15,638 - 98
Employees 563 550 + 2
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings before Interest, Tax, Depreciation, and Amortization.
22
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Bayou Steel Corporation (the "Company") reported consolidated income in
fiscal 1997 of $3.8 million compared to $0.3 million in fiscal 1996. The $3.5
million improvement in the Company's results was mainly due to three factors.
First, the results at Bayou Steel Corporation (Tennessee) ("Tennessee")
("BSCT"), a wholly owned subsidiary which started operations in the last quarter
of fiscal 1995, improved by $4.1 million. BSCT achieved its first quarterly
profit in the fourth fiscal quarter of 1997. Second, metal margin at Bayou Steel
Corporation (Louisiana) ("Louisiana") ("BSCL"), the difference between shape
selling price and raw material ("scrap") cost, improved by 4% or $9 per ton. And
third, BSCL shipments increased by 5% or 23,474 tons. Offsetting some of the
improvements in earnings were increased expenses of $1.6 million related to
settling the extended strike and a lawsuit related to the strike. In addition,
the price of power and key supply items increased by $2 per ton of steel
produced or $1.1 million.
The Company reported consolidated income in fiscal 1996 of $0.3 million
compared to $10.3 million in fiscal 1995. The $10.0 million reduction in the
Company's results was mainly due to three factors. First, metal margin at the
Louisiana facility decreased by 4% or $9 per ton. Second, the prices of certain
supply items and energy increased significantly at the Louisiana facility,
resulting in additional expenses of $4.4 million. Third, start-up losses at BSCT
increased by $4.6 million because of decreased selling prices and higher than
expected operating costs.
The following table sets forth the shipment and sales data for the fiscal
years indicated.
YEARS ENDED SEPTEMBER 30,
------------------------------------
1997 1996 1995
-------- -------- --------
Shape Shipment Tons .................. 663,675 580,069 503,297
Average Shape Selling
Price Per Ton ...................... $ 345 $ 340 $ 360
Billet Shipment Tons ................. 241 15,638 11,072
Average Billet Selling
Price Per Ton ...................... $ 260 $ 233 $ 235
Net Sales (in thousands) ............. $232,161 $204,426 $185,772
SALES
Net sales increased by $28 million or 14% in fiscal 1997 compared to fiscal
1996 due to increased shape shipments out of both the Louisiana and Tennessee
facilities. This was a record shape shipment year for both facilities. The
average shape selling price also increased by 1%. Net sales increased by $19
million or 10% in fiscal 1996 compared to fiscal 1995 due to shipments out of
the Tennessee facility which started operations in late fiscal 1995. The fiscal
1996 increase in shape shipments were partially offset by an overall decreased
selling price. The improvements in both years represent a strengthening in the
economy.
23
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SHAPES. In fiscal 1997, the increase of 83,606 tons in shape shipments was
attributable to a strong economy and improved product mix which enabled the
Company to better respond to customer demand. Exports to Mexico and overseas
were minimal, while exports to Canada remained approximately the same compared
to fiscal 1996. Shipments from the Tennessee facility in fiscal 1997 improved by
81% or 60,132 tons while the selling price improved by 8% or $25 per ton.
Shipments from the Louisiana facility improved by 5% or 23,474 tons while the
selling price improved 1% or $4 per ton. The increase in shape prices Company
wide was primarily in response to a strong market demand and an improving
economy. The Company has focused its sales efforts on capturing a larger share
of the original equipment manufacturer/fabricator ("OEM/FAB") market. More
shipments, as a percentage of the total, went to OEM/FAB and less to steel
service center customers in fiscal 1997 compared to last year. Compared to last
year, tons shipped to this segment increased by 31,223 tons at the Louisiana
facility and 28,663 at the Tennessee facility.
In fiscal 1996, the Company increased shape shipments by 76,772 tons which
was attributable to improved product demand and the additional product line from
the Tennessee facility. Shipments from the Louisiana facility increased by 5,972
tons compared to the prior year. Exports to Mexico and overseas were minimal,
while shipments to Canada were slightly less than the prior year. More
shipments, as a percentage of the total, went to steel service centers and less
to end users. The $20 per ton or 6% decrease in shape prices from the Louisiana
facility was the result of additional capacity being shifted into the Company's
product line from mills previously producing for the special bar quality ("SBQ")
market. This unanticipated shift was due to the extreme softness of the SBQ
market. In addition, excess inventory at certain minimills and imports in the
Southwest from Mexican mills contributed to the decrease in selling price.
Shipments from the Tennessee facility increased by 70,800 tons. The prices for
the merchant bar product line from the Tennessee facility also carried a lower
selling price compared to the structural products from the Louisiana facility.
Consequently, the mix of selling more merchant bar products from the Tennessee
facility in fiscal 1996 resulted in lowering the overall selling price by $4 per
ton. The Company also expanded it's market area for merchant bar resulting in
lower selling prices.
Shipments are expected to improve in fiscal 1998 mainly due to the
availability of additional production from Tennessee as operations continue to
improve. The Company plans to continue to optimize its product mix to remain
competitive and maintain its share in the structural shape and merchant bar
markets. Prices are expected to remain stable in the first fiscal quarter of
1998.
BILLETS. In fiscal 1997, billet shipments, the Company's semi-finished
product, decreased compared to fiscal 1996 due to the lack of billets available
for sale. More billets were used in Louisiana's rolling mill due to higher
production levels, resulting in fewer billets available for sale to customers.
Also, BSCL supplied Tennessee's rolling mill with approximately 26,500 tons of
billets exhausting the remainder of the Company's production. The rest of BSCT's
billet requirements were purchased on the open market at competitive prices.
24
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
In fiscal 1996, billet shipments increased slightly compared to fiscal
1995 due to a large export shipment and several smaller domestic shipments. The
overall selling price of billets was consistent with last year. The Company
supplied approximately 29,000 tons of billets to the Tennessee rolling mill,
exhausting the remainder of the Company's excess billet production in fiscal
1996. The rest of BSCT's billet requirements were purchased on the open market
at competitive prices.
In fiscal 1998, the Company will continue to supply all of Louisiana's
billet requirements for its rolling mill. Excess billets will be shipped to
Tennessee's rolling mill to partially fill its billet requirements. Tennessee's
remaining billet requirements will be purchased from other steel mills.
Depending on market conditions, the Company may sell billets on an occasional
and selective basis to domestic and export customers while purchasing additional
billets for Tennessee. The Company will continue to evaluate its long-term
billet supply strategy while reacting to short-term market changes.
COST OF GOODS SOLD
Cost of goods sold was 90% of sales in fiscal 1997 compared to 92% in fiscal
1996. The percentage decrease was due to shape selling prices increasing more
than the scrap price increases and conversion cost (the costs to convert billets
into merchant bar products) at the Tennessee facility improving by 15%.
Cost of goods sold was 92% of sales in fiscal 1996 compared to 87% in fiscal
1995. The percent increase was due to shape selling prices decreasing more than
scrap prices, the learning curve associated with the start-up of operations at
Tennessee, the learning curve associated with the installation of new capital
improvements at Louisiana, and price increases of certain key supply items.
RAW MATERIAL. In fiscal 1996, scrap costs decreased 3% compared to fiscal
1995 levels. BSCL's shape selling prices decreased $9 more than scrap costs
resulting in a 4% reduction in BSCL's metal margin. Partially offsetting the
margin reduction was the best scrap yield in the history of the Company. In
fiscal 1997, scrap costs decreased an average 4% compared to fiscal 1996. Shape
selling prices increased $10 per ton more than the scrap price decreases
resulting in significantly better margins. Scrap prices dropped in fiscal 1997
due to increased availability and the absence of a significant export market.
Pressure on scrap supply is expected due to increased domestic capacity planned
in the steel industry. This could result in higher scrap prices.
In order to achieve better control over scrap cost (a major component of
cost of goods sold) and availability, the Company opened Mississippi River
Recycling ("MRR") which operates an automobile shredder. MRR produces shredded
scrap metal which is one of several scrap types used in steelmaking at the
minimill. This project was completed late in fiscal 1995 and experienced normal
start-up problems in fiscal 1996. Productivity, tons produced, and costs in
fiscal 1997 have improved significantly over last year. In fiscal 1996, the
market for car bodies, the principal raw material feed for a shredder, was
higher
25
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
than anticipated due to local competitive conditions and increased domestic
demand for shredded material. However, the market stabilized in fiscal 1997. The
shredder currently supplies approximately 12% of the melt shop's raw material
requirements. The processed shredded material costs considerably less than
purchasing shredded material on the open market. MRR may expand by processing
additional scrap types.
The Tennessee rolling mill facility's principal raw material is billets
which are produced at the Louisiana facility or purchased on the open market.
Billet cost decreased by 1% in fiscal 1997 compared to fiscal 1996. The yield of
billets rolled into shapes improved by 20% in fiscal 1997 compared to fiscal
1996 resulting in a yield savings of approximately $6 per ton. The Louisiana
facility supplied approximately 17% of the Tennessee rolling mill's total billet
requirements in fiscal 1997. The price of billets purchased on the open market
normally follows the scrap market. Currently, the Company purchases billets at
competitive prices and believes that the supply of billets is adequate.
AAF. Another component of raw materials is additives, alloys and flux
("AAF"). AAF cost remained approximately the same in fiscal 1997 compared to
fiscal 1996. Cost in fiscal 1997 was affected by increased consumption caused by
the production of a richer grade of products and by a moderation in prices for
some items. AAF cost increased in fiscal 1996 by 12% mainly due to increased
prices caused by reduced product availability. An anti-dumping suit against
foreign markets utilized by BSCL and its competitors resulted in higher duties
on imported AAF. Also contributing to higher prices was the increased domestic
demand due to the high steel-making capacity utilization. These general market
conditions affected both the Company and its competition.
CONVERSION COST. Another significant portion of cost of goods sold is
conversion cost, which includes labor, energy, maintenance material, and
supplies used to convert raw materials into billets and billets into shapes.
Conversion cost per ton for the Louisiana facility, which includes fixed and
variable costs, increased 1% in fiscal 1997 compared to fiscal 1996, and 6% in
fiscal 1996 compared to fiscal 1995.
In fiscal 1997, conversion cost per ton at the Louisiana plant increased by
1% compared to fiscal 1996. The price of various energy items and certain supply
items increased conversion cost by 2% compared to 1996. During the first quarter
of fiscal 1997 the Company incurred some one-time expenses related to the
strikers returning to work under a settlement agreement. In addition,
productivity was affected as returning and current workers became re-acquainted
with the equipment or learned new jobs. To shorten this process and to promote
other improvements in productivity and other cost efficiencies, the Company
introduced a productivity incentive plan. The Company experienced two unusual
equipment outages at its Louisiana facility which affected production and
resulted in increased maintenance costs. Contributing to improving the cost in
the melting facility was record productivity, as measured in tons produced per
hour, and power consumption in fiscal 1997. The rolling mill's record
productivity level in fiscal 1997 contributed to reducing fixed conversion cost
per ton.
26
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
In fiscal 1996, conversion cost per ton at the Louisiana plant increased by
6% compared to fiscal 1995. The main increase in conversion cost was caused by
$3 million in price increase for power and natural gas. Also, as a result of the
continued impact of the second furnace learning curve and the favorable change
in billet availability in the market place, the Company returned to a one
furnace operation during the first fiscal quarter of 1996. The other furnace
serves as a back-up for significant unexpected outages. Several operating
records were established in fiscal 1996 which contributed to offsetting
increased costs of certain supply items.
In July 1995, BSCT started operating its rolling mill. The learning curve
associated with new and refurbished equipment combined with an inexperienced
work force caused production tons to be lower and conversion cost per ton to be
higher than expected. During fiscal 1996, BSCT rolled 44 new section sizes which
impacted productivity yet provided opportunities for penetrating the OEM/FAB
markets. Consequently, production costs exceeded sales by $4.8 million and $1.3
million in fiscal 1996 and 1995, respectively. The rolling mill performance has
improved since start-up due to capital improvements and the experience gained by
the workforce. Comparing fiscal 1997 to fiscal 1996, tons produced improved by
51%, conversion cost per ton improved by 15%, productivity improved by 49%, and
yield loss was reduced by 20%. The Tennessee facility reported its first
quarterly profit of $0.2 million in the fourth fiscal quarter of 1997.
Subsequent to year end, the Tennessee rolling mill experienced a fire which
suspended operations for approximately two weeks. Shipments will be affected due
to the loss of production during the suspension of operations. The Company is
pursuing reimbursement from its insurers for losses incurred related to property
damage and business interruption resulting from the fire. The Company expects
the net impact to its results of operations, as a result of this matter, to be
less than $0.5 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased in fiscal 1997 and
1996 compared to fiscal 1995 due to an increase in amortization expenses related
to the financing of the Tennessee facility, additional administrative expenses
related to the Tennessee facility, and additional franchise and property taxes.
NON-PRODUCTION STRIKE & CORPORATE CAMPAIGN EXPENSES
In fiscal 1997 and 1996, the Company's expenses for direct out-of-pocket
strike-related and corporate campaign issues increased by $1.6 million and $0.8
million, respectively. In fiscal 1996, these expenses increased to an average of
$147,000 per month mainly due to increased legal expenses related to the
Racketeer Influenced Corrupt Organization Act ("RICO") suit which the Company
filed against the Union. In fiscal 1997, expenses related to the RICO law suit
and expenses related to returning the strikers back to work averaged $272,000
per month. The RICO law suit against the Union was settled on October 29, 1997.
This settlement will not have a material impact on the Company's financial
position or results of
27
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
operations. Non-production strike and corporate campaign expenses should be
minimal after the first quarter of fiscal 1998.
INTEREST EXPENSE & MISCELLANEOUS
Interest expense increased in fiscal 1997 and 1996 compared to the prior
fiscal year due to additional short-term borrowings under the line of credit,
term loan and higher interest rates. The Company borrowed an average of $1.7
million under its line of credit at a weighted average interest rate of 8.4% in
fiscal 1996 and had average borrowings of $5.4 million at a weighted average
interest rate of 8.8% in fiscal 1997.
Interest income decreased in fiscal 1997 and fiscal 1996 compared to the
prior fiscal years due to the Company having less cash to invest.
Miscellaneous income increased in fiscal 1996 compared to the prior year
due to a better collection record on credit sales and a one time sale of
scrapped inventory.
NET INCOME/LOSS
In fiscal 1997, the Company's consolidated results improved by $3.5 million
compared to fiscal 1996 mainly due to improvement in the Tennessee operations,
stronger shape shipments, and a better metal margin. The improvement was
partially offset by increased costs associated with non-production strike and
corporate campaign expenses, increased price of energy sources and certain
supply items, and two major outages at the Louisiana facility which resulted in
lost production.
In fiscal 1996, the Company's consolidated results were $10 million less
than fiscal 1995 mainly due to the Tennessee facility incurring substantial
losses for fiscal 1996. The metal margin decreased substantially while prices of
certain supply items and energy increased, and the start-up costs of several
recently completed capital projects and the idle furnace at the Louisiana
facility contributed to the reduction in results.
The Tennessee operation reported an income of $0.2 million for the fourth
fiscal quarter of fiscal 1997. This was the first quarterly profit reported by
the Tennessee operation. Both facilities benefitted from a strong metal margin.
The results were adversely affected by several factors. The price of power
increased the conversion cost in Louisiana which was caused by the power company
passing on the cost for an extended nuclear unit shutdown in the form of a fuel
adjustment to their customers.
INCOME TAXES
The provision for income taxes in fiscal 1997, 1996, and 1995 was minimal
due to utilization of certain tax benefits including the benefit of net
operating loss carryforwards.
28
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company ended fiscal 1997 with $1 million of cash after paying off all
of the $3 million in short-term borrowing under its line of credit from the
prior year. Current assets exceeded current liabilities by a ratio of 3.3 to
1.0. Working capital increased by approximately $2 million to $72 million in
fiscal 1997.
OPERATING CASH FLOW. Net cash provided by operations was $12.8 million.
Income, depreciation, and amortization contributed $10.7 million in operating
cash. Inventories at the Louisiana facility decreased as prime sales exceeded
prime production and the productivity of the rolling mill increased resulting in
fewer billets in inventory. Offsetting some of the increase in operating cash
was an increase in accounts receivable of $3.2 million caused by increased sales
in Louisiana and Tennessee.
CAPITAL EXPENDITURES. Capital expenditures amounted to $6.0 million in
fiscal 1997. The Louisiana operations spent $4.1 million which was directed at
reducing operating costs, increasing melt shop and rolling capacity, and
maintaining its plant. The Company also spent over $1.6 million at the Tennessee
facility on capital projects to reduce costs, increase productivity and maintain
its plant. In fiscal 1998, depending on market conditions, the Company expects
to spend approximately $14.5 million on various capital projects to reduce costs
and increase productivity, enhance safety and environmental programs, and
maintain the plants.
FINANCING ACTIVITIES. The Company paid $2.2 million in dividends to the
holders of preferred stock and paid off $3.0 million in short-term borrowings in
fiscal 1997. Also $1.5 million in principal on the term loan was paid off in
fiscal 1997.
All of the Company's $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 intends to refinance the 10.25% Notes on or before the
maturity date in 2001. The Indenture under which the 10.25% Notes are issued
("the Indenture") contains covenants which restrict the Company's ability to
incur additional indebtedness, make dividend payments, or place liens on the
assets acquired with the indebtedness. Under the Indenture, the Company may not
incur additional indebtedness or make dividend payments unless its Interest
Expense Coverage Ratio, as defined, for the trailing 12 months would be greater
than 2.00 to 1.00. As of September 30, 1997, the Interest Expense Coverage Ratio
was 2.24 to 1.00.
On June 20, 1995, the Company completed the issuance and sale of 15,000
shares of redeemable preferred stock, par value $0.01 per share ("Preferred
Stock"), and warrants to purchase, at a nominal exercise price, six percent of
the Company's common stock for $15 million. The Preferred Stock is mandatorily
redeemable by the Company seven years after issuance and requires the payment of
quarterly dividends, at a rate of 14.5% per annum or $2.2 million per year. The
Company intends to declare and pay quarterly dividends on the Preferred Stock
unless prohibited by covenants in the revolving line of
29
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
credit and the 10.25% Notes. If a quarterly dividend payment is not made by the
end of a quarter, the dividend rate will increase by 3% or $112,500 per quarter.
In addition, the holders of the Preferred Stock have a right to additional
warrants, approximately 77,000 shares, for each two consecutive quarterly
payments missed. Subsequent to fiscal year end, the Company declared the regular
dividend for the quarter ending December 31, 1997.
Simultaneously with the sale of the Preferred Stock and warrants, the
Company entered into a five-year Term Loan agreement of $10 million. The
proceeds received from the Term Loan were used to repay the loan outstanding
under the Company's revolving credit facility which had been incurred to acquire
substantially all of the assets of TVSC. The Term Loan is partially secured by
the Company's accounts receivable and inventory. The Term Loan agreement calls
for quarterly principal payments of $750,000 beginning on June 30, 1997 and $1.0
million beginning on June 30, 1999 until maturity. The Term Loan bears interest
on a sliding scale based on the quarterly leverage ratio which is defined as
indebtedness divided by earnings before interest, taxes, depreciation, and
amortization ("EBITDA"). Based on the fourth quarter leverage ratio, the Company
will accrue at approximately 8%.
On June 20, 1995, the Company entered into an amendment and restatement of
its revolving line of credit agreement which will be used for general corporate
purposes. The terms of the amended and restated agreement call for available
borrowings up to $45 million, including outstanding letters of credit using a
borrowing base derived as a certain percentage of accounts receivable and
inventory. The five year revolving line of credit bears interest on a sliding
scale based on the quarterly leverage ratio which is defined as indebtedness
divided by EBITDA. The terms of the loan agreement impose certain restrictions
on the Company, the most significant of which require the Company to maintain a
minimum interest coverage ratio and limit the incurrence of certain
indebtedness. There were no borrowings under the line of credit as of September
30, 1997. The amount available to borrow as of September 30, 1997 was $35
million. As of November 30, 1997, there were no outstanding borrowings against
the line of credit. The Company does not anticipate any difficulties in
obtaining another secured line of credit upon the expiration of the current line
of credit in fiscal 2000.
The Company believes that current cash balances, internally generated
funds, the credit facility, and additional purchase money mortgages are adequate
to meet its foreseeable short-term and long-term liquidity needs. If additional
funds are required to accomplish long-term expansion of its production
facilities 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 then the employee retirement plans.
30
<PAGE>
BAYOU STEEL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
OTHER COMMENTS
YEAR 2000
The Company is preparing for the impact that the year 2000 is expected to
have on the electronic data processing and other information systems relevant to
the Company's business. A detailed plan has been outlined and system changes to
address this issue are well under way. The year 2000 should not significantly
impact the Company's results of operations, financial position or cash flows.
FORWARD-LOOKING INFORMATION AND INFLATION
This document contains various "forward-looking" statements which represent
the Company's expectation or belief concerning future events. The Company
cautions that a number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those included in the
forward-looking statements including, without limitation, the following: changes
in the price of supplies, power, natural gas, or purchased billets; changes in
the selling price of the Company's finished products or the purchase price of
steel scrap; weather conditions in the market area of the finished product
distribution; unplanned equipment outages; and changing laws affecting labor,
employee benefit costs and environmental and other governmental regulations.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, and local laws and
regulations. See Footnote 9 and the "10K Business-Environmental Matters".
31
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
--------------------------------------
CURRENT ASSETS: 1997 1996
------------- -------------
<S> <C> <C>
Cash and temporary cash investments ......................................... $ 971,477 $ 748,608
Receivables, net of allowance for doubtful accounts
of $500,459 in 1997 and $352,965 in 1996 ................................... 27,162,056 24,107,566
Inventories ................................................................. 75,022,554 79,856,062
Prepaid expenses ............................................................ 239,161 292,458
------------- -------------
Total current assets .................................................... 103,395,248 105,004,694
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land ........................................................................ 3,790,399 3,790,398
Machinery and equipment ..................................................... 110,028,977 104,683,209
Plant and office building ................................................... 21,265,577 20,975,997
------------- -------------
135,084,953 129,449,604
Less--Accumulated depreciation .............................................. (44,946,654) (39,115,207)
------------- -------------
Net property, plant and equipment ....................................... 90,138,299 90,334,397
------------- -------------
OTHER ASSETS ..................................................................... 2,931,507 3,932,594
------------- -------------
Total assets ............................................................ $ 196,465,054 $ 199,271,685
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ........................................ $ 3,040,257 $ 1,601,851
Borrowings under line of credit ............................................. -- 3,000,000
Accounts payable ............................................................ 23,749,765 24,281,494
Accrued liabilities ......................................................... 4,574,144 3,856,341
Accrued dividends on redeemable preferred stock ............................. -- 2,175,000
------------- -------------
Total current liabilities ............................................... 31,364,166 34,914,686
------------- -------------
LONG-TERM DEBT ................................................................... 80,500,073 83,540,331
------------- -------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ....................................................... 13,089,010 10,489,091
------------- -------------
COMMON 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 ............................................................. 47,769,034 47,769,034
Retained earnings ........................................................... 23,613,925 22,429,697
------------- -------------
Total common stockholders' equity ....................................... 71,511,805 70,327,577
------------- -------------
Total liabilities and common stockholders' equity ....................... $ 196,465,054 $ 199,271,685
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
32
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES ............................................... $ 232,161,116 $ 204,425,858 $ 185,772,280
COST OF SALES ........................................... 209,930,423 188,453,259 162,158,316
------------- ------------- -------------
GROSS PROFIT ............................................ 22,230,693 15,972,599 23,613,964
------------- ------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE ..................... 6,310,688 6,272,624 5,312,402
NON-PRODUCTION STRIKE AND
CORPORATE CAMPAIGN EXPENSES .......................... 3,323,385 1,768,197 999,938
------------- ------------- -------------
12,596,620 7,931,778 17,301,624
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense ................................... (8,961,587) (8,634,510) (7,821,244)
Interest income .................................... 12,193 146,825 542,909
Miscellaneous ...................................... 186,716 870,507 431,655
------------- ------------- -------------
(8,762,678) (7,617,178) (6,846,680)
------------- ------------- -------------
INCOME BEFORE TAXES ..................................... 3,833,942 314,600 10,454,944
PROVISION FOR INCOME TAXES .............................. 49,795 -- 118,155
------------- ------------- -------------
NET INCOME .............................................. 3,784,147 314,600 10,336,789
DIVIDENDS ACCRUED AND ACCRETION ON
PREFERRED STOCK ...................................... (2,599,919) (2,592,418) (733,902)
------------- ------------- -------------
INCOME (LOSS) APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES ......................... $ 1,184,228 $ (2,277,818) $ 9,602,887
============= ============= =============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ........................ 13,707,030 13,707,030 13,113,058
INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE:
Income (loss) per common and
common equivalent share ........................... $ .09 $ (.17) $ .73
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
33
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income ............................................................... $ 3,784,147 $ 314,600 $ 10,336,789
Depreciation ......................................................... 5,953,714 6,094,870 5,148,300
Amortization ......................................................... 1,005,686 1,163,952 893,185
Provision for (reduction in) losses on accounts receivable ........... 143,393 (186,039) (53,204)
Changes in working capital:
(Increase) in receivables .......................................... (3,197,883) (2,000,180) (2,711,736)
Decrease (increase) in inventories ................................. 4,833,508 (12,161,321) (10,549,191)
Decrease (increase) in prepaid expenses ............................ 53,297 (35,053) (68,953)
(Decrease) increase in accounts payable ............................ (531,729) 2,093,010 5,648,479
Increase in accrued liabilities .................................... 717,803 180,625 348,236
------------ ------------ ------------
Net cash provided by (used in) operations ........................ 12,761,936 (4,535,536) 8,991,905
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Tennessee facility - net of current assets ............ -- -- (17,056,000)
Purchases of property, plant and equipment ........................... (5,997,630) (4,989,761) (12,469,603)
Proceeds from the sale of property, plant and equipment .............. 240,013 210,541 --
------------ ------------ ------------
Net cash used by investing activities ............................ (5,757,617) (4,779,220) (29,525,603)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under line of credit ....................... (3,000,000) 3,000,000 --
Payments of long-term debt ........................................... (1,601,851) (608,966) (325,008)
(Increase) in other assets ........................................... (4,599) (65,585) (2,523,043)
Proceeds from issuance of long-term debt ............................. -- -- 10,000,000
Proceeds from issuance of preferred stock and warrants ............... -- -- 15,000,000
Payments of dividends on preferred stock ............................. (2,175,000) (2,783,749) --
------------ ------------ ------------
Net cash (used in) provided by
financing activities ............................................ (6,781,450) (458,300) 22,151,949
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS ....................................................... 222,869 (9,773,056) 1,618,251
CASH AND TEMPORARY CASH INVESTMENTS,
beginning balance ...................................................... 748,608 10,521,664 8,903,413
------------ ------------ ------------
CASH AND TEMPORARY CASH INVESTMENTS,
ending balance ......................................................... $ 971,477 $ 748,608 $ 10,521,664
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for:
Interest (net of amounts capitalized) ................................ $ 9,011,608 $ 8,651,413 $ 8,162,394
Income taxes ......................................................... $ -- $ 42,611 $--
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
34
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK COMMON
---------------------------- PAID-IN RETAINED STOCKHOLDERS' PREFERRED
CLASS A CLASS B CLASS C CAPITAL EARNINGS EQUITY STOCK
-------- ------- ------- ----------- ------------ ------------ ------------
BEGINNING BALANCE,
<S> <C> <C> <C> <C> <C> <C> <C>
October 1, 1994 ..................... $106,134 $22,711 $ 1 $44,890,554 $ 15,104,628 $ 60,124,028 $ --
Issuance of preferred
stock net of discount ........... -- -- -- -- -- -- 12,121,520
Discount from issuance
of preferred stock .............. -- -- -- 2,878,480 -- 2,878,480 --
Net income ........................ -- -- -- -- 10,336,789 10,336,789 --
Dividends on preferred stock ...... -- -- -- -- (616,249) (616,249) --
Accretion on preferred stock ...... -- -- -- -- (117,653) (117,653) 117,653
-------- ------- ------- ----------- ------------ ------------ ------------
ENDING BALANCE,
September 30, 1995 .................. 106,134 22,711 1 47,769,034 24,707,515 72,605,395 12,239,173
Net income ........................ -- -- -- -- 314,600 314,600 --
Dividends on preferred stock ...... -- -- -- -- (2,167,500) (2,167,500) --
Prepaid dividends on
preferred stock ................. -- -- -- -- -- -- (2,175,000)
Accretion on preferred stock ...... -- -- -- -- (424,918) (424,918) 424,918
-------- ------- ------- ----------- ------------ ------------ ------------
ENDING BALANCE,
September 30, 1996 .................. 106,134 22,711 1 47,769,034 22,429,697 70,327,577 10,489,091
Net income ........................ -- -- -- -- 3,784,147 3,784,147 --
Dividends on preferred stock ...... -- -- -- -- (2,175,000) (2,175,000) 2,175,000
Accretion on preferred stock ...... -- -- -- -- (424,919) (424,919) 424,919
-------- ------- ------- ----------- ------------ ------------ ------------
ENDING BALANCE,
September 30, 1997 .................. $106,134 $22,711 $ 1 $47,769,034 $ 23,613,925 $ 71,511,805 $ 13,089,010
======== ======= ======= =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
35
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
1. NATURE OF OPERATIONS:
Bayou Steel Corporation (the "Company") owns and operates a steel minimill
located on the Mississippi River in LaPlace, Louisiana ("BSCL") and a rolling
mill in Harriman, Tennessee ("BSCT"). BSCL produces structural steel products
and BSCT produces merchant bar shapes. In addition, the Company operates four
stocking locations along the inland waterway system and an additional warehouse
in Tennessee. The Company's customer base is comprised of steel service centers
and original equipment manufacturers/fabricators located throughout the United
States, with export shipments going to Canada and Mexico.
During 1995, the Company formed BSCT to acquire the assets of Tennessee
Valley Steel Corporation ("TVSC") for $26.8 million. BSCT is a wholly owned
subsidiary of the Company. During fiscal 1997 and 1996, the first two full years
of operations for BSCT, unaudited operating losses associated with this
subsidiary were approximately $2.7 million and $6.8 million, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
BSCL and BSCT after elimination of all significant intercompany accounts and
transactions.
INVENTORIES
Inventories are carried at the lower of cost (last-in, first-out) or market
except mill rolls which are stated at cost (specific identification) and
operating supplies which are stated at average cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired as part of the acquisition of BSCL in
1986 and of BSCT in 1995 (see Note 1) has been recorded based on the respective
purchase prices. Betterments and improvements on property, plant and equipment
are capitalized at cost. Interest during construction of significant additions
is capitalized. 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.
36
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CASH AND TEMPORARY CASH INVESTMENTS
THE COMPANY CONSIDERS INVESTMENTS PURCHASED WITH ORIGINAL MATURITIES OF
THREE MONTHS OR LESS TO BE TEMPORARY CASH INVESTMENTS.
EARNINGS PER SHARE
EARNINGS PER SHARE ARE COMPUTED BY DEDUCTING PREFERRED DIVIDENDS AND
PREFERRED DIVIDEND ACCRETION FROM NET INCOME THEN DIVIDING THIS AMOUNT BY THE
WEIGHTED AVERAGE NUMBER OF OUTSTANDING COMMON SHARES AND COMMON STOCK EQUIVALENT
SHARES, IF ANY, OUTSTANDING DURING THE PERIOD.
IN FEBRUARY 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") ISSUED
STATEMENT NO. 128, "EARNINGS PER SHARE" ("FAS 128"), WHICH SIMPLIFIES THE
COMPUTATION OF EARNINGS PER SHARE. FAS 128 IS EFFECTIVE FOR FINANCIAL STATEMENTS
ISSUED FOR FISCAL YEARS ENDING AFTER DECEMBER 15, 1997, AND IT REQUIRES
RESTATEMENT FOR ALL PRIOR PERIOD EARNINGS PER SHARE DATA PRESENTED. THE
FOLLOWING IS A PRO FORMA PRESENTATION OF BASIC AND DILUTED EARNINGS PER SHARE
CALCULATED IN ACCORDANCE WITH FAS 128 FOR THE YEARS ENDED SEPTEMBER 30, 1997,
1996, AND 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Pro forma basic income (loss) per share..................... $ .09 $ (.18) $ .75
Pro forma diluted income (loss) per share................... .09 (.18) .73
</TABLE>
OTHER ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued FAS 130, "Reporting Comprehensive Income"
and FAS 131, "Disclosures About Segments of an Enterprise and Related
Information." FAS 130 establishes standards for reporting and display of
comprehensive income in the financial statements. Comprehensive income is the
total of net income and all other non-owner changes in equity. FAS 131 requires
that companies disclose segment data based on how management makes decisions
about allocating resources to segments and measuring their performance. FAS 130
and 131 are effective for fiscal years beginning after December 15, 1997.
Adoption of these standards is not expected to have an effect on the reporting
requirement of the Company's financial position or results of operations.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
37
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 conditions, the Company's
sizeable customer base, and the geographical dispersion of the customer base. On
some occasions, particularly large export shipments, the Company requires
letters of credit. Historically, credit losses have not been significant. 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, 1997 and 1996 consisted of the following:
1997 1996
------------ ------------
Scrap steel .................................. $ 5,623,964 $ 6,567,308
Billets ...................................... 4,799,025 7,778,092
Finished product ............................. 46,717,869 47,943,429
LIFO adjustments ............................. (2,497,697) (3,255,589)
------------ ------------
54,643,161 59,033,240
Mill rolls, operating supplies, and other .... 20,379,393 20,822,822
------------ ------------
$ 75,022,554 $ 79,856,062
============ ============
Decrements in the last-in, first-out ("LIFO") inventories had no material
impact on the Company's results of operations in fiscal 1997. There were
increments in the LIFO inventories in 1996. At September 30, 1997 and 1996, the
first-in, first-out ("FIFO") inventories were $57.1 million and $62.3 million,
respectively. A lower of cost or market evaluation of the carrying value of
inventory was prepared at the end of each fiscal year and in fiscal 1996 lower
of cost or market adjustments of $382,000 were required for the finished goods
inventory at BSCT. The market values, after adjustments, were in excess of the
carrying value of the LIFO and FIFO inventories for both years presented.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment of TVSC was acquired for $17.1 million during
fiscal 1995. Excluding the acquisition, capital expenditures totaled $6.0
million, $5.0 million, and $12.5 million in fiscal 1997, 1996, and 1995,
respectively. As of September 30, 1997, the estimated costs to complete
authorized projects under construction or contract amounted to $2.8 million.
38
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company capitalized interest of $50,000, $18,000, and $394,000 during
the years ended September 30, 1997, 1996, and 1995, respectively, related to
qualifying assets under construction. Effective July 1, 1996, estimates of total
plant production capacity were revised, due in part to production enhancements
attained by recent capital expenditures. As a result of these revised estimates,
depreciation expense decreased approximately $0.66 per ton produced in the melt
shop and $1.62 per ton produced in BSCL's rolling mill, generating a total
decrease in depreciation expense in the fourth quarter of fiscal 1996 of
approximately $318,000, or $.02 per common and common equivalent share.
Depreciation expense during the years ended September 30, 1997 , 1996, and 1995
was as follows:
1997 1996 1995
---------- ---------- ----------
Inventory ............................... $ 19,683 $ 140,401 $ 178,835
Cost of sales ........................... 5,928,467 5,947,719 4,964,204
Selling, general and administrative ..... 5,564 6,750 5,261
---------- ---------- ----------
$5,953,714 $6,094,870 $5,148,300
========== ========== ==========
5. OTHER ASSETS:
Other assets consist of financing costs associated with the issuance of
long-term debt, redeemable preferred stock and warrants, and the revolving line
of credit (see Notes 6, 7, and 14) which are being amortized over the lives of
the related transactions. During fiscal 1995, the Company wrote off $165,000 of
other assets related to the previously existing revolving line of credit and
capitalized $2,176,000 of deferred financing costs related to the term loan,
redeemable preferred stock and warrants, and the amended and restated revolving
line of credit. In fiscal 1994, the Company capitalized $3,783,000 of deferred
financing costs related to a 10.25% First Mortgage Notes ("10.25% Notes") and
the 1993 amended and restated revolving line of credit. Amortization of other
assets was approximately $1,006,000, $1,164,000, and $893,000 for the years
ended September 30, 1997, 1996, and 1995, respectively. Other assets are
reflected in the accompanying balance sheets net of accumulated amortization of
$3,015,000 and $2,009,000 at September 30, 1997 and 1996, respectively.
6. LONG-TERM DEBT:
Long-term debt of as of September 30, 1997 and 1996 consists of the
following:
1997 1996
----------- -----------
First Mortgage Notes (see below) ............... $75,000,000 $75,000,000
Term loan (see below) .......................... 8,500,000 10,000,000
Other notes payable, due monthly, bearing
interest of 8.75% secured by certain assets .... 40,330 142,182
----------- -----------
83,540,330 85,142,182
Less--current maturities ....................... 3,040,257 1,601,851
----------- -----------
$80,500,073 $83,540,331
=========== ===========
39
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On June 20, 1995, the Company entered into a five-year term loan agreement
for $10 million. The proceeds received from the term loan were used to repay the
loan outstanding under the Company's revolving credit facility which had been
obtained to acquire substantially all of the assets of TVSC. The term loan is
partially secured by the Company's accounts receivable and inventories. The term
loan agreement calls for quarterly principal payments of $750,000 beginning June
30, 1997 through March 31, 1999 and $1.0 million beginning June 30, 1999 through
December 31, 1999. The remaining $1.0 million principal payment is due on the
final maturity date of June 20, 2000. As of September 30, 1997 and 1996,
$3,000,000 and $1,500,000, respectively, were classified as a current
liabilities. The term loan bears interest on a sliding scale based on the
quarterly leverage ratio, as defined in the agreement. As of September 30, 1997,
the interest rate was LIBOR plus 2.5% or approximately 8.2%. Term loan interest
is payable quarterly. Fair value of the term loan approximates its carrying
value.
The 10.25% Notes were issued in 1994 in order to redeem certain notes and
are secured by a first priority security interest granted by the Company,
subject to certain exceptions, in substantially all unencumbered existing and
future real and personal property, fixtures, machinery and equipment (including
certain operating equipment classified as inventory) and the proceeds from sales
thereof, whether existing or hereafter acquired. The Indenture under which the
10.25% Notes are issued contains covenants, including an interest expense
coverage ratio, which restrict the Company's ability to incur additional
indebtedness, make dividend payments, or place liens on the assets acquired with
such indebtedness.
The 10.25% Notes bear interest at the rate of 10.25% per annum payable
semi-annually on each March and September 1, which commenced September 1, 1994.
The 10.25% Notes will be redeemable, in whole or in part, at any time on and
after March 1, 1998, initially at 103.33% of the principal amount, plus accrued
interest to the date of redemption, and declining ratably to par on March 1,
2000. No principal payments are due on the 10.25% Notes until maturity in 2001.
The fair value of the 10.25% Notes on September 30, 1997 was approximately $77.3
million.
7. SHORT-TERM BORROWING ARRANGEMENT:
On June 20, 1995, the Company entered into an amendment and restatement of
its revolving line of credit agreement which is used for general corporate
purposes. The terms of the amended and restated agreement call for available
borrowings up to $45 million, including outstanding letters of credit, using a
borrowing base derived as a certain percentage of accounts receivable and
inventory. Based on these criteria, the amount available as of September 30,
1997 was $34.5 million, net of $1.8 million outstanding letters of credit. The
agreement is secured by inventory and accounts receivable at interest rates on a
sliding scale based on the quarterly leverage ratio, as defined in the
agreement. As of September 30, 1997, the interest rate was LIBOR plus 2.5% or
approximately 8.2%. The terms of the loan agreement impose certain restrictions
on the Company, the most significant of which require the Company to maintain a
minimum interest coverage ratio and limit the incurrence of certain other
indebtedness. There were no borrowings under the line of credit as of September
30, 1997 and there were
40
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$3 million of borrowings outstanding as of September 30, 1996. Fair value of
borrowings under the line of credit approximates the Company's carrying value.
The following information relates to the Company's borrowings under the line of
credit during the years ended September 30, 1997, 1996, and 1995:
1997 1996 1995
----------- ---------- -----------
Maximum amount outstanding ......... $13,400,000 $6,400,000 $23,300,000
Average amount outstanding ......... $ 5,400,000 $1,700,000 $ 2,200,000
Weighted average interest rate ..... 8.8% 8.4% 8.9%
8. INCOME TAXES:
The Company is subject to United States Federal income taxes and accounts
for income taxes under the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("FAS 109"). 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 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 expired in May 1997, included 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. The Company recognized interest income of approximately $50,000
and rent expense of approximately $1.4 million for tax reporting purposes in
fiscal year 1997 based upon the lease agreements.
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.
As of September 30, 1997, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $280 million and $262 million
available to offset against regular tax and alternative minimum tax,
respectively. As of September 30, 1997 and 1995, the Company provided
41
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$49,795 and $118,115, respectively, for federal alternative minimum tax and
state income tax purposes. Due to generating tax losses in fiscal 1996, there
was no provision for income taxes.
The NOLs will expire in varying amounts through fiscal 2011. A substantial
portion of the available NOLs, approximately $151.2 million, expires by fiscal
2000. 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. FAS 109
requires recognition of future tax benefits, subject to a valuation allowance
based on the likelihood of realizing such benefits. Deferred tax assets of
approximately $103.6 million (NOLs and other temporary timing differences
multiplied by the federal income tax rate) and deferred tax liabilities of
approximately $8.0 million (basis differences between tax and book plant,
property and equipment multiplied by the federal income tax rate) were recorded
in fiscal 1997. However, in recording these net 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 a valuation allowance of $95.6 million is required for
all of the recorded net deferred tax assets. The assessment, which is consistent
with fiscal 1996, resulted in no net deferred tax amounts reflected in the
accompanying consolidated balance sheets. 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.
9. COMMITMENTS AND CONTINGENCIES:
STRIKE AND CORPORATE CAMPAIGN
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike after the parties failed to reach agreement on a new
labor contract due to differences on economic issues. On September 23, 1996, the
Company and Union entered into a settlement agreement which, among other issues,
resulted in a new labor contract, ending the strike.
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. The Company filed a lawsuit in federal court
in Delaware under the Racketeer Influenced Corrupt Organizations Act ("RICO")
against the Union for their conduct in connection with this campaign.
Non-production strike and corporate campaign expenses include legal and other
charges incurred by the Company in connection with its suit against the Union.
On October 29, 1997, the Company reached an agreement with the Union the effect
of which was not material to the financial position or results of operations of
the Company.
42
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In conjunction with the acquisition of the assets of TVSC, the Union filed
a charge with the National Labor Relations Board (the "NLRB") alleging that the
Company has violated the National Labor Relations Act relating to its refusal to
hire at BSCT certain individuals, who were former employees of TVSC. On August
16, 1996, the Company reached a settlement with the Union which was approved by
the NLRB and resolved the issue. The Company agreed to recognize the Union as
the bargaining agent for the employees and pay 135 former employees, who applied
for work but were not employed, a settlement amount of 25% of lost wages, less
interim earnings. Until interim earnings for 1996 are known for each applicant,
the liability cannot be fully determined. The Company has developed its best
estimate of the potential exposure based on available information and has
accrued amounts deemed adequate to cover the settlement of this matter.
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. During, fiscal 1997, the United States Public Interest Research
Group ("USPIRG") filed a lawsuit in Louisiana against the Company for alleged
violations of air quality regulations. USPIRG is asking the courts to award them
their appropriate legal fees and assess appropriate penalties against the
Company. The Company believes it has meritorious defenses to these charges. The
Company believes that it is in compliance, in all material respects, with
applicable environmental requirements and that the cost of such continuing
compliance (including the ultimate resolution of the USPIRG matter discussed
above) 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 at its Louisiana facility to address previously
contaminated sites. Also, the Company is not designated as a Potential
Responsible Party ("PRP") under the Superfund legislation. At September 30, 1997
and 1996, the Company has accrued loss contingencies for environmental matters.
TVSC, the prior owners of the BSCT facility, had entered into a Consent
Agreement and Order (the "Voluntary Consent Order") under the Tennessee
Department of Environment and Conservation's voluntary clean up program. The
Company, in acquiring the assets of TVSC, has entered into a similar order. The
ultimate remedy and clean-up goals will be dictated by the results of human
health and ecological risk assessments which are components of a required,
structured investigative, remedial process. As of September 30, 1997,
investigative, remedial and risk assessment activities have resulted in expenses
of approximately $1.3 million. Estimates indicate that the future cost for
remediating the affected areas ranges from $400,000 for the lowest cost remedy
to $1,300,000 for higher cost remedies. The definitive asset purchase agreement
between the Company and TVSC provided for $2.0 million of
43
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the purchase price to be held in escrow and applied to costs incurred by the
Company for activities pursuant to the Voluntary Consent Order (with an
additional $1.0 million held for one year for such costs and other costs
resulting from a breach of TVSC's representations and warranties in the
agreement). At this time, the Company does not expect the costs of resolution of
the Voluntary Consent Order to exceed funds provided by the escrow fund. If
during the remedial investigation significantly more extensive or more toxic
contamination is found, then costs could be greater than those estimated, and to
the extent these costs exceeded the escrow funds, the Company would be liable to
cover such amounts, if any.
RAW MATERIAL SUPPLY/CONTRACTS
The Company has commitments to purchase billets for use in the BSCT
rolling mill through December 31, 1997. As of September 30, 1997, the
commitments were approximately $5.9 million.
OTHER
The Company does not provide any post-employment or post-retirement
benefits to its employees other than those described in Note 11.
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 or results of operations.
10. 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.
On September 21, 1994, the Board of Directors granted 115,000 incentive
stock options to purchase Class A Common Stock, exercisable at the market price
on that date of $4.375, to key employees. The options are exercisable in five
equal annual installments commencing on September 21, 1995. As of September 30,
1997, no options were exercised, 69,000 shares were exercisable, and 485,000
additional shares were available for grant under the 1991 Plan.
A summary of activity relating to stock options is as follows:
# OF
STOCK OPTIONS
-------
Outstanding, September 30, 1996 ............................. 115,000
Granted ..................................................... 0
Exercised ................................................... 0
Canceled .................................................... 0
-------
Outstanding, September 30, 1997 ............................. 115,000
=======
44
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS 123") which,
among other provisions, establishes an optional fair value method of accounting
for stock-based compensation, including stock options awards. As provided under
the statement, the Company has elected to adopt the disclosure only provisions
of FAS 123, and continues to apply APB Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its
stock-based compensation plans. The disclosure requirements of FAS 123 include
providing pro forma net income and pro forma earnings per share as if the fair
value based accounting method had been used to account for stock-based
compensation cost for the effects of all awards granted in fiscal years
beginning after December 31, 1994. There have been no additional stock option
awards granted by the Company other than those discussed above awarded in
September, 1994.
11. 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"), except those employees
at BSCT who are covered by a defined contribution plan. 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 1997 and 1996:
The actuarial present value of future benefit obligations:
1997 1996
----------- -----------
Vested benefit obligation ................ $ 1,504,232 $ 1,230,062
Non-vested benefit obligation ............ 125,537 64,779
----------- -----------
Accumulated benefit obligation ........... $ 1,629,769 $ 1,294,841
=========== ===========
Projected benefit obligation ............. $ 2,441,103 $ 2,001,427
Plan assets at fair value ................ (2,366,508) (1,884,984)
----------- -----------
Funded status ............................ 74,595 116,443
Unrecognized net gain (loss) ............. 120,558 (170,847)
----------- -----------
Accrued pension liability ................ $ 195,153 $ (54,404)
=========== ===========
Determination of net periodic pension cost:
Service cost ............................. $ 390,534 $ 335,976
Interest cost ............................ 147,959 111,708
Expected return on plan assets ........... (168,925) (134,083)
Net amortization ......................... 4,820 1,061
----------- -----------
Total net periodic pension cost .......... $ 374,388 $ 314,662
=========== ===========
45
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The primary actuarial assumptions used in determining the above benefit
obligation amounts were established on the September 30, 1997 and 1996
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.
The Company recognized expenses of $75,000 in fiscal 1997, $63,000 in fiscal
1996, and $58,000 in fiscal 1995 in connection with a defined contribution plan
to which employees contribute and the Company makes matching contributions based
on employee contributions. In addition, the Company recognized expenses of
$115,000, $84,000, and $31,000 for the fiscal years 1997, 1996, and 1995,
respectively, in connection with a defined contribution plan at BSCT to which
the employees contribute and the Company makes matching contributions based on
employee contributions and profit sharing contributions based on employees'
annual wages.
12. MAJOR CUSTOMERS:
No single customer accounted for 10% or more of total sales for the years
ended September 30, 1997, 1996, and 1995.
13. RELATED PARTY TRANSACTIONS:
The Company entered into an agreement on May 28, 1987 with a stockholder to
provide certain investment banking services to the Company on a competitive,
first refusal basis. During the year ended September 30, 1995, the stockholder
acted as co-manager in conjunction with the placement of preferred stock and
warrants (see Note 14) and received $160,000 for these services. The agreement
terminated on September 4, 1996 and although services were provided, no
obligation was incurred in fiscal 1996.
14. PREFERRED STOCK AND WARRANTS:
On June 20, 1995, the Company completed the issuance and sale of preferred
stock and warrants to purchase common stock for $15 million. The Company issued
15,000 shares of its redeemable preferred stock and warrants to purchase six
percent of the Company's common stock (or 822,422 Class A shares) at a nominal
amount. The Company valued the 15,000 shares of preferred stock sold at
$12,121,520, after deducting $2,878,480 for the market value of the warrants
issued.
The holders of the preferred stock are entitled to receive quarterly
dividends at a rate of 14.5% per annum. If a quarterly dividend payment is not
made by the end of a quarter, the rate will increase by 3%. In addition, the
holders have a right to additional warrants, approximately 77,000 shares, in the
event that any two consecutive quarterly payments are missed or other defined
events take place. Prior to September 30, 1996, the Company declared and
recorded as a prepayment the regular dividends for fiscal 1997. The dividend
prepayment was recorded as a reduction in the balance of the preferred stock in
the accompanying 1996 balance sheet, as the Company would have been able to
apply any remaining amount
46
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
against the principal balance in the event of an early redemption of the
preferred stock. The carrying amount of the preferred stock increased as the
accrued dividends were paid and charged to retained earnings during fiscal 1997
and by periodic accretion of the difference between the recorded value of the
stock at the date of issuance and the redemption value from 1995 through the
mandatory redemption date of June 20, 2002. The terms of the preferred stock
purchase agreement impose certain financial covenants which are generally
related to covenants associated with the revolving line of credit or the 10.25%
Notes.
The preferred stock is mandatorily redeemable by the Company on June 20,
2002; however, the Company can redeem at any time after June 20, 1996, initially
at 113.0% of the outstanding balance, plus accrued dividends to the date of
redemption, and declining ratably to par on June 20, 2000. The fair value of the
preferred stock and warrants on September 30, 1997 was $17.7 million and $4
million, respectively.
15. COMMON STOCK:
Income (loss) per common and common equivalent share are based on the
weighted average number of common shares and common stock equivalent shares
outstanding of 13,707,030 for the years ended September 30, 1997 and 1996 and
13,113,058 for the year ended September 30, 1995. In connection with the
issuance of redeemable preferred stock on June 20, 1995, as discussed in Note
14, the Company reserved 822,422 shares of its Class A Common Stock for issuance
upon exercise of the outstanding warrants at a nominal exercise price. These
warrants are considered common stock equivalents in calculating income per
common and common equivalent share for fiscal 1997, 1996 and 1995. There was no
material impact on primary or fully diluted earnings per share for all years
presented resulting from the stock options granted in September, 1994 (see Note
10).
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 (see
Note 8). The Company's ability to pay dividends is subject to restrictive
covenants under the Indenture pursuant to which the Company's 10.25% Notes were
issued, the preferred stock and warrant purchase agreement, and the Company's
line of credit (see Notes 6, 7 and 14).
16. MISCELLANEOUS:
Miscellaneous income (expense) as of September 30, 1997, 1996, and 1995
included the following:
1997 1996 1995
--------- -------- --------
Discount earned ....................... $ 174,089 $220,919 $211,566
Allowance for doubtful accounts ....... (143,393) 186,039 53,204
Other income .......................... 156,020 463,549 166,885
--------- -------- --------
$ 186,716 $870,507 $431,655
========= ======== ========
47
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL YEAR 1997 QUARTERS
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales .................................................. $ 54,865 $ 57,653 $ 59,075 $ 60,568
Gross Profit ............................................... 2,813 5,152 7,157 7,109
Net Income (Loss) .......................................... (1,803) 803 2,113 2,671
Dividends and Accretion on Preferred Stock ................. (650) (650) (650) (650)
Income (Loss) Applicable to Common and
Common Equivalent Shares ................................ (2,453) 152 1,463 2,022
Income (Loss) Per Common and
Common Equivalent Shares ................................ (.18) .01 .11 .15
FISCAL YEAR 1996 QUARTERS
--------------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Sales .................................................. $ 41,163 $ 52,145 $ 58,875 $ 52,243
Gross Profit ............................................... 4,055 3,647 4,214 4,057
Net Income (Loss) .......................................... 175 21 222 (103)
Dividends and Accretion on Preferred Stock ................. (646) (650) (650) (646)
Loss Applicable to Common and
Common Equivalent Shares ................................ (471) (629) (428) (750)
Loss Per Common and
Common Equivalent Shares ................................ (.04) (.05) (.03) (.05)
</TABLE>
48
<PAGE>
BAYOU STEEL CORPORATION
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation:
We have audited the accompanying consolidated balance sheets of Bayou
Steel Corporation (a Delaware corporation) and subsidiary as of September 30,
1997 and 1996, and the related consolidated statements of operations, cash
flows, and changes in equity for the years ended September 30, 1997, 1996, and
1995. 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 and
subsidiary as of September 30, 1997 and 1996 and the results of their operations
and their cash flows for the years ended September 30, 1997, 1996, and 1995 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana
November 19, 1997
49
<PAGE>
BAYOU STEEL CORPORATION
SHAREHOLDER INFORMATION
CORPORATE DATA
CORPORATE HEADQUARTERS
Bayou Steel Corporation
138 Highway 3217
LaPlace, Louisiana 70068
(504) 652-4900
MAILING ADDRESS BAYOU
Steel Corporation
P.O. Box 5000
LaPlace, Louisiana 70069-1156
TRANSFER AGENT AND REGISTRAR
Class A Common Stock
American Stock Transfer & Trust Company
40 Wall Street New York, NY 10005
(1-800) 937-5449
TRUSTEE
10 1/4% First Mortgage Notes due 2001
First National Bank of Commerce
210 Baronne Street
P.O. Box 60279
New Orleans, Louisiana 70160
(504) 561-1606
INDEPENDENT AUDITORS
Arthur Andersen LLP
201 St. Charles Avenue, Suite 4500
New Orleans, Louisiana 70170
(504) 581-5454
STOCK LISTING
American Stock Exchange
Trading Symbol-BYX
INVESTOR INFORMATION
Investor information is available upon request by writing or calling:
Bayou Steel Corporation
Vice President, Chief Financial Officer,
Treasurer and Secretary
P.O. Box 5000
LaPlace, Louisiana 70069-1156
(504) 652-4900
E-Mail Address: [email protected]
Internet News Bureau:
http://www.prprnet.com/bayou-steel/
BOARD OF DIRECTORS
Howard M. Meyers
Chairman of the Board and
Chief Executive Officer
Bayou Steel Corporation
Lawrence E. Golub
President
Golub Associates, Inc.
Melvyn in. Klein, Esq.
President
JAKK Holding Corporation
General Partner
GKH Partners, L.P.
Albert P. Lospinoso
Chairman of the Board
RSR Corporation
Stanley S. Shuman
Executive Vice President and
Managing Director
Allen & Company Incorporated
Jeffrey P. Sangalis
Managing Director
Rice Mezzanine Corporation
Jerry M. Pitts
President and Chief
Operating Officer
Bayou Steel Corporation
CORPORATE OFFICERS
Howard M. Meyers
Chairman of the Board and
Chief Executive Officer
Jerry M. Pitts
President and Chief
Operating Officer
Richard J. Gonzalez
Vice President, Chief Financial
Officer, Treasurer and Secretary
Rodger A. Malehorn
Vice President of Commercial Operations
Timothy R. Postlewait
Vice President of Plant Operations
Henry S. Vasquez
Vice President of Human Resources
50
<PAGE>
FOR INFORMATION, CONTACT:
[BAYOU STEEL LOGO]
Bayou Steel Corporation
P.O. Box 5000
LaPlace, LA 70069-1156
Phone: (504) 652-4900
51
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BAYOU STEEL CORPORATION CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 971,477
<SECURITIES> 0
<RECEIVABLES> 27,662,515
<ALLOWANCES> 500,459
<INVENTORY> 75,022,554
<CURRENT-ASSETS> 103,395,248
<PP&E> 135,084,953
<DEPRECIATION> 44,946,654
<TOTAL-ASSETS> 196,465,054
<CURRENT-LIABILITIES> 31,364,166
<BONDS> 80,500,073
13,089,010
0
<COMMON> 128,846
<OTHER-SE> 71,511,805
<TOTAL-LIABILITY-AND-EQUITY> 196,465,054
<SALES> 232,161,116
<TOTAL-REVENUES> 232,161,116
<CGS> 209,930,423
<TOTAL-COSTS> 209,930,423
<OTHER-EXPENSES> 9,291,771
<LOSS-PROVISION> 143,393
<INTEREST-EXPENSE> 8,961,587
<INCOME-PRETAX> 1,234,023
<INCOME-TAX> 49,795
<INCOME-CONTINUING> 1,184,228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,184,228
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
