UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-22603
BAYOU STEEL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 72-1125783
(State of incorporation) (I.R.S. Employer
Identification No.)
RIVER ROAD, P.O. BOX 5000, LAPLACE, LOUISIANA 70069
(Address of principal executive offices)
(Zip Code)
(504) 652-4900
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT MARCH 31, 1997
- ------------------------------------ ------------------------------------
Class A Common Stock, $.01 par value 10,613,380
Class B Common Stock, $.01 par value 2,271,127
Class C Common Stock, $.01 par value 100
----------
12,884,607
==========
<PAGE>
BAYOU STEEL CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1997 and
September 30, 1996 3
Consolidated Statements of Income
(Loss) -- Three Months and Six Months
Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash
Flow -- Six Months Ended March
31, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
Results of Operations 13
Liquidity and Capital Resources 17
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of 20
security holders
Item 6. Exhibits and reports on Form 8-K 20
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BAYOU STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1997 1996
------------- -------------
CURRENT ASSETS:
Cash and temporary cash investments ..... $ 479,524 $ 748,608
Receivables, net of allowance for
doubtful accounts of $471,139 in
1997 and $352,965 in 1996 ............. 26,508,010 24,107,566
Inventories ............................. 75,859,167 79,856,062
Prepaid expenses ........................ 845,930 292,458
------------- -------------
Total current assets ................. 103,692,631 105,004,694
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land .................................... 3,790,398 3,790,398
Machinery and equipment ................. 106,679,020 104,683,209
Plant and office building ............... 21,061,177 20,975,997
------------- -------------
131,530,595 129,449,604
Less-Accumulated depreciation ........... (41,964,613) (39,115,207)
------------- -------------
Net property, plant and equipment .... 89,565,982 90,334,397
OTHER ASSETS ............................... 3,362,737 3,932,594
------------- -------------
Total assets ......................... $ 196,621,350 $ 199,271,685
============= =============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1997 1996
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt ...... $ 3,065,332 $ 1,601,851
Borrowings under line of credit ........... 10,800,000 3,000,000
Accounts payable .......................... 17,568,569 24,281,494
Accrued liabilities ....................... 3,360,985 3,856,341
Accrued dividends on redeemable
preferred stock ......................... -- 2,175,000
Total current liabilities .............. 34,794,886 34,914,686
------------ ------------
LONG-TERM DEBT ............................... 82,010,358 83,540,331
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ................... 11,789,050 10,489,091
------------ ------------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A ................................. 106,134 106,134
Class B ................................. 22,711 22,711
Class C ................................. 1 1
------------ ------------
Total common stock ..................... 128,846 128,846
Paid-in capital ........................... 47,769,034 47,769,034
Retained earnings ......................... 20,129,176 22,429,697
------------ ------------
Total common stockholders' equity ...... 68,027,056 70,327,577
Total liabilities & common
stockholders' equity ................ $196,621,350 $199,271,685
============ ============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
NET SALES ............ $ 57,652,714 $ 52,145,001 $ 112,517,624 $ 93,307,994
COST OF SALES ........ 52,500,642 48,497,843 104,552,946 85,605,747
------------ ------------ ------------- ------------
GROSS PROFIT ......... 5,152,072 3,647,158 7,964,678 7,702,247
SG&A ................. 1,684,844 1,544,004 3,300,924 3,091,084
NON-PRODUCTION STRIKE
AND CORPORATE
CAMPAIGN EXPENSES . 452,968 326,432 1,247,120 671,093
------------ ------------ ------------- ------------
OPERATING INCOME ..... 3,014,260 1,776,722 3,416,634 3,940,070
------------ ------------ ------------- ------------
OTHER INCOME (EXPENSE)
Interest expense .. (2,297,272) (2,147,371) (4,516,955) (4,280,609)
Interest income ... 220 23,137 2,637 129,817
Miscellaneous ..... 84,842 368,192 97,122 406,650
------------ ------------ ------------- ------------
. ................... (2,212,210) (1,756,042) (4,417,196) (3,744,142)
------------ ------------ ------------- ------------
INCOME (LOSS)
BEFORE TAXES ...... 802,050 20,680 (1,000,562) 195,928
PROVISION FOR
INCOME TAXES ...... -- -- -- --
NET INCOME (LOSS) .... 802,050 20,680 (1,000,562) 195,928
DIVIDENDS ACCRUED AND
ACCRETION ON
PREFERRED STOCK ... (649,979) (649,980) (1,299,959) (1,295,987)
------------ ------------ ------------- ------------
INCOME (LOSS)
APPLICABLE TO
COMMON AND COMMON
EQUIVALENT SHARES . $ 152,071 $ (629,300) $ (2,300,521) $ (1,100,059)
============ ============ ============= ============
AVERAGE NUMBER
OF COMMON AND
COMMON EQUIVALENT
SHARES OUTSTANDING 13,707,029 13,707,029 13,707,029 13,707,029
============ ============ ============= ============
INCOME (LOSS)
APPLICABLE TO
COMMON AND COMMON
EQUIVALENT SHARES . $ .01 $ (0.05) $ (0.17) $ (0.08)
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 5
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BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
1997 1996
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) .............................. $(1,000,562) $ 195,928
Depreciation ............................... 2,849,406 2,979,913
Amortization ............................... 574,456 563,078
Provision for losses on accounts
receivable ............................... 114,928 (44,574)
Changes in working capital:
(Increase) in receivables ................ (2,515,372) (1,683,977)
Decrease (increase) in inventories ...... 3,996,895 (10,513,439)
(Increase) in prepaid expenses ........... (553,472) (717,481)
(Decrease) in accounts payable ........... (6,712,925) (1,150,971)
(Decrease) in accrued liabilities ........ (495,356) (699,454)
----------- ------------
Net cash (used in) operations ........... (3,742,002) (11,070,977)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant
and equipment ............................ (2,080,991) (1,554,979)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit ........ 7,800,000 4,000,000
Payments of long-term debt ................. (66,492) (173,903)
(Increase) in other assets ................. (4,599) (25,000)
Payments of dividends on preferred stock ... (2,175,000) (1,696,805)
----------- ------------
Net cash provided by
financing activities ................. 5,553,909 2,104,292
----------- ------------
NET (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................... (269,084) (10,521,664)
CASH AND CASH EQUIVALENTS,
beginning balance .......................... 748,608 10,521,664
----------- ------------
CASH AND CASH EQUIVALENTS,
ending balance ............................. $ 479,524 $ --
=========== ============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1) BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations. Although Bayou Steel Corporation (the "Company") believes
that disclosures made are adequate to ensure that information presented is not
misleading, it is suggested that these consolidated financial statements be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report, Form 10-K, filed with the SEC on
December 18, 1996 under File Number 33-22603.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements present fairly the Company's financial position as of March
31, 1997 and September 30, 1996 and the results of its operations for the
three-month and six-month periods ended March 31, 1997 and 1996 and the cash
flow statements for the six-month periods ended March 31, 1997 and 1996.
The accompanying financial statements include the consolidated accounts of
Bayou Steel Corporation ("BSCL") and Bayou Steel Corporation (Tennessee)
("BSCT") (collectively referred to herein as the "Company") after elimination of
all significant intercompany accounts and transactions.
The results of operations for the six-month periods ended March 31, 1997
and 1996 are not necessarily indicative of the results for the full year.
2) INVENTORIES
Inventories as of March 31, 1997 and September 30, 1996 consisted of the
following:
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1997 1996
------------ ------------
Scrap steel ........................ $ 4,075,062 $ 6,567,308
Billets ............................ 8,403,103 7,778,092
Finished product ................... 43,168,312 47,943,429
LIFO adjustments ................... (684,160) (3,255,589)
------------ ------------
$ 54,962,317 $ 59,033,240
Mill rolls, operating
supplies and other ............... 20,896,850 20,822,822
------------ ------------
$ 75,859,167 $ 79,856,062
============ ============
The inventory valuations are based on LIFO estimates of year-end levels
and prices. The actual LIFO inventories will not be known until year-end
quantities and indices are determined.
Shapes, billets, scrap steel, and certain production supplies are pledged
as collateral against the Company's line of credit.
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3) PROPERTY, PLANT AND EQUIPMENT
Capital expenditures for normal operations totaled $2.1 million and $1.6
million during the six-month periods ended March 31, 1997 and 1996,
respectively. As of March 31, 1997, the estimated costs to complete authorized
projects under construction or contract amounted to $1.2 million.
Betterments, improvements, and additions on property, plant and equipment
are capitalized at cost. Interest during construction of significant additions
is capitalized. Interest of $23,000 was capitalized during the six-month period
ended March 31, 1997. There was no interest capitalized for the six-month period
ended March 31, 1996. Interest of $18,000 was capitalized during the fiscal year
ended September 30, 1996.
4) OTHER ASSETS
Other assets consist of financing costs associated with the issuance of
long-term debt, redeemable preferred stock and warrants, and the Company's
revolving line of credit (see Notes 5, 6 and 8) which are being amortized over
the lives of the related transaction. Amortization expense was $574,000 and
$563,000 for the six-month periods ended March 31, 1997 and 1996, respectively.
Amortization expense was $1,164,000 for the fiscal year ended September 30,
1996.
5) LONG-TERM DEBT
Long-term debt of the Company as of March 31, 1997 and September 30, 1996
included the following:
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1997 1996
----------- -----------
First Mortgage Notes ................... $75,000,000 $75,000,000
(see below)
Term Loan (see below) .................. 10,000,000 10,000,000
Other notes payables ................... 75,690 142,182
----------- -----------
85,075,690 85,142,182
Less-current maturities ................ 3,065,332 1,601,851
----------- -----------
$82,010,358 $83,540,331
=========== ===========
On June 20, 1995, the Company entered into a five-year term loan agreement
of $10 million for the Company's wholly owned subsidiary, BSCT. Based on the
second quarter leverage ratio, BSCT will accrue at LIBOR plus 3.00% or
approximately 8.4% at current rates. As of March 31, 1997, BSCT accrued interest
at a rate of 8.2%. Principal payments are due quarterly beginning June 30, 1997.
As of March 31, 1997, $3.0 million was classified as a current liability.
On March 3, 1994, the Company issued $75 million of the 10.25% Notes. The
principal is due on March 1, 2001. As of March 31, 1997 and 1996, the Company
accrued interest at a rate of 10.25%.
6) SHORT-TERM DEBT
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 of receivables and inventory. Based on these criteria, the net
amount available as of March 31, 1997 was $20.7 million. The agreement is
secured by inventory and accounts receivable at interest rates on a sliding
scale
Page 8
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based on the quarterly leverage ratio, as defined in the agreement. Based on the
second quarter leverage ratio, the Company will accrue at LIBOR plus 3.00% or
approximately 8.4% at current rates. 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.
The Company had an outstanding balance of $10.8 million under the line of
credit as of March 31, 1997. The maximum amount outstanding during the six-month
period ended March 31, 1997 was $13.4 million. The average borrowings were $8.0
million and $6.2 million for the three-month and six-month periods ended March
31, 1997, respectively. The weighted average interest rates were 8.7% and 8.6%
for the second quarter and the six-month period ended March 31, 1997,
respectively.
7) TAXES
As of September 30, 1996, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $328.7 million and $301.5 million
available to offset against regular tax and alternative minimum tax,
respectively.
The NOLs will expire in varying amounts through fiscal 2011. A substantial
portion of the available NOLs, approximately $200 million, expires by fiscal
2000. In addition, the Company has $1.35 million of net future tax deductions
attributable to its tax benefit lease which expires in 1997 and which may, to
the extent of taxable income in the year such tax benefit is produced, be
utilized prior to the NOLs.
8) 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. The Company intends to declare and pay
quarterly dividends on the preferred stock unless prohibited by covenants in the
revolving line of credit and the 10.25% Notes. 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 in the event that any two
consecutive quarterly payments are missed or other defined events take place.
Based on the September 30, 1996 results, the Company would be unable to make the
December 31, 1996 dividend payment or any other dividend payment until an
interest coverage ratio test, as defined in the Indenture pursuant to which the
10.25% Notes were issued, is again met. The Company also did not make the ratio
test for the quarter ended March 31, 1997. Prior to September 30, 1996, the
Company declared the regular dividends for fiscal 1997. Subsequent to fiscal
year end, the Company paid these dividends. This eliminates the additional
dividend rate and additional warrants that would have otherwise been payable in
fiscal 1997. The dividend prepayment has been recorded as a reduction in the
balance of the preferred stock in the accompanying balance sheet, as the Company
would be able to apply any remaining amount against the principal balance in the
event of an early redemption of the preferred stock. Depending on the Company's
future results, the Company may not be able to declare and pay the dividend. As
of March 31, 1997, the Company accrued dividends at a rate of 14.5%.
Page 9
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The carrying amount of the preferred stock will increase as the accrued
dividends are 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, based on the interest method as well as by the normal
amortization of the prepaid dividends, discussed above. The terms of the stock
purchase agreement impose certain financial covenants which are generally
related to covenants in the revolving line of credit or the 10.25% Notes.
9) COMMON STOCKHOLDERS' EQUITY
Common stock and common stock equivalents as of March 31, 1997 consisted
of:
CLASS A CLASS B CLASS C
---------- --------- ---
Authorized .......................... 24,271,127 4,302,347 100
Outstanding, at end of
quarter ........................... 11,435,802 2,271,127 100
Average outstanding for
quarter ........................... 11,435,802 2,271,127 100
10) EARNINGS PER SHARE
Earnings per common and common equivalent share are calculated based upon
the weighted average number of common and common equivalent shares outstanding
during the three-month and six-month periods ended March 31, 1997 and 1996. In
connection with the issuance of redeemable preferred stock on June 20, 1995 as
discussed in Note 8, 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 earnings per common and common equivalent share for the second
quarter and the six-month period ended March 31, 1997 and 1996. The actual
shares, including equivalents, outstanding for the quarter and six-month period
ended March 31, 1997 and 1996 were 13,707,029.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("FAS 128"), "Earnings Per Share", which simplifies the
computation of earnings per share. FAS 128 is effective for financial statements
issued for periods ending after December 15, 1997 and requires restatement for
all prior period earnings per share data presented. Earnings per share
calculated in accordance with FAS 128 would be unchanged for the periods
presented.
11) MISCELLANEOUS
Miscellaneous for the six-month periods ended March 31, 1997 and 1996
included the following:
(UNAUDITED) (UNAUDITED)
MARCH 1997 MARCH 1996
--------- --------
Discounts earned ......................... $ 93,346 $122,146
Provision for bad debts .................. (114,928) 3,275
Other .................................... 118,704 281,229
--------- --------
$ 97,122 $406,650
========= ========
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12) COMMITMENTS AND CONTINGENCIES
STRIKE
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 impact of the corporate campaign has been
significant. In June 1995, 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. The Company seeks
both an end to the illegal activities used in the corporate campaign and the
recovery of damages. These legal expenses will continue even though the strike
has been resolved.
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 determined. Based on assumptions of earnings, the
Company estimated that the settlement could range from $136,000 to $500,000. As
of March 31, 1997, the Company accrued $136,000 for the settlement.
ENVIRONMENTAL
The Company is subject to various federal, state, and local laws and
regulations concerning the discharge of contaminants which may be emitted into
the air, discharged into waterways, and the disposal of solids and/or hazardous
wastes such as electric arc furnace dust. In addition, in the event of a release
of a hazardous substance generated by the Company, the Company could be
potentially responsible for the remediation of contamination associated with
such a release. In the past, the Company's operations in some respects have not
met all of the applicable standards promulgated pursuant to such laws and
regulations. At this time, the Company believes that it is in compliance, in all
material respects, with applicable environmental requirements and that the cost
of such continuing compliance will not have a material adverse effect on the
Company's competitive position, operations or financial condition, or cause a
material increase in currently anticipated capital expenditures. The Company
currently has no mandated expenditures 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 March
31, 1997, the Company has accrued a loss contingency 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 March 31, 1997, investigative,
Page 11
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remedial and risk assessment activities have resulted in expenses of
approximately $1.2 million. Estimates indicate that the future cost for
remediating the affected areas ranges from $500,000 for the lowest cost remedy
to $1,500,000 for higher cost remedies. 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 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.
The U.S. 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. USPIRG is also seeking
injunctive relief requiring the Company to meet standards that, in order to
reach, the Company may be required to make capital expenditures. The novelty of
USPIRG's claim and new developments in the law make it virtually impossible for
the Company to estimate potential damages, if any, at this time. The Company
believes it has meritorious defenses to these charges and has asked the court to
dismiss USPIRG's lawsuit on various grounds.
OTHER
The Company does not provide any post-employment or post-retirement
benefits to its employees.
There are various claims and legal proceedings arising in the ordinary
course of business pending against or involving the Company wherein monetary
damages are sought. It is management's opinion that the Company's liability, if
any, under such claims or proceedings would not materially effect its financial
position.
Page 12
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
The Company reported a net income of $0.80 million before dividends and
accretion on preferred stock in the second quarter of fiscal 1997 (ended March
31, 1997) compared to a net income of $0.02 million for the comparable period of
fiscal 1996. The $0.78 million improvement in the Company's results was due to
three significant factors. First, conversion costs (the cost of converting raw
materials into shapes) decreased 1.4% at the Louisiana facility ("BSCL")
("Louisiana"). Second, BSCL's metal margin (the difference between the selling
price and the net scrap cost) increased 4.4% in the second fiscal quarter of
fiscal 1997 compared to the same period of last year. Third, Bayou Steel
Corporation's (Tennessee) ("Tennessee") ("BSCT") loss of $1.0 million was $1.2
million lower than the second quarter of last year. Offsetting some of the
improvements were other favorable adjustments booked in the second quarter of
fiscal 1996.
The Company reported a net loss of $1.0 million before dividends and
accretion on preferred stock during the first six months of fiscal 1997 (ended
March 31, 1997) compared to a net income of $0.2 million for the comparable
period of fiscal 1996. The $1.2 million decline in the Company's results was due
to three significant factors. First, conversion costs increased 1% at the
Louisiana facility due to an outage in the melting facility and the return of
the striking employees. Second, non-production strike and corporate campaign
expenses increased by $0.6 million. Third, other favorable adjustments to
conversion cost were booked in fiscal 1996 while other unfavorable adjustments
were booked to conversion cost in fiscal 1997. Offsetting some of the declines
in the Company's results was the improvement of BSCT's results by $1.6 million
compared to the first six months of last year.
The following table sets forth shipment and sales data for the periods
indicated.
THREE MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
Net Sales (in thousands) ..................... $ 57,653 $ 52,145
Shape Shipment Tons .......................... 168,205 151,658
Shape Selling Price Per Ton .................. $ 338 $ 338
Billet Shipment Tons ......................... -- 199
Billet Selling Price Per Ton ................. $ -- $ 240
SIX MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
Net Sales (in thousands) ..................... $112,518 $ 93,308
Shape Shipment Tons .......................... 328,679 264,651
Shape Selling Price Per Ton .................. $ 337 $ 345
Billet Shipment Tons ......................... -- 1,908
Billet Selling Price Per Ton ................. $ -- $ 249
A. SALES
Net sales increased in the second quarter of fiscal 1997 by 10.6% or $5.5
million compared to the same period of fiscal 1996. The increase was the result
of a 17,837 ton increase in shape shipments from BSCT. Net sales for the first
Page 13
<PAGE>
six months of fiscal 1997 increased by 20.6% or $19.2 million compared to the
same period of fiscal 1996. Shipments increased out of BSCL and BSCT by 21,718
tons and 42,310 tons, respectively.
SHAPES - Shipments for second quarter and first six months of fiscal 1997
increased 11% and 24%, respectively compared to the same periods of fiscal 1996.
The increased shipments are attributable to the increased shipments out of both
the Louisiana and Tennessee facilities. The higher shipments out of BSCT were
mainly due to a strong economy, increased market acceptance, and reliability of
the operation. Due to the Tennessee facility being in a start-up mode of
operations during the first six months of fiscal 1996, shipments from BSCT were
minimal. Shipments out of BSCL increased by 8.9% in the first six months of
fiscal 1997 compared to the same period of fiscal 1996 due to a strong economy
and continued focus on the original equipment manufacturer/fabricator
("OEM/FAB") market. The backlog of orders at March 31, 1997 for the Company is
52% higher than a year earlier and 3% higher than the prior quarter. Backlog
continues to grow in the third quarter. The increase in backlog is directly
related to a steady economy and the increasing acceptance of the Tennessee
products in the market. Shipments are expected to be stable in the third quarter
of fiscal 1997 compared to the second quarter of fiscal 1997.
The selling price of the small structural shapes shipped out of the
Louisiana facility increased slightly while the merchant bar shapes shipped out
of the Tennessee facility increased approximately $8 per ton in the second
quarter of fiscal 1997 compared to the same period of fiscal 1996. The Tennessee
facility benefitted from an overall improved market, a better mix of products
sold, and the increased acceptance of its products. Overall selling prices were
approximately the same for the second quarter of fiscal 1997 compared to the
same period of fiscal 1996 due to the mix of selling proportionately more
Tennessee products which carry, at this time, a lower overall selling price.
Consolidated selling prices decreased by $8 per ton in the first six
months of fiscal 1997 compared to the same period of fiscal 1996. The selling
price of the small structural shapes shipped out of the Louisiana facility
decreased approximately $5 per ton. Additionally, the mix of selling
proportionately more Tennessee products which carry, at this time, a lower
selling price also contributed to the overall price decrease. The merchant bar
shapes shipped out of the Tennessee facility increased approximately $4 per ton.
The Tennessee facility benefitted from a better mix of products sold and the
increased acceptance of its products by customers within the region. There were
several market conditions causing the decrease in the small structural shape
selling price out of the Louisiana facility. Additional capacity was shifted
into the Company's product line from mills previously producing for the special
bar quality ("SBQ") market during fiscal 1996. 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. Prices are expected to increase during the third
quarter of fiscal 1997 due to an announced price increase which most of the
market accepted. However, the Company expects continued pressure from imports in
the Southwest from Mexican mills.
BILLETS - Shipments of billets, the Company's semi-finished product, were
minimal in both fiscal quarters due to lack of availability of billets for sale.
The Company supplied billets to the rolling mill in Tennessee during the first
six months of fiscal 1996 and fiscal 1997, thereby depleting the availability of
billets to sell in the open market. In addition, the Company has been purchasing
billets on the open market at competitive prices for the remaining needs of the
Tennessee rolling mill. The Company will continue to supply all of its
Louisiana's rolling mill billet requirements and some of Tennessee's rolling
mill billet requirements. 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.
Page 14
<PAGE>
B. COST OF GOODS SOLD
Cost of goods sold was 90.8% of sales for the second quarter of fiscal
1997 compared to 93.0% of sales for the same period of fiscal 1996. The decrease
was due to the decrease in conversion cost (the cost to convert raw materials
into shapes) at both facilities.
Cost of goods sold was 92.9% of sales for the first six months of fiscal
1997 compared to 91.7% the same period of fiscal 1996. The increase was due to
an outage in the melting facility and the return of the striking workers.
Offsetting some of these increases in cost was a decrease in conversion cost at
the Tennessee facility and an increase in the metal margin at the Tennessee
facility.
In order to achieve better control over scrap cost and availability, the
Company opened, in 1995, Mississippi River Recycling ("MRR") which currently
operates an automobile shredder. MRR produces shredded scrap metal which is one
of the scrap types used in steelmaking. MRR experienced mechanical problems
during the first quarter and first six months of fiscal 1996. MRR is now
operating at the anticipated capacity and conversion cost. The production tons
improved by 29% and 41% while the conversion cost decreased by 21% and 20% in
the second quarter and first six months of fiscal 1997 compared to the same
period of fiscal 1996, respectively. The shredder currently supplies
approximately 12% of the melt shop's raw material requirements. Opportunities to
increase MRR's ability to process additional scrap grades are being explored.
The major component of cost of goods sold is scrap which is used in the
melting facility at the Louisiana facility. Scrap cost in the second quarter of
fiscal 1997 and the first six months of fiscal 1997 decreased 5.8% and 4.0%,
respectively compared to the same periods of fiscal 1996. In the first fiscal
quarter of 1996, the price of scrap was influenced by the affects of poor
weather conditions, causing delays in delivery and the necessary utilization of
more expensive types of scrap. The Company's scrap prices dropped in the second
quarter and the first six months of fiscal 1997 due to increased availability,
lack of an export market, and greater supply. The market over the next several
months is subject to increased volatility due to opposing market factors: a weak
export market; the strong dollar; and, more domestic capacity.
Another component of cost of goods sold is additive, alloys and flux
("AAF"). AAF cost decreased by 12.2% and 4.0% in the second quarter and first
six months of fiscal 1997 compared to the same period of fiscal 1996,
respectively, due to price. Offsetting the reductions in price was increased
consumption. The increased consumption was the result of producing a richer mix
of grades and a change in melting practices which significantly reduced
secondary production and reduce overall cost.
The Tennessee rolling mill facility's principal raw material is billets
which is produced at the Louisiana facility or purchased on the open market.
Billet cost in the second quarter of fiscal 1997 and the first six months of
fiscal 1997 decreased 2.9% and 6.9%, respectively compared to the same periods
of fiscal 1996. The price of billets purchased on the open market normally
follows the scrap market. Also, the billet market has been soft. Currently, the
Company purchases billet at competitive prices and believes that the supply of
billets is adequate.
Another significant portion of cost of goods sold is conversion cost,
which include labor, energy, maintenance materials and supplies used to convert
raw materials into billets and billets into shapes. Conversion cost per ton for
the Louisiana facility in the second quarter of fiscal 1997 compared to the same
period of fiscal 1996 decreased by 1.4%. Production in the second quarter of
fiscal 1997 improved in the melt shop by 7.2% and in the rolling mill by 2.2%,
Page 15
<PAGE>
thereby reducing fixed conversion cost per ton. Offsetting some of the
improvements in conversion cost were increases in the price of power and key
operating supplies by $2.66 per ton produced. Conversion cost for the first six
months of fiscal 1997 compared to the same period of last year increased by
approximately 1%. During the first six months of fiscal 1997, costs were
impacted by two unusual equipment outages which affected production and resulted
in increased maintenance costs. The first six months of fiscal 1997 was also
affected by the increased costs of power and certain key supply items which
increased cost by $3.45 per ton of shape produced. Productivity, particularly in
the rolling mill and shipping, were affected as returning workers became
reacquainted with the equipment or learned new jobs. Additional staffing was
also maintained during the transition although the Company, during the second
quarter of fiscal 1997, returned to normal staffing levels.
In July 1995, Tennessee started operating its rolling mill. As expected
during the first six months of fiscal 1996, the learning curve associated with
new and refurbished equipment combined with an inexperienced work force caused
the production tons to be low and the conversion cost per ton to be high.
Consequently, production costs exceeded sales in the second quarter and first
six months of fiscal 1996 by $2.2 million and $3.9 million, respectively. As the
workforce gained experience, conversion cost per ton and gross margins improved.
Comparing the second quarter and first six months of fiscal 1997 to the same
period of fiscal 1996, conversion cost improved by 43% and 37%, tons produced by
100% and 125%, yield by 8.3% and 8.4%, and tons produced per hour by 124% and
116%, respectively. The book selling price has fallen $40 per ton since the
acquisition. As a result the break-even production and shipment rate has
increased from approximately 32,000 tons per quarter to nearly 45,000 tons per
quarter. In the second quarter of fiscal 1997, BSCT produced 37,800 tons. The
Company expects improvements to continue toward the break-even production over
the next few quarters. The Company has incurred losses at BSCT ranging from $1.0
million to $2.2 million per quarter over the past six quarters. The Company does
not intend to continue the loss associated with the Tennessee facility and is
monitoring the operations on a regular basis to insure improvement towards
profitability is met in a reasonable time period.
C. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses in the second quarter and
first six months of fiscal 1997 compared to the same periods of the last fiscal
year were approximately the same.
D. NON-PRODUCTION STRIKE AND CORPORATE CAMPAIGN EXPENSES
Non-production strike-related expenses were $453,000 and $1,247,000 for
the second quarter and first six months of fiscal 1997 compared to $326,000 and
$671,000 for the same period last year, respectively. Strike expenses in fiscal
1997 were primarily for legal, security, and other expenses related to returning
the strikers back to work. During the third quarter, the Company will incur
legal and other expenses to arbitrate the termination of certain strikers who
were involved in misconduct during the strike. All strike-related expenses
should be minimal by the end of the fiscal year. The Company also incurred legal
expenses related to the Racketeering Influenced Corrupt Organization Act
("RICO") suit which the Company filed against the Union. RICO legal expenses
will continue into the early part of fiscal 1998 and could increase as trial
activity increases.
E. OTHER INCOME (EXPENSE)
Interest expense increased for the second quarter and first six months of
fiscal 1997 compared to the same period of fiscal 1996 due to an increase in
short-term borrowings under the line of credit. Interest income was minimal in
fiscal 1997 due to relatively small amount of cash available to invest.
Miscellaneous expenses were approximately the same in both quarters.
Page 16
<PAGE>
F. NET INCOME
The Company's results before dividends and accretion on preferred stock
improved by $0.78 million in the second fiscal quarter of 1997 compared to the
same period of fiscal 1996. The primary reasons for the improvement in earnings
were decreased conversion cost, increased metal margins, and an improvement in
BSCT's performance. Offsetting some of the improvements were other favorable
adjustments booked in the second quarter of fiscal 1996.
The Company's results before dividends and accretion on preferred stock
declined by $1.2 million in the first six months of 1997 compared to the same
period of fiscal 1996. The primary reasons for the decline in earnings were
increased conversion cost, increase in non-production strike and corporate
campaign expenses, and other adjustments. Offsetting some of the declines in the
Company's results were BSCT's improved performance.
LIQUIDITY AND CAPITAL RESOURCES
A. CASH AND WORKING CAPITAL
The Company ended the second fiscal quarter with short-term borrowings of
$10.8 million. Current assets exceeded current liabilities by a ratio of
approximately 3 to 1. Working capital decreased by $1.2 million to $68.9 million
during the six months ended March 31, 1997 due to the current portion of the
term loan being reclassified from a long-term liability to a short-term
liability.
In the first six months of fiscal 1997, cash used by operations was $3.7
million. Accounts payable decreased by $6.7 million as purchasing of scrap
decreased towards the end of the quarter. Accounts receivable increased by $2.5
million due to the increased sales toward the end of the second quarter.
Offsetting some of the decreases in cash was a decrease in inventories.
B. CAPITAL EXPENDITURES
Capital expenditures amounted to $2.1 million in the first six months of
fiscal 1997. These capital projects were directed towards cost reduction and
productivity improvements. The Company does not expect to make substantial
investments in capital during the third fiscal quarter of 1997. However,
depending on market conditions, the Company expects to spend approximately $11
million on various capital projects to reduce cost and increase productivity, to
enhance safety and environmental programs, and to maintain the plants within the
next 12 months.
C. FINANCING
All of the $75 million 10.25% Notes are classified as long-term debt.
There are no principal payments due on the 10.25% Notes until maturity in 2001.
The Company currently intends to refinance the 10.25% Notes on or before the
maturity date in 2001. The Indenture under which the Notes are issued ("the
Indenture") contains a covenant which restricts the Company's ability to incur
additional indebtedness, make dividend payments, or place liens on the assets
acquired with the additional indebtedness. Under the Indenture, the Company may
not incur additional indebtedness or make dividend payments unless its Interest
Expense Coverage Ratio for the trailing 12 months, would be greater than 2.00 to
1.00 after giving effect to such incurrence. As of March 31, 1997, the Interest
Expense Coverage Ratio was 1.69 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
Page 17
<PAGE>
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 credit and the 10.25%
Notes. If a quarterly dividend payment were not made by the end of the quarter,
the dividend rate will increase by 3% or $112,000 per quarter. In addition, the
holders of Preferred Stock have a right to additional warrants, approximately
77,000 shares, for each two consecutive quarterly payments missed. Based on the
September 30, 1996 results, the Company would be unable to make the December 31,
1996 dividend payment. The Company also did not make the ratio test for the
quarter ended March 31, 1997. Prior to September 30, 1996, the Company declared
the regular dividends for fiscal 1997. Subsequent to fiscal year end, the
Company paid these dividends. This eliminates the additional dividend rate and
additional warrants that would have otherwise been payable in fiscal 1997. The
next scheduled dividend payment is on December 31, 1997. Depending on the
Company's future results, the Company may or may not be able to declare and pay
dividends.
Simultaneously with the sale of the Preferred Stock and warrants, the
Company entered into a five-year term loan agreement of $10 million for the
Company's wholly owned subsidiary, BSCT. 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 at Tennessee. 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 bears interest on
a sliding scale based on quarterly leverage ratio which is defined as
indebtedness divided by earnings before interest, taxes, depreciation, and
amortization ("EBITDA"). Based on the second quarter leverage ratio, the Company
will accrue at LIBOR plus 3.0% or approximately 8.4% at current rates.
On June 20, 1995, the Company entered into an amended 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 of BSCL's receivables 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. Borrowings against the line of
credit as of March 31, 1997 was $10.8 million. The remaining amount available to
borrow as of March 31, 1997 was $20.7 million. As of April 30, 1997, the
Company's outstanding borrowings were $8 million. 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 the foreseeable short-term and long-term liquidity needs. If additional
funds are required to accomplish long-term expansion of its production facility
or significant acquisitions, the Company believes funding can be obtained from a
secondary equity offering.
There are no financial obligations with respect to post-employment or
post-retirement benefits.
Page 18
<PAGE>
OTHER COMMENTS
FORWARD-LOOKING INFORMATION
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, 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; prolonged productivity impact from
returning strikers; and changing laws affecting labor, employee benefits cost
and or environmental regulations.
STRIKE
See "Notes to the Financial Statements" for a description of the Strike.
ENVIRONMENTAL AND SAFETY
See "Notes to the Financial Statements" for a description of the Company's
environmental and safety issues.
OTHER
There are various claims and legal proceedings arising in the ordinary
course of business pending against or involving the Company wherein monetary
damages are sought. It is management's opinion that the Company's liability, if
any, under such claims or proceedings would not materially affect its financial
position.
INFLATION
The Company is subject to increases in the cost of energy, supplies,
salaries and benefits, additives, alloy and scrap due to inflation. Shape prices
are influenced by supply, which varies with steel mill capacity and utilization,
and market demand.
Page 19
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on February 11,
1997, at which the following matters were brought before and voted upon by the
shareholders:
1. The election of three (3) Class A and four (4) Class B Board of
Directors, each to serve until the next annual meeting of stockholders
and that the following Class A (total number of shares outstanding
10,613,380) and Class B (total number of shares outstanding 2,271,127)
Director nominees received the following number of votes cast:
CLASS A FOR WITHHELD
------- --- --------
Lawrence E. Golub 7,886,764 53,280
Jeffrey P. Sangalis 7,877,314 62,730
Stanley S. Shuman 7,874,214 65,830
CLASS B FOR WITHHELD
------- --- --------
Melvyn N. Klein 2,271,127 0
Albert P. Lospinoso 2,271,127 0
Howard M. Meyers 2,271,127 0
Jerry M. Pitts 2,271,127 0
2. Ratification of the appointment of Arthur Andersen LLP as auditors of
the Company for the fiscal year ending September 30, 1997. The total
Class A and Class B shares outstanding were 12,884,607. The detail for
the vote is as follows:
FOR AGAINST ABSTAIN
--- ------- -------
10,171,179 21,267 18,725
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.30 - Amendment No. 1 to the 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") (filed
with the March 31, 1997 10-Q and incorporated by
reference herein).
(b) Reports on Form 8-K
None were filed during the second quarter of fiscal year 1997.
Page 20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAYOU STEEL CORPORATION
By /s/ RICHARD J. GONZALEZ
Richard J. Gonzalez
Vice President, Chief Financial Officer,
Treasurer, and Secretary
Date: May 2, 1997
Page 21
EXHIBIT 10.30
AMENDMENT, dated as of December 31, 1996 (this "AMENDMENT"), to the
Credit Agreement, dated as of June 28, 1989, as amended and restated through
June 1, 1995 (as further amended, supplemented or otherwise modified from time
to time, the "CREDIT AGREEMENT"), by and among BAYOU STEEL CORPORATION, a
Delaware corporation (the "BORROWER"), the several banks and other financial
institutions from time to time parties thereto (the "LENDERS") and THE CHASE
MANHATTAN BANK ("CHASE"), as agent for the Lenders (in such capacity, the
"AGENT").
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed
to make, and have made, certain loans and other extensions of credit to the
Borrower;
WHEREAS, the Borrower has requested the Agent and the Lenders to
amend the Credit Agreement, INTER ALIA, to decrease the Interest Expense
Coverage Ratio for the first and second quarters of Fiscal Year 1997 from 1.70
to 1.00 to 1.60 to 1.00; and
WHEREAS, the Agent and the Lenders are willing to amend
the Credit Agreement in the manner provided for herein;
NOW, THEREFORE, in consideration of the premises contained herein,
the parties hereto agree as follows:
I. AMENDMENT TO THE CREDIT AGREEMENT.
1. DEFINED TERMS. Unless otherwise defined in this
Section I, terms which are defined in the Credit Agreement and
used herein are so used as so defined. Unless otherwise
indicated, all section, subsection and Schedule references are to
the Credit Agreement.
2. AMENDMENT TO DEFINITION OF "NET INCOME". Section 1.01 of the
Agreement is hereby amended by adding to the end of clause (vii) of the
definition of "Net Income" the words, "any noncash gains or losses from
retirement of assets and".
3. AMENDMENT TO SECTION 76.14 OF THE CREDIT AGREEMENT (INTEREST
EXPENSE COVERAGE RATIO). Section 7.14 of the Credit Agreement is hereby amended
by deleting in its entirety the table contained therein and replacing it with
the following:
Page 22
<PAGE>
PERIOD RATIO
------ -----
Second Quarter, Fiscal Year 1995
(computed on a rolling 2 quarter basis) 1.60 to 1.00
Third Quarter, Fiscal Year 1995
(computed on a rolling 3 quarter basis) 1.60 to 1.00
Fourth Quarter, Fiscal Year 1995
(computed on a rolling 4 quarter basis) 1.60 to 1.00
Each Quarter in Fiscal Year 1996
(computed on a rolling 4 quarter basis) 1.60 to 1.00
First Quarter, Fiscal Year 1997
(computed on a rolling 4 quarter basis) 1.60 to 1.00
Second Quarter, Fiscal Year 1997
(computed on a rolling 4 quarter basis) 1.60 to 1.00
Third Quarter, Fiscal Year 1997
(computed on a rolling 4 quarter basis) 1.70 to 1.00
Fourth Quarter, Fiscal Year 1997
(computed on a rolling 4 quarter basis) 1.70 to 1.00
Each Quarter in Fiscal Year 1998
(computed on a rolling 4 quarter basis) 1.80 to 1.00
Each Quarter in Fiscal Year 1999
(computed on a rolling 4 quarter basis) 2.00 to 1.00
Thereafter (computed on a rolling
4 quarter basis) 2.00 to 1.00
II. MISCELLANEOUS PROVISIONS.
1. CONSENT TO AMENDMENT. The Lenders hereby consent to the
execution, delivery and performance of this Amendment.
2. CONDITIONS PRECEDENT. This Amendment shall become effective as of
the date that each of the conditions precedent set forth below shall have been
fulfilled to the satisfaction of the Agent and the Lenders:
(a) AMENDMENT. The Agent shall have received counterparts of this
Amendment, duly executed by the Borrower, the Agent and the Lenders.
(b) NO DEFAULT OR EVENT OF DEFAULT. On and as of the date hereof and
after giving effect to this Amendment, no Default or Event of Default
shall have occurred and be continuing.
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<PAGE>
(c) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Borrower in the Credit Agreement after giving
effect to this Amendment and the transactions contemplated hereby shall be
true and correct in all material respects on and as of the date hereof as
if made on such date, except that (1) where such representations and
warranties relate to an earlier date, such representations and warranties
shall be true and correct in all material respects as of such earlier date
and (2) with respect to Section 4.09 of the Credit Agreement, the Borrower
is currently involved in litigation with U.S. Public Interest Research
Group, a private advocacy organization, concerning alleged violations of
air quality regulations, the outcome of which litigation cannot be
predicted with certainty although the Borrower in its best judgment
believes a materially adverse effect therefrom is unlikely; PROVIDED that
all references to the Credit Agreement in such representations and
warranties shall be and are deemed to mean this Amendment as well as the
Credit Agreement as amended hereby.
(d) CERTIFICATE. The Agent shall have received a Certificate of a
Responsible Officer of the Borrower certifying the matters referred to in
paragraphs (b) and (c).
3. CONTINUING EFFECT; NO OTHER AMENDMENTS. Except as expressly
amended hereby, all of the terms and provisions of the Credit Agreement are and
shall remain in full force and effect.
4. EXPENSES. The Borrower agrees to reimburse the Agent, for all its
reasonable costs and out-of-pocket expenses incurred in connection with the
preparation and delivery of this Amendment, including, without limitation, the
reasonable fees and disbursements of counsel to such Agent.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts by the parties hereto, each of which counterparts when so executed
shall be an original, but all counterparts taken together shall constitute one
and the same instrument.
6. GOVERNING LAWS. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Page 24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
BAYOU STEEL CORPORATION
By: /s/ RICHARD J. GONZALEZ
Title: Vice President and Chief
Financial Officer
THE CHASE MANHATTAN BANK,
individually and as
Agent
By: /s/ JAMES H. RAMAGE
Title: Vice president
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /s/ JOHN N. LANIER
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ BRUCE PORTILLO
Title: Vice President
By: /s/ JOHN J. O'NEIL
Title: Vice President & Manager
WELLS FARGO BANK (TEXAS) N.A.
By: /s/ CHRISTOPHER KING
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By: /s/ JOHN CASTELLANO
Title: Vice President
Page 25
<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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 479,524
<SECURITIES> 0
<RECEIVABLES> 26,979,149
<ALLOWANCES> 471,139
<INVENTORY> 75,859,167
<CURRENT-ASSETS> 103,692,631
<PP&E> 131,530,595
<DEPRECIATION> 41,964,613
<TOTAL-ASSETS> 196,621,350
<CURRENT-LIABILITIES> 34,794,886
<BONDS> 82,010,358
128,846
11,789,050
<COMMON> 0
<OTHER-SE> 67,898,210
<TOTAL-LIABILITY-AND-EQUITY> 196,621,350
<SALES> 57,652,714
<TOTAL-REVENUES> 57,652,714
<CGS> 52,500,642
<TOTAL-COSTS> 52,500,642
<OTHER-EXPENSES> 2,587,801
<LOSS-PROVISION> 114,928
<INTEREST-EXPENSE> 2,297,272
<INCOME-PRETAX> 152,071
<INCOME-TAX> 0
<INCOME-CONTINUING> 152,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,071
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
