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, 1998
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, 1998
- ------------------------------------ ------------------------------------
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
==========
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BAYOU STEEL CORPORATION
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 1998 and
September 30, 1997 3
Consolidated Statements of
Operations -- Three Months and Six Months
Ended March 31, 1998 and 1997 5
Consolidated Statements of Cash
Flows -- Six Months Ended March
31, 1998 and 1997 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Results of Operations 12
Liquidity and Capital Resources 14
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of
security holders 17
Item 6. Exhibits and reports on Form 8-K 17
Page 2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BAYOU STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1998 1997
------------ ------------
CURRENT ASSETS:
Cash and temporary cash investments $ 12,939,097 $ 971,477
Receivables, net of allowance for
doubtful accounts of $560,970 in
1998 and $500,459 in 1997 28,584,415 27,162,056
Inventories 71,600,102 75,022,554
Prepaid expenses 427,081 239,161
------------ ------------
Total current assets 113,550,695 103,395,248
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 3,790,399 3,790,399
Machinery and equipment 112,071,767 110,028,977
Plant and office building 21,609,802 21,265,577
------------ ------------
137,471,968 135,084,953
Less-Accumulated depreciation (47,844,212) (44,946,654)
------------ ------------
Net property, plant and equipment 89,627,756 90,138,299
------------ ------------
OTHER ASSETS 3,378,579 2,931,507
------------ ------------
Total assets $206,557,030 $196,465,054
============ ============
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,
1998 1997
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,010,359 $ 3,040,257
Accounts payable 26,263,478 23,749,765
Accrued liabilities 5,455,611 4,574,144
------------ ------------
Total current liabilities 34,729,448 31,364,166
------------ ------------
LONG-TERM DEBT 79,000,000 80,500,073
------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK 13,301,469 13,089,010
------------ ------------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Class A: 24,271,127 authorized
10,613,380 outstanding 106,134 106,134
Class B: 4,302,347 authorized
2,271,127 outstanding 22,711 22,711
Class C: 100 authorized &
outstanding 1 1
------------ ------------
Total common stock 128,846 128,846
Paid-in capital 47,769,034 47,769,034
Retained earnings 31,628,233 23,613,925
------------ ------------
Total common stockholders' equity 79,526,113 71,511,805
------------ ------------
Total liabilities and common
stockholders' equity $206,557,030 $196,465,054
============ ============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
NET SALES $ 65,835,504 $ 57,652,714 $132,183,347 $112,517,624
COST OF SALES 57,405,906 52,500,642 115,616,100 104,552,946
------------ ------------ ------------ ------------
GROSS PROFIT 8,429,598 5,152,072 16,567,247 7,964,678
SELLING, GENERAL AND
ADMINISTRATIVE 1,625,009 1,684,844 3,116,094 3,300,924
NON-PRODUCTION STRIKE
AND CORPORATE
CAMPAIGN EXPENSE 68,028 452,968 116,952 1,247,120
------------ ------------ ------------ ------------
OPERATING INCOME 6,736,561 3,014,260 13,334,201 3,416,634
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (2,044,761) (2,297,272) (4,133,076) (4,516,955)
Interest income 136,229 220 178,525 2,637
Miscellaneous 87,146 84,842 136,616 97,122
------------ ------------ ------------ ------------
(1,821,386) (2,212,210) (3,817,935) (4,417,196)
------------ ------------ ------------ ------------
INCOME (LOSS)
BEFORE TAXES 4,915,175 802,050 9,516,266 (1,000,562)
PROVISION FOR
INCOME TAXES 103,685 -- 197,530 --
------------ ------------ ------------ ---------
NET INCOME (LOSS) 4,811,490 802,050 9,318,736 (1,000,562)
DIVIDENDS ACCRUED AND
ACCRETION ON
PREFERRED STOCK (654,448) (649,979) (1,304,428) (1,299,959)
------------ ------------ ------------ ------------
INCOME (LOSS)
APPLICABLE TO
COMMON AND COMMON
EQUIVALENT SHARES $ 4,157,042 $ 152,071 $ 8,014,308 $ (2,300,521)
============ ============ =========== ============
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 12,884,607 12,884,607 12,884,607 12,884,607
============ ============ ============ ============
DILUTED 13,738,175 13,707,029 13,731,917 13,707,029
============ ============ ============ ============
BASIC EARNINGS
PER SHARE $ .32 $ .01 $ 0.62 $ (0.18)
============ ============ ============ ============
DILUTED EARNINGS
PER SHARE $ .30 $ .01 $ 0.58 $ (0.18)
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 9,318,736 $ (1,000,562)
Depreciation 2,897,558 2,849,406
Amortization 429,864 574,456
Provision for losses on accounts
receivable 54,129 114,928
Changes in working capital:
(Increase) in receivables (1,476,488) (2,515,372)
Decrease in inventories 3,422,452 3,996,895
(Increase) in prepaid expenses (187,920) (553,472)
Increase(decrease) in accounts payable 2,513,713 (6,712,925)
Increase(decrease) in accrued
liabilities 881,467 (495,356)
------------ ------------
Net cash provided by(used in)
operations 17,853,511 (3,742,002)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant
and equipment (2,387,015) (2,080,991)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit - 7,800,000
Payments of long-term debt (1,529,971) (66,492)
(Increase) in other assets (876,936) (4,599)
Payments of dividends on preferred stock (1,091,969) (2,175,000)
------------ ------------
Net cash (used in) provided by
financing activities (3,498,876) 5,553,909
------------ ------------
NET INCREASE(DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS 11,967,620 (269,084)
CASH AND TEMPORARY CASH INVESTMENTS,
beginning balance 971,477 748,608
------------ ------------
CASH AND TEMPORARY CASH INVESTMENTS,
ending balance $ 12,939,097 $ 479,524
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 4,189,222 $ 4,345,677
Income taxes $ 19,200 $ 18,300
The accompanying notes are an integral part of these consolidated statements.
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BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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. However, all adjustments, which, in the opinion of
management, are necessary for fair presentation have been included except
adjustments related to inventory. The inventory valuations as of March 31, 1998
are based on last-in, first-out ("LIFO") estimates of year-end levels and
prices. The actual LIFO inventories will not be known until year-end quantities
and indices are determined. 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 Annual Report on Form 10-K filed with
the SEC as of and for the year ended September 30, 1997.
The accompanying financial statements include the consolidated accounts of
Bayou Steel Corporation ("Louisiana Facility") and Bayou Steel Corporation
(Tennessee) ("Tennessee Facility") (collectively referred to herein as the
"Company") after elimination of all significant intercompany accounts and
transactions.
The results for the six-months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the fiscal year ending September
30, 1998.
2) RECENT DEVELOPMENTS
In February 1998, the Company entered into a Letter of Intent to purchase
all of the outstanding shares of Northwestern Steel and Wire Company
("Northwestern"), a major minimill producer of structural steel, rod and wire
products. On April 27, 1998 the Company announced that it would not proceed with
its plan to purchase the outstanding shares of Northwestern. Included in other
assets as of March 31, 1998 is approximately $750,000 of costs related to this
transaction that will be expensed in the Company's third fiscal quarter.
The Company expects to complete a refinancing transaction in its third
fiscal quarter which will replace the Company's existing debt and preferred
stock and provide additional cash for general corporate purposes including
ongoing capital expenditures. The refinancing transaction is expected to result
in an extraordinary loss from the early extinguishment of debt of approximately
$8.0 million related to prepayment penalties and write-offs of deferred
financing fees which will be reflected as an extraordinary charge in the period
when the refinancing transaction occurs.
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3) INVENTORIES
Inventories consisted of the following:
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1998 1997
------------- -------------
Scrap steel $ 3,436,799 $ 5,623,964
Billets 5,355,016 4,799,025
Finished product 45,747,114 46,717,869
LIFO adjustments (2,696,764) (2,497,697)
------------- -------------
$ 51,842,165 $ 54,643,161
Mill rolls, operating
supplies and other 19,757,937 20,379,393
------------- -------------
$ 71,600,102 $ 75,022,554
============= =============
4) LONG-TERM DEBT
Long-term debt included the following:
(UNAUDITED) (AUDITED)
MARCH 31, SEPTEMBER 30,
1998 1997
------------- -------------
First Mortgage Notes $ 75,000,000 $ 75,000,000
Term Loan 7,000,000 8,500,000
Other notes payables 10,359 40,330
------------ -------------
82,010,359 83,540,330
Less-current maturities 3,010,359 3,040,257
------------ -------------
$ 79,000,000 $ 80,500,073
============ =============
The Company entered into a five-year term loan agreement for $10 million
as a result of the purchase of the Tennessee Facility. The term loan agreement
calls for quarterly principal payments of $750,000 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 maturity of June 20, 2000. The term
loan agreement bears interest on a sliding scale based on a quarterly leverage
ratio, as defined. As of March 31, 1998 the interest rate was LIBOR plus 1.75%
or approximately 7.5%.
The Company has a $75 million note bearing interest at 10.25%. The note
will be redeemable, in whole or in part, at any time on or after March 1, 1998
initially at 103.33% declining ratably to par on March 1, 2000. No principal
payments are due until maturity in 2001.
5) SHORT-TERM DEBT
The Company has a revolving line of credit agreement which will be used
for general corporate purposes. The terms of the 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
inventories. The amount available as of March 31, 1998 was $35 million, net of
$1.8 million outstanding letters of credit. There were no borrowings under the
line of credit as of March 31, 1998 and September 30, 1997.
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Concurrent with the refinancing discussed in Note 2, the Company intends
to enter into a new revolving credit agreement to replace the existing agreement
which is scheduled to terminate on June 1, 2000. The terms of the new agreement
have not yet been finalized.
6) TAXES
As of March 31, 1998, 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. 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.
7) PREFERRED STOCK AND WARRANTS
The Company issued 15,000 shares of its redeemable preferred stock and
warrants to purchase six percent of its 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.
The carrying amount of the preferred stock will increase 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 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% of the outstanding balance, plus accrued dividends
to the date of redemption, and declining ratably to par on June 20, 2000.
8) EARNINGS PER SHARE
In fiscal 1998, the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings per Share" ("FAS 128"). As a result, reported
earnings per share for the second quarter of fiscal 1997 were restated. The
effect of this accounting change on previously reported earnings per share
("EPS") for the six months ended March 31, 1997 was as follows:
Primary EPS, as reported $ (.17)
Effect of FAS 128 (.01)
Basic EPS, as restated (.18)
Fully diluted EPS, as reported $ (.17)
Effect of FAS 128 (.01)
Diluted EPS, as restated (.18)
Basic earnings per share was computed by deducting dividends accrued and
accretion on preferred stock from net income then dividing this amount by the
weighted average number of outstanding common shares of 12,884,607 during the
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three and six month periods ended March 31, 1998 and 1997. In connection with
the issuance of redeemable preferred stock as discussed in Note 7, 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. In addition, the
Company maintains an incentive award plan under which stock options to purchase
115,000 shares of the Company's Class A Common Stock at an exercise price of
$4.375 per share have been granted to certain key employees. Diluted earnings
per share amounts were determined by assuming that the outstanding warrants and
stock options were exercised and considered as additional common stock
equivalents outstanding computed under the treasury stock method. Additional
common stock equivalents computed for purposes of the diluted earnings per share
computation were 847,300 and 822,422 for the six-month periods ended March 31,
1998 and 1997, respectively.
9) MISCELLANEOUS
Miscellaneous for the six-month periods ended March 31, 1998 and 1997
included the following:
(UNAUDITED) (UNAUDITED)
1998 1997
----------- -----------
Discounts earned $ 138,353 $ 93,346
Provision for bad debts (56,314) (114,928)
Other 54,577 118,704
----------- -----------
$ 136,616 $ 97,122
=========== ===========
10) 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.
In the first quarter of fiscal 1998, 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.
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
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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 court to award its
appropriate legal fees and to 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
and is not designated as a Potential Responsible Party ("PRP") under the
Superfund legislation. At March 31, 1998 and 1997, the Company has accrued loss
contingencies for environmental matters.
Tennessee Valley Steel corporation ("TVSC"), the prior owners of the
Tennessee Facility, had entered into a Consent Agreement and Order (the "TVSC
Consent Order") with the Tennessee Department of Environment and Conservation
under its voluntary clean-up program. The Company, in acquiring the assets of
TVSC, has entered into a Consent Agreement and Order (the "Bayou Steel Consent
Order") with the Tennessee Department of Environment and Conservation. The Bayou
Steel Consent Order is supplemental to the previous TVSC Consent Order and does
not affect the continuing validity of the TVSC Consent Order. 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 TVSC 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). As of March 31,
1998, 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 TVSC Consent Order to exceed funds provided by
the escrow agreement. In July 1997, TVSC's former bank lenders and certain other
parties filed an adversary proceeding against the Company in the United States
Bankruptcy Court. The banks are contesting certain of the Company's
reimbursement claims, aggregating approximately $1.1 million, in connection with
remediation work performed by the Company, alleging that much of the remediation
work was not performed prior to the first anniversary of the closing date of the
acquisition and that the work performed exceeded the scope of the remediation
work required under the TVSC Consent Order. If the banks are successful in their
claims, the Company may incur costs for remediation work that will not be
reimbursed from the escrow fund. Except for the foregoing consent orders the
Company believes that it is in material compliance with all Environmental Laws.
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.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Management's Discussion and Analysis of Financial Condition and Results of
Operations included as part of the Company's Annual Report on Form 10-K as of
and for the year ended September 30, 1997.
RESULTS OF OPERATIONS
The Company reported a net income of $4.8 million before dividends accrued
and accretion on preferred stock in the second quarter of fiscal 1998 (ended
March 31, 1998) compared to a net income of $0.8 million for the comparable
period of fiscal 1997. The $4.0 million improvement was primarily a result of a
strong market for the Company's products which resulted in greater shipments and
better selling prices than the prior year comparable quarter. Additionally, the
metal margin (the difference between the selling price and the net scrap cost)
increased 8% in the second fiscal quarter of 1998 compared to the same period of
last year. The Tennessee Facility recorded its third consecutive profitable
quarter in the current period by earning $0.5 million compared to a loss of $1.0
million during the second fiscal quarter of 1997. The improvement was due to
both improving sales and reducing conversion costs.
The Company reported a net income of $9.3 million before dividends accrued
and accretion on preferred stock for the first six months of fiscal 1998
compared to a loss of $1.0 million for the comparable period of fiscal 1997. The
$10.3 million increase in the Company's results was due to several significant
factors. Comparing the first six months of fiscal 1998 to the same period in the
prior year, shape shipment tons increased 10% and the average selling price per
ton increased 7%. Additionally, non-production strike and corporate campaign
expenses decreased by $1.1 million as a result of the settlement of these
issues. The Tennessee Facility showed significant improvement by increasing net
income by $2.9 million over the first six months of the prior year.
The following table sets forth shipment and sales data.
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------- ---------
Net Sales (in thousands) $ 65,836 $ 57,653
Shape Shipment Tons 179,448 168,205
Shape Selling Price Per Ton $ 363 $ 338
SIX MONTHS ENDED
MARCH 31,
1998 1997
--------- ---------
Net Sales (in thousands) $ 132,183 $ 112,518
Shape Shipment Tons 362,706 328,679
Shape Selling Price Per Ton $ 359 $ 337
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A. SALES
Net sales increased in the second quarter of fiscal 1998 by 14% or $8.2
million compared to the same period of fiscal 1997. The increase was the result
of a 11,243 ton increase in shape shipments and a $25 per ton increase in the
average selling price resulting from the strong demand for the Company's
products. Net sales for the first six months of fiscal 1998 increased by 17% or
$19.7 million compared to the same period of fiscal 1997 as a result of shipment
increases of 34,027 tons and a $22 per ton increase in the average selling
price.
Shipments for second quarter and first six months of fiscal 1998 increased
7% and 10%, respectively, compared to the same periods of fiscal 1997. The
higher shipments were mainly due to a strong economy, increases in shipments to
original equipment manufacturer/fabricator ("OEM/FAB") market, and a good
product mix. The total increase in tons shipped for the second quarter and first
six months of fiscal 1998 was comprised of 5,724 tons and 21,717 tons,
respectively, from the Louisiana Facility and 5,519 tons and 12,310 tons,
respectively, from the Tennessee Facility. Higher production levels, due to
record productivity levels, enabled the Company to capitalize on the strong
demand for its products.
Overall selling price increased approximately $25 per ton or 7% in the
second quarter of fiscal 1998 and $22 per ton or 7% during the first six months
of fiscal 1998 compared to the same periods of fiscal 1997. The Tennessee
Facility benefitted from an overall improved market as well as consistent
production and availability of products. Additionally, the Tennessee Facility
benefitted from a selling price increase over prior periods of $30 per ton for
the six months and $27 per ton for the quarter ended March 31, 1998. The
Louisiana Facility experienced an increase in selling price over prior periods
of $20 per ton for the six months and $24 per ton for the quarter ended March
31, 1998. The Company has not experienced significant competition from foreign
producers during the first six months of fiscal 1998.
BILLETS - Due to the high productivity of the Company's rolling mills, no
billets were sold on the open market during the first six months of 1998 and
1997. The Tennessee Facility's demand for billets has been primarily satisfied
by the purchase of billets on the open market at competitive prices while the
Company supplied all of the Louisiana Facility's rolling mill requirements.
Depending on market conditions and its own rolling mill requirements, the
Company may sell billets on an occasional and selective basis to domestic and
export customers while purchasing additional billets when required.
B. COST OF GOODS SOLD
Cost of goods sold was 87% of sales for the second quarter of fiscal 1998
compared to 91% of sales for the same period of fiscal 1997. This positive
variance was primarily the result of the increase in both sales volume and price
as conversion cost remained relatively consistent.
Cost of goods sold was 87% of sales for the first six months of fiscal
1998 compared to 93% for the same period of fiscal 1997. The improvement was
attributable to the items noted above and certain nonrecurring charges recorded
in fiscal 1997 related to a power outage in the melting facility and the
retraining and related costs of striking employees returning to work.
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A major component of cost of goods sold is scrap which is used in the
melting operations at the Louisiana Facility. Scrap cost in the second quarter
of fiscal 1998 and the first six months of fiscal 1998 increased 6% and 4%,
respectively, compared to the same periods of fiscal 1997. As with demand for
the Company's finished goods, scrap demand has also risen. However, the export
demand for scrap has decreased sharply allowing for a greater domestic supply
and lower prices, thereby minimizing this increase. The Company has been able to
control the availability and the cost of scrap to some degree by producing its
own shredded scrap (the Company's highest quality scrap) through a scrap
processing division of the Company, Mississippi River Recycling. When compared
with the first six months of the prior fiscal year the cost to produce shredded
scrap improved by 5%.
Another significant component 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 Tennessee Facility in the second quarter and first six months of fiscal 1998
compared to the same period of fiscal 1997 has improved by $5 per ton and $3 per
ton, respectively, over the prior year. These improvements are due to increased
production and rolling mill yield at the facility. Conversion cost at the
Louisiana Facility has increased in the second quarter $5 per ton resulting in
year to date conversion cost approximating the prior year. This increase in cost
is a result of the melt shop experiencing a decrease in yield during the second
quarter of fiscal 1998.
C. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses in the second quarter and
first six months of fiscal 1998 compared to the same periods of the last year
were consistent.
D. NON-PRODUCTION STRIKE AND CORPORATE CAMPAIGN EXPENSES
Non-production strike-related expenses have decreased significantly since
the settlement of the RICO lawsuit and post-strike issues at the end of 1997.
Costs are $0.4 million less in the second quarter of fiscal 1998 and $1.1
million less in the first six months of fiscal 1998 when compared to the same
periods of fiscal 1997.
E. NET INCOME
The Company's results before dividends accrued and accretion on preferred
stock improved by $4.0 million in the second fiscal quarter of 1998 and $10.3
million during the first six months of fiscal 1998 compared to the same periods
of fiscal 1997. The primary reasons for the improvement in earnings were higher
selling price and volume, increased metal margin, and decreased non-production
strike and corporate campaign expense. The Tennessee Facility reported its third
consecutive quarterly profit in the second quarter of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
A. CASH AND WORKING CAPITAL
The Company ended the second fiscal quarter with $12.9 million in cash and
temporary cash investments and no short-term borrowings. At March 31, 1998
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current assets exceeded current liabilities by a ratio of 3.27 to 1.00. Working
capital increased by $6.8 million to $78.8 million during the six months ended
March 31, 1998.
In the first six months of fiscal 1998, cash provided by operations was
$17.9 million while $3.7 million was used in operations during the first six
months of fiscal 1997. Contributing to the significant improvement was a
decrease in inventories of $3.4 million caused by strong demand for the
Company's products along with an increase in accounts payable of $2.5 million
due to the resulting increase in production activities.
B. CAPITAL EXPENDITURES
Capital expenditures amounted to $2.4 million in the first six months of
fiscal 1998. These capital projects were directed towards cost reduction,
productivity enhancements, plant maintenance and safety and environmental
programs. Depending on market conditions, the Company may commit approximately
$14 million on various capital projects to reduce cost and increase
productivity, enhance safety and environmental programs and maintain the plants
during the next twelve months.
C. FINANCING
As a result of favorable market conditions, the Company intends to
refinance its long-term debt and redeem its preferred stock in the third quarter
of fiscal 1998. If consummated, this transaction will result in the
capitalization of certain costs related to the refinancing and the charge-off of
unamortized deferred financing costs related to the existing debt and preferred
stock. Additionally, the terms of the current debt and preferred stock
agreements call for certain prepayment penalties in the event of early
extinguishment and the preferred stock would be immediately accreted to its face
value. Included in other assets as of March 31, 1998 are approximately $125,000
of deferred financing costs expected to be capitalized related to the potential
refinancing and $2.5 million of unamortized deferred financing costs related to
the existing debt and preferred stock expected to be charged off. The Company
also anticipated incurring $3.7 million in prepayment penalties and $1.7 million
in accretion of the preferred stock to face value related to this transaction.
D. ACQUISITION PROPOSAL
In February 1998, the Company entered into a Letter of Intent to purchase
all of the outstanding shares of Northwestern Steel and Wire Company
("Northwestern"), a major minimill producer of structural steel, rod and wire
products. On April 27, 1998 the Company announced that it would not proceed with
its plan to purchase the outstanding shares of Northwestern. Included in other
assets as of March 31, 1998 is approximately $750,000 of costs related to this
transaction that will be expensed in the Company's third fiscal quarter.
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
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<PAGE>
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; and changing laws affecting labor,
employee benefit costs and environmental and other governmental regulations.
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 16
<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 25,
1998, 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. 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 9,478,670 286,263
Jeffrey P. Sangalis 9,478,549 286,384
Stanley S. Shuman 9,478,549 286,384
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, 1998. The total
Class A and Class B shares outstanding were 12,884,607. The detail for
the vote is as follows:
FOR AGAINST ABSTAIN
11,994,218 29,001 12,841
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None were filed during the second quarter of fiscal year 1998.
(b) Reports on Form 8-K
None were filed during the second quarter of fiscal year 1998.
Page 17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAYOU STEEL CORPORATION
By /s/ RICHARD J. GONZALEZ
Richard J. Gonzalez
Vice President, Chief Financial Officer,
Treasurer, and Secretary
Date: April 30, 1998
Page 18
<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-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 12,939,097
<SECURITIES> 0
<RECEIVABLES> 29,145,385
<ALLOWANCES> 560,970
<INVENTORY> 71,600,102
<CURRENT-ASSETS> 113,550,695
<PP&E> 137,471,968
<DEPRECIATION> 47,844,212
<TOTAL-ASSETS> 206,557,030
<CURRENT-LIABILITIES> 34,729,448
<BONDS> 79,000,000
128,846
13,301,469
<COMMON> 0
<OTHER-SE> 79,526,113
<TOTAL-LIABILITY-AND-EQUITY> 205,557,030
<SALES> 65,835,504
<TOTAL-REVENUES> 65,835,504
<CGS> 57,405,906
<TOTAL-COSTS> 57,405,906
<OTHER-EXPENSES> 1,625,009
<LOSS-PROVISION> 54,129
<INTEREST-EXPENSE> 2,044,761
<INCOME-PRETAX> 4,915,175
<INCOME-TAX> 103,685
<INCOME-CONTINUING> 4,157,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,157,042
<EPS-PRIMARY> .32
<EPS-DILUTED> .30
</TABLE>
