SECURITIES AND EXCHANGE COMMISSION
Washington DC
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the quarterly period ended August 31, 1997
or
[ ] Transaction report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the transition period from to
------------------ -----------------
Commission File Number 0-15838
NEW JERSEY STEEL CORPORATION
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2137967
- -----------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No)
NORTH CROSSMAN ROAD, SAYREVILLE, NEW JERSEY 08871
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (732) 721-6600
Not applicable
- -----------------------------------------------------------------------------
(Former name, former address anmd former fical year, if changes since last
report)
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 and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
X Yes No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of August 31, 1997.
$0.01 Par Value Common Stock 5,920,500
- -----------------------------------------------------------------------------
(Title of Class) (Number of Shares Outstanding)
NEW JERSEY STEEL CORPORATION AND SUBSIDIARY
Condensed Consolidated Statements of Operations
Three-Month Periods Ended August 31, 1997 and 1996
(In thousands, except per share data)
<TABLE>
Three-Months Nine-Months
ended August 31 ended August 31
1997 1996 1997 1996
--------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $49,853 $39,600 $130,145 $102,873
Net sales - affiliates 1,785 1,060 6,346 5,438
Cost of sales 45,561 40,109 123,560 112,517
--------------------------------------
Gross profit (loss) 6,077 551 12,931 (4,206)
Selling, general and
administrative expenses 2,476 1,796 7,102 6,057
--------------------------------------
Operating income (loss) 3,601 (1,245) 5,829 (10,263)
Other income (expense):
Interest, net (987) (441) (3,273) (897)
Rental income 33 44 93 139
Other (expense) income (225) -- (375) 4
--------------------------------------
Earnings (loss) before provision
for income taxes and equity in
operations of investee 2,422 (1,642) 2,274 (11,017)
Provision for income taxes 760 -- 760 --
--------------------------------------
Earnings (loss) before equity in
operations of investee 1,662 (1,642) 1,514 (11,017)
Equity in operations of investee (205) (81) (320) (269)
--------------------------------------
Net earnings (loss) $ 1,457 ($ 1,723) $ 1,194 ($11,286)
======================================
Net earnings (loss) per common share $0.25 ($0.29) $0.20 ($1.91)
======================================
Weighted average number of shares
outstanding 5,921 5,921 5,921 5,921
======================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
NEW JERSEY STEEL CORPORATION AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
August 31 November 30
1997 1996
----------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35 $ 13
Receivables:
Trade, net 22,849 21,273
Trade - affiliates 960 2,458
Other -- 542
----------------------------------
Net receivables 23,809 24,273
----------------------------------
Inventories 21,077 15,990
Prepaid expenses and other
current assets 661 412
Deferred income taxes 270 270
----------------------------------
Total current assets 45,852 40,958
Property, plant and equipment, net 88,752 91,607
Other assets 644 1,422
Deferred income taxes 3,870 4,630
Real estate held for sale 12,753 12,753
----------------------------------
$ 151,871 $ 151,370
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long
-term debt $ 1,500 $ 1,500
Note payable - bank 11,906 -
Note payable - Parent 19,000 -
Accounts payable - trade 29,861 32,020
Due to parent 740 2,035
Accrued expenses 7,396 4,152
----------------------------------
Total current liabilities 70,403 39,707
----------------------------------
Note payable - bank - 13,264
Long-term debt, less current
installments 4,875 6,000
Note payable - Parent - 17,000
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 5,000,000 shares;
none issued. -- --
Common stock, $.01 par value.
Authorized 15,000,000 shares;
issued and outstanding
5,920,500 shares in 1997 and
1996 59 59
Additional paid-in capital 134,070 134,070
Accumulated deficit (57,536) (58,730)
----------------------------------
Total stockholders' equity 76,593 75,399
----------------------------------
Commitments and contingencies
----------------------------------
$ 151,871 $ 151,370
==================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
NEW JERSEY STEEL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine-Month Periods Ended August 31, 1997
and August 31, 1996
<TABLE>
1997 1996
----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,194 $ (11,286)
Adjustments to reconcile net
earnings (loss) to net cash provided
by (used in) operating activities:
Depreciation 6,791 5,914
Provision for losses on trade
receivables 907 204
Equity in operations of
investee 320 269
Changes in assets and liabilities:
Decrease(Increase) in net
receivables 80 (3,218)
Increase in inventories (5,087) (552)
Increase in prepaid expenses and
other current assets (249) (77)
Decrease in deferred tax assets 760 --
(Increase) Decrease in
other assets (65) 4,317
(Decrease) Increase in accounts
payable - trade (2,159) 5,439
Increase (decrease) in due to
parent and accrued expenses 1,949 (2,528)
----------------------------------
Net cash provided by
(used in) operating
activities 4,441 (1,518)
----------------------------------
Cash flows from investing activities:
Capital expenditures (3,936) (15,260)
----------------------------------
Cash flows from financing activities:
Repayment of long-term debt (1,125) --
Bank borrowings - net (1,358) 1,729
Borrowings from parent - net 2,000 15,000
----------------------------------
Net cash (used in) provided
by financing activities (483) 16,729
----------------------------------
Net increase (decrease)
in cash and
cash equivalents 22 (49)
----------------------------------
Cash and cash equivalents at beginning
of period 13 61
----------------------------------
Cash and cash equivalents at end of
period $ 35 $ 12
==================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
New Jersey Steel Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 31, 1997 and November 30, 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) Basis of Presentation
The unaudited condensed consolidated fianncial statements of New Jersey Steel
Corporation and subsidiary (the Company), in the opinion of management,
include all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the results of such periods. The results of
operations for the three- and nine-month periods ended August 31, 1997 and
August 31, 1996 are not necessarily indicative of the results to be expected
for the entire year. The accompanying interim financial statements should
be read in conjunction with the Company's audited 1996 consolidated financial
statements.
The Company's business is seasonal and is normally slower in the winter
months with inventory build-up during this period.
(2) Capital Stock
During the three- and nine- month periods ended August 31, 1996, no stock
options were granted or exercised.
During the nine-month period ended August 31, 1997, in connection with an
officer assuming the position of President and Chief Executive Officer of
the Company, outstanding options held by such officer to purchase 65,000
shares of the Company's Common Stock at exercise price ranging from $8.00
to $14.00 per share were surrendered and exchanged for options to purchase
65,000 shares of the Common Stock at an exercise price of $5.00 per share,
the fair market value on the date of grant. Of such options, options covering
15,000 shares vested immediately and the remaining options covering 50,000
shares vest in 20% increments on April 12th of each year beginning April 12,
1997 and continuing through April 12, 2001. Also in connection with his
becoming President and Chief Executive Officer, such officer was granted
additional options to purchase 50,000 shares of Common Stock at an exercise
price of $5.00, the fair market value on the date of grant. Such options
vest in 20% increments on February 24th of each year beginning February 24,
1998 and continuing through February 24, 2002. No stock options were
exercised during the three- or nine-month period ended August 31, 1997.
(3) Inventories
Inventories consist of the following:
<TABLE>
August 31 Nov 30
1997 1996
---------------------------
(Unaudited)
<S> <C> <C>
Finished goods $ 6,756 5,070
Work-in-process 3,025 1,933
Raw materials, spare
parts and supplies 11,296 8,987
---------------------------
$ 21,077 15,990
===========================
</TABLE>
(4) Per Common Share Amounts
Per common share amounts are based on the weighted average number of shares
of shares of common stock outstanding during each period. The effect of
stock options for the three- and nine-month periods ended August 31, 1997
and August 31, 1996 were not material.
(5) Bank Borrowings
In June 1996, the Company entered into an Amended and Restated Loan and
Security Agreement (the "loan agreement") with its bank to increase the
maximum amount available under its revolving credit facility from
$17,500 to $20,000 and to extend the maturity date from April 30,
1997 to May 1, 1998. The maturity dated on the Company's $7,500 term loan
was also extended from December 31, 2000 to May 1, 2001. The loan agreement
also amended certain financial convenants. Borrowings under the revolving
credit facility and term loan are secured by substantially all of the
Company's assets. Principal repayments under the term loan are due in
monthly installments of $125 beginning December 1, 1996 with a final
payment of $875 due at maturity. Interest on the term loan and
outstanding amounts under the revolving credit facility are payable at the
prime rate plus one percent. On February 27, 1997, the bank amended the
loan agreement with respect to the financial statement covenants.
Covenants amended include tangible net worth, working capital, capital
expenditures and the cash coverage ratio, as defined.
Concurrently with the execution and delivery of the loan agreement, the
Company entered into a Credit Agreement (the "credit agreement") with Von
Roll Holding Ltd., its majority stockholder. The credit agreement provided a
$15,000 revolving credit facility to the Company which matures May 1, 1998.
The credit agreement was amended in September 1996 increasing the amount
available under the revolving credit facility to $17,000. Repayment of
borrowings under this revolving credit facility is subordinated to the bank
borrowing referred to above and is secured by subordinate liens on
substantially all of the Company's assets. Interest on outstanding amounts
under the credit agreement is payable monthly at the prime rate plus one
percent. In December 1996, the Board of Directors of the Company authorized
an amendment to the credit agreement with Von Roll increasing the maximum
amount available under the revolving credit facility to $19,000 and
subsequently the Company increased its borrowings by $2,000.
On February 27, 1997, the bank agreed to a temporary increase in the maximum
amount available under its credit facility from $20,000 to $23,500.
The increase in availability is only in effect through May 31, 1997. In
addition, the Company anticipates that with the continued support from its
majority stockholder, it will be able to secure additional borrowings to
meet its anticipated liquidity requirements.
On July 9, 1997, the bank agreed to a permanent increase in the maximum
amount available under its credit facility from $20,000 to $27,500. The
increase in availability continues to the maturity date of May 1, 1998. The
loan agreement also amended certain financial convenants.
Von Roll has also guaranteed the Company's payment obligations under the
Company's scrap brokerage and service agreements. The guaranty is for a
maximum of $5,000,000 and will expire after the termination of the scrap
brokerage and service agreements.
Borrowings under the credit facility and term loan are secured by
virtually all of the Company's assets. Total bank interest paid for the
three- and nine-month periods ended August 31, 1997 was $523 and $1,736,
respectively. Total interest expense was $987 and $3,273 for the three-
and nine-month periods ended August 31, 1997.
(6) Commitments and Contingencies
In September 1994, the New Jersey Department of Environmental Protection
(NJDEP) issued a "Permit to Construct, Install or Alter Control Apparatus or
Equipment" a "Temporary Certificate to Operate" and a "Prevention of
Significant Deterioration Permit" (the NJDEP Permit). The NJDEP Permit
authorized the Company to install the Consteel Process at the Sayreville Mill,
including a Continuous Emissions Monitoring System (CEMS) equipment and
directed that there be a stack test. The CEMS equipment was started in
April 1995 and the stack test was conducted in February 1996 with the results
submitted to the NJDEP in March 1996. The CEMS data and stack test results
indicated that certain emissions exceed the levels contained in the permit.
In conjunction with the submission of these results, the Company applied
for a modification of its permit to reflect actual operations. Until such
time as a new permit is issued, there is a question as to whether the Company
is in violation of the NJDEP permit and, as a consequence, subject to fines
and penalties, the amounts of which are subject to the discretion of the
NJDEP. The application process for the new permit is proceeding. The Company
believes that the ultimate outcome of this matter will not have a material
adverse effect on the Company's financial position or results of operations.
In March 1996, the Natural Resources Defense Council (NRDC) and the Public
Interest Research Group of New Jersey, Inc. (PIRG) commenced a lawsuit against
the Company in the United States District Court of New Jersey. The lawsuit is
based on the Company's CEMS reports submitted to the NJDEP and claims that
the exceedances since April 1995 constitute violations of the Clean Air Act
which are not being pursued by the NJDEP. The complaint seeks unspecified
fines and penalities for the alleged violations and for an injunction
mandating operation of the Sayreville Mill in accordance with its permit.
The Company filed an answer with the United States District Court on April
10, 1996. Since that time, the State of New Jersey has intervened in the
litigation. The Company believes that the ultimate outcome of this matter
will not have a material adverse effect on the Company's financial position
or results of operations.
The Company and Von Roll are defendants in an action entitled GARY LUTIN v.
NEW JERSEY STEEL CORPORATION, VON ROLL LTD. a/k/a VON ROLL AG, et al.,
pending in the United States District Court of the Southern District of
New York (Case No. 93 CIV 6612). The action was originally commenced in a
West Virginia state court in 1991. The plaintiff has alleged that the
defendants conspired to destroy the business of Advanced Mining Systems,
Inc., a company which manufactured roof support systems for underground coal
mines. In 1995, the same plaintiff filed a second action in the same court
against the same parties under the Federal RICO statutes. The plaintiff
seeks unspecified damages in both actions which he claims to be in excess of
$50,000.
In October 1996, the court rendered a decision dismissing the complaints in
the two actions. The RICO claims were dismissed with prejudice. The claims
for tortious conspiracy were dismissed without prejudice to the plaintiff's
right to replead. Plaintiff filed an amended complaint in the first action
which the Company has moved to dismiss. Plaintiff also filed an appeal from
the court's decision dismissing his RICO claims. In August 1997, the United
States Court of Appeals for the Second Circuit affirmed the lower court's
decision dismissing plaintiff's RICO claim.
A related action entitled NEW JERSEY STEEL CORPORATION AND VON ROLL HOLDING
AG v. GARY LUTIN pending in the Supreme Court of the State of New York,
involves a claim by the Company and Von Roll against Mr. Lutin for libel in
connection with a letter written by Mr. Lutin. In July 1996, Mr. Lutin
filed his answer with counterclaims asserting essentially the same claims as
were made in the two federal actions. The court dismissed the counterclaims
on the grounds that there was another action pending for essentially the
same claims in federal court. Mr. Lutin has filed an appeal from the court's
decision.
On April 29, 1997, Mr. Lutin filed another action entitled Gary Lutin v. Von
Roll A.G. a/k/a Von Roll Ltd., New Jersey Steel Corporation, Jacobs Persinger
& Parker, I. Michael Bayda, Walter H. Beebe, Heinz Frech, Gary A. Giovannetti,
Hans Georg Hahnloser, Thomas W. Jackson, Harvey L. Karp, Robert LeBuhn,
Kenneth J. Leonard, Robert J. Pasquarelli, Paul Roik, Hans G. Trosch, and
Unknown Parties 1-10, in the Supreme Court of the State of New York, County
of New York (Index No. 97-107731). This action is against the same parties as
are in the actions referred to above and added as parties the attorneys
representing the Company in those actions. Mr. Lutin's latest action asserts
essentially the same claims as are made in his two federal actions and the
counterclaims made in the state action and seeks damages in excess of
$50,000. A motion to dismiss this action is pending.
The Company has been advised by its counsel that, based on the information
available to it, the claims of Mr. Lutin in these matters are without merit.
In 1995, Egyptian Metals Company ("EMC") commenced a lawsuit againt the
Company in the United States District Court for the District of New Jersey
(Case No. CIV. 95 823 (DRD)) seeking damages in the amount of $5,050 for
steel purchased through certain steel brokers which EMC asserts was of
inferior quality. Upon conclusion of the trial in March 1997, the court
dismissed EMC's complaint and entered a judgement in favor of the Company and
against EMC. EMC has filed an appeal from the court's decision.
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. Such claims
against the Company are generally covered by insurance. There can be no
assurance that insurance, including product liability insurance, will be
available in the future at reasonable rates.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Month Periods Ended August 31, 1997 and August 31, 1996
A summary of the period-to-period changes in the "Condensed Consolidated
Statements of Operations" for the three-month periods ended August 31,
1997 and August 31, 1996 is shown below (dollars in thousands):
<TABLE>
Percent of Net Sales
------------------------------- --------------------
1997 1996 Inc. (Dec) 1997 1996
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 51,638 40,660 10,978 100.0 100.0
Gross profit 6,077 551 5,526 11.8 1.4
Selling, general
and administrative
expenses 2,476 1,796 680 4.8 4.4
Other (expense) (1,179) (397) 782 (2.3) (1.0)
Earnings (loss)
before provision
for income taxes
and equity in
operations of
investee 2,422 (1,642) 4,064 4.7 (4.0)
Provision for
income taxes 760 -- 760 1.5 --
Earnings (loss)
before equity
in operations
of investee 1,662 (1,642) 3,304 3.2 (4.0)
Equity in
operations of
investee (205) (81) (124) (0.4) (0.2)
------------------------------- --------------------
Net earnings (loss) $ 1,457 (1,723) 3,180 2.8 (4.2)
=============================== ====================
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Three-Months Ended August 31, 1997
Net sales for the third fiscal quarter of 1997 increased 27% to $51,638,000
from $40,660,000 in the third quarter of 1996 primarily on the strength of
higher shipment and pricing levels. Total shipments including billets, in
the third quarter of 1997 increased 27% to 176,000 tons from 139,000 tons in
the third quarter of 1996, primarily due to a stronger demand for epoxy-coated
rebar and the high availability of billets, resulting from the productivity
of our melt shop. Continued strong shipments of products to the Northeast
home market allowed average finished goods selling prices to rise to $325 per
ton in the third quarter of fiscal 1997 as compared to $301 per ton in the
corresponding quarter of 1996.
Gross profit in the third quarter of 1997 increased $5,526,000 to $6,077,000
from $551,000 in the third quarter of 1996. This improvement is the result
of higher rebar selling prices and shipments and a lower per unit production
cost. The combined conversion costs in both the Melt Shop and the Rolling
Mill decreased 13% for the third fiscal quarter of 1997 as compared to the
same quarter of 1996. Higher productivity, production and the continued
emphasis on the cost savings program contributed to this cost improvement.
Scrap prices for the third quarter of 1997 were relatively flat increasing
to $114 per ton as compared to $113 per ton for the third quarter last year.
Selling, general and administrative for the third fiscal quarter 1997
increased $680,000 to $2,476,000 from $1,796,000 for the comparable 1996
period primarily the result of severance obligations and higher legal and
professional fees to comply with environmental matters. The increase of
other expenses by $782,000 to $1,179,000 for the third quarter 1997 versus
the same period of 1996 is mainly due to higher interest expense.
The Company's provision for income taxes of $760,000 in the fiscal third
quarter of 1997 reflects an effective rate of 34% as compared to the fiscal
third quarter of 1996 where no provision was recorded loss.
New Jersey Steel's share in the operations of an investee contributed a
$205,000 loss to the Company for the quarter ended August 31, 1997 as
compared to a loss of $81,000 for the same period of 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine-Month Periods Ended August 31, 1997 and August 31, 1996
A summary of the period-to-period changes in the "Condensed Consolidated
Statements of Operations" for the nine-month periods ended August 31,
1997 and August 31, 1996 is shown below (dollars in thousands):
<TABLE>
Percent of Net Sales
------------------------------- --------------------
1997 1996 Inc. (Dec) 1997 1996
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
Net sales $136,491 108,311 28,180 100.0 100.0
Gross profit (loss) 12,931 (4,206) 17,137 9.5 (3.9)
Selling, general
and administrative
expenses 7,102 6,057 1,045 5.2 5.6
Other (expense) (3,555) (754) 2,801 (2.6) (0.7)
Earnings (loss) before
provision for income
taxes and equity in
operations of investee 2,274 (11,017) 13,291 1.7 (10.2)
Provision for
income taxes 760 -- 760 0.6 --
Earnings (loss) before
equity in operations of
investee 1,514 (11,017) 12,531 1.1 (10.2)
Equity in
operations of
investee (320) (269) 51 (0.2) (0.2)
------------------------------- --------------------
Net Earnings (loss) $ 1,194 (11,286) 12,480 0.9 (10.4)
=============================== ====================
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Nine-Months ended August 31, 1997
Net sales for the nine-month period ended August 31, 1997 increased 26% to
$136,491,000 from $108,311,000 for the nine-month period ended August 31,
1996. Total shipments, including billets, for the nine-month period ended
August 1997 rose 22% to 469,000 tons compared to 386,000 tons for the
comparable nine-month period of 1996. Continued strong shipments of products
to the Northeast home market allowed average finished goods selling prices to
rise to $312 per ton in the nine-month period of 1997 as compared to $288
for the same period of 1996.
The Company reported a gross profit of $12,931,000 for the nine-month period
ended August 31, 1997 as compared to a gross loss of $4,206,000 for the
comparable 1996 period. This substantial improvement in the gross profit
of $17,137,000 is primarily due to higher shipments and selling prices as
well as a decrease of 10% in conversion costs in both the melt shop and
rolling mill for the nine-month period ended August 31, 1997. In addition
to the higher productivity and the cost savings realized through well-defined
cost improvement programs, the gross margin was favorably impacted by an
average scrap price of $108 per ton as compared to $113 per ton for the same
period in 1996.
Selling, general and administrative expenses for the nine-months ended
August 31, 1997 increased $1,045,000 to $7,102,000 from $6,057,000 for the
comparable period of 1996 primarily as a result of severance obligations and
higher legal and professional fees to comply with environmental matters.
Other expense increased $2,801,000 to $3,555,000 for the nine-month period
ended August 31, 1997 from $754,000 for the comparable 1996 period primarily
due to higher interest expense.
The Company's provision for income taxes of $760,000 in the fiscal third
quarter of 1997 reflects an effective rate of 34% as compared to the fiscal
third quarter of 1996 where no provision was recorded loss.
The Company's share of equity in operations of investee contributed a loss
of $320,000 for the nine-month period ended August 31, 1997 as compared to
a loss of $269,000 for the same period of 1996.
Liquidity and Capital Resources
In June 1996, the Company entered into an Amended and Restated Loan and
Security Agreement (the "loan agreement") with its bank to increase the
maximum amount available under its revolving credit facility from
$17,500,000 to $20,000,000 and to extend the maturity date from April 30,
1997 to May 1, 1998. The maturity dated on the Company's $7,500,000 term loan
was also extended from December 31, 2000 to May 1, 2001. The loan agreement
also amended certain financial convenants. Borrowings under the revolving
credit facility and term loan are secured by substantially all of the
Company's assets. Principal repayments under the term loan are due in
monthly installments of $125,000 beginning December 1, 1996 with a final
payment of $875,000 due at maturity. Interest on the term loan and
outstanding amounts under the revolving credit facility are payable at the
prime rate plus one percent. On February 27, 1997, the bank amended the
loan agreement with respect to the financial statement covenants.
Covenants amended include tangible net worth, working capital, capital
expenditures and the cash coverage ratio, as defined.
Concurrently with the execution and delivery of the loan agreement, the
Company entered into a Credit Agreement (the "credit agreement") with Von
Roll Holding Ltd., its majority stockholder. The credit agreement provided a
$15,000,000 revolving credit facility to the Company which matures May 1,
1998. The credit agreement was amended in September 1996 increasing the
amount available under the revolving credit facility to $17,000,000.
Repayment of borrowings under this revolving credit facility is subordinated
to the bank borrowing referred to above and is secured by subordinate liens
on substantially all of the Company's assets. Interest on outstanding
amounts under the credit agreement is payable monthly at the prime rate plus
one percent. In December 1996, the Board of Directors of the Company
authorized an amendment to the credit agreement with Von Roll increasing the
maximum amount available under the revolving credit facility to $19,000,000
and subsequently the Company increased its borrowings by $2,000,000.
On February 27, 1997, the bank agreed to a temporary increase in the maximum
amount available under its credit facility from $20,000,000 to $23,500,000.
The increase in availability is only in effect through May 31, 1997. In
addition, the Company anticipates that with the continued support from its
majority stockholder, it will be able to secure additional borrowings to
meet its anticipated liquidity requirements.
On July 9, 1997, the bank agreed to a permanent increase in the maximum
amount available under its credit facility from $20,000,000 to $27,500,000.
The increase in availability continues to the maturity date of May 1, 1998.
The loan agreement also amended certain financial convenants.
Von Roll has also guaranteed the Company's payment obligations under the
Company's scrap brokerage and service agreements. The guaranty is for a
maximum of $5,000,000 and will expire 30 days after the termination of the
scrap brokerage and service agreements.
The nine-months ended August 31, 1997 reflects a decrease in working capital
as compared to November 30, 1996. This is primarily the result of
reclassifying the the Company's note payable to its bank and parent as
current.
Net cash provided by operating activities was $4,441,000 for the nine-month
period ended August 31, 1997 as compared to $1,518,000 of net cash used
during the comparable period of 1996. Net capital expenditures for the
nine months ended August 31, 1997 of $3,936,000 declined $11,324,000 from
$15,260,000 for the corresponding period of 1996, due to the completion
of the major investment program in the course of the prior year, primarily
due to the near completion of its modernization program.
The Company anticipates to incur capital expenditures of $6.0 million in
fiscal 1997 primarily for cost reduction projects identified during the
course of an ongoing review of melt shop operations by technical consultants.
The Company believes cash flows generated by future operations and its credit
facility will be adequate to fund day-to-day operations and anticipated
capital expenditures for the balance of the fiscal year.
In February 1997, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 128, "Earnings Per Share" (SFAS 128). SFAS 128
establishes standards for computing and presenting earnings per share. In
accordance with the effective date of SFAS 128, the Company will adopt SFAS
128 as of February 28, 1998. This statement is not expected to have a
material impact upon the Company's financial statements.
On September 10, 1997, the Company divested its minority interest in Excel
Mining Systems, and on September 18, 1997, the Company completed the sale of
property of its former fabrication facility located in Bowie, Maryland.
The impact of the combined sales will be minimal on the operations of the
Company.
PART II. Other Information
Item 1. Legal Proceedings
See "Note 6 - Commitments and Contingencies of the Notes to Condensed
Consolidated Financial Statements" for a description of legal proceedings
involving the Company.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company was held on June
17, 1997.
(b) Not applicable.
(c) To consider and take action on the election of five directors.
NUMBER OF VOTES
AGAINST OR
NOMINEES FOR WITHHOLD AUTHORITY
Walter H. Beebe 5,593,294 121,608
Gary A. Giovannetti 5,685,777 29,125
H. Georg Hahnloser 5,593,694 121,208
Robert LeBuhn 5,594,527 120,375
Hans G. Trosch 5,542,387 172,515
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
3(a) - Restated Certificate of Incorporation as amended - Incorporated
by reference to Exhibit 3(a) of the Company's Registration
Statement on Form S-1 (No. 33-13298).
3(b) - By-laws as amdended - Incorporated by reference to Exhibit 3(b) to
the Company's Annual Report on Form 10-K for the year ended November
30, 1993 (File No. 0-15838).
4(a) - Form of Certificate for shares of Common Stock of the Company -
Incorporated by reference to Exhibit 4(a) of the Company's
Registration Statement on Form S-1 (No. 33-13298).
10(a) - Technical Services and Management Consulting Agreement between the
Company and Von Roll Ltd. dated as of April 1, 1987 - Incorporated
by reference to Exhibit 10(e) of the Company's Registration
Statement on Form S-1 (No. 33-13298).
10(b) - Incentive Stock Option Plan of Company adopted October 2, 1987 with
amendements - Incorporated by reference to Exhibit 10(f) of the
Company's Registration Statement on Form S-1 (No. 33-13298).
10(c) - Form of Stock Option Agreement - Incorporated by reference to
Exhibit 4(b) of the Company's Registration Statement on Form S-8
(No. 33-17435).
10(d) - Indemnity Agreement between the Company and Von Roll Ltd. dated as
of April 1, 1987 - Incorporated by reference to Exhibit 10(g) of
the Company's Registration Statement on Form S-1 (No. 33-13298).
10(e) - New Jersey Steel Corporation Thrift Savings Plan (as amended 1994)
- Incorporated by reference to Exhibit 10(g) of the Company's
Annual Report on Form 10-K for the year ended November 30, 1994
(File No. 0-15838).
10(f) - New Jersey Steel Corporation Thrift Trust Savings Agreement (as
amended 1994) - Incorporated by reference to Exhibit 10(h) of the
Company's Annual Report on Form 10-K for year ended November 30,
1994 (File No. 0-15838).
10(g) - Registration Agreement between the Company and Von Roll Ltd. dated
as of April 1, 1987 - Incorporated by reference to Exhibit 10(h) of
the Company's Registration Statement on Form S-1 (No. 33-13298).
10(h) - Amended and Restated Loan and Security Agreement dated as of June
6, 1996 between Midlantic Bank, National Association and the
Company - Incorporated by reference to Exhibit 10(i) to the
Company's Quarterly Report on Form 10-Q for the quarter ended May
31, 1996 (File No. 0-15838).
10(i) - Credit Agreement dated as of June 6, 1996 between Von Roll Holding
AG and the Company - Incorporated by reference to Exhibit 10(j) to
the Company's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1996 (File No. 0-15838).
10(j) - 1996 Stock Option Plan - Incorporated by reference to Exhibit A of
the Company's Proxy Statement dated May 7, 1996 used in connection
with the meeting of stockholders held June 21, 1996
(File No. 0-15838).
10(k) - Form of Stock Option Agreement used in connection with the Company's
1996 Stock Option Plan - Incorporated by reference to Exhibit 10(l)
of the Company's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1996 (File No. 0-15838).
10(l) - First Amendment of Revolving Loan and Security Agreement dated
February 27, 1997 between the Company and PNC Bank - Incorporated
by reference to Exhibit 10(m) of the Company's Annual Report on
Form 10-K for the period ended November 30, 1996 (File No. 0-15838).
10(m) - Second Amendment of Revolving Loan and Security Agreement dated
July 9, 1997 between the Company and PNC Bank - Filed herewith.
10(n) - Employment Agreement dated as of September 9, 1996 between the
Company and Louis F. Hagan - Incorporated by reference to Exhibit
10(n) of the Company's Annual Report on Form 10-K for the period
ended November 30, 1996 (File No. 0-15838).
10(o) - Form of Employment Agreement entered into between Gary A.
Giovannetti and the Company effective upon a "change in control". -
Incorporated by reference to Exhibit 10(o) of the Company's Annual
Report on Form 10-K for the period ended November 30, 1996 (File
No. 0-15838).
10(p) - Employment Agreement dated as of February 24, 1997 between Gary
A. Giovannetti and the Company -- Incorporated by reference to
Exhibit 10(o) of the Company's Quarterly Report on Form 10-Q for the
period ended February 28, 1997 (File No. 0-15838).
27 - Financial Data Schedule
SIGNATURES
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.
NEW JERSEY STEEL CORPORATION
Registrant
Dated: October 9, 1997 /s/ Gary A. Giovannetti
------------------------------------
Gary A. Giovannetti
President
/s/ Alexander Prelat
------------------------------------
Alexander Prelat
Vice President, Finance and Treasurer
(Principal Financial and Accounting
Officer)
- -----------------------------------------------------------------------------
Exhibit 10(m)
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT (this "Amendment") made this 9th day of July, 1997 to
the Amended and Restated Loan and Security Agreement dated as of June 6, 1996
between NEW JERSEY STEEL CORPORATION, a corporation organized under the laws
of the State of Delaware (hereinafter referred to as "Borrower"), having its
principal place of business at North Crossman Road, Sayreville, New Jersey
08872 and PNC Bank, National Association, successor by merger to Midlantic
Bank, NA (hereinafter referred to as "Lender"), a banking association
organized and existing under the laws of the United States of America, having
offices at 2 Tower Center Boulevard, East Brunswick, New Jersey 08816.
WITNESSETH:
WHEREAS, Lender and Borrower have previously entered into a commercial lending
relationship in accordance with the terms and conditions of an Amended and
Restated Loan and Security Agreement dated as of June 6, 1996, as such has
been amended and/or supplemented by a First Amendment dated February 27, 1997,
the ("Loan Agreement"), pursuant to which Lender has advanced funds to the
Borrower on a secured basis and Borrower has agreed to repay same; and
WHEREAS, Lender and Borrower seek to amend some of the terms and conditions
of their amendments to the Loan Agreement by this writing,
NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the parties agree as follows:
1. Subsection 2A.1(b) of the Loan Agreement is hereby deleted in its
entirety and replaced by the following new Subsection 2A.1(b):
(b) Definition of Revolving Loan Limit. Borrower's Revolving Loan Limit
shall be the lesser fo Twenty-seven Million Five Hundred Thousand
Dollars ($27,500,000.00) ("Committed Cap") or the sum of the
following:
(i) 85% of the face amount of Qualified Accounts, not including
Excel Qualified Accounts, (less reserves determined by Lender
for advertising allowances, warranty claims and other
contingencies), which percentage Lender may increase or
decrease from time to time as Lender in its sole and absolute
discretion may determine based on credit or collateral
considerations; plus
(ii) the lesser of (A) 50% of the face amount of Excel Qualified
Accounts (less the reserves determined by Lender for
advertising allowances, warranty claims and other
contingencies), or (B) Two Million Five Hundred Thousand
Dollars ($2,500,000.00) which percentage or amount Lender
may increase or decrease from time to time as Lender in its
sole and absolute discretion may determine based on credit
or collateral considerations; plus
(iii) the lesser of (A) 60% of the Net Value of Qualified Inventory
or (B) Ten Million Dollars ($10,000,000.00) which percentage
or amount Lender may increase or decrease from time to time
as Lender in its sole and absolute discretion may determine
based on credit or collateral considerations.
Lender shall have the right to increase or decrease the Revolving
Loan Limit from time to time based on credit or collateral
considerations. The Revolving Loan Limit shall be subject to the
limitation stated in Section 11.3 in the event of notice of
termination of this Agreement.
2. Subsection 6.18 Working Capital of the Loan Agreement is hereby deleted
in its entirety.
3. Subsection 6.21 Cash Coverage Ratio of the Loan Agreement is hereby
deleted in its entirety and replaced by the following new Subsection:
6.21 Cash Coverage Ratio. Cause or permit Borrower's Cash Coverage
Ratio to be less that 3.0 as at May 31, 1997 and each fiscal
quarter-end thereafter. The term Cash Coverage Ratio means the
ratio of (i) (A) Borrower's net income plus depreciation for the
fiscal quarter, minus (B) capitalized interest and unfinanced
capital expenditures for such fiscal quarter, to (ii) Borrower's
debt service requirement for such fiscal quarter, all as
determined in accordance with generally accepted accounting
principles, applied on a consistent basis. Regular payments
on the Revoving Loan and the Von Roll Loan and mandatory
prepayments from the permitted sale of assets shall not, for
purposes of this Section 6.21, be deemed part of "Borrower's
debt service requirement."
4. Second Restated Secured Revolving Loan Note. Contemporaneously with the
execution of this Amendment, Borrower shall execute and deliver to
Lender a Second Restated Secured Revolving Loan Note in the principal
sum of $27,500,000.00, which is intended as a modification and
amendment to and substitution for, but not in satisfaction of, the
Restated Secured Revolving Loan Note dated June 6, 1996 and referenced
in the Loan Agreement. Henceforth, any reference to the "Revolving
Note" in the Loan Agreement shall be deemed to refer to the Second
Restated Secured Revolving Loan Note, as the same may be renewed,
extended, modified, amended or substituted.
5. Inconsistency. This Amendement is deemed incorporated into the Loan
Agreement. To the extent that any terms or provision of this Amendment
is or may be deemed expressly inconsistent with any term or provision
in the Loan Agreement, the terms and provisions hereof shall control.
6. Ratification of Agreement. The Borrower hereby represents and warrants
that (a) all of its representations and warranties in the Loan Agreement
are true and correct, (b) no default or Event of Default exists under
the Loan Agreement, and (c) this Amendment has been duly authorized,
executed and delivered and constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms.
7. Confirmation of Collateral. The Borrower hereby confirms that any
collateral for the Obligations, including but not limited to liens,
security interest, mortgages, and pledges granted by the Borrower or
third parties (if applicable), shall continue unimpaired and in full
force and effect.
8. Counterparts. This Amendment may be signed in any number of counterpart
copies and by the parties hereto on separate counterparts, but all such
copies shall constitute one and the same instrument.
9. Successors and Assigns. This Amendment will be binding upon and inure
to the benefit of the Borrower and the Lender and their respective heirs,
executors, administrators, successors and assigns.
10. Amendment. Except as amended hereby, the terms and provisions of the
Loan Agreement remain unchanged and in full force and effect. Except
as expressly provided herein, this Amendment shall not constitute an
amendment, waiver, consent or release with respect to any provision of
the Loan Agreement, a waiver of any default or Event of Default
thereunder, or a waiver or release of any of the Lender's rights and
remedies (all of which are hereby reserved). The Borrower expressly
ratifies and confirms the waiver of jury trial provision.
11. HEADINGS. The headings as used in this Amendment are inserted solely
for convenience of reference and shall not constitute a part of this
Amendment not affect its meaning, construction or effect.
12. NO DEFENSES TO PAYMENT. Borrower waives and forever releases and
discharges Lender, its officers, directors, agents and employees,
successors and assigns from any and all claims, actions, causes of
action, suits, counterclaims, set-offs, rights and defenses against
Lender (its officers, directors, agents and employees, successors and
assigns), which Borrower its successors or assigns have or hereafter
can, shall or may have, for, upon, or by reason of any matter, cause
or thing whatsoever up to and including the date of this Amendment; and
Borrower represents and warrants to Lender that Borrower has no defenses
to the repayment of any or all of the Obligations and has no claims,
rights of set-off or causes of action against Lender.
13. Amendment Fee. The Borrower shall pay to the Lender on the date hereof
a $100,000.00 fee for the preparation, execution and delivery of this
Amendment. Notwithstanding the foregoing, the Borrower hereby further
agrees to pay all costs and expenses of the Lender in connection with
the administration, filing and enforcement of this Amendment, and any
other instruments and documents to be executed contemporaneouly herewith,
and any amendments hereto, including, without limitation, reasonable
attorney's fees, filing and recording fees.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals or caused these presents to be signed by their proper corporate officers
and their proper corporate seals to be hereto affixed the 9th day of July,
1997.
(SEAL)
ATTEST: NEW JERSEY STEEL CORPORATION
By: /s/ Thomas W. Jackson By: /s/ Gary A. Giovannetti
----------------------- ------------------------
Thomas W. Jackson Gary A. Giovannetti
Secretary President
By: /s/ Alexander Prelat
------------------------
Alexander Prelat
Vice President, Finance
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Peter Mardaga
--------------------------
Peter Mardaga
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated financial statements for the nine months ending
August 31, 1997 and is qualified in it's entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<CASH> 35
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<RECEIVABLES> 26400
<ALLOWANCES> (2591)
<INVENTORY> 21077
<CURRENT-ASSETS> 45852
<PP&E> 193158
<DEPRECIATION> (104406)
<TOTAL-ASSETS> 151871
<CURRENT-LIABILITIES> 70403
<BONDS> 4875
0
0
<COMMON> 59
<OTHER-SE> 76534
<TOTAL-LIABILITY-AND-EQUITY> 151871
<SALES> 136491
<TOTAL-REVENUES> 136491
<CGS> 123560
<TOTAL-COSTS> 123560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 907
<INTEREST-EXPENSE> 3273
<INCOME-PRETAX> 1194
<INCOME-TAX> 1194
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1194
<EPS-PRIMARY> $.20
<EPS-DILUTED> $.20
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