<PAGE>
GULF STATES STEEL, INC.UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
- -----
Act of 1934
For the quarterly period ended April 30, 1996.
OR
_____ Transition report pursuant to Section 13 or 15 (d) of the Securities Act
of 1934
For the transition period from ____________ to ____________
Commission file number 33-92496
--------
GULF STATES STEEL, INC. OF ALABAMA
----------------------------------
(Exact name of registrant as specified in its charter)
Alabama 63-114 1013
------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
174 South 26th Street
Gadsden, Alabama 35904-1935
---------------- ----------
(Address of principal executive offices) (Zip Code)
(205) 543-6100
--------------
(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 (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.
Yes X No ______
-----
Indicate the number of shares outstanding of each class of common stock, as of
the latest practicable date:
Common Stock $ .01 par value - 3,610,000 shares as of May 31, 1996
<PAGE>
GULF STATES STEEL, INC. OF ALABAMA
INDEX
<TABLE>
<CAPTION>
PAGE NR.
--------
ITEM 1. FINANCIAL STATEMENTS
(UNAUDITED)
<S> <C>
STATEMENTS OF INCOME -
FOR THE THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 1996 (SUCCESSOR);
COMBINED FOR THE PERIOD FEBRUARY 1, 1995 TO APRIL 1, 1995
AND FOR THE PERIOD FROM NOVEMBER 1, 1994 TO APRIL 20, 1995
(PREDECESSOR)........................................................ 1
CONSOLIDATED BALANCE SHEETS -
AS OF APRIL 30, 1996 AND OCTOBER 31, 1995............................ 2
COMBINED STATEMENTS OF CASH FLOWS -
FOR SIX MONTHS ENDED APRIL 30, 1996 AND FOR PERIOD FROM
NOVEMBER 1, 1994 TO APRIL 20, 1995................................... 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)............... 4 - 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 7 - 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 11
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K....................................... 11
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------
GULF STATES STEEL, INC. OF ALABAMA
COMBINED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FOR THE PERIOD FEB. 1, 1995 SIX MONTHS ENDED FOR THE PERIOD NOV. 1, 1994
APR. 30, 1996 TO APRIL 20, 1995 APR. 30, 1996 TO APRIL 20, 1995
------------------ --------------------------- ---------------- ---------------------------
(SUCCESSOR) (PREDECESSOR) (SUCCESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C>
Net sales......................... $ 104,676 $105,540 $ 216,458 $232,618
Cost of goods sold,............... 97,122 82,973 194,924 180,367
excluding depreciation
Depreciation...................... 3,600 3,422 8,249 8,683
Selling, general and.............. 4,637 5,117 8,371 11,213
administrative expenses
Profit sharing.................... 38 3,163 38 7,197
---------- -------- ---------- --------
Operating profit (loss)........... (721) 10,865 4,876 25,158
Other (income) expense:
Interest expense............. 5,735 2,354 11,568 5,234
Interest income.............. ( 14) ( 4) (17) ( 4)
---------- -------- ---------- --------
5,721 2,350 11,551 5,230
---------- -------- ---------- --------
Income (loss) before.............. (6,442) 8,515 ( 6,675) 19,928
income taxes
Provision (benefit) for........... (2,293) 3,092 ( 2,376) 7,126
income taxes..................... ---------- -------- ---------- --------
Net income (loss)................. $ (4,149) $ 5,423 $ ( 4,299) $ 12,802
========== ======== ========= ========
Net loss per share................ $(1.15) $ (1.19)
========== =========
Common and common................. 3,610,000 3,610,000
equivalent shares ========== ==========
outstanding
</TABLE>
1
<PAGE>
GULF STATES STEEL, INC. OF ALABAMA
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
APRIL 30, 1996 OCTOBER 31, 1995
---------------- ----------------
(dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 1,322 $ 1,897
Accounts receivable, less
allowance for doubtful
accounts of $1,216 in 1996
and $1,500 in 1995............. 32,947 39,658
Inventories..................... 59,725 56,675
Deferred income taxes........... - 2,557
Prepaid taxes and other......... 3,033 894
-------- --------
Total current assets........... 97,027 101,681
Property, plant and equipment, net 180,969 176,913
Deferred charges, less
accumulated amortization of
$1,243 in
1996 and $ 618 in 1995.......... 8,699 9,276
Deferred income taxes............. 2,714 -
-------- --------
Total assets................... $289,409 $287,870
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 42,952 $ 35,570
Accrued payroll and employee
benefits....................... 4,253 4,746
Accrued interest payable........ 1,190 1,184
Other accrued liabilities....... 7,208 13,567
Income taxes payable............ 300 1,157
-------- --------
Total current liabilities...... 55,903 56,224
Long-term debt.................... 197,244 188,775
Deferred income taxes............. - 2,310
Common stock warrants subject to
put options...................... 2,225 2,225
Stockholders' equity :
Common Stock, par value $.01
per share; 4,000,000
shares authorized, 3,610,000
shares issued and outstanding.. 36 36
Additional paid-in capital..... 39,050 39,050
Notes receivable from
officers.......................... (750) (750)
Accumulated deficit........... (4,299) -
-------- --------
Total stockholders' equity..... 34,037 38,336
-------- --------
Total liabilities and
stockholders' equity........... $289,409 $287.870
======== ========
</TABLE>
2
<PAGE>
GULF STATES STEEL, INC. OF ALABAMA
STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
<TABLE>
<CAPTION>
PERIOD FROM NOVEMBER 1, 1994
SIX MONTHS ENDED -----------------------------
-----------------
APRIL 30, 1996 TO APRIL 20, 1995
----------------- -----------------------------
(SUCCESSOR) (PREDECESSOR)
----------------- -----------------------------
(dollars in thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income(loss)........................ $ (4,299) $ 12,802
Adjustments to reconcile net income to
net cash provided (used) by
operating activities:
Depreciation, including amounts 8,249 8,994
capitalized in inventories............
Amortization........................... 855 415
Deferred income taxes.................. (2,467) 1,824
Changes in operating assets and
liabilities:
Accounts receivable.................... 6,711 3,899
Inventories........................... (3,050) ( 871)
Prepaid assets and deferred charges... (2,139) (1,547)
Accounts payable...................... 7,382 (10,175)
Accrued payroll and employee benefits.. (493) 1,946
Accrued interest payable.............. 6 (33)
Other accrued liabilities.............. (6,359) 1,913
Income taxes prepaid and payable..... (857) (6,790)
-------- --------
Net cash provided by operations........ 3,539 12,377
INVESTING ACTIVITIES:
Building and equipment purchases........ (12,305) (11,611)
Net cash used in investing activities... (12,305) (11,611)
FINANCING ACTIVITIES:
Borrowings (payments) on long-term debt. 3,040 (18,839)
Net borrowings on revolving credit 5,151 18,079
agreement.............................. -------- --------
Net cash provided (used) by financing 8,191 (760)
activities............................. -------- --------
Net increase (decrease) in cash and (575) 6
cash equivalents.......................
Cash and cash equivalents at beginning 1,897 179
of year................................ -------- --------
Cash and cash equivalents at end of $ 1,322 $ 185
period................................. ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................... $ 9,477 $ 5,267
Income taxes........................... 947 12,092
</TABLE>
3
<PAGE>
GULF STATES STEEL, INC. OF ALABAMA
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements present the consolidated financial
position, results of operation and cash flows of Gulf States Steel, Inc. of
Alabama and its wholly-owned subsidiary (the "Company") for the fiscal three
month and six month period ended April 30, 1996. All material intercompany
accounts and transactions have been eliminated. The accompanying
predecessor financial statements present the combined financial position,
results of operations and cash flows of Gulf States Steel, Inc. of Alabama
and Affiliates for the periods of February 1, 1995 to April 20, 1995 and
November 1, 1994 to April 20, 1995.
(See Note 2.)
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of the Company, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
period November 1, 1995 to April 30, 1996 are not necessarily indicative of
the results that may be expected for the fiscal year ended October 31, 1996.
For further information, refer to the consolidated financial statements of
the Company and the notes thereto, included in the Company's Form 10- K for
the year ended October 31, 1995.
NOTE 2 - ACQUISITION
On April 21, 1995, the Company (f/k/a Gulf States Steel Acquisition
Corp.) completed the acquisition (the "Acquisition") of substantially all
of the assets and certain liabilities of the Gadsden, Alabama, facilities
of Gulf States Steel, Inc. of Alabama (the "Predecessor"), and other
affiliates of the Brenlin Group, a privately held investment company. A new
company, GSS Holdings Corp. ("Holdings") holds 100 % of the stock of the
Company.
The following unaudited pro forma information presents the results of
operations as though the aforementioned Acquisition, which occurred on April
21, 1995, had occurred as of the beginning of each of the periods presented
below.
<TABLE>
<CAPTION>
PRO-FORMA PRO-FORMA
FOR THE FOR THE
PERIOD PERIOD
THREE FEB. 1, SIX MONTHS NOV. 1,
MONTHS ENDED 1995 TO ENDED 1994 TO
APR. 30, APRIL 20, APR. 30, APRIL 20,
1996 1995 1996 1995
------------ ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales $104,676 $105,540 $216,458 $232,618
Net income (loss) (4,149) 4,135 (4,299) 11,378
</TABLE>
4
<PAGE>
NOTE 3 - INVENTORIES
Inventories are as
follows:
<TABLE>
<CAPTION>
(UNAUDITED)
April 30,1996 October 31
------------- -----------
(dollars in thousands)
<S> <C> <C>
Raw Materials and Supplies $ 12,271 $ 11,254
Work-In-Process 18,970 18,351
Finished Products 28,484 27,070
-------- ----------
Total $ 59,725 $ 56,675
======== ========
</TABLE>
The Company's inventories are valued at the lower of cost, as determined by
first-in first-out (FIFO) method, or market. The Predecessor's inventories
were valued at lower of cost, as determined by last-in first-out (LIFO)
method, or market.
NOTE 4 - CONTINGENCIES
The Company is subject to a broad range of federal, state and local
environmental laws and regulations, including those governing discharges to
the air and water, the handling and disposal of solid and/or hazardous
wastes, and the remediation of contamination associated with releases of
hazardous substances. The Company conducts continuous environmental
compliance and monitoring programs and believes that it is currently in
substantial compliance with all known material and applicable environmental
regulations except as follows.
During 1992 the Environmental Protection Agency asserted that a waste
water ditch system on the Company's property should be remediated and
closed. At October 31, 1994, the Company had remediated a portion of the
ditch and believes that the most probable course of action for the remainder
of the ditch will involve sampling soil and water and possibly removing some
contaminated soil at a nominal cost. The less likely, but more expensive
course of action would involve sampling soil and water, closing and
securing the ditch with the possibility of some contaminated soil remaining
in place, and monitoring for any migration of the contaminants. This
remediation would cost $1.1 million for closure with post-closure monitoring
costs over thirty years of $2.8 million. The Company also has agreed to a
$1.1 million civil penalty, of which $300,000 can be offset by future
capital expenditures, related to this issue. At April 30, 1996, the
$800,000 penalty has been paid, however, the $300,000 of capital
expenditures have not been approved by the EPA.
The Company has been named a Potentially Responsible Party (PRP) at three
hazardous waste sites. These sites have resulted in nominal remediation
cost to the Company, and the Company believes that there will be no material
expense for these sites in the future.
The Company settled with the Alabama Department of Environmental
Management during 1994 for all outstanding air and water violations and the
Company believes that its facility now operates, as a general matter, in
substantial compliance with existing air emission regulations and its water
discharge permit.
The Company's expenditures for environmental capital projects aggregated
$1.3 million for the quarter ended April 30, 1996, and $2.7 for the six
months ended April 30, 1996.
Though the Company believes that it has adequately provided for the cost
of all known environmental conditions, the applicable agencies could insist
upon different and possibly more costly remediative measures than those
believed by the Company to be adequate or required by existing law.
5
<PAGE>
The Company is involved in litigation arising from its normal operations,
including employee matters, the resolution of which is not expected to have
a significant effect on the Company's financial position or results of
operations.
NOTE 5 - EARNINGS PER SHARE
Earnings per share is based upon the weighted average number of common
shares outstanding and the dilutive common equivalent shares. The Company
has outstanding common stock warrants subject to put options to purchase
190,000 shares of the common stock. During periods of net losses, the
warrants are considered antidilutive and are therefore not considered common
equivalent shares. Earnings per share data for the Predecessor have been
omitted because its capital structure is not comparable to the Company.
NOTE 6 - LONG TERM CONTRACTS
On April 1, 1996, the Company agreed upon a contract with The United
Steelworkers of America (the "USWA") which replaced the previous contract
expiring on that date. The new contract is for a term of 54 months expiring
on October 1, 2000. It includes wage increases, certain benefit increases
including other post retirement benefits, changes to local work rules,
language restricting the Company from participation in non-represented
businesses and gives the USWA representation on the Company's strategic
planning committee.
As noted above, one of the changes from the previous labor contract was the
granting of retiree health benefits subject to certain limitations. Those
limitations include provisions for employee contributions, the transfer of a
VEBA trust to fund a portion of the future expense, ineligibility for those
employees covered under separate plans and appropriate allowances upon the
attainment of eligibility under Medicare by the covered employees.
Preliminary calculations by the Company's actuaries indicate an unfunded
accumulated post retirement benefit obligation (APBO) of approximately $6.0
million and annual net periodic post retirement benefit cost (NPPBC) of
$1.3 million.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Due to the Acquisition, the financial statements of the Predecessor at April
20, 1995 contain 10 less days than the comparable periods of the Company in 1996
which has some effect on the comparison of 1996 to 1995, principally with regard
to sales.
To facilitate a comparison of the Company's operations with the results of the
Predecessor, the following discussion and analysis is based on pro forma
statements of income prepared under the assumption that the Acquisition of the
Predecessor and related issuance of the First Mortgage Notes (the "Notes")
occurred at the beginning of each period presented.
The pro forma financial statements of income presented below are for
discussion purposes only and should not be construed to be indicative of the
Company's results of operations had the Acquisition of the Predecessor and
issuance of the Notes been consummated on the date assumed and do not project
the Company's results of operations for any future period.
The pro forma financial statements of income differ from the historical
financial statements of income of the Predecessor due to the following
adjustments: (i) inventory is costed on a FIFO basis instead of LIFO (the basis
used by the Predecessor); (ii) a change in depreciation expense resulting from
the increased cost basis of Plant and Equipment resulting from the allocation of
the purchase price of the Company; (iii) management fees are adjusted to reflect
the provisions of the Company's management agreement; (iv) additional
amortization expense related to debt issuance cost of the First Mortgage Notes
less the reversal of certain Predecessor amortization expense; (v) additional
net interest expense based on the Company's debt structure; (vi) the effect on
profit sharing expense of the above adjustments; and (vii) the effect on tax
expense of the above adjustments.
Results of operations for an interim period are not necessarily indicative of
results for the full year.
<TABLE>
<CAPTION>
PRO-FORMA PRO-FORMA
THREE MONTHS ENDED FOR THE PERIOD FEB. 1, 1995 TO SIX MONTHS ENDED FOR THE PERIOD NOV. 1, 1994
APR. 30, 1996 APRIL 20, 1995 APR. 30, 1996 TO APRIL 20, 1995
------------------ ------------------------------- ---------------- ---------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.......................... $104,676 $105,540 $216,458 $232,618
Cost of goods sold,................ 97,122 82,911 194,924 179,673
excluding depreciation
Depreciation....................... 3,600 3,659 8,249 7,684
Selling, general and............... 4,637 4,292 8,371 8,837
administrative expenses
Profit sharing..................... 38 2,423 38 6,379
-------- -------- -------- --------
Operating profit (loss)............ (721) 12,255 4,876 30,045
Other (income) expense:
Interest expense............. 5,735 5,821 11,568 12,418
Interest income.............. ( 14) ( 4) ( 17) ( 4)
-------- -------- -------- --------
5,721 5,817 11,551 12,414
-------- -------- -------- --------
Income (loss) before............... (6,442) 6,438 ( 6,675) 17,631
income taxes
Provision for income taxes......... (2,293) 2,303 ( 2,376) 6,253
-------- -------- -------- --------
Net income (loss).................. $( 4,149) $ 4,135 $( 4,299) $ 11,378
======== ======== ======== ========
</TABLE>
7
<PAGE>
THREE MONTHS ENDED APRIL 30, 1996 (1996) COMPARED TO THE PERIOD OF FEBRUARY
1, 1995 TO APRIL 20, 1995 (1995)
Net Sales. Net sales decreased 0.8% to $104.7 million for the 1996 period
from $105.5 million for the 1995 period. This is primarily the result of a
$42 per ton decline in average selling prices to $408 in the 1996 period
from $450 per ton in the 1995 period as a result of lower demand and
increased competition. Sales volume increased 8.3% on shipments of flat
rolled products at 250,300 net tons in the 1996 period from 231,010 net
tons in the 1995 period. Volume was higher because of the shorter reporting
period resulting from the sale of the assets of the Predecessor on April 21,
1995.
Cost of Goods Sold. Cost of goods sold, excluding depreciation, increased
17.1% to $97.10 million for the 1996 period from $82.9 million for the 1995
period. As a percentage of net sales, cost of goods sold, excluding
depreciation, increased to 92.8% in the 1996 period from 78.6% in the 1995
period. This increase resulted from the lower average selling price and
cost increases. Average manufacturing costs for flat rolled products
increased to $377 per ton in the 1996 period from $348 in the 1995 period.
This increase was primarily the result of manufacturing delays caused by
natural gas curtailments, planned and unplanned mill outages, and was also
influenced by higher raw material prices, natural gas prices and higher wage
rates. Depreciation costs, at $3.6 million in the 1996 period were
comparable to the $3.6 million in the 1995 period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $4.6 million, or 4.4% of sales, in the
1996 period from $4.3 million, or 4.1% of sales in the 1995 period. This
was primarily due to professional fees associated with labor negotiations
with the USWA and sales & use tax negotiations with the State of Alabama.
Profit Sharing. Under terms of the Company's profit sharing plan, no
profit sharing expense was accrued in the 1996 period with the exception of
a small amount at it's subsidiary operation. This compares to $2.4 million
in the 1995 period.
Operating Profit. As a result of the changes in net sales, cost of goods
sold, selling general and administrative expenses, and profit sharing
discussed above, operating profit decreased to a loss of $0.7 million, or
(0.7)% of net sales, in the 1996 period, from $12.2 million, or 11.6% of
sales, in the 1995 period.
Interest Expense. Interest expense, net of interest income, decreased to
$5.7 million in the 1996 period from $5.8 million in the 1995 period. This
was due to higher capitalized interest associated with increased
construction-in-progress balances.
SIX MONTHS ENDED APRIL 30, 1996 (1996) COMPARED TO THE PERIOD FROM NOVEMBER
1, 1995 THROUGH APRIL 20, 1995 (1995)
Net Sales. Net sales decreased 6.9% to $216.5 million for the 1996 period
from $232.6 million for the 1995 period. The Company realized a decrease of
$37 per ton in average selling price on flat rolled products to $411 per
ton in the 1996 period from $448 per ton in the 1995 period. The reduced
average selling price resulted from lower demand and increased competition.
The Company experienced an 1.1% increase in shipments of flat rolled
products to 517,680 tons in the 1996 period from 511,760 tons in the 1995
period due primarily to the shorter reporting period.
8
<PAGE>
Cost of Goods Sold. Cost of goods sold, excluding depreciation, increased
8.5% to $194.9 million for the 1995 period from $179.7 million for the 1995
period. As a percentage of net sales, cost of goods sold, excluding
depreciation, increased to 90.1% in the 1996 period from 77.2% in the 1995
period. This increase resulted from manufacturing delays caused by natural
gas curtailments, and planned and unplanned outages, and was also
influenced by higher raw material prices, natural gas prices, and higher
wage rates. Depreciation costs increased to $8.2 million in the 1996 period
from $7.7 million in the 1995 period, primarily due to an increase in the
Company's fixed asset base in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $8.4 million, or 3.9% of sales, in the
1996 period from $8.8 million, or 3.8% of sales in the 1995 period. This
was primarily due to a decrease in the corporate management fee in the 1996
period.
Profit Sharing. Under terms of the Company's profit sharing plan, no
profit sharing expense was accrued in the 1996 period with the exception of
a small amount at it's subsidiary operation. This compares to $6.4 million
in the 1995 period.
Operating Profit. As a result of the changes in net sales, cost of goods
sold and selling general and administrative expenses and profit sharing
discussed above, operating profit decreased to $4.9 million, or 2.2% of net
sales, in the 1996 period, from $30.0 million, or 12.9% of sales, in the
1995 period.
Interest Expense. Interest expense, net of interest income, decreased to
$11.6 million in the 1996 period from $12.4 million in the 1995 period.
This was due higher capitalized interest associated with increased
construction-in-progress balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements consist of capital expenditures
and debt service. The Company incurs capital expenditures for the
replacement of existing plant and equipment, compliance with environmental
regulations, and the upgrading and improvement of manufacturing facilities.
The Company's capital expenditures in the three months ended April 30, 1996
were $5.7 million compared to $6.0 million in the February 1 to April 20,
1995 period. For fiscal year 1996, the Company expects replacement and
environmental capital expenditures to total approximately $6.0 million and
expenditures relating to upgrading and improvement of facilities to total
approximately $30 million.
In connection with the Acquisition on April 21, 1995, $190 million in
First Mortgage Notes were issued, upon which the Company will be required to
make semi-annual cash interest payments of approximately $12.8 million
($25.7 annually). Although the Company will not be required to make
principal payments on the First Mortgage Notes until maturity, in the event
of Excess Cash Flow, as defined by the First Mortgage Note Indenture, the
Company will be required to purchase First Mortgage Notes with 50% of such
Excess Cash Flow.
Also, in connection with the Acquisition, the Company entered into an
agreement described as the Revolving Credit Facility, which provided the
Company with a credit facility of $70 million, subject to a borrowing
availability formula applied to eligible accounts receivable and inventory
of the Company. The Revolving Credit Facility was available for working
capital and other general corporate purposes upon the closing of the sale of
assets, but was not drawn upon at that time. The Revolving Credit Facility
will require the Company to maintain a ratio of EBITDA to Cash Interest of
1.0 to 1.0 for the preceding twelve month period measured at the end of
each of the Company's fiscal quarters and, under certain circumstances, to
meet additional financial covenants. At April 30, 1996, approximately
$6,150,000 was borrowed under the Revolving Credit Facility.
9
<PAGE>
Although the Company has no obligation with respect to the promissory
notes issued by Holdings to Capital Resources Lenders II, L.P. in connection
with the Acquisition ( the "Holdings Notes"), Holdings is required to make
payments thereon in accordance with the respective terms thereof, for which
the sole source of funds is expected to be dividend distributions or loans
from the Company. The Holdings Notes require Holdings to cause the Company
to pay dividends to Holdings to the maximum extent allowed under the terms
of the Indenture and applicable law (until the Holdings Notes are repaid in
full). No dividends are payable by the Company as of April 30, 1996. In
addition, in connection with the Acquisition, Holdings issued a promissory
note to the seller ( the "Seller Note"), for which the sole source of funds
is also expected to be dividend distributions or loans from the Company.
There have been no payments required or made on the Seller Note through
April 30, 1996.
The Company's net cash provided by operations was $ 3.5 million in the
first six months of fiscal 1996, compared to $12.4 million in the period
from November 1, 1994 to April 20, 1995.
Effective April 1, 1996, the Company entered into a 54-month contract with
the USWA (see Note 6 to the financial statements under Item 1 for additional
information).
The Company believes that future cash flows from operations, together with
borrowings available under the Revolving Credit Facility, will provide the
Company with sufficient liquidity and capital resources to conduct its
future business activities (including its capital investments) and to meet
its cash interest payment requirements.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
A. The annual meeting of the stockholders of Gulf States Steel, Inc. of
Alabama was held on March 11, 1996.
B. Nine (9) members of the Board of Directors were unanimously elected to
serve until the next annual meeting of the Company. The elected directors
are as follows:
Name Position
---- --------
John D. Lefler..............President and Chief Executive Officer, Director
Robert W. Ackerman..........Director
Dale S. Okonow..............Vice President, Secretary and Director
Steven E. Karol.............Chairman of the Board, Director
William S. Karol............Vice President and Director
Howard H. Stevenson.........Director
Ofer Nemirovsky.............Director
Robert M. Wadsworth.........Director
Alexander S. McGrath........Director
C. The stockholders unanimously ratified the appointment of Ernst and
Young, LLP as the Company's independent auditors for the year ending October
31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT:
Exhibit 27-Financial Data Schedule.
(B) No reports on Form 8-K were filed by the Company during the three months
ended April 30, 1996.
11
<PAGE>
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 thereto duly authorized.
GULF STATES STEEL, INC. OF ALABAMA
-----------------------------------
(registrant)
By: /s/John D. Lefler
-----------------------------
John D. Lefler
President & Chief Executive Officer
(Principal Executive Officer)
Dated: June 12, 1996 By: /s/ Jack R. Collins
----------------------------------
Jack R. Collins
Senior Vice President
& Chief Financial Officer
(Chief Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Quarterly
Reports on Form 10-Q for the period ended April 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<PERIOD-START> FEB-01-1996 NOV-01-1995
<FISCAL-YEAR-END> OCT-31-1996 OCT-31-1995
<PERIOD-END> APR-30-1996 APR-30-1996
<CASH> 1,322 0
<SECURITIES> 0 0
<RECEIVABLES> 34,163 0
<ALLOWANCES> 1,216 0
<INVENTORY> 59,725 0
<CURRENT-ASSETS> 97,027 0
<PP&E> 196,088 0
<DEPRECIATION> (15,119) 0
<TOTAL-ASSETS> 289,409 0
<CURRENT-LIABILITIES> 55,903 0
<BONDS> 187,775 0
0 0
0 0
<COMMON> 36 0
<OTHER-SE> 34,001 0
<TOTAL-LIABILITY-AND-EQUITY> 289,409 0
<SALES> 104,676 216,458
<TOTAL-REVENUES> 104,676 216,458
<CGS> 100,722 203,173
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 4,675 8,409
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,721 11,551
<INCOME-PRETAX> (6,442) (6,675)
<INCOME-TAX> 2,293 2,376
<INCOME-CONTINUING> (4,149) (4,299)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,149) (4,299)
<EPS-PRIMARY> (1.15) (1.19)
<EPS-DILUTED> 0 0
</TABLE>
