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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994 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.)
P.O. BOX 5000
RIVER ROAD
LAPLACE, LOUISIANA 70069
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 652-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
Class A Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
-------------------
10 1/4% First Mortgage Notes due 2001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value and the number of voting shares of the registrant's
common stock outstanding on November 30, 1994 was:
SHARES OUTSTANDING HELD BY MARKET VALUE
TITLE OF EACH CLASS -------------------------------- HELD BY
OF COMMON STOCK AFFILIATES NON-AFFILIATES NON-AFFILIATES
- - ------------------------- ---------------- -------------- --------------
Class A, $.01 par value.. 1,492,361 9,121,019 $30,213,375
Class B, $.01 par value.. 2,271,127 0 N/A
Class C, $.01 par value.. 100 0 N/A
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1995 Annual
Meeting of Shareholders are incorporated herein by reference in Part III.
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BAYOU STEEL CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. BUSINESS.................................... 1
General..................................... 1
Manufacturing Process and Facilities........ 2
Products.................................... 2
Customers................................... 2
Distribution................................ 2
Markets and Sales........................... 3
Strategy.................................... 4
Competition................................. 5
Raw Materials............................... 6
Energy...................................... 6
Environmental Matters....................... 7
Safety and Health Matters................... 8
Strike and Impact Upon the Company.......... 9
Employees................................... 12
ITEM 2. PROPERTIES.................................. 13
ITEM 3. LEGAL PROCEEDINGS........................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................... 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON
STOCK AND RELATED STOCKHOLDER MATTERS...... 14
ITEM 6. SELECTED FINANCIAL DATA..................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 21
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................. 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS............ 35
ITEM 11. EXECUTIVE COMPENSATION...................... 35
ITEM 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................. 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................... 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K.................... 36
i
PART I
ITEM 1. BUSINESS
GENERAL
Bayou Steel Corporation (the "Company") is a leading producer of light
structural steel products. The Company owns and operates a steel minimill
strategically located on the Mississippi River in LaPlace, Louisiana, 35 miles
northwest of New Orleans. The minimill, constructed at a cost of $243 million in
1981, is one of the most modern facilities in the world in its product line and
utilizes state-of-the-art equipment and technology. The Company produces a
variety of shapes, including angles, flats, channels, standard beams and wide
flange beams. The shapes produced by the Company have a wide range of commercial
and industrial applications, including the construction and manufacturing of
petrochemical plants, barges and light ships, railcars, trucks and trailers,
rack systems, tunnel and mine support products, joists, sign and guardrail posts
for highways, power and radio transmission towers, and bridges. The Company
sells its products to over 600 customers, most of which are steel service
centers, in 41 states, Canada, Mexico and overseas. The Company also sells
excess billets (which have not been rolled into shapes) on a worldwide basis to
other steel producers for their own rolling or forging applications. In fiscal
1994, the Company sold 446,572 tons of shapes and 35,503 tons of billets.
The term "minimill" refers to a relatively low-cost steel production facility
which uses steel scrap, rather than iron ore, as its basic raw material. In
general, minimills recycle scrap using electric arc furnaces, continuous casters
and rolling mills. The Company's minimill, which was owned and operated by
Voest-Alpine A.G. until it was purchased by the Company in September 1986,
includes a Krupp computer-controlled, electric arc furnace utilizing water-
cooled sidewalls and roofs, two Voest-Alpine four-strand continuous casters, a
computer supervised, Italimpianti reheat furnace and a 15-stand Danieli rolling
mill (a second Krupp furnace is currently not in operation, but is available for
additional production).
In August 1988, the Company completed an initial public offering of its Class
A Common Stock, which shares are traded on the American Stock Exchange. The
Company was incorporated under the laws of the State of Louisiana in 1979 and
was reincorporated in Delaware in 1988 in connection with its public offering.
In March 1993, following the expiration of its existing labor contract, the
United Steelworkers of America Local 9121 (the "Union") initiated a strike
against the Company which continues to date.
The address of the Company's principal place of business is River Road, P.O.
Box 5000, LaPlace, Louisiana 70069 and its telephone number is (504) 652-4900.
MANUFACTURING PROCESS AND FACILITIES
In its production process, the Company uses steel scrap which is received by
barge, rail, and truck, and then stored in a scrap receiving yard. The scrap is
transported to the Company's melt shop by rail car or truck and loaded into its
furnace. The steel scrap is melted with electricity in a 75-ton capacity
electric arc furnace which heats the scrap to approximately 3100/o/F. During the
scrap melting and refining process, impurities are removed from the molten
steel. After the scrap reaches a molten state, it is poured from the furnace
into ladles, where adjustments of alloying elements and carbon are made to
obtain the desired chemistry. The ladles of steel are then transported to one of
two four-strand continuous casters in which the molten steel is solidified in
water-cooled molds. The casters produce long strands of steel which are cut by
torch into billets and moved to a cooling bed and marked for identification.
After cooling, the billets are transferred to the rolling mill for further
processing. In the rolling mill, the billets are reheated in a walking beam
furnace with recuperative burners. Once the billets are heated to approximately
2000/o/F, they are rolled through up to fifteen mill stands which mold the
billets into the dimensions and sizes of the finished products. The heated
finished shapes are placed on a cooling bed and then straightened and cut into
the appropriate customer lengths. The shapes are bundled into 2 1/2- to 5-ton
stacks and placed in a climate controlled warehouse where they are subsequently
shipped to the Company's stocking locations via barge, or to customers directly
via truck, rail, or barge.
1
The Company is currently able, using only one of its two furnaces, to produce
more billets than it can consume in its rolling mill. Prior to 1991, the Company
operated both of its furnaces and produced a much greater tonnage of billets for
sale in the billet market than it currently produces. The Company discontinued
this practice in 1990 due to declining margins on such products and has been
operating only one of its two furnaces since then. The Company believes that it
could restart its other furnace with an expenditure of less than $1 million. As
a result, the Company believes that it has significant additional capacity to
produce more billets if conditions in the worldwide billet market improve or if
the Company obtains additional rolling mill capacity. However, above certain
environmental permit levels of approximately 780,000 tons, additional capital,
ranging up to approximately $10 million depending on volume and design, would be
required to maintain environmental compliance.
PRODUCTS
Finished Steel. The Company produces a variety of light structural steel
products (including angles, flats, channels, standard beams and wide-flange
beams) that are collectively referred to as "shapes." The Company produces and
sells shapes in the forms of equal leg angles (2"x 2" through 6"x 6"), unequal
leg angles (4"x 3" through 7"x 4"), channels (3" through 8"), flats (3" through
8"), standard beams (3" through 6"), and wide flange beams (4" through 8"). The
shapes produced by the Company have a wide range of commercial and industrial
applications, including the construction and manufacturing of petrochemical
plants, barges and light ships, railcars, trucks and trailers, rack systems,
tunnel and mine support products, joists, sign and guardrail posts for highways,
power and radio transmission towers, and bridges.
The Company's shapes are produced to various national specifications, such as
those set by the American Society for Testing and Materials ("ASTM"). In
addition, the Company is one of a few minimills that is approved by the American
Bureau of Shipping ("ABS") and certified for nuclear applications. The Company's
products are also certified for state highway and bridge structures.
The Company's shape products are distinguishable from bar mill products which
include hot rolled bars, cold finished bars and reinforcing bars. The
manufacture of light structural steel products is generally more labor intensive
and technically demanding than the manufacture of steel bar mill products.
Semi-finished Steel. The Company sells its excess billets on a worldwide basis
to other steel producers for their own rolling or forging applications. The
billets are sold both domestically and worldwide through supply contracts or on
an occasional and selective basis. During fiscal 1994, the Company produced in
excess of 25 grades and 4 sizes (130 mm to 200 mm square or rectangle) of
billets.
CUSTOMERS
The Company has over 600 customers in 41 states, Canada, Mexico and overseas.
The majority of the Company's shape products (approximately 77% in fiscal 1994)
are sold to steel service centers, while the remainder are sold to original
equipment manufacturers (approximately 15% in fiscal 1994) and export customers
(approximately 8% in fiscal 1994). Steel service centers purchase nearly 30% of
all carbon industrial steel products produced in the United States. Steel
service centers warehouse steel products from various minimills and integrated
mills and sell combinations of products from different mills to their customers.
Some steel service centers also provide additional labor intensive value added
services such as fabricating, cutting or selling steel by the piece rather than
by the bundle.
In fiscal 1994, the Company's top ten customers accounted for approximately
36% of total sales, and no one customer accounted for more than 8% of total
sales. The Company believes that it is not dependent on any customer and that it
could, over time, replace lost sales attributable to any one customer.
DISTRIBUTION
The Company's steelmaking facility, which includes a deep-water dock, is
strategically located on the Mississippi River, which the Company believes gives
it transportation cost advantages because it can ship its product by barge, the
least costly method of transportation in the steel industry. Furthermore, the
Company operates three inventory
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stocking warehouses in Chicago, Tulsa and Pittsburgh, which supplement its
operations in Louisiana. These facilities, each of which includes an inland
waterway dock, enable the Company to significantly increase its marketing
territory by providing storage capacity for its finished products in three
additional markets and by allowing the Company to meet customer demand far from
its minimill facility on a timely basis. The Company believes that the location
of its minimill on the Mississippi River, and its network of inland waterway
warehouses, enable it to access markets for its products that would otherwise be
unavailable to the Company.
The Company's deep-water dock at its Louisiana manufacturing facility on the
Mississippi River enables the Company to load vessels or ocean-going barges for
overseas shipments, giving the Company low cost access to overseas markets.
Since the minimill is only 35 miles from the Port of New Orleans, smaller
quantities of shapes or billets can be shipped overseas on cargo ships from that
port. In addition, the Company makes rail shipments to some customers, primarily
those on the West Coast and in Mexico. Relative to its domestic competitors, the
Company believes it has a freight cost advantage over land-locked minimills in
serving the export market. This advantage permits the Company to compete with
foreign minimills in certain export markets.
The Company believes that the elimination of current duties in Canada and
Mexico as a result of the passage of the North American Free Trade Agreement
("NAFTA") will increase the competitiveness of the Company's products compared
to locally produced products in such countries. During fiscal 1994, 1993, and
1992, 7.6%, 2.9%, and 3.4% respectively, of the Company's tons shipped were
exported to Canada and Mexico. There can be no assurance, however, that there
will be an increase in the Company's shipments to Canada and Mexico as a result
of the passage of NAFTA.
MARKETS AND SALES
According to the American Iron and Steel Institute, the domestic market demand
for all structural steel shape products in 1992 was 5.1 million tons. The
Company estimates that its share of the total domestic shapes market was
approximately 8% in 1992. The Company believes that its share of the light
structural steel shapes market (the primary market in which the Company
competes) is much higher, and that it is one of the five largest producers in
this market of light structural steel shapes in the U.S.
The Company's shape products are sold domestically and in Canada, Mexico and
overseas on the basis of price, availability, quality and service. The Company
maintains a real-time computer information system, which tracks prices offered
by competitors, as well as freight rates from its customers to both the
Company's stocking locations and the nearest competitive facilities. In
addition, the Company maintains a full product assortment at its stocking
locations to ensure availability of its product and operates on a predetermined
production schedule that is provided to customers to assist customers in
scheduling their purchases.
Although sales of shapes tend to be slower during the winter months due to the
impact of winter weather on construction and transportation, and during the late
summer due to planned plant shutdowns of end-users, seasonality has not been a
material factor in the Company's business. The Company's backlog of unfilled
cancelable purchase orders for shapes, which typically are filled in
approximately three months, totaled $41.3 million as of September 30, 1994 as
compared to $24.3 million as of September 30, 1993. As of October 31, 1994, the
Company's backlog totaled $46.2 million.
The level of billet sales to third parties is dependent on the Company's
internal billet requirements and worldwide market conditions, which may vary
greatly from year to year. In the past three fiscal years, shipments of billets
to third parties have ranged from 8% to 13% of the Company's total tonnage
sales. The Company is currently able, using only one of its two furnaces, to
produce more billets than it can consume in its rolling mill. Prior to 1990, the
Company operated both of its furnaces and produced a much greater tonnage of
billets for sale in the billet market than it currently produces. The Company
discontinued this practice in 1990 in response to a decision by foreign
governments to resume the practice of heavily subsidizing their steel-making
industries. This decision precipitated a sharp decline in worldwide billet
prices, as foreign steel-making companies produced more billets for export. Due
to current margins, the Company has chosen to sell its excess billets through
supply contracts or on an occasional and selective basis. If the market for
billets were to improve, the Company could increase its billet production by
restarting its idled second furnace.
3
STRATEGY
The Company's principal operating strategy is to improve operating results by
continuing to reduce costs, including labor costs per ton, and increasing sales
of higher margin shape products. In addition, the Company has committed to
implement a $9.2 million capital expenditure program to reduce its production
costs and increase its melt shop and rolling mill capacity by the end of fiscal
1995. The Company may also consider strategic acquisitions which complement or
expand the Company's current operations, such as businesses engaged in the
metals field or recycling operations.
Operating Efficiencies. The Company has lowered its labor cost per ton by
$13 since fiscal 1992 and has lowered its labor costs per ton by $5 since
fiscal 1993. The Company believes that it can continue to lower its labor
costs per ton from fiscal 1994 levels by increasing productivity and
shipments, reducing overtime, and implementing a productivity incentive plan.
In addition, the Company's proposed labor agreement with the Union would
further reduce labor costs per ton.
The Company continues to be committed to developing a high performance work
culture. Through extensive training and individual development efforts, the
Company will further reinforce its basic values of employee improvement,
teamwork, and increased individual accountability. The Company believes that
the workforce, through this program, will have an impact in achieving
operational and productivity improvements. The program does not involve the
terms and conditions of the workplace and is therefore not subject to the
collective bargaining process. The Company has begun implementing the program
with its supervisory personnel.
Capital Improvements. From fiscal 1987 through fiscal 1994, the Company
spent an aggregate of approximately $51 million on capital projects. Most of
these expenditures were directed toward establishing its stocking location
distribution system, establishing a controlled warehouse environment to
minimize surface rust, extending its product line by adding equipment to roll
wide-flange beams and complying with changing environmental regulations.
In addition to normal maintenance programs, the Company is implementing a
$9.2 million capital expenditure program to reduce its production and
operating costs and increase its melt shop and rolling mill capacity. The
principal elements of this program are (i) an automobile shredder to enable
the Company to shred car bodies on-site and reduce scrap costs, (ii)
modification of the furnace shell and tapping hole to increase furnace
capacity and reduce consumption of materials, (iii) a steel straightener to
improve production capacity in the rolling mill, (iv) an off-line sawing
system and conveyor to further improve production capacity in the rolling mill
and (v) a shipping bay rail spur to reduce the handling of finished products.
The Company believes that these capital projects, when fully implemented,
would result in annual operating savings of approximately $3.3 million.
Each of the projects in the capital expenditure program is described
briefly, including project costs and estimated savings (excluding depreciation
and additional interest expense)
Automobile Shredder. Mississippi River Recycling ("MRR"), a business
division of the Company, will operate the automobile shredder, at a site
adjacent to the LaPlace minimill. This new enterprise will process car bodies
and sheet material into shredded material ready for the melting process,
thereby providing shredded scrap at a lower cost than the Company currently
procures such scrap. MRR will sell by-product non-ferrous metals to outside
companies. In addition, the Company believes that the automobile shredder
would produce scrap of a consistently higher quality than purchased shredded
scrap. The Company believes that local preparation of scrap would enhance the
efficiency of the dock in handling finished goods since fewer shipments of
scrap by barge would arrive. The Company estimates that the purchase and
installation of the local shredder would require $4.2 million of capital
expenditures. The estimated annual cost savings will be approximately $1.7
million based on recent market prices for shredded material. Estimated savings
will vary depending on fluctuations in the market price for scrap.
Furnace Modification. The modification of the furnace shell and tapping
hole will increase productivity by reducing tap time and increasing heat size.
In addition, the modification will result in lower consumption of power,
electrodes, and refractory material. The Company estimates that the
modification of the furnace would require $0.8 million of capital
expenditures. The estimated annual cost savings will be at least $0.4 million.
4
Steel Straightener. The new steel straightener would contain enhanced
features which would allow it to operate more rapidly, thereby eliminating the
bottleneck caused by the existing straightener in the rolling mill. (The old
straightener will be retained as an in-line back-up.) The new steel
straightener, together with the off-line sawing system and conveyor, would
expand the capacity of the rolling mill by improving the productivity on
certain products. Additionally, it would permit the production of light bar
shape products (2"x2" angles), which historically are products with a strong
demand, but which the Company previously dropped from its production schedule
due to lower productivity. The Company estimates that the purchase and
installation of the steel straightener would require $1.9 million of capital
expenditures. The estimated annual cost savings relating to the steel
straightener will be approximately $0.6 million.
Off-Line Sawing System and Conveyor. The proposed off-line sawing system
would allow the rolling mill to operate more rapidly by removing the
bottleneck that currently exists when shape products are cut into lengths less
than 40 feet. The off-line sawing system will include a conveyor to move
shapes from the last rolling mill operation to the shipping bays. The off-line
sawing system and conveyor, together with the steel straightener, would expand
the capacity of the rolling mill and permit the production of light bar shape
products. The Company estimates that the purchase and installation of the off-
line sawing system and conveyor would require $1.5 million of capital
expenditures. The estimated annual cost savings relating to the off-line
sawing system and conveyor will be approximately $0.4 million.
Shipping Bay Rail Spur. The proposed rail spur in the shipping bay would
move finished products from the Company's warehouse to the rail lines adjacent
to the minimill without loading and unloading such products to and from
trucks. The Company believes that its labor costs and operating and capital
costs of mobile equipment would be reduced by installation of the shipping bay
rail spur, as well as reduce damage to its finished products. The Company
estimates that the installation of the shipping bay rail spur would require
$0.8 million of capital expenditures. The estimated annual costs savings will
be approximately $0.2 million.
Since the estimated operating cost savings from the Company's expected
operating efficiencies and planned capital improvements are based upon a number
of assumptions, estimated operating cost savings are not necessarily indicative
of the Company's expected financial performance and increases in the cost of raw
materials and other conversion costs may offset any operating cost savings to
cause actual results to vary significantly. In addition, although the Company
believes its assumptions with respect to its planned capital expenditure program
to be reasonable, there can be no assurance that the estimated production cost
savings of the Company's capital expenditure program will actually be achieved,
sufficient demand for structural steel products will exist for the additional
capacity, or other difficulties will not be encountered in completing the
capital expenditure program, or that the projects can be installed or
constructed at the estimated prices.
Acquisition Program and Tax Benefits. The Company may, from time to time, seek
strategic acquisitions in order to accelerate its growth, focusing on businesses
which complement or expand the Company's current operations, such as businesses
in the metals field or involving recycling operations. The Company is not
presently engaged in negotiations with respect to any acquisition. As of
September 30, 1994, the Company had approximately $319 million of regular net
operating loss carryforwards which could be used to offset taxable earnings of
the Company, including the earnings of acquired entities, subject to certain
limitations imposed by the Internal Revenue Code of 1986, as amended (the "Tax
Code"). See the Notes to the Financial Statements.
COMPETITION
The Company's location on the Mississippi River, as well as its stocking
locations in three additional regions of the country, provide it with access to
vast markets in the eastern, midwestern, southern, and central portions of the
United States. As a result, the Company competes in the shape market with
several major domestic minimills in each of these regions. Depending on the
region and product, the Company competes with, among others, Nucor Corporation,
Structural Metals, Inc., North Star Steel Co., Northwestern Steel and Wire
Company, and Lake Ontario Steel Corporation. The Company does not currently
compete with minimill flat rolled or rebar products, nor does it compete with
any domestic integrated steel producers.
5
Foreign steel producers historically have not competed significantly with the
Company in the domestic market for shape sales due to higher freight costs in
the relatively low priced shape market. Foreign competition could increase,
however, as a result of changes in currency exchange rates and increased steel
subsidies by foreign governments.
The Company sells its excess billets on a supply contract or on an occasional
and selective basis. Since most steel companies produce billets, the Company
competes with steel companies, both domestic and foreign, that may also have an
excess billet supply at any particular time.
RAW MATERIALS
The Company's major raw material is steel scrap, which is generated
principally from industrial, automotive, demolition, railroad and other scrap
sources and is primarily purchased directly by the Company in the open market
through a large number of steel scrap dealers. The Company is able to
efficiently transport scrap from suppliers throughout the inland waterway system
and through the Gulf of Mexico, permitting it to take advantage of scrap
purchasing opportunities far from its minimill, and to protect itself from
supply imbalances that develop from time to time in specific local markets. In
addition, unlike many other minimills, the Company, through its own scrap
purchasing staff, buys scrap directly from scrap dealers and contractors rather
than through brokers. The Company believes that its enhanced knowledge of scrap
market conditions gained by being directly involved in scrap procurement on a
daily basis, coupled with management's long experience in metals recycling
markets, gives the Company a competitive advantage. The Company does not
currently depend upon any single supplier for its scrap. The Company, on
average, maintains a 25-day inventory of steel scrap.
The Company has initiated a program of buying directly from local scrap
dealers and small peddlers for cash. Through this program, the Company has
procured approximately 20% of its scrap at prices lower than those of large
scrap dealers. In addition, the Company is procuring an automobile shredder
which will be located at a site adjacent to the plant. Mississippi River
Recycling ("MRR"), a new division of the Company, will operate the automobile
shredder. See "Business - Strategy" for a description of the automobile
shredder. It is the Company's intention to expand MRR's business activities to
processing other types of unprepared scrap which could be used by the Company or
sold to other consumers of prepared scrap metal, generating additional revenues.
The cost of steel scrap is subject to market forces, including demand by other
steel producers. The cost of steel scrap to the Company can vary significantly,
and product prices generally cannot be adjusted in the short-term to recover
large increases in steel scrap costs. Over longer periods of time, however,
product prices and steel scrap prices have tended to move in the same direction.
The long-term demand for steel scrap and its importance to the domestic steel
industry may be expected to increase as steel makers continue to expand steel
scrap-based electric arc furnace capacity. For the foreseeable future, however,
the Company believes that supplies of steel scrap will continue to be available
in sufficient quantities at competitive prices. In addition, a number of
technologies exist for the processing of iron ore into forms which may be
substituted for steel scrap in electric arc furnace-based steelmaking. Such
forms include direct-reduced iron, iron carbide and hot-briquetted iron. While
such forms may not be cost competitive with steel scrap at present, a sustained
increase in the price of steel scrap could result in increased implementation of
these alternative technologies.
In addition to steel scrap, the Company consumes smaller quantities of
additives, alloys and flux ("AAF"). The Company does not currently depend upon a
single supplier for its AAF requirements.
The Company has not experienced any shortages or significant delays in
delivery of these materials. The Company believes that an adequate supply of raw
materials will continue to be available.
ENERGY
The Company's manufacturing process consumes large amounts of electrical
energy. The Company purchases its electrical service needs from Louisiana Power
and Light ("LPL") pursuant to a contract originally executed in 1980 and
extended in 1991 for a five year period. The base contract is supplemented to
provide lower cost off-peak power and known maximums in higher cost firm demand
power. In addition, the Company receives discounted peak
6
power rates in return for LPL's right to periodically curtail service during
periods of peak demand. These curtailments are generally limited to a few hours
and during the last several years have had negligible impact on operations.
Although the supplemental contract with LPL expires February 1, 1996, the
Company has no reason to believe that this contract will not be renewed upon
substantially similar terms. To a lesser extent, the Company's manufacturing
facility consumes quantities of natural gas via two separate pipelines serving
the facility. The Company purchases its natural gas on a month-to-month basis
from a variety of suppliers. Due to the effect of a fuel adjustment provision in
the contract with LPL and price increases in natural gas, the Company's energy
expense increased by $0.5 million in fiscal 1994 compared to fiscal 1993.
Historically, the Company has been adequately supplied with electricity and
natural gas and does not anticipate any curtailment in its operations resulting
from energy shortages.
The Company believes that its utility rates are very competitive in the
domestic minimill steel industry. As one of LPL's largest customers, the Company
has been able to obtain competitive rates from LPL.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local laws and
regulations, including, among others, the Clean Air Act, the 1990 amendments to
the Clean Air Act (the "1990 Amendments"), the Resource Conservation and
Recovery Act, the Clean Water Act and the Louisiana Environmental Quality Act,
and the regulations promulgated in connection therewith, concerning the
discharge of contaminants which may be emitted into the air and discharged into
the waterways, and the disposal of solid and/or hazardous waste such as electric
arc furnace dust.
In the event of a release or discharge of a hazardous substance to certain
environmental media, the Company could be responsible for the costs of
remediating the contamination caused by such a release or discharge. In the last
six years, the only environmental penalty assessed to the Company was a fine in
the amount of $43,000 levied in 1989 in conjunction with a Hazardous Waste
Compliance Order issued by the Louisiana Department of Environmental Quality for
alleged violations of the hazardous waste management regulations. At this time,
the Company believes it is in compliance in all material respects with
applicable environmental requirements. The Company has a full-time compliance
manager who is responsible for monitoring the Company's procedures for
compliance with such rules and regulations. The Company does not anticipate any
substantial increase in its costs for environmental remediation or that such
costs will have a material adverse effect on the Company's competitive position,
operations or financial condition.
The Company plans to close two storm-water retention ponds at the LaPlace
minimill. The Company has tested the effluents running into and out of the
ponds. These tests confirm there is little potential for contamination. Based on
this preliminary analysis, the Company does not believe that future clean up
costs, if any, will be material. The Company has proposed a sampling plan to the
Louisiana Department of Environmental Quality (the "LDEQ") to analyze the
contents of the pond sediments. The results of such sampling could indicate a
greater level of contaminants than suggested by the Company's limited testing.
In such case, the costs of clean up could be higher than the Company now
believes. Until such sampling is completed, however, it is impossible to
estimate such costs.
The Company's minimill is classified, in the same manner as similar steel
mills in the industry, as generating hazardous waste due to the production of
dust that contains lead, cadmium and chromium. The Resource Conservation and
Recovery Act regulates the management of such emission dust from electric arc
furnaces. The Company currently collects the dust resulting from its melting
operation through an emissions control system and manages it through an approved
waste recycling firm. The dust management costs were approximately $1.5 million
in both fiscal 1993 and 1994, and are estimated to be approximately $1.8 million
for fiscal 1995. The increase in cost is due primarily to increases in recycling
costs and to a lesser degree, increased steel production. In fiscal 1990, a
small quantity of dust containing very low concentrations of radioactive
material inadvertently entered the scrap stream on one occasion. All of the dust
containing such material was captured by the emissions control system and is
being held pending a decision as to its appropriate disposal. The Company has
estimated that the ultimate cost of disposal of such dust will be approximately
$500,000. There are at least five other steel mills in the United States storing
such radioactive dust.
7
The Company's future expenditures for installation of environmental control
facilities are difficult to predict. Environmental legislation, regulations and
related administrative policies are constantly changing. Environmental issues
are also subject to differing interpretations by the regulated community, the
regulating authorities and the courts. Consequently, it is difficult to forecast
expenditures needed to comply with future regulations, such as those forthcoming
as a result of the 1990 Amendments. Specific air regulations and requirements
applicable to the Company have yet to be promulgated under the authority of the
1990 Amendments. Therefore, at this time, the Company cannot estimate those
costs associated with compliance and the effect the upcoming regulations will
have on the Company's competitive position, operations or financial condition.
In fiscal 1995, the Company intends to spend approximately $650,000 on various
environmental capital projects, including those related to the 1990 Amendments.
In fiscal 1993, as part of a corporate campaign announced in August 1993 (see
"Business - Strike and Impact Upon the Company"), the Union engaged a consulting
company which conducted what was characterized as an environmental audit of the
Company's facilities. The Union's consultant did not visit the minimill, speak
with any officer of the Company or review any corporate records. The Union
consultant's report stated that it was based on a review of the LDEQ's files and
the Company's written operating procedures. The report also stated that the
consulting company interviewed Union members employed by the Company. Based on
this review, the Union consultant issued a report which stated that its purpose
was to identify areas of concern regarding the Company's environmental
compliance. The report alleges that the Company, among other things,
impermissibly manages hazardous waste (including incineration of flue dust
without a permit, operation of a waste pile to manage hazardous wastes without a
permit, long-term storage of mixed waste without a permit, and improper training
of personnel in waste management), bypasses its air emissions control systems
(by venting flue dust directly into the atmosphere in violation of its air
permit and releasing fugitive emissions greatly in excess of the level of
emissions permitted through its control systems), violates its wastewater
discharge permit (by discharging hazardous waste into ponds at its facility) and
violates various reporting requirements (with respect to releases of hazardous
substances by failing to report the amount of hazardous waste being treated on-
site). The Company believes that the Union has submitted this report to the
LDEQ, the Louisiana Board of Commerce and Industry ("LBCI"), and to other
government agencies.
The Company believes the Union consultant's allegations are without merit and
were made to further the efforts of the Union in the strike. The Company's
minimill is subject to regular inspections by the LDEQ. At the request of the
LBCI in connection with the Company's most recent tax abatement renewal, LDEQ
issued a letter dated February 7, 1994 stating that there were no environmental
enforcement actions outstanding against the Company. Subsequent to the issuance
of the letter, the Company was inspected numerous times by the LDEQ's offices of
Air and Radiation Protection, Solid and Hazardous Waste, and Water Resources. No
penalties have been received or are expected as a result of these inspections.
On June 14, 1994, LDEQ asked Region 6 of the United States Environmental
Protection Agency (EPA) to conduct a multi-media investigation at the LaPlace,
Louisiana facility due to the serious nature of the Union's allegations and its
lack of resources to conduct such a review. The EPA, accompanied by LDEQ,
conducted a multi-media inspection, i.e. air, water, and land, in June 1994. The
results of this investigation have not been received. Analytical results from
soil and waste samples, obtained by the EPA and submitted to the Company, do not
indicate the mismanagement of waste as alleged by the Union. It is possible that
the Company may be subject to fines as a result of this inspection; however, the
Company does not expect any such fines to have a material adverse affect on the
Company's operations. The Company knows of no environmental issues that would
require any material adjustment in its contingent liabilities.
SAFETY AND HEALTH MATTERS
The Company is subject to various regulations and standards promulgated under
the Occupational Safety and Health Act, which are administered by the
Occupational Safety and Health Administration ("OSHA"). These regulations and
standards are minimum requirements for employee protection and health. It is the
Company's policy to meet or exceed these minimum requirements in all of the
Company's safety and health policies, programs and procedures.
8
During fiscal 1994, the Company settled an outstanding OSHA citation issued to
the Leetsdale, Pennsylvania stocking location. The final settlement amount was
$19,000. All of the agreed upon hazards and recordkeeping issues are being
abated. Prior to this citation, the Company has been assessed $7,000 in fines by
OSHA over seven years.
As part of the Union's corporate campaign, a complaint containing over 150
allegations was submitted by the Union to OSHA. These complaints have apparently
been based upon allegations regarding working conditions in the plant alleged by
some of the striking Union members who have not been in the plant in nearly
1 1/2 years. As a result, an inspection was conducted at the LaPlace, Louisiana
facility in October and November of 1994 by OSHA. The results of this inspection
have not been received. The Company expects that some citations may be issued as
a result of this politically driven inspection. Due to its wide discretion in
assessing proposed civil penalties, OSHA may initially propose fines which are
material in nature but which may be reduced through negotiation in informal
proceedings with OSHA or after independent administrative or judicial review.
The Company has accrued a loss contingency for its estimate of the ultimate
liability arising from these inspections as of September 30, 1994. This estimate
is based upon the Company's observations of the items identified by OSHA, the
items observed by OSHA, a review of the Union's complaint, expert's experience
in handling OSHA citations, the ability to negotiate reductions in proposed
fines in informal proceedings with OSHA, and the access to independent
administrative or judicial review, if any. The Company does not believe any such
fines will be material in nature.
The Company knows of no other safety or health issues that would require any
material adjustment in its liabilities.
STRIKE AND IMPACT UPON THE COMPANY
General. The Company's six-year labor contract with the Union expired on
February 28, 1993. On March 21, 1993, after three short contract extensions, the
Union initiated a strike by its 337 bargaining unit employees after the parties
failed to reach agreement on a new labor contract due to differences on economic
issues. Initially, the Company had to curtail its operations (for six weeks the
Company operated at 50% capacity), which resulted in reduced production, higher
per ton conversion costs and lost sales, all of which adversely affected the
Company's profitability, particularly in the early weeks of the strike.
During its negotiations with the Union, the Company developed a strategic
contingency plan to maintain continued operation of the plant in the event of a
work stoppage. As a result of such planning, the Company was able to avoid
complete suspension of operations by operating the minimill with fewer workers
and by utilizing a combination of temporary replacement workers, Union employees
who returned to work and salaried employees. As a result of such measures, the
Company is currently operating at full capacity and since October 1993 overall
production and productivity have exceeded pre-strike levels.
For fiscal year 1993, the Company incurred approximately $3.2 million in out-
of-pocket costs for security, legal matters and other services related to the
strike ($2.5 million of which was incurred during the first three months of the
strike). For fiscal year 1994, the Company incurred $1.0 million in similar out-
of-pocket costs. During the last six months of fiscal year 1994, these costs
averaged $60,000 per month. Although uncertainties inherent in the strike
generally make it impossible to predict the duration or ultimate cost of the
strike to the Company, the Company expects that future strike-related costs will
not exceed $100,000 per month.
Injunction. The Company obtained an injunction from a Louisiana state court on
April 1, 1993 imposing restrictions on the number of picketers and regulating
conduct on the picket line. As a result of violations of the injunction, the
Company has obtained numerous contempt orders against the violators, as well as
additional injunctive relief to further regulate picketing activity. As a result
of assault and battery charges filed by the Company, several striking Union
members have been sentenced to serve time in jail or to do community service
work; the local Union itself has twice been sentenced to do community service
work. Access to the minimill has been generally unimpaired since the injunction
was issued (with the exception of a court imposed 90-second per vehicle waiting
time) and the Company has been allowed by the court to open additional gates to
its facility. The injunctive relief permitted the Company to significantly
reduce its out-of-pocket expenses for security and housing of temporary
replacement workers.
9
Unfair Labor Practice Charge. In connection with the strike, the Union filed
unfair labor practice charges against the Company with the New Orleans regional
office of the National Labor Relations Board (the "NLRB"), which included 22
specific allegations. In late January 1994, the Regional Director of the NLRB
informed the Company that it had sufficient grounds to issue a complaint against
the Company and order a trial with respect to eight of these allegations. In
order to avoid a lengthy and expensive trial on these issues, the Company agreed
to negotiate a settlement agreement with the NLRB. The settlement agreement does
not contain an admission by the Company that it engaged in any unfair labor
practices. The settlement agreement requires the Company to post a notice
stating that it will not engage in any of the actions specified in the eight
allegations. The other 14 allegations were to be dismissed. The Union has
appealed the dismissal. The approval of the settlement agreement will not become
effective until completion of the appeals process relating to the dismissal of
such allegations. However, even if the appeal were successful and a trial were
ordered, the Company does not believe that the ultimate outcome would have a
material affect on the Company's operations.
The settlement agreement does not cover two separate charges filed on January
14, 1994 and March 22, 1994, respectively. These outstanding charges include
allegations that the Company bargained in bad faith by failing to provide
certain employee safety and health documents and denying the Union access to the
minimill and by placing return-to-work conditions without bargaining. The Union
is seeking a finding that the Company negotiated in bad faith which, under the
National Labor Relations Act (the "NLRA"), could convert the strike from an
"economic" strike to an "unfair labor practice" strike. If the Company were
found to have engaged in an "unfair labor practice" strike, the Company would be
precluded from hiring permanent replacement workers. If the Company were to hire
permanent replacement workers or declare an impasse prior to the time of such
decision, the NLRB could reverse such actions. Furthermore, if the strike was
deemed an "unfair labor practice" strike and the Company refused to re-employ
striking workers who made an unconditional offer to return to work, the Company
could be subject to exposure for back-pay. The Company believes that it
possesses meritorious defenses to such unfair labor practice charges. An adverse
decision by the NLRB on the outstanding charges or a successful appeal by the
Union of the dismissed charges could delay and impair the Company's labor
initiatives because the Company would be unable to implement all or part of its
last proposed labor agreement until it returned to the bargaining process and
remedied the unfair labor practices, and until such time as either an agreement
with the Union was ratified or impasse in the bargaining process was reached.
The Company does not expect that an adverse decision by the NLRB on the
outstanding charges or a successful appeal by the Union of the dismissed charges
would have a material long-term effect on the Company. Since the strike began,
the Company has permitted any striking employee who wished to return to his job
upon the terms of the expired contract the opportunity to do so (and the
temporary replacement workers have been operating under the terms of the expired
contract). Since the Company has not replaced any of the striking workers with
permanent replacement employees and has not implemented any of its proposed
contract terms, a return of striking workers would have no material financial
effect on the Company's operations, although it could disrupt operations for a
time.
Unemployment Compensation. Striking employees filed claims for unemployment
compensation at the beginning of the strike. The State of Louisiana paid some
unemployment benefits to the striking employees. The Company appealed the
decision; the administrative judge disqualified the striking employees from
receiving benefits. On October 25, 1994, the Louisiana 5th Circuit Court of
Appeals affirmed the order of the 14th Judicial District Court which upheld the
administrative judge's decision that striking employees are not eligible for
unemployment benefits. The opinion stated: "In this case, the claimants refused
to accept an extension of the expiring contract. An extension would have allowed
them to continue working as they had the prior six year period, while
negotiations of a new contract continued. Rather, the claimants elected to
strike." The Union has appealed the decision to the Louisiana State Supreme
Court.
Status of Negotiations. Union and Company representatives have continued to
hold negotiating meetings since March 21, 1993 in attempts to reach a resolution
of the outstanding issues. The Company made a contract proposal to the Union on
March 11, 1994 which was overwhelmingly rejected by the Union even though the
Union leadership had previously indicated that it would support the proposal. No
negotiating meetings have been held since March 1994. The NLRA provides that a
company, in the absence of unfair labor practices in connection with the
negotiations, may implement all or individual parts of its last labor agreement
proposal in the event that the bargaining process reaches impasse. The
determination of impasse is strictly dependent on the facts of each individual
case. The Company has not made a determination that it is at an impasse and any
such determination would be subject to review by the NLRB. If the Company were
to implement its last proposed labor agreement and the NLRB were to subsequently
find that the Company had engaged in unfair labor practices, the Company would
be liable to
10
make the employees economically whole with respect to those labor agreement
provisions that adversely affected such workers since the Company could not have
been at impasse if it were found to have bargained in bad faith.
Based on the Union's June 14, 1994 letter proposal to the Company, the Company
and the Union currently remain apart on many issues with respect to the proposed
labor contract. The Union has led the Company to believe that the following
issues, among others, are significant in reaching agreement:
Health Benefits. The Company has proposed a point-of-service managed health
care plan which would require employees to contribute $12.00 per week to
the plan for family coverage. In addition, any future increases in the cost
of the plan would be shared equally by the Company and employees. The
Union's last proposal requires employees to contribute only $10.00 per week
and that employees bear responsibility for only $.69 per week in future
increases in the cost of the plan over a six year contract.
Incentive Plan. The Company has proposed an incentive plan and profit
sharing plan for its employees as the primary basis for increases in
compensation, the components of which would be subject to change at the
discretion of the Company. The Union is proposing that these plans be
subject to the grievance and arbitration procedure under the contract (and
therefore not subject to amendment at the Company's discretion).
Contract Services. The Company has proposed a provision granting the
Company the right to utilize contract labor and outside contractors,
although no employee directly affected would be terminated or suffer a loss
of pay rate as a result of using contract labor. The Union is seeking a
more restrictive provision limiting the Company's ability to utilize such
contractors.
Bargaining Unit Work. The Company has proposed reduced limitations on non-
bargaining unit employees, primarily supervisors, from performing
bargaining unit work. The Union's proposal maintains past restrictions
contained in the expired contract, in addition to more severe penalties in
the event of future violations.
Union Representatives. The Company and the Union disagree as to which party
should be responsible for the compensation of union representatives for the
performance of Union duties during Company hours.
Picket Line Misconduct. The Company maintains that it has a right to
subject picketers who have engaged in picket line misconduct (meeting the
criteria established by the NLRB as behavior not protected by the NLRA) to
disciplinary action, including termination of employment. The Union demands
that all striking employees, even those who have engaged in such
misconduct, be returned to their positions at the cessation of the strike.
Release From Liability. The Company maintains that it has a right to pursue
any legal remedies against the Union to recover damages. The Union demands
that both the Company and Union sign mutual releases of claims against the
other.
Corporate Campaign. 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. Although plant operations
continue, the potential impact of such a campaign, including the financial
impact, is difficult to assess at this time. Although the corporate campaign is
directed at many areas, the Company believes the following areas are significant
and are typical of union tactics in other corporate campaigns.
Environment. See "Business- Environment" for description of the Company's
environmental matters.
Safety and Health. See "Business - Safety and Health" for a description of
the Company's safety and health matters.
Refinancing. In March 1994, the Company sold $75 million of 10.25% First
Mortgage Notes due 2001 (the "10.25% Notes"). The Union interrupted a
meeting with potential investors and mailed information to potential
investors and regulatory groups. The Company believes this harassment
resulted in a more costly offering in terms of out of pocket expenses and
in a higher interest rate on the 10.25% Notes.
11
Governance. On October 19, 1994, the Union, which own 5 shares of the
Company's 12,884,607 outstanding shares, brought two legal actions against
the Company in Delaware state court seeking to enforce certain alleged
shareholder rights. The first lawsuit sought to compel the Company to turn
over to the Union the Company's list of stockholders, ostensibly for the
purpose of soliciting proxies regarding six advisory resolutions to be
proposed by the Union for voting at the next annual meeting. The second
lawsuit sought to compel the Company to fix a date for its annual meeting.
The Company believed that the Union was not entitled to the shareholder
list because it did not have a "proper purpose" under Delaware law.
Specifically the Company believes the Union's actions were for the sole
purpose of bringing pressure on the Company to accept the Union's
collective bargaining demands. During pre-trial discovery, the Union
dismissed its lawsuit seeking the shareholder list. On the eve of trial,
the Union also dismissed its action seeking to compel an annual meeting.
The Company has agreed to hold an annual meeting on January 26, 1995, in
New York City. It is anticipated that the Union will speak at the annual
meeting on its unfair labor practice charges pending before the National
Labor Relations Board, issues of corporate governance, and other matters
the Union has raised as part of its publicly-announced corporate campaign
to discredit the Company and management.
EMPLOYEES
As of September 30, 1992, the Company had 491 employees, of whom 153 were
salaried office, supervisory, and sales personnel, and 338 were hourly
employees. 20 salaried non-exempt employees and 329 hourly employees were
covered by a collective bargaining contract which expired on February 28, 1993
between the Company and the Union. There has been no agreement on a new
contract. The employees covered by this expired contract are on strike. In
addition, 9 hourly employees at the Pittsburgh stocking location are covered by
a collective bargaining contract which expired on July 31, 1994 between the
Company and the Union. The Company and the Union agreed to a new five year
contract covering these nine positions. The contract calls for wage increases
and the move to a managed health care program. As of September 30, 1994, the
Company had 428 non-striking employees, of whom 142 were salaried office,
supervisory, and sales personnel, and 286 were hourly employees. As of September
30, 1994, the Company had utilized 197 temporary replacement workers to perform
certain of the services of striking workers. Of the 337 bargaining unit
employees as of the date of the strike, 101 have returned to work of which 90
are still working, an additional 21 have resigned, and 215 remain on strike as
of November 21, 1994.
12
ITEM 2. PROPERTIES
The Company's principal operating properties are listed in the table below.
The Company believes that its properties and warehouse facilities are suitable
and adequate to meet its needs and that the size of its warehouse facilities is
sufficient to store the level of inventory necessary to support its level of
distribution.
LOCATION PROPERTY
-------- --------
LaPlace, Louisiana Approximately 287 acres of land, including a melt
shop, rolling mill, related equipment, a new
75,000 square foot warehouse, and dock facilities
situated on state-leased waterbottom in the
Mississippi River.
Chicago, Illinois Approximately 7 acres of land, a dock on the
Calumet River and buildings, including a recently
renovated 100,000 square foot warehouse.
Tulsa, Oklahoma 63,500 square foot warehouse facility with a dock
on the Arkansas River system. Located on land
under a long-term lease. The original term of the
lease is from April 1, 1989 through March 31,
1999; the Company has two 10-year renewal options
through March 31, 2019.
Pittsburgh, Pennsylvania 112,000 square foot leased warehouse facility with
a dock on the Ohio River. The original term of the
lease was from January 1, 1987 through June 30,
1992; the Company is in the first of three 5-year
renewal options through June 30, 2007.
Knoxville, Tennessee Approximately 25 acres of undeveloped land along
the Tennessee River, available for future use as a
stocking location.
ITEM 3. LEGAL PROCEEDINGS
See "Business--Strike and Impact Upon the Company" for a description of the
NLRB proceedings, "Business - Environmental Matters" for a description of
environmental issues and "Business - Safety and Health Matters" for a
description of safety and health issues. The Company is not involved in any
pending legal proceedings which involve claims for damages exceeding 10% of its
current assets. The Company is not a party to any material pending litigation
which, if decided adversely, would have a significant impact on the business,
income, assets or operation of the Company, and the Company is not aware of any
material threatened litigation which might involve the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year ended September 30, 1994.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Market Information and Stock Price
The principal market in which the Class A Common Stock of the Company is
traded is the American Stock Exchange (AMEX) under the symbol BYX. The
approximate number of stockholders of record on October 31, 1994 was 430. The
stock has been trading since July 27, 1988. The closing price per share on
November 30, 1994 was $3.3125. The following tables set forth the high and low
closing prices for the periods indicated.
FISCAL YEAR 1994 FISCAL YEAR 1993
SALES PRICE SALES PRICE
---------------- ----------------
HIGH LOW HIGH LOW
------ ----- ------ -----
October-December 4.688 3.125 3.688 2.125
January-March 4.938 3.813 5.375 3.375
April-June 4.438 3.625 6.000 3.875
July-September 5.000 3.375 3.563 2.938
There is no public trading market for the Class B Common Stock and the Class C
Common Stock.
Dividends
The Company is restricted from paying dividends on its capital stock under the
terms of its tax abatement agreement with the State of Louisiana, which expires
in September 1995. Further, the Company's ability to pay dividends is subject to
restrictive covenants under both the Indenture pursuant to which the Company's
10 1/4% First Mortgage Notes due 2001 (the "10 1/4% Notes") were issued and
the Company's line of credit. At such time as the Company is permitted to pay
dividends, the Board of Directors will determine whether such action would be
appropriate based on the Company's results of operations, financial condition,
capital requirements, and other circumstances.
14
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is summary financial information for the Company since 1988.
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT RATIO AND PER TON DATA)
AS OF AND FOR YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
------------ --------- --------- ----------- --------- --------- ----------
INCOME STATEMENT DATA:
Net Sales............................ $160,823 $136,008 $119,772 $131,271(1) $183,563 $208,962 $ 189,849
Cost of Sales........................ 144,314 128,033 109,116 124,436 170,998 187,132 152,148
-------- -------- -------- -------- -------- -------- ---------
Gross Profit......................... 16,509 7,975 10,656 6,835 12,565 21,830 37,701
Selling, General and Administrative.. 3,925 3,986 4,071 4,125 4,582 4,323 4,409
Non-Production Strike Expenses....... 996 3,162(2) -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Operating Income..................... 11,588 827 6,585 2,710 7,983 17,507 33,292
Interest Expense..................... (7,670) (8,261) (8,977) (8,821) (9,514) (11,131) (9,639)
Interest Income...................... 280 193 486 638 1,850 1,540 649
Miscellaneous........................ 162 502 554 902 1,380(3) 421 (734)
-------- -------- -------- -------- -------- -------- ---------
Income (Loss) Before Taxes........... 4,361 (6,739) (1,352) (4,571) 1,699 8,337 23,568
Provision (Benefit) for Income
Taxes............................... -- -- -- -- (116) 281 237
-------- -------- -------- -------- -------- -------- ---------
Income (Loss) Before Cumulative
Effect of Accounting Change
and Extraordinary Gain.............. 4,361 (6,739) (1,352) (4,571) 1,815 8,056 23,331
Cumulative Effect on Prior Years
of Accounting Change................ -- -- -- -- (1,572) -- --
Extraordinary Gain (Loss)............ (5,468)(5) 585 -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Net Income (Loss).................... $ (1,107) $ (6,154) $ (1,352) $ (4,571) $ 243 $ 8,056 $23,331(4)
======== ======== ======== ======== ======== ======== =========
BALANCE SHEET DATA:
Working Capital...................... $ 65,186 $ 32,389 $ 57,167 $ 57,532 $ 64,386 $ 77,266 $ 74,478
Total Assets......................... 156,068 138,280 149,381 148,669 162,411 165,518 162,098
Total Debt........................... 76,076 54,817 62,057 62,355 67,440 66,364 66,021
Stockholders' Equity................. $ 60,124 $ 61,231 $ 67,385 $ 68,737 $ 73,308 $ 73,064 $ 65,008
- - --------------
(1) In fiscal 1991 the Company decided to reduce its melting capacity by
discontinuing the operation of one of its two electric furnaces and ceasing
the practice of exporting large quantities of billets. In prior years,
billet sales contributed small margins; however, the margins on billets
sales virtually disappeared as a result of worldwide market conditions in
late 1990. The Company believes its decision to stop producing large
quantities of billets for export resulted in a decline in sales of
approximately $40 million.
(2) In fiscal 1993, Non-Production Strike Expenses includes $3.2 million in
expenses for security, lodging, damages, legal matters, and other services
related to the strike.
(3) In fiscal 1990, Miscellaneous includes income in connection with a favorable
settlement of a lawsuit for $1.3 million.
(4) In fiscal 1988, income applicable to common shares after accretion and
dividends accrued on preferred stock was $19.8 million.
(5) In fiscal 1994, the Company refinanced its long-term debt. The extraordinary
loss includes prepayment penalties, interest during the defeasance period,
and the write-off of the unamortized portion of deferred financing cost.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Bayou Steel Corporation reported net income of $4.4 million before an
extraordinary loss in fiscal 1994 compared to a net loss of $6.7 million before
an extraordinary gain in fiscal 1993. The $11.1 million improvement in the
Company's results was due to several factors. First, shape shipments increased
by 10.7%. Second, metal margin, the difference between shape selling price and
raw material ("scrap") cost, increased by 6.2%. Third, conversion cost, the cost
to convert raw material into shapes decreased by 9.4%. And fourth, out-of-pocket
strike expenses decreased by $2.2 million.
The Company reported a net loss of $6.7 million before an extraordinary gain
in fiscal 1993 compared to a net loss of $1.4 million in fiscal 1992. The 1993
loss was primarily caused by the strike and by sharp increases in scrap costs.
The strike adversely affected the Company in four ways. First, the Company
incurred significant out-of-pocket expenses for security, legal, and other
services related to the strike. Second, a reduction in production during the
initial phases of the strike resulted in higher fixed costs per ton produced
during that period. Third, the impact of training new employees affected
productivity and led to higher consumption of materials for several months. And
fourth, reduced production during the early weeks of the strike resulted in lost
sales due to reduced inventory levels. The increases in scrap costs during the
year was only partially offset by increases in selling prices, resulting in
reduced metal margins.
The extraordinary loss of $5.5 million in fiscal 1994 was caused by the
prepayment of the 14.75% Senior Secured Notes (the "14.75% Notes"). The loss
includes prepayment penalties, interest during the defeasance period, and the
write-off of the unamortized portion of deferred financing cost. This debt was
replaced with $75 million of 10.25% First Mortgage Notes Due 2001 (the "10.25%
Notes"). This refinancing transaction not only improved cash flow by changing
the timing on principal payments but also provided the Company with cash to
undertake a $9.2 million capital improvements program directed toward cost
reduction. The extraordinary gain of $0.6 million in fiscal 1993 was the result
of purchasing some of the outstanding 14.75% Notes at a discount.
The following table sets forth the shipment and sales data for the fiscal
years indicated.
YEARS ENDED SEPTEMBER 30,
--------------------------------
1994 1993 1992
-------- -------- --------
Shape Shipment Tons................... 446,572 403,274 372,943
Average Shape Selling Price Per Ton... $ 337 $ 300 $ 296
Billet Shipment Tons.................. 35,503 59,604 31,962
Average Billet Selling Price Per Ton.. $ 224 $ 209 $ 204
Net Sales (in thousands) $160,823 $136,008 $119,772
SALES
Net sales increased by $25 million or 18.2% in fiscal 1994 compared to fiscal
1993 due to an increase in shape shipments and selling prices. The increase was
partially offset by fewer tons of billets shipped in fiscal 1994. Net sales
increased by $16 million or 13.6% in fiscal 1993 compared to fiscal 1992 due to
an increase in shipments and selling prices for both billets and shapes.
Shapes. In 1994, the 43,298 ton or 10.7% increase in shape shipments was
attributable to an improvement in the economy and the Company's improved product
mix and availability. In 1993, shipments were adversely affected by the lack of
availability and mix of product resulting from a reduced production schedule
caused by the strike. Export shape shipments in fiscal 1994 were 8.2% of shape
shipments as compared to 11.1% of shape shipments for fiscal 1993. The $37 per
ton or 12.3% increase in shape prices in 1994 compared to 1993 was in response
to continued escalation in scrap prices and strong domestic demand. The shape
price increases, toward the end of the fiscal 1994, surpassed the scrap price
increases resulting in improved margins compared to fiscal 1993. Because of the
strong domestic demand, the Company was able to further improve the net selling
price by reducing competitive allowances. The Company anticipates modest growth
in the economy in fiscal 1995 which should result in increased
16
sales due to increased demand. The Company hopes to continue to optimize its
product mix to remain competitive and maintain market share.
In 1993, the 30,331 ton or 8.1% improvement in domestic shape shipments was
mainly due to an improving economy and the Company's efforts to recapture market
share which had been lost in prior years due to the presence of excessive
surface rust on the Company's products. The improvement would have been greater
if the Company had not lost some sales due to the temporary disruption in
shipments out of LaPlace and the stocking locations and the curtailed
production due to the strike. Export shape shipments in fiscal 1993 were 11.1%
of shape shipments as compared to 9.7% for the previous year. Even though there
were extreme pressures on prices in the form of rebates and discounting, which
the Company matched to stay competitive, the average selling price for the
Company's shape products rose approximately $4 per ton in fiscal 1993. The
increases in prices were primarily in response to sharp increases in raw
material costs; however, the price increases only partially offset the raw
material increases.
Billets. In fiscal 1994, billet shipments decreased mainly due to fewer
billets available for shipment. More billets were required by the rolling mill
due to higher shape production levels which resulted in less billets available
to sell. The selling price for billets increased in fiscal 1994 due to increased
raw material costs. In fiscal 1995, the Company will continue to ship billets on
a supply contract or on an occasional and selective basis to domestic and export
customers when inventory levels and market demand make it beneficial.
In fiscal 1993, the Company increased billet shipments by 86% as compared to
fiscal 1992. The average selling price of billets also improved over the same
period due to an increase in domestic shipments, which carry a higher selling
price than export shipments, and increasing raw material prices, which were
passed on to billet customers.
COST OF SALES
Cost of sales was 89.7% of sales in fiscal 1994 compared to 94.1% in fiscal
1993 and 91.1% in fiscal 1992. The decrease in cost of sales in fiscal 1994 was
due to shape selling prices increasing more than the scrap price increases.
Also, contributing to the improvement in cost of sales was increases in
productivity and reductions in conversion costs (the cost of converting raw
materials into shapes). The significant increase in fiscal 1993 compared to
fiscal 1992 was due to both higher scrap costs, which were not completely offset
by selling prices, and higher conversion costs, which were caused by the
curtailment of operations during the initial phases of the strike and higher
purchase prices for electricity, natural gas and electrodes. Cost of sales has
been favorably impacted in fiscal 1994, 1993, and 1992 by approximately $1
million due to a contract with the State of Louisiana to abate state franchise
and sales taxes. This agreement expires at the end of the second fiscal quarter
of 1995.
The major component of cost of sales is scrap. The volatility of the scrap
markets was evident during fiscal 1994 and 1993. Scrap costs increased an
average of 14.6% in fiscal 1993 compared to fiscal 1992. In 1993, scrap cost per
ton increased $10 more than the increase in the shape selling prices, reducing
margins. For 1993, the average metal margin was 4.0% below the average metal
margin in 1992. In 1994, the scrap costs increased an average of 24% compared to
1993. In 1994, selling prices increased $11 per ton more than the increases in
the scrap prices, increasing margins. The average metal margin was 6.2% higher
in 1994 compared to 1993. Scrap costs may increase in fiscal 1995, as scrap
market prices began a rising trend in late fiscal 1994.
Another significant portion of cost of sales is conversion cost, which
includes labor, energy, maintenance material, and supplies used to convert raw
materials into billets and billets into shapes. Conversion cost per ton, which
include fixed and variable costs, increased 3.0% in fiscal 1993 compared to
fiscal 1992, but decreased by 9.4% in fiscal 1994 compared to fiscal 1993. Cost
of sales in 1994 reflected the termination of the refund program with the power
company which favorably impacted cost of sales by $0.6 million in both fiscal
1993 and 1992.
The 3.0% increase in per ton conversion cost in 1993 was due to the strike and
increased energy costs. The inability to operate at full capacity during the
initial phases of the strike resulted in reduced production and a higher level
of fixed cost per ton than comparable periods. Conversion cost per ton also
increased due to overtime wages paid to workers as a result of reduced staffing
and training new employees during this period of the strike. Compared to fiscal
1992, the price of the fuel adjustment component of power increased 28% and the
price of natural gas and electrodes increased 32% and 9%, respectively, further
increasing conversion costs. Increased consumption of certain
17
supplies and materials, particularly as new employees were trained to replace
striking employees, also contributed to higher per ton conversion cost. The
Company has been operating at full capacity since July 1993.
The 9.4% decrease in conversion costs in fiscal 1994 was due to improvements
in production and productivity compared to fiscal 1993. The current work force
has been trained and gaining experience; consequently, production tons,
productivity and cost have improved. Production and productivity have exceeded
pre-strike levels which reduced fixed cost per ton. The melt shop and the
rolling mill have set several production records in fiscal 1994. The records
were achieved despite training replacement workers which currently represent 67%
of the workers. Also, variable cost per ton decreased due to more efficient
consumption of supplies. Man-hours per ton have been reduced by .57 or 21% since
1992. Labor cost per ton has been reduced by $13 since 1992. The Company's goal
is to further reduce labor cost per ton through increased shipments, increased
productivity, and reduction in overtime.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were relatively stable for fiscal
1993 and 1992. However, selling, general and administrative expenses decreased
in fiscal 1994 due to reductions in collection expenses and labor costs.
NON-PRODUCTION STRIKE EXPENSES
In fiscal 1993, the Company incurred $3.2 million ($2.5 million of which was
incurred during the first three months of the strike) of non-production strike
expenses, such as legal, security, and other services during the strike. In
fiscal 1994, the Company's strike-related expenses averaged approximately
$83,000 per month. Future strike-related costs should not exceed $100,000 per
month. See "Business-Strike and Impact Upon the Company."
INTEREST EXPENSE & MISCELLANEOUS
Interest expense decreased in fiscal 1993 compared to fiscal 1992 due to the
Company purchasing $11.1 million of its 14.75% Notes in fiscal 1993. Interest
expense decreased in fiscal 1994 compared to 1993 primarily due to the purchase
of $6.5 million of the 14.75% Notes in late 1993. During the first half of
fiscal 1994, the Company accrued interest on $48.9 million of the 14.75% Notes,
and as of March 1994, the Company accrued interest on $75 million of the 10.25%
Notes; in addition, the Company borrowed an average of $2.4 million under its
revolving line of credit at a weighted average interest rate of 5.2%. In fiscal
1993, the Company accrued interest on $55.4 million of its 14.75% Notes on a
weighted outstanding basis. In fiscal 1992, the Company accrued interest on $60
million of its 14.75% Notes. The Company expects interest expense to be
approximately the same in fiscal 1995 as in fiscal 1994.
Interest income decreased in fiscal 1993 compared to fiscal 1992 due to both
less attractive investment options and having less cash to invest following its
purchase of some of the 14.75% Notes on the open market. Interest income
increased in fiscal 1994 compared to fiscal 1993 due to investing excess cash
from the sale of the $75 million 10.25% Notes. Also, interest rates improved in
fiscal 1994.
Miscellaneous income and expenses have been relatively the same for fiscal
1992, 1993 and decreased in fiscal 1994. The 1994 decrease was due to a lower
allowance for doubtful accounts as compared to 1992 and 1993.
NET INCOME/LOSS BEFORE EXTRAORDINARY ITEMS
The Company's results before extraordinary items improved by $11.1 million in
fiscal 1994 compared to fiscal 1993. The primary reasons for the improvement are
increased shipments and margins, lower conversion cost per ton, and lower
strike-related costs. The unfavorable results in fiscal 1993 compared to fiscal
1992 are due to the strike, lower metal margin and higher prices for energy.
18
LIQUIDITY AND CAPITAL RESOURCES
The Company ended fiscal 1994 in a sound liquidity position with $8.9 million
of cash and with current assets exceeding current liabilities by a ratio of 4.2
to 1.0. Working capital increased by $32.8 million to $65.2 million in fiscal
1994. The increase in working capital was due to the increases in cash from the
sale of the 10.25% Notes, the replenishment of inventory, reductions in accounts
payable, the repayment of the short-term debt under the Company's credit
facility and the repayment of the 14.75% Notes which avoided the need for a
required $9.0 million principal payment.
Net cash used in operations was $1.9 million due to the replenishment of the
inventory depleted during the strike and reductions in accounts payable. The
Company expects finished goods inventory to remain essentially the same for
fiscal year 1995. Significant changes in the scrap prices without a
corresponding change in the selling price could have a substantial effect on the
Company's results and liquidity.
Capital expenditures amounted to $2.8 million in fiscal 1994. The Company has
committed to implement a $9.2 million capital modernization program directed
towards cost reduction. These projects include the processing of unprepared
scrap metal into material used by the electric furnace and the reduction of
processing costs in both the melt shop and the rolling mill. As of the end of
fiscal 1994, the Company spent approximately $1.0 million of the $9.2 million
commitment.
Cash from financing activities of $13.0 million was due to the cash generated
from the 10.25% Notes issued net of retirement of the 14.75% Notes, the
repayment of borrowings under the line of credit, and all refinancing costs.
In fiscal 1994, the Company entered into an amendment and restatement of its
credit facility, which is a three-year line of credit that permits loans to be
made to the Company, on a secured basis, of up to $30 million. There have been
no borrowings under the credit facility since March 1994. Interest rates under
the credit facility are prime plus 1% or LIBOR plus 2% at the Company's option.
The Company's credit facility contains certain covenants, such as an Interest
Expense Coverage Ratio, which become increasingly more restrictive over time.
The Interest Expense Coverage Ratio covenant was 1.25 to 1.00 for the quarter
ending September 30, 1994 and increases to 1.80 to 1.00 for the four quarters
ending September 30, 1995. The Company's Interest Expense Coverage Ratio for the
quarter ended September 30, 1994 was 3.08 to 1.00. In the event of a default
under the credit facility, the Company would seek a waiver of the covenant or
otherwise renegotiate the terms under the credit facility. The Company does not
anticipate any difficulty in obtaining another secured line of credit upon the
expiration of the current revolving line of credit in November of 1996.
All of the $75 million 10.25% Notes are classified as long-term debt. There
are no principal payments due on the 10.25% Notes until maturity in 2001. The
Company believes that current cash balances, internally generated funds, the
credit facility and additional purchase money mortgages are adequate to meet the
foreseeable short-term and long-term liquidity needs. The Company currently
intends to refinance the 10.25% on or before the maturity date in 2001. The
Indenture contains a covenant which restricts the Company's ability to incur
additional indebtedness. Under the Indenture, the Company may not incur
additional indebtedness unless its Interest Expense Coverage Ratio for the
trailing 12 months, would be greater than 2.00 to 1.00 after giving effect to
such incurrence. As of September 30, 1994, the Interest Expense Coverage Ratio
was 2.28 to 1.00. If additional funds are required to accomplish long-term
expansion of its production facility or significant acquisitions, the Company
believes funding can be obtained from a secondary equity offering or additional
indebtedness.
There are no financial obligations with respect to post-employment or post-
retirement benefits.
OTHER COMMENTS
ENVIRONMENTAL MATTERS
See "Business--Environmental Matters" for a description of the Company's
environmental matters.
19
SAFETY AND HEALTH MATTERS
See "Business--Safety and Health Matters" for a description of the Company's
safety and health matters.
STRIKE
See "Business--Strike and Impact Upon the Company" for a description of the
strike.
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.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BAYOU STEEL CORPORATION
BALANCE SHEETS
ASSETS
SEPTEMBER 30,
---------------------------
1994 1993
------------- ------------
CURRENT ASSETS:
Cash and temporary cash investments................... $ 8,903,413 $ 517,900
Receivables, net of allowance for doubtful accounts
of $617,497 in 1994 and $543,000 in 1993............. 19,156,407 18,676,907
Inventories........................................... 57,145,550 48,486,409
Prepaid expenses...................................... 188,452 222,277
------------ ------------
Total current assets............................... 85,393,822 67,903,493
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land.................................................. 2,750,398 2,750,398
Machinery and equipment............................... 78,317,920 76,257,285
Plant and office building............................. 14,708,733 14,036,845
------------ ------------
95,777,051 93,044,528
Less--Accumulated depreciation........................ 28,504,307 23,785,624
------------ ------------
Net property, plant and equipment.................. 67,272,744 69,258,904
------------ ------------
OTHER ASSETS............................................ 3,401,103 1,117,788
------------ ------------
Total assets....................................... $156,067,669 $138,280,185
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................. $ 340,232 $ 9,282,156
Borrowings under line of credit....................... -- 4,000,000
Accounts payable...................................... 16,540,005 17,671,926
Accrued liabilities................................... 3,327,480 4,560,249
------------ ------------
Total current liabilities.......................... 20,207,717 35,514,331
------------ ------------
LONG-TERM DEBT.......................................... 75,735,924 41,534,625
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--
Class A: 24,271,127 authorized and
10,613,380 outstanding shares............... 106,134 106,134
Class B: 4,302,347 authorized and
2,271,127 outstanding shares................ 22,711 22,711
Class C: 100 authorized and outstanding shares....... 1 1
------------ ------------
Total common stock................................. 128,846 128,846
Paid-in capital....................................... 44,890,554 44,890,554
Retained earnings..................................... 15,104,628 16,211,829
------------ ------------
Total stockholders' equity......................... 60,124,028 61,231,229
------------ ------------
Total liabilities and stockholders' equity......... $156,067,669 $138,280,185
============ ============
The accompanying notes are an integral part of these balance sheeets.
21
BAYOU STEEL CORPORATION
STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
NET SALES................................... $160,822,995 $136,008,039 $119,771,725
COST OF SALES............................... 144,313,879 128,032,556 109,115,193
------------ ------------ ------------
GROSS PROFIT................................ 16,509,116 7,975,483 10,656,532
------------ ------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE......... 3,924,986 3,985,564 4,071,154
NON-PRODUCTION STRIKE EXPENSES.............. 996,091 3,162,325 --
------------ ------------ ------------
11,588,039 827,594 6,585,378
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense.......................... (7,669,665) (8,260,775) (8,976,619)
Interest income........................... 280,224 192,821 485,557
Miscellaneous............................. 162,417 501,084 554,015
------------ ------------ ------------
(7,227,024) (7,566,870) (7,937,047)
------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES &
EXTRAORDINARY ITEMS........................ 4,361,015 (6,739,276) (1,351,669)
PROVISION FOR INCOME TAXES.................. -- -- --
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS.... 4,361,015 (6,739,276) (1,351,669)
EXTRAORDINARY ITEMS......................... (5,468,216) 585,541 --
------------ ------------ ------------
NET INCOME (LOSS)........................... $ (1,107,201) $ (6,153,735) $ (1,351,669)
------------ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary items.. $ .34 $ (.52) $ (.10)
Extraordinary items....................... (.42) .04 --
------------ ------------ ------------
Income (loss) per common share............ $ (.08) $ (.48) $ (.10)
============ ============ ============
The accompanying notes are an integral part of these balance sheeets.
22
BAYOU STEEL CORPORATION
STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss)................................... $ (1,107,201) $ (6,153,735 ) $(1,351,669)
Extraordinary items............................. 5,468,216 (585,541) --
Loss on retirement of equipment................. 25,373 -- --
Depreciation and amortization................... 5,274,771 4,616,286 4,308,936
Provision for losses on accounts receivable..... 186,560 (174,994) (233,025)
Changes in working capital:
(Increase) decrease in receivables............. (666,060) (6,162,337) 2,219,855
(Increase) decrease in inventories............. (8,659,142) 5,265,545 (3,740,480)
Decrease in prepaid expenses................... 33,825 34,781 92,839
(Decrease) increase in accounts payable........ (1,131,922) 2,834,369 1,517,447
(Decrease) increase in accrued liabilities..... (1,232,769) (541,319) 845,253
------------ ------------ -----------
Net cash (used in) provided by operations.... (1,808,349) (866,945) 3,659,156
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition of property, plant and equipment....... (2,761,075) (3,184,364) (3,234,659)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit.. (4,000,000) 4,000,000 --
Payments of long-term debt and retirement cost.. (54,255,783) (10,836,789) (625,887)
Proceeds from issuance of long-term debt........ 75,000,000 256,296 327,214
(Increase) in other assets...................... (3,789,280) -- --
------------ ------------ -----------
Net cash used in financing activities........ 12,954,937 (6,580,493) (298,673)
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 8,385,513 (10,631,802) 125,824
CASH AND CASH EQUIVALENTS, beginning balance...... 517,900 11,149,702 11,023,878
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, ending balance......... $ 8,903,413 $ 517,900 $11,149,702
============ ============ ============
The accompanying notes are an integral part of these balance sheeets.
23
BAYOU STEEL CORPORATION
STATEMENTS OF CHANGES IN EQUITY
COMMON STOCK TOTAL
------------------------------- PAID-IN RETAINED STOCKHOLDERS'
CLASS A CLASS B CLASS C CAPITAL EARNINGS EQUITY
--------- ------- -------- ------------- ------------ ------------
BEGINNING BALANCE,
October 1, 1991..... $106,134 $22,711 $ 1 $44,890,554 $23,717,233 $68,736,633
Net loss........... -- -- -- -- (1,351,669) (1,351,669)
-------- ------- ------ ----------- ----------- -----------
ENDING BALANCE,
September 30, 1992.. 106,134 22,711 1 44,890,554 22,365,564 67,384,964
Net loss........... -- -- -- -- (6,153,735) (6,153,735)
-------- ------- ------ ----------- ----------- -----------
ENDING BALANCE,
September 30, 1993.. 106,134 22,711 1 44,890,554 16,211,829 61,231,229
Net loss........... -- -- -- -- (1,107,201) (1,107,201)
-------- ------- ------ ----------- ----------- -----------
ENDING BALANCE,
September 30, 1994.. $106,134 $22,711 $ 1 $44,890,554 $15,104,628 $60,124,028
======== ======= ====== =========== =========== ===========
The accompanying notes are an integral part of these balance sheeets.
24
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 AND 1993
1. OWNERSHIP:
Bayou Steel Corporation (of LaPlace) was incorporated in Louisiana in 1979. On
September 5, 1986, Bayou Steel Acquisition Corporation (BSAC) acquired
substantially all of the capital stock of Bayou Steel Corporation (of LaPlace)
from the former stockholders (the Acquisition) for $75,343,000. Simultaneously
with the Acquisition, BSAC merged into Bayou Steel Corporation (of LaPlace) (the
Company) with the Company being the surviving corporation. The Company
reincorporated as a Delaware corporation on July 19, 1988 and changed its name
from Bayou Steel Corporation (of LaPlace) to Bayou Steel Corporation on August
3, 1988.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
Inventories are carried at the lower of cost (last-in, first-out) or market
except mill rolls which are stated at cost (specific identification) and
operating supplies and other which are stated at average cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired as part of the acquisition in 1986 was
recorded based on the purchase price. Betterments and improvements on property,
plant and equipment are capitalized at cost. Interest during construction of
significant additions is capitalized. Repairs and maintenance are expensed as
incurred. Depreciation is provided on the units-of-production method for
machinery and equipment and on the straight-line method for buildings over an
estimated useful life of 30 years.
STATEMENT OF CASH FLOWS
The Company considers investments purchased with an original maturity of
generally three months or less to be cash equivalents.
Cash payments for interest and Federal income taxes during the three years
ended September 30, were as follows:
1994 1993 1992
---------- ---------- ----------
Interest...... $7,947,182 $8,444,066 $9,083,712
Income taxes.. -- -- --
INCOME TAXES
The Company adopted the provisions of Financial Accounting Standards Board
Statement No. 109 "Accounting for Income Taxes" ("FAS 109") effective October 1,
1993. As permitted under FAS 109, the Company has elected not to restate the
financial statements of prior years. There was no impact on income for the
fiscal year ended September 30, 1994 or any prior years.
25
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
CREDIT RISK
The Company extends credit to its customers primarily on 30 day terms and
encourages discounting. The Company believes that the credit risk is minimal due
to the ongoing review of its customers' financial conditions, the Company's
sizeable customer base and the geographical dispersion of the customer base. On
some occasions, particularly large export shipments, the Company requires
letters of credit. Historically, credit losses have not been significant. Also,
the Company invests its excess cash in high-quality short-term financial
instruments.
OPERATING LEASE COMMITMENTS
The Company has no significant operating lease commitments that would be
considered material to the financial statement presentation.
3. INVENTORIES:
Inventories, as of September 30, 1994 and 1993 consisted of the following:
1994 1993
------------ ------------
Scrap steel................................ $ 3,811,616 $ 3,187,963
Billets.................................... 1,854,211 3,918,223
Finished product........................... 35,651,158 25,242,294
LIFO adjustments........................... (931,213) (324,303)
----------- -----------
40,385,772 32,024,177
Mill rolls, operating supplies, and other.. 16,759,777 16,462,232
----------- -----------
$57,145,549 $48,486,409
=========== ===========
There was an increment in the last-in, first-out ("LIFO") inventories in
fiscal 1994. In fiscal 1993, decrements in the LIFO inventories had the effect
of decreasing net loss by $124,000 or $0.01 per share. At September 30, 1994 and
1993, the first-in, first-out ("FIFO") inventories were $41.3 million and $32.3
million, respectively. A lower of cost or market evaluation of the carrying
value of inventory was done at the end of each fiscal year. For all years
presented, market value was in excess of the carrying value of the LIFO and FIFO
inventories.
4. PROPERTY, PLANT AND EQUIPMENT:
Capital expenditures totaled $2.7 million in fiscal 1994 and $3.2 million in
fiscal 1993 and 1992. As of September 30, 1994, the estimated costs to complete
authorized projects under construction or contract amounted to $8.2 million.
The Company capitalized interest of $69,000, $115,000, and $107,000 during the
years ended September 30, 1994, 1993, and 1992, respectively, related to
qualifying assets under construction.
Depreciation expense during the years ended September 30, 1994, 1993, and 1992
was allocated as follows:
1994 1993 1992
---------- ----------- ----------
Inventory............................ $ 297,409 $ -- $ 87,193
Cost of sales........................ 4,419,930 4,156,851 3,884,913
Selling, general and administrative.. 4,523 4,398 4,347
---------- ---------- ----------
$4,721,862 $4,161,249 $3,976,453
========== ========== ==========
26
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
5. OTHER ASSETS:
Other assets consist of financing costs associated with the issuance of long-
term debt and the Company's revolving line of credit (see Notes 6 and 7) which
are being amortized over the lives of the related debt. During fiscal 1994, the
Company wrote off $953,000 of other assets related to the 14.75% Senior Secured
Notes and the previously existing revolving line of credit. The Company also
capitalized $3,783,000 of deferred financing costs related to the 10.25% First
Mortgage Notes and the amended and restated revolving line of credit during
fiscal 1994. Amortization expense was approximately $553,000, $458,000 and
$332,000 for the years ended September 30, 1994, 1993, and 1992, respectively.
6. LONG-TERM DEBT:
Long-term debt of the Company as of September 30, 1994 and 1993 included the
following:
1994 1993
----------- -----------
Senior Secured Notes (see below)................................. $ -- $48,900,000
First Mortgage Notes (see below)................................. 75,000,000 --
Other notes payable, due monthly, bearing interest from 8.5% to
10.25% secured by Company assets................................ 1,076,156 1,916,781
----------- -----------
76,076,156 50,816,781
Less--current maturities......................................... 340,232 9,282,156
----------- -----------
$75,735,924 $41,534,625
=========== ===========
The 10.25% First Mortgage Notes (the "10.25% Notes") are secured by a first
priority security interest granted by the Company, subject to certain
exceptions, in substantially all unencumbered existing and future real and
personal property, fixtures, machinery and equipment (including certain
operating equipment classified as inventory) and the proceeds thereof, whether
existing or hereafter acquired. A purchase money facility relating to the Tulsa
stocking location is secured by the stocking location facility.
The 10.25% Notes bear interest at the nominal rate of 10.25% per annum payable
semi-annually on each March 1 and September 1, commencing September 1, 1994.
The 10.25% Notes will be redeemable, in whole or in part, at any time on and
after March 1, 1998, initially at 103.33% of the principal amount, plus accrued
interest to the date of redemption, and declining ratably to par on March 1,
2000. There are no principal payments due on the 10.25% Notes until maturity in
2001. The market value of the 10.25% Notes on September 30, 1994 was $69.8
million.
On March 3, 1994, the Company redeemed $39.9 million of the 14.75% Senior
Secured Notes at a price of 110 in connection with the issuance of the 10.25%
Notes. Call premiums of $3.9 million, write-offs of unamortized finance costs of
$1.0 million, and interest of $0.6 million related to this redemption are
included in the extraordinary loss recorded in the Statement of Operations as of
September 30, 1994. There was no tax effect related to this transaction.
As of September 30, 1994 and 1993, the Company accrued interest at a rate of
10.25% and 14.75%, respectively.
During fiscal 1993, the Company purchased $11.1 million of the 14.75% Senior
Secured Notes at a net discount. The result of these purchases at a net
discount, reduced by the write-off of the related unamortized deferred finance
cost, has been reflected in the Statement of Operations as of September 30, 1993
as an extraordinary gain. There was no tax effect related to this transaction.
27
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
7. SHORT-TERM BORROWING ARRANGEMENT:
On November 23, 1993, the Company entered into an amendment and restatement of
its revolving line of credit agreement which will be used for general corporate
purposes. The terms of the amended and restated agreement call for available
borrowings up to $30 million including outstanding letters of credit. Based on
these criteria, the amount available as of September 30, 1994 was $26.3 million.
The agreement is secured by inventory and accounts receivable at interest rates
of prime plus 1% or LIBOR plus 2%. The terms of the loan agreement impose
certain restrictions on the Company, the most significant of which require the
Company to maintain a minimum interest coverage ratio, limit the incurrence of
certain indebtedness and restrict various payments. There were no borrowings
under the line of credit as of September 30, 1994 and the only borrowing for
fiscal 1993 of $4,000,000 occurred on September 15, 1993 and remained
outstanding at a rate of 3.75% through September 30, 1993. The maximum amount
outstanding during fiscal 1994 was $7,900,000. The average borrowings were
$2,402,000 at a weighted average interest rate of 5.2% as of September 30, 1994.
8. INCOME TAXES:
The Company is subject to United States Federal income taxes. The primary
difference between book and tax reporting of income relates to the allocation of
the carrying cost of property, plant and equipment to operations due to (a)
different depreciation methods used for tax and financial reporting purposes,
(b) a writedown of the carrying value of property, plant and equipment to
estimated net realizable value recorded for financial reporting purposes in
prior years, and (c) the sale of tax benefits discussed below.
In 1981, the Company entered into lease agreements with an unrelated
corporation whereby certain tax benefits were transferred to the unrelated
corporation as allowed under the provisions of the Economic Recovery Tax Act of
1981. These agreements, the last of which will expire in late 1996, include
various covenants not to dispose of the property covered by the agreement and
indemnification of the unrelated corporation by the former majority stockholder
against any losses which might result from a breach of the Company's warranties
and covenants, including those related to the Federal income tax implications of
the transaction. In 1986, the Company agreed to require any purchaser of the
property subject to such Mortgage to take the property subject to such
agreements and to ensure that any disposition of the property upon a foreclosure
of the Mortgage would not constitute a "disqualifying event" within the meaning
of the regulations promulgated under Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982. The result of this and other related agreements may
be to limit the marketability of the property upon a foreclosure of the
Mortgage. The Company will recognize interest income of $4.1 million and rent
expense of $26.1 million for tax reporting purposes in fiscal years 1995 through
1997 based upon the foregoing agreements.
As of September 30, 1994, for tax purposes, the Company had net operating loss
carryforwards ("NOLs") of approximately $319.0 million and $292.9 million
available to offset against regular tax and alternative minimum tax,
respectively. Due to the fact that book and tax losses were generated in 1994,
1993 and 1992, there was no provision for income taxes in any of these years.
The NOLs will expire in varying amounts through fiscal 2009. A substantial
portion of the available NOLs, approximately $203 million, expires by fiscal
2000. In addition, the Company has $22.0 million of future tax benefits
attributable to its tax benefit lease which expires in 1996 and which may, to
the extent of taxable income in the year such tax benefit is produced, be
utilized prior to the NOLs. Even though management believes the Company will be
profitable in the future and will be able to utilize a portion of the NOLs,
management does not believe that it is likely that all of the NOLs will be
utilized. The Company adopted the provisions of Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" ("FAS 109"), effective
October 1, 1993. FAS 109 required recognition of future tax benefits, subject to
a valuation allowance based on the likelihood of realizing such benefits.
Deferred tax assets of approximately $122 million (NOLs, future tax benefits
attributable to its tax benefit lease, and other temporary timing differences
multiplied by the federal income tax rate) and deferred tax liabilities of
approximately $8 million (basis differences between tax and book plant,
property, and equipment multiplied by the
28
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
federal income tax rate) were recorded in fiscal 1994. However, in recording
these deferred assets, FAS 109 required the Company to determine whether it is
"more-likely-than-not" that the Company will realize such benefits and that all
negative and positive evidence be considered (with more weight given to evidence
that is "objective and verifiable") in making the determination. FAS 109
indicated that "forming a conclusion that a valuation allowance is not needed is
difficult when there is negative evidence such as cumulative losses in recent
years"; therefore, the Company determined that it was required by the provisions
of FAS 109 to establish a valuation allowance of $114 million for all of the
recorded net deferred tax assets. In view of the fact that this determination
was based primarily on historical losses with no regard for the impact of
proposed capital expenditures and business plans, future favorable adjustments
to the valuation allowance may be required if and when circumstances change.
Adoption of FAS 109 had no impact on income for financial reporting or tax
purposes for fiscal 1994 or prior years.
The Company and an individual controlling the current majority stockholder
agreed to indemnify the former majority stockholder for any payments required to
be made to the unrelated corporation caused by the Company's failure to comply
with the foregoing agreements. The former stockholder retains ownership of the
Company's Class C Common Stock which carries certain limited voting rights
including the holders' right to prevent certain transactions (liquidation and
certain mergers) which could result in liability to the former majority
stockholder under its indemnification to the unrelated corporation. The
Company's Class B Common Stock carries these same voting rights.
9. COMMITMENTS AND CONTINGENCIES:
STRIKE
On March 21, 1993, the United Steelworkers of America Local 9121 (the "Union")
initiated a strike against the Company. Negotiations on a new contract have
continued, but differences have thus far precluded an agreement. The Company
cannot predict the impact that a new collective bargaining contract will have on
the Company's results. However, the Company believes a new contract will not
have a negative material effect on the Company's results. Also, the Union has
filed charges with the National Labor Relations Board alleging that the Company
has violated the National Labor Relations Act relating to its bargaining
conduct. The Company believes it has meritorious defenses to these charges and
has responded timely to all of these allegations and believes that it has
negotiated in good faith with the Union. An unfavorable decision by the National
Labor Relations Board, however, should not materially affect the Company. In
addition, the Union has initiated an inspection of the Company's facilities and
records by the Environmental Protection Agency (the "EPA"), which was completed
in June, 1994, and the Occupational & Safety Health Administration (the "OSHA"),
which was completed in November, 1994. The results of these inspections have not
been received. It is possible that the Company may be subject to fines as a
result of the EPA or OSHA inspections. Due to its wide discretion in assessing
proposed civil penalties, OSHA may initially propose fines which are material in
nature but which may be reduced through negotiation in informal proceedings with
OSHA or after independent administrative or judicial review. The Company has
accrued a loss contingency for its estimate of the ultimate liability arising
from these inspections as of September 30, 1994. This estimate is based on the
Company's observations of the items identified by EPA and OSHA, expert's
experience in handling OSHA citations, the ability to negotiate reductions in
proposed fines in informal proceedings with OSHA, and access to independent
administrative or judicial review, if any. As a result, the Company does not
expect any such fines to have a material adverse financial affect on 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 all of the
29
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
applicable standards promulgated pursuant to such laws and regulations. At this
time, the Company believes that it is in compliance in all material respects
with applicable environmental requirements and that the cost of such continuing
compliance will not have a material adverse effect on the Company's competitive
position, operations or financial condition, or cause a material increase in
currently anticipated capital expenditures. The Company currently has no
mandated expenditures to address previously contaminated sites and does not
anticipate any infrequent or non-recurring clean-up expenditures. Also, the
Company is not designated as a Potential Responsible Party ("PRP") under the
Superfund legislation. At September 30, 1994, the Company has accrued a loss
contingency for environmental matters.
OTHER
The Company does not provide any post-employment or post-retirement benefits
to its employees other than those described in Note 11.
There are various claims and legal proceedings arising in the ordinary course
of business pending against or involving the Company wherein monetary damages
are sought. It is management's opinion that the Company's liability, if any,
under such claims or proceedings would not materially affect its financial
position.
10. STOCK OPTION PLAN
The Board of Directors and the Stockholders approved the 1991 Employees Stock
Option Plan (the "1991 Plan") for the purpose of attracting and retaining key
employees.
On September 21, 1994, the Board of Directors granted 115,000 incentive stock
options to purchase Class A Common Stock, exercisable at the market price on
that date of $4.375, to key employees. The options are exercisable in five equal
annual installments commencing on September 21, 1995. As of September 30, 1994,
no options were exercised or exercisable and 485,000 shares were available for
grant under the 1991 Plan. The Company recorded no compensation expense related
to the 1991 Plan during fiscal 1994.
A summary of activity relating to stock options is as follows:
# OF
STOCK OPTIONS
-------------
Outstanding, September 30, 1993.. 0
Granted.......................... 115,000
Exercised........................ 0
Canceled......................... 0
-------
Outstanding, September 30, 1994.. 115,000
=======
11. EMPLOYEE RETIREMENT PLANS:
Effective October 1, 1991, the Company implemented two defined benefit
retirement plans (the "Plan(s)"), one for employees covered by the contracts
with the United Steelworkers of America ("hourly employees") and one for
substantially all other employees ("salaried employees"). The Plan for the
hourly employees provides benefits of stated amounts for a specified period of
service. The Plan for the salaried employees provides benefits based on
employees' years of service and average compensation for a specified period of
time before retirement. The Company follows the funding requirements under the
Employee Retirement Income Security Act of 1974 ("ERISA"). The net
30
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
pension cost for both non-contributory Company sponsored pension plans consists
of the following components for fiscal year 1994 and 1993:
The actuarial present value of future benefit obligations:
1994 1993
----------- ----------
Vested benefit obligation..................... $ 727,904 $ 490,977
Non-vested benefit obligation................. 30,030 17,960
---------- ---------
Accumulated benefit obligation................ $ 757,934 $ 508,937
========== =========
Projected benefit obligation.................. $1,137,044 $ 776,582
Plan assets at fair value..................... (839,506) (473,305)
---------- ---------
Funded Status................................. 297,538 303,277
Unrecognized net loss......................... (170,986) (118,300)
Adjustment for additional liability........... -- 23,319
---------- ---------
Accrued pension liability $ 126,552 $ 208,296
========== =========
Determination of net periodic pension cost:
Service cost.................................. $ 307,382 $ 336,676
Interest cost................................. 57,533 27,216
Expected return on plan assets................ (57,045) (14,203)
Net amortization.............................. 2,546 2,838
Deficiency in accumulated benefit obligation.. -- 23,319
---------- ---------
Total net periodic pension cost $ 310,416 $ 375,846
========== =========
The primary actuarial assumptions used in determining the above benefit
obligation amounts were established on the September 30, 1994 and 1993
measurement dates and include a discount rate of 7.5% per annum on valuing
liabilities; long-term expected rate of return on assets of 9% per annum; salary
increases of 5% per annum for salaried employees; and an inflation rate of 5%
per annum.
In addition, the Company recognized expenses of $50,000 in each of fiscal
1994, 1993, and 1992 in connection with a defined contribution plan to which
non-bargaining employees contribute and the Company makes matching contributions
based on employees contribution.
12. MAJOR CUSTOMERS:
No single customer accounts for 10% or more of the total sales for the years
ended September 30, 1994, 1993, and 1992.
13. RELATED PARTY TRANSACTIONS:
SERVICE AGREEMENT WITH RELATED PARTIES
The Company and related parties controlled by a stockholder entered into a
Service Agreement dated September 5, 1986 (the Service Agreement), pursuant to
which the related parties provide certain assistance and services (research and
development, industrial and labor relations, engineering, legal, etc.) to the
Company for a fee. Costs charged for these services were approximately $64,000
for the year ended September 30, 1994, $87,000 for the year ended September 30,
1993, and $107,000 for the year ended September 30, 1992. The Service Agreement
was terminated as of September 30, 1994.
31
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
OTHER AGREEMENTS WITH STOCKHOLDERS
The Company entered into an agreement on May 28, 1987 with a stockholder to
provide certain investment banking services to the Company on a competitive,
first refusal basis until September 4, 1996. Although services were provided, no
obligations were incurred in fiscal years 1994 and 1993.
14. COMMON STOCK:
Income per common share is based on the average number of common shares
outstanding of 12,884,607 for the years ended September 30, 1994, 1993, and
1992, respectively. There was no impact on income per share as a result of the
stock options granted in September, 1994 (see Note 10).
Other than for voting rights, all classes of Common Stock have similar rights.
With respect to voting rights, Class B Common Stock has 60% and Class A and
Class C Common Stock have 40% of the votes except for special voting rights for
Class B and Class C Common Stock on liquidation and certain mergers (see Note
8). The Company's ability to pay dividends is subject to restrictive covenants
under both the Indenture pursuant to which the Company's 10.25% Notes were
issued and the Company's line of credit (see Notes 6 and 7).
15. MISCELLANEOUS:
Miscellaneous income/(expense) as of September 30, 1994, 1993, and 1992
included the following:
1994 1993 1992
---------- -------- --------
Discount earned.................. $ 228,453 $149,648 $211,200
Allowance for doubtful accounts.. (186,560) 174,994 233,025
Other income..................... 120,524 176,442 109,790
--------- -------- --------
$ 162,417 $501,084 $554,015
========= ======== ========
16. QUARTERLY FINANCIAL DATA (UNAUDITED):
FISCAL YEAR 1994 QUARTERS
--------------------------------------
FIRST SECOND THIRD FOURTH
---------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Sales.................................................. $36,778 $37,433 $44,877 $41,735
Gross Profit............................................... 2,220 3,575 5,166 5,548
Net Income (Loss) Before Extraordinary Items............... (973) 513 2,316 2,505
Extraordinary Items........................................ -- (5,468) -- --
Net Income (Loss).......................................... (973) (4,955) 2,316 2,505
Income (Loss) Per Common Share Before Extraordinary Items.. (.08) .04 .18 .19
Extraordinary Items Per Common Share....................... -- (.42) -- --
Income (Loss) Per Common Share (.08) (.38) .18 .19
32
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)
FISCAL YEAR 1993 QUARTERS
-------------------------------------
FIRST SECOND THIRD FOURTH
------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Sales.................................................. $31,833 $33,408 $34,485 $36,282
Gross Profit............................................... 3,634 2,040* 745 1,556
Net Income (Loss) Before Extraordinary Items............... 347 (1,697) (4,078) (1,311)
Extraordinary Items........................................ 756 -- -- (170)
Net Income (Loss).......................................... 1,102 (1,697) (4,078) (1,481)
Income (Loss) Per Common Share Before Extraordinary Items.. .03 (.13) (.32) (.10)
Extraordinary Items Per Common Share....................... .06 -- -- (.01)
Income (Loss) Per Common Share............................. .09 (.13) (.32) (.11)
* Amount has been restated to conform with the 3rd and 4th quarter's 10-Q
presentation of strike-related expenses.
33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation:
We have audited the accompanying balance sheets of Bayou Steel Corporation (a
Delaware corporation) as of September 30, 1994 and 1993, and the related
statements of operations, cash flows, and changes in equity for the years ended
September 30, 1994, 1993, and 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bayou Steel Corporation as of
September 30, 1994 and 1993 and the results of its operations and its cash flows
for the years ended September 30, 1994, 1993, and 1992 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
November 18, 1994
34
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding Directors and Executive Officers is incorporated by
reference to the "Directors" section of the Company's Proxy Statement for the
1995 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference to
the "Executive Compensation" section of the Company's Proxy Statement for the
1995 Annual Meeting of Shareholders.
ITEM 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The beneficial ownership of the Company's Common Stock as of October 31, 1994,
by persons, other than directors and officers, known to the Company to be
beneficial owners of more than 5% of the outstanding Common Stock is
incorporated by reference to the "Voting Securities and Security Ownership"
section of the Company's Proxy Statement for the 1995 Annual Meeting of
Shareholders.
Security Ownership of Management and Directors
The beneficial ownership of the Company's Common Stock of all Directors and
Officers is incorporated by reference to the "Board of Directors" section of the
Company's Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information regarding certain relationships and related
transactions is incorporated by reference to the "Agreement Concerning Change in
Control" and "Service Agreement" and "Agreements with Allen & Company
Incorporated" and "Agreements with MMG Patricof & Co." sections of the Company's
Proxy Statement for the 1995 Annual Meeting of Shareholders and to the "Notes to
Financial Statements" section of the 1994 Annual Report.
35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE
----
(A) (I) FINANCIAL STATEMENTS
Consolidated Financial Statements:
Balance Sheets at September 30, 1994 and 1993................................................. 21
Statements of Operations for each of the three years ended September 30, 1994................. 22
Statements of Cash Flows for each of the three years ended September 30, 1994................. 23
Statements of Changes in Stockholders' Equity for the three years ended September 30, 1994.... 24
Notes to Financial Statements................................................................. 25
Report of Independent Public Accountants....................................................... 34
(II) FINANCIAL STATEMENT SCHEDULES
Schedule V--Property, Plant and Equipment for the three years ended September 30, 1994......... 40
Schedule VI--Accumulated Depreciation for the three years ended September 30, 1994............. 40
Schedule VIII--Valuation and Qualifying Accounts for the three years ended September 30, 1994.. 41
Schedule X--Supplementary Income Statement Information for the three years ended
September 30, 1994............................................................................ 41
Auditor's Opinion Relating to Schedules....................................................... 42
Schedules not listed above are omitted because of the absence of conditions
under which they are required or because the required information is included
in the financial statements submitted.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were required to be filed by the Registrant during the
year ended September 30, 1994.
36
LIST OF EXHIBITS
NUMBER EXHIBIT
- - ------ -------
3.1 Second Restated Certificate of Incorporation of the Company (incorporated
by reference herein to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (No. 33-10745)).
3.2 By-laws of the Company (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-10745)).
4.1 Specimen Certificate for Class A Common Stock (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-10745)).
4.1A Form of Indenture (including form of First Mortgage Note) between the
Company and First National Bank of Commerce as trustee (the "Trustee")
(incorporated herein by reference to Amendment No. 4 to Registration
Statement on Form S-1 (No 33-72-486)).
4.2 Form of Mortgage granted by the Company and Subsidiary Guarantors to the
Trustee (Louisiana) (incorporated herein by reference to Amendment No. 1
to Registration Statement on Form S-1 (No. 33-72486)).
4.3 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from the Company to the Trustee (Non-Louisiana) (incorporated herein by
reference to Amendment No. 1 to Registration Statement on Form S-1 (No.
33-72486)).
4.4 Form of Mortgage, Assignment of Rents and Leases and Security Agreement
from Subsidiary Guarantors to the Trustee (Non-Louisiana) (incorporated
herein by reference to Amendment No. 1 to this Registration Statement on
Form S-1 (No. 33-72486)).
4.5 Form of Security Agreement between the Company and the Trustee
(incorporated herein by reference to Amendment No. 1 to Registration
Statement on Form S-1 (No 33-72486)).
4.6 Form of Subsidiary Security Agreement between Subsidiary Guarantors and
the Trustee (incorporated herein by reference to Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-72486)).
4.7 Form of Intercreditor Agreement between the Trustee and Chemical Bank, as
agent under the Credit Agreement (incorporated herein by reference to
Amendment No. 1 to Registration Statement on Form S-1 (No. 33-72486)).
4.8 Form of Subsidiary Guarantee between each recourse subsidiary of the
Company and the Trustee (incorporated herein by reference to Amendment No.
1 to Registration Statement on Form S-1 (No 33-72486)).
4.9 Form of Release of Federal Income Tax Ownership and Agreement between the
Trustee and the Company, Voest-Alpine A.G. and Howard M. Meyers
(incorporated by reference to Amendment No. 1 to Registration Statement on
Form S-1 (No. 33-72486)).
4.21 Stock Purchase Agreement dated August 28, 1986, between BSAC and the
purchasers of the Company's Class A Common Stock and Preferred Stock
(incorporated herein by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-10745)).
4.22 Stock Purchase Agreement dated August 28, 1986, between BSAC and RSR, the
sole purchaser of the Company's Class B Common Stock (incorporate herein
by reference to Registration Statement on Form S-1 (No. 33-22603)).
4.23 Stock Purchase Agreement dated August 28, 1986, between BSAC and Allen &
Company, Incorporated (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-22603)).
4.24 Agreement between the Company and the holders of Preferred Stock dated as
of July 26, 1988 (incorporated herein by reference to Post-Effective
Amendment No. 1 to Registration Statement on Form S-1 (No. 33-10745)).
10.1 Employment Letter dated July 26, 1988, between Howard M. Meyers and the
Company (incorporated herein by reference to Post-Effective Amendment No.
1 to Registration Statement on Form S-1 (No. 33-10745)).
10.2 (i) Agreement dated November 11, 1981, between Amoco Tax Leasing I
Corporation ("Amoco") and the Company, (ii) letter dated December 7, 1981
from Voest-Alpine A.G. ("VA") and Voest-Alpine International Corporation
("VAIC") to Amoco, and (iii) letter dated November 11, 1981 from VAIC,
Honen Investissements SARL, Barzel Investissements SARL, Anku Foundation,
Raphaely Steel Investments, N.V., Landotal Properties, Inc., Canota
Investments, Ltd., S.A. and Beruga Establishment and VA to Amoco
(incorporated herein by reference to Registration Statement on Form S-1
(No. 33-10745)).
37
NUMBER EXHIBIT
- - ------ -------
10.4 Service Agreement dated September 5, 1986, between the Company and RSR
Corporation and the assignment by RSR Corporation of a portion of its
interest in the Service Agreement to RSR Holding Corp., now known as
Quexco Incorporated (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-10745)).
10.5 Letter Agreement dated May 28, 1987 between the Company and Allen &
Company Incorporated relating to investment banking services
(incorporated herein by reference to Registration Statement on Form S-1
(No. 33-10745)).
10.6 Agreement dated June 20, 1991 among the Company, MMG Patricof & Co.,
Inc., and MMG Placement Corp. relating to investment banking services
(incorporated herein by reference to Post-Effective Amendment No. 4 to
Registration Statement on Form S-1 (No. 33-10745)).
10.8 Warehouse (Stocking Location) Leases.
(i) Leetsdale, Pennsylvania (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
(ii) Catoosa, Oklahoma (incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1989).
10.9 Tax Abatement Agreement dated July 10, 1985 between the Company and the
Louisiana Board of Commerce and Industry (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-22603)).
10.10 Tax Abatement Renewal Agreement dated August 22, 1990 between the
Company and the State of Louisiana Board of Commerce and Industry
(incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1989).
10.11 Credit Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named therein,
and Chemical Bank, as agent (the "Credit Agreement") (incorporated herein
by reference to Registration Statement on Form S-1 (No. 33-72486)).
10.12 Security Agreement dated as of June 28, 1989, as amended and restated
through November 23, 1993, among the Company, the Lenders named in the
Credit Agreement, and Chemical Bank, as agent (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-72486)).
10.13 Intercreditor Agreement dated as of November 23, 1993 between First
National Bank of Commerce and Chemical Bank as agent under the Credit
Agreement (incorporated herein by reference to Registration Statement on
Form S-1 (No. 33-72486)).
10.15 First Amendment dated as of November 22, 1993 to the Loan Agreement
dated as of January 9, 1991 between the Company and Hibernia National
Bank (incorporated herein by reference to Registration Statement on Form
S-1 (No. 72486)).
10.17 First Amendment dated as of November 22, 1993 to Mortgage, Security
Agreement and Financing Statement dated as of January 9, 1991 by the
Company in favor of Hibernia National Bank (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-72486)).
10.18 Intercreditor Agreement dated as of November 23, 1993 between Chemical
Bank and Hibernia National Bank (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-72486)).
10.19 Security Agreement dated as of November 22, 1993 between the Company and
Hibernia National Bank (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-72486)).
10.21 Incentive Compensation Plan for Key Employees dated March 3, 1988
(incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1991).
10.22 1991 Employees' Stock Option Plan dated April 18, 1991 with technical
amendments (incorporated herein by reference to Post-Effective Amendment
No. 4 to Registration Statement on Form S-1 (No. 33-10745)).
10.23 Pension Plan for Bargained Employees and the Employees Retirement Plan
(incorporated herein by reference to Post-Effective Amendment No. 5 to
the Company's Registration Statement on Form S-1 (No. 33-10745)).
10.24 Amendment among the Company, Bayou Scrap Corporation River Road Realty
Corporation, the Lenders named in the Credit Agreement and Chemical Bank,
as agent (incorporated herein by reference to Amendment No. 4 to
Registration Statement on Form S-1 (No. 33-72486)).
38
NUMBER EXHIBIT
- - ------ -------
18.1 Letter from Arthur Andersen & Co. regarding change in accounting method
from first-in, first-out (FIFO) to last-in, first-out (LIFO) method of
accounting for inventories (incorporated herein by reference to the Annual
Report on Form 10-K for the year ended September 30, 1989).
18.2 Letter from Arthur Andersen & Co. regarding change in method of
accounting for interest from the effective interest method to another
acceptable method (incorporated herein by reference to the Annual Report
on Form 10-K for the year ended September 30, 1990).
27.0 Financial Data Schedule filed herewith.
39
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
BALANCE AT
BEGINNING OF ADDITIONS RECLASSIFICATIONS BALANCE AT
CLASSIFICATION PERIOD AT COST AND RETIREMENTS END OF PERIOD
-------------- ----------- ------------ ----------------- -------------
Year Ended September 30, 1994
Land......................... $ 2,750,398 $ -- $ -- $ 2,750,398
Machinery and Equipment...... 72,954,681 2,877,702 (28,552) 75,803,831
Plant and Office Building.... 14,036,845 671,887 -- 14,708,732
Construction-in-Progress..... 3,302,604 2,684,033 (3,472,547) 2,514,090
----------- ---------- ----------- -----------
TOTAL..................... $93,044,528 $6,233,622 $(3,501,099) $95,777,051
=========== ========== =========== ===========
Year Ended September 30, 1993
Land......................... $ 2,411,182 $ 339,216 $ -- $ 2,750,398
Machinery and Equipment...... 71,119,778 1,834,903 -- 72,954,681
Plant and Office Building.... 12,394,461 1,642,384 -- 14,036,845
Construction-in-Progress..... 3,934,743 2,761,076 (3,393,215) 3,302,604
----------- ---------- ----------- -----------
TOTAL..................... $89,860,164 $6,577,579 $(3,393,215) $93,044,528
=========== ========== =========== ===========
Year Ended September 30, 1992
Land......................... $ 2,411,182 $ -- $ -- $ 2,411,182
Machinery and Equipment...... 69,031,413 2,119,651 (31,286) 71,119,778
Plant and Office Building.... 8,614,736 3,779,725 -- 12,394,461
Construction-in-Progress..... 6,590,768 3,243,351 (5,899,376) 3,934,743
----------- ---------- ------------ -----------
TOTAL $86,648,099 $9,142,727 $(5,930,662) $89,860,164
=========== ========== ============ ===========
SCHEDULE VI--ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
BALANCE AT
BEGINNING OF ADDITIONS RECLASSIFICATIONS BALANCE AT
CLASSIFICATION PERIOD AT COST AND RETIREMENTS END OF PERIOD
-------------- ----------- ------------ ----------------- -------------
Year Ended September 30, 1994
Machinery and Equipment...... $22,243,132 $4,247,501 $ (3,179) $26,487,454
Plant and Office Building.... 1,542,492 474,361 -- 2,016,853
----------- ---------- -------- -----------
TOTAL..................... $23,785,624 $4,721,862 $ (3,179) $28,504,307
=========== ========== ======== ===========
Year Ended September 30, 1993
Machinery and Equipment...... $18,759,410 $3,917,892 -- $22,677,302
Plant and Office Building.... 864,965 243,357 -- 1,108,322
----------- ---------- -------- -----------
TOTAL..................... $19,624,375 $4,161,249 -- $23,785,624
=========== ========== ========= ===========
Year Ended September 30, 1992
Machinery and Equipment...... $15,037,292 $3,744,712 $(22,594) $18,759,410
Plant and Office Building.... 633,224 231,741 -- 864,965
----------- ---------- -------- -----------
TOTAL..................... $15,670,516 $3,976,453 $(22,594) $19,624,375
=========== ========== ======== ===========
40
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO AT END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS(1) PERIOD
----------- ----------- ----------- ------------- --------
September 30, 1994
Allowance for doubtful accounts.. $ 542,725 $ 186,560 $111,788 $617,497
---------- --------- -------- --------
September 30, 1993
Allowance for doubtful accounts.. $ 943,267 $(174,994) $225,548 $542,725
---------- --------- -------- --------
September 30,1992
Allowance for doubtful accounts.. $1,213,720 $ (36,096) $234,357 $943,267
---------- --------- -------- --------
- - ----------
(1) Write-off of uncollectible accounts.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
DESCRIPTION 1994 1993 1992
----------- ----------- ---------- ----------
Maintenance and Repairs................ $11,446,215 $9,001,320 $8,827,799
Depreciation
Inventory............................ 297,409 $ -- $ 87,193
Cost of Sales........................ 4,419,930 4,156,851 3,884,913
Selling, General and Administrative.. 4,523 4,398 4,347
Amortization--
Loan Acquisition Costs(1)............ $ 552,909 $ 457,770 $ 332,483
- - --------
(1) Represents amortization of costs associated with the issuance of the Senior
Secured Notes entered into on September 5, 1986 and the line of credit
entered into on June 28, 1989.
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in Bayou Steel Corporation's annual report to
stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated November 18, 1994. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedules listed in the index above are presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. The schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
November 18, 1994
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Bayou Steel Corporation
By /s/ Howard M. Meyers
--------------------------
Howard M. Meyers
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Howard M. Meyers Chairman of the Board, Chief
- - ----------------------------- Executive Officer and Director December 6, 1994
Howard M. Meyers
/s/ Jerry M. Pitts President, Chief Operating
- - ----------------------------- Officer and Director December 6, 1994
Jerry M. Pitts
/s/ Richard J. Gonzalez Vice President, Treasurer, Chief
- - ----------------------------- Financial Officer and Secretary December 6, 1994
Richard J. Gonzalez
/s/ John A. Canning, Jr. Director December 6, 1994
- - -----------------------------
John A. Canning, Jr.
/s/ Lawrence E. Golub Director December 6, 1994
- - -----------------------------
Lawrence E. Golub
/s/ Melvyn N. Klein Director December 6, 1994
- - -----------------------------
Melvyn N. Klein
/s/ Albert P. Lospinoso Director December 6, 1994
- - -----------------------------
Albert P. Lospinoso
/s/ Stanley S. Shuman Director December 6, 1994
- - -----------------------------
Stanley S. Shuman
43