10-Q 1 c60289e10-q.txt FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 LACLEDE STEEL COMPANY ---------------------------------------------- For the Quarter Ended DECEMBER 31, 2000 Commission File Number 0-3855 --------------------- ------------- DELAWARE 43-0368310 ---------------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 440 NORTH 4TH STREET SUITE 300 ST. LOUIS, MISSOURI 63102 ---------------------------------------------- -------------------------- (Address of principal executive office) (Zip Code) (314) 425-1400 ------------------------------- (Registrant's Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No -------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: At December 31, 2000, the number of shares deemed issued of the registrant's common stock was 3,495,000 shares of Class A, par value $.01 and one share of Class B, par value $.01. 2 PART I -- FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS LACLEDE STEEL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Data)
Pre-Confirmation Three Months Ended December 31, ---------------------------------- 2000 1999 --------------- --------------- Net sales $ 51,008 $ 59,409 --------------- --------------- Costs and expenses: Cost of products sold 49,903 56,553 Selling, general and administrative expenses 2,733 2,930 Depreciation 1,392 1,505 Interest expense (contractual interest -- $2,130 in 2000 and $2,113 in 1999.) 1,583 1,569 Other credits (2,427) (373) --------------- --------------- Total costs and expenses 53,184 62,184 --------------- --------------- Restructuring and reorganization costs 13,670 1,466 --------------- --------------- Loss before income taxes, extraordinary item and fresh start adjustments (15,846) (4,241) Credit for income taxes (7,603) (25) --------------- --------------- Loss before extraordinary item and fresh start adjustments (8,243) (4,216) Extraordinary item -- debt forgiveness 73,819 -- Fresh start adjustments 7,537 -- --------------- --------------- Net earnings (loss) $ 73,113 $ (4,216) =============== =============== Net earnings (loss) per share * $ 18.03 $ (1.04) =============== ===============
* Based on shares outstanding prior to reorganization of 4,056,140. See notes to the unaudited Consolidated Financial Statements -2- 3 LACLEDE STEEL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (In Thousands)
As Reorganized Pre-Confirmation Dec. 31, Sep. 30, 2000 2000 --------------- --------------- Current Assets: Cash and cash equivalents $ 195 $ 205 Accounts receivable, less allowances 29,927 28,739 Prepaid expenses 1,511 4,559 Inventories: Finished 31,260 35,385 Semi-finished 6,738 9,407 Raw materials 2,876 3,931 Supplies 1,088 11,150 --------------- --------------- Total inventories 41,962 59,873 --------------- --------------- Total Current Assets 73,595 93,376 --------------- --------------- Non-Current Assets 1,175 6,539 --------------- --------------- Reorganization Value in Excess of Identifiable Assets 22,327 -- --------------- --------------- Plant and Equipment 38,290 221,233 Less - accumulated depreciation -- 139,051 --------------- --------------- Net Plant and Equipment 38,290 82,182 --------------- --------------- Total Assets $ 135,387 $ 182,097 =============== ===============
See notes to the unaudited Consolidated Financial Statements -3- 4 LIABILITIES AND STOCKHOLDERS' DEFICIT
As Reorganized Pre-Confirmation Dec. 31 Sep. 30, 2000 2000 -------------- --------------- Current Liabilities: Accounts payable $ 13,638 $ 14,149 Accrued compensation 3,311 4,310 Current portion of long term debt 1,675 56,354 Other 3,737 4,059 -------------- -------------- Total Current Liabilities 22,361 78,872 -------------- -------------- Non-Current Liabilities Accrued postretirement medical benefits 51,663 -- Accrued costs of pension plans 2,309 -- Other 756 7,771 -------------- -------------- Total Non-Current Liabilities 54,728 7,771 -------------- -------------- Long Term Debt 45,798 -- -------------- -------------- Liabilities Subject to Compromise Accounts payable -- prepetition -- 50,220 Accrued postretirement medical benefits -- 68,113 Accrued costs of pension plans -- 37,496 Long term debt -- 25,990 Other -- 2,894 -------------- -------------- Total Liabilities Subject to Compromise -- 184,713 -------------- -------------- Stockholders' Equity (Deficit): Preferred stock, no par value, authorized 2,000,000 shares; issued and outstanding 416,667 shares -- 83 Common stock, $0.01 par value, authorized 25,000,000 shares; issued and outstanding prior to reorganization -- 41 4,056,140 shares Common stock, $0.01 par value, authorized 8,000,000 shares; 3,495,000 shares deemed 35 -- outstanding Capital in excess of par value 12,465 59,420 Accumulated deficit -- (132,657) Minimum pension liability adjustment -- (16,146) -------------- -------------- Total Stockholders' Equity (Deficit) 12,500 (89,259) -------------- -------------- Total Liabilities and Stockholders' Equity (Deficit) $ 135,387 $ 182,097 ============== ==============
See notes to the unaudited Consolidated Financial Statements -4- 5 LACLEDE STEEL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Pre-Confirmation Three Months Ended December 31, -------------------------------- 2000 1999 -------------- -------------- Cash flows from operating activities: Net income (loss) $ 73,113 $ (4,216) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 1,392 1,505 Income taxes (7,603) -- Gain on sale of facility (2,427) (373) Restructuring and reorganization costs 13,670 1,466 Extraordinary gain - debt forgiveness (73,819) -- Fresh start adjustments (7,537) -- Changes in assets and liabilities that provided (used) cash: Accounts receivable (4,756) 4,745 Inventories 3,710 (2,525) Accounts payable and accrued expenses (3,695) 2,214 Accrued pension cost 1,682 1,919 Accrued postretirement medical benefits (355) (367) Other assets and liabilities 3,712 1,334 -------------- -------------- Net cash provided by (used in) operating activities before reorganization Items (2,913) 5,702 Operating Cash Flow from Reorganization Items -- Bankruptcy related items (1,366) (377) -------------- -------------- Net cash provided by (used in) operating activities (4,279) 5,325 -------------- -------------- Cash flows used in investing activities: Capital expenditures (2,462) (1,196) Net proceeds from sale of assets 23,325 621 -------------- -------------- Net cash provided by (used in) investing activities 20,863 (575) -------------- -------------- Cash flows from financing activities: Net repayments under prior bank facility (56,407) (4,750) Cash proceeds from new credit facility 39,841 -- Increase in notes payable 385 -- Payment of financing costs (413) -- -------------- -------------- Net cash used in financing activities (16,594) (4,750) -------------- -------------- Cash and cash equivalents: Net increase (decrease) during the period (10) -- At beginning of year 205 205 -------------- -------------- At end of period $ 195 $ 205 ============== ==============
See notes to the unaudited Consolidated Financial Statements. -5- 6 LACLEDE STEEL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (In Thousands)
CAPITAL IN MINIMUM PREFERRED COMMON EXCESS OF ACCUMULATED PENSION STOCK STOCK PAR VALUE DEFICIT LIABILITY TOTAL --------- --------- --------- ----------- --------- --------- October 1, 2000 $ 83 $ 41 $ 59,420 $ (132,657) $ (16,146) $ (89,259) Net Loss Before Extraordinary Item and Fresh Start Adjustments -- -- -- (8,243) -- (8,243) Debt Forgiveness -- 35 12,465 73,819 16,146 102,465 Fresh Start Adjustments (83) (41) (59,420) 67,081 -- 7,537 --------- --------- --------- ----------- --------- --------- December 31, 2000 $ -- $ 35 $ 12,465 $ -- $ -- $ 12,500 ========= ========= ========= =========== ========= =========
See notes to the unaudited Consolidated Financial Statements. -6- 7 LACLEDE STEEL COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 -------------------------------------------------------------------------------- NOTE 1: RESTRUCTURING AND REORGANIZATION On November 30, 1998, Laclede Steel Company and Subsidiaries filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code and operated its business as a debtor-in-possession under the supervision of the Bankruptcy Court from November 30, 1998 to December 29, 2000. On December 15, 2000, the Bankruptcy Court entered an order confirming the Company's Plan of Reorganization (Plan). The Company emerged from Chapter 11 on December 29, 2000 (for financial reporting purposes, the effective date is December 31, 2000). Under the terms of the Plan all of the Company's previously outstanding preferred and common stock has been cancelled. The Company's hourly and salaried pension plans have been terminated, and the obligations have been assumed by the Pension Benefit Guaranty Corporation (PBGC). New replacement plans have been established effective January 1, 2001. The PBGC will receive new common stock, making it the Company's largest stockholder. Other unsecured creditors will also receive new common stock. Company employees will be issued common stock in accordance with the terms of a new Labor Agreement, negotiated with the United Steelworkers of America (USWA). Such common stock, totaling 625,000 shares, will be issued to an Employee Stock Ownership Plan in three annual increments of 208,333 shares commencing December 31, 2001. USWA employees will also be granted options to purchase 600,000 shares as of December 31, 2001. The Plan also allows for issuance of approximately 250,000 shares to certain management employees. Liabilities Subject to Compromise: The principal categories of claims classified as liabilities subject to compromise under reorganization proceedings as of December 31, 2000 are identified below (Millions of Dollars):
Pre-Confirmation Post Confirmation* ---------------- ------------------ Accounts payable and accrued expenses $ 52.5 $ -- Accrued costs of pension plans 39.2 2.3 Long-term debt 25.4 6.7 Accrued post-retirement medical benefits 67.8 51.7 ----------- ---------- $ 184.9 $ 60.7 =========== ==========
*Reclassified in Post Confirmation Balance Sheet Accounts payable and accrued expenses were settled through the issuance of common stock in the reorganized Company. The prior hourly and salaried pension plans have been terminated and assumed by the PBGC, which receives new common stock and a note payable valued at $3.5 million (See Note 5). The remaining pension liability primarily relates to obligations assumed by the Company under the replacement hourly and salaried pension plans, and the obligations of the Laclede Chain Manufacturing Co. pension plan, which was not terminated. -7- 8 Long-term debt obligations totaling $15.3 million consisted of Solid Waste Disposal Revenue Bonds, settled through the issuance of a $3.2 million note payable, and new common stock in the Company (See Note 5). Pollution Control and Industrial Revenue Bonds totaling $8.7 million were settled through the issuance of common stock. Accrued post-retirement medical benefits relate to plans for hourly and salaried employees which continue under the Plan. The reduction in liability reflects actuarial calculations of the effect of medical plan modifications (prior service credits) implemented as part of the reorganization process which are recorded in connection with fresh start accounting. (See Note 3) As part of the Chapter 11 reorganization process, the Company attempted to notify all known or potential creditors for the purpose of identifying all prepetition claims against the Company. Generally, creditors whose claims arose prior to the Petition Date had until June 1, 1999 to file claims, or be barred from asserting claims in the future. The Company recorded restructuring and reorganization costs in accordance with SOP 90-7 prior to emergence from Chapter 11. In August 2000 the Company's hourly work force at the Alton and Vandalia Plants ratified a modification to the Labor Agreement previously negotiated with the USWA, which included the shutdown of the Alton Pipe and Skelp Mills and permitted the Company to consolidate its pipe-making operations at its Fairless Hills plant. This consolidation of operations, affecting approximately 100 hourly employees at the Alton Plant, was completed in December 2000. The agreement of the USWA to the permanent shutdown of the Alton Pipe and Skelp Mills was contingent upon the Company successfully implementing its Plan and exiting bankruptcy. Therefore, an impairment charge of $11.4 million was recorded as restructuring and reorganization costs as of December 31, 2000. This charge principally consists of the write-off of related machinery and equipment. Restructuring and reorganization costs also include legal and professional expenses related to the bankruptcy of $2.3 million in the quarter ended December 31, 2000 and $1.5 million in the quarter ended December 31, 1999. NOTE 2: OTHER CREDITS On December 18, 2000, the Company consummated the sale of the assets of Laclede Mid-America, Inc. for $23.3 million plus the assumption of certain ordinary course of business liabilities. An additional $300 thousand is held back for three months, and $300 thousand for one year, pending final purchase price adjustments. The Company recognized a gain of $2.4 million on the sale. In connection with the sale, a portion of liabilities subject to compromise of $3.8 million were settled by the payment of approximately $600 thousand. The remainder is included in the extraordinary item recognized for debt forgiveness (See Note 3). In the quarter ended December 31, 1999 the Company recorded a gain on the sale of its Madison, Illinois facility of $373 thousand. NOTE 3: FRESH START ACCOUNTING AND REPORTING Pursuant to SOP 90-7, the Company adopted Fresh Start Accounting which results in the creation of a new reporting entity. Also, the Company's assets and liabilities are recorded at estimated fair market value as of the Plan effective date. -8- 9 As a result of the implementation of Fresh Start Accounting, the financial statements of the Reorganized Company are not comparable to the financial statements of the Pre-Confirmation Company. The new common stock deemed issued in connection with the Plan has been recorded at $12.5 million, which approximates the value contained in the Plan and represents the Company's estimated enterprise value. The difference between the value of the Company's stock and fair value of assets and liabilities as of the effective date was $22.3 million and is reflected as Reorganization Value in Excess of Identifiable Assets in the accompanying balance sheet. The Reorganization and the adoption of Fresh Start Accounting resulted in the following adjustments to the Company's condensed consolidated balance sheet as of December 31, 2000 (Millions of Dollars): -9- 10
Adjustments -------------------------------------------------- Pre- Debt Fresh As Confirmation Forgiveness(a) Start(b) Reorganized ------------ -------------- ---------- ----------- Total Current Assets $ 83.0 $ (9.4) $ 73.6 ------------ ----------- Non-Current Assets 6.0 $ (3.8) (1.0) 1.2 ------------ ----------- Reorganization Value In Excess of Identifiable Assets -- 22.3 22.3 ----------- Plant & Equipment 58.7 (20.4) 38.3 ------------ ----------- Total Assets $ 147.7 $ 135.4 ============ =========== Total Current Liabilities $ 20.1 2.3 $ 22.4 ------------ ----------- Non-Current Liabilities 1.2 (.5) .7 ------------ ----------- Liabilities Subject to Compromise: Accounts Payable and Other 52.5 (52.5) -- Retiree Medical 67.8 (67.8) -- Pension 39.2 (39.2) -- Long-term Debt 25.4 (25.4) -- ------------ ----------- Total 184.9 -- ------------ ----------- Credit Facility/Long-term Debt 39.1 6.7 45.8 ------------ ----------- Retiree Medical 51.7 51.7 ----------- Pension 2.3 2.3 ----------- Stockholders Equity (97.6) 102.5 7.6 12.5 ------------ ----------- Liabilities and Stockholders' Equity $ 147.7 $ 135.4 ============ ===========
(a) Records the discharge of indebtedness pursuant to the Plan. Liabilities subject to compromise of $117.1 million were reduced by new equity of $12.5 million, secured notes and other long-term debt of $6.7 million, and cash settlements of $4.2 million, including $1.9 million in Solid Waste Disposal Bond retirement funds held in trust. The excess of indebtedness eliminated over cash payments, and the value of securities deemed issued in settlement of those claims and other adjustments, totaling $73.8 million, is reflected as an extraordinary item in the quarter ended December 31, 2000. -10- 11 (b) Adjustments made to record assets and liabilities at estimated fair market values. Significant adjustments include the write down of plant and equipment, change in classification and policy related to parts and supplies inventory, write-off of intangible assets, and the adjustment of the post-retirement medical liability, discussed above. NOTE 4: CREDIT FOR INCOME TAXES During 1998 and 1999, the Company filed federal and state refund claims based upon the carryback of $27.6 million of specified liability losses under Section 172(f) of the Internal Revenue Code ("Code") from the tax years December 31, 1995 through September 30, 1998. The carryback claims, if fully recovered, would have provided a current tax benefit of approximately $10.1 million, plus interest. The Internal Revenue service has examined the refund claims for the tax years ended December 31, 1995 through September 30, 1998. The Company and the Internal Revenue Service reached a resolution regarding the refund claims, subject to the Company's emergence from bankruptcy under Chapter 11, wherein the Company will be able to retain approximately $7.5 million of the cash refunds received. This amount has been recorded as a tax credit in the Consolidated Statement of Operations for the three months ended December 31, 2000. NOTE 5: LONG TERM DEBT The components of the Reorganized Company's long-term debt are as follows (in thousands):
December 31, 2000 ----------------- Secured Debt: Credit Agreement: Revolving Loan $ 33,288 Term Loan 6,500 Notes Payable 4,185 --------------- 43,973 Unsecured Debt: Note Payable -- Pension Benefit Guaranty Corp. 3,500 --------------- Total Debt 47,473 Less -- Debt Classified as Current 1,675 --------------- $ 45,798 ===============
Secured Debt -- On December 29, 2000 the Company entered into a three-year Credit Agreement with a lending group led by General Electric Capital Corporation providing for a $55.0 million revolving credit facility, subject to a borrowing base formula related to eligible accounts receivable and inventory, and a term loan of $6.5 million. Under the terms of the Credit Agreement virtually all of the assets of the company and its subsidiaries have been granted as collateral for the loan, except for certain equipment securing the notes payable, described below. The Term Loan amortization consists of monthly payments of $108 thousand through December 1, 2003, with a final installment of $2.6 million due on December 29, 2003. Interest is payable monthly on the revolving loans and term loan, based on a floating rate or a Eurodollar rate, at the Company's option. At December 31, 2000 the average interest rate on loans under the Credit Agreement was 11.2%. -11- 12 The Credit Agreement contains a number of financial covenants, including requirements for minimum levels of EBITDA, fixed charge coverage, minimum levels of revolving loan availability, and limits on capital expenditures. The Company is presently in compliance with all financial covenants in the Agreement. The Company has unused availability under the Credit Agreement of $14.3 million at December 31, 2000. However, conditions in the markets for the Company's products, and in the steel industry in general, have deteriorated since the Bankruptcy Court confirmed the Plan. Revised projections for the calendar year 2001 indicate that, after completion of the quarter ended March 31, 2001, the Company may not satisfy financial covenants related to EBITDA, but will remain in compliance with the requirements to maintain minimum revolving loan availability and limit capital expenditures. The Company has reviewed its updated financial projections for 2001 with its lenders. Based on these discussions the Company expects to receive waivers of financial covenant violations. Assuming waivers of covenant violations are obtained, if necessary, and no further material reduction in sales or increase in the costs of operations, the Company believes the Credit Agreement will provide sufficient liquidity for the Company to meet its debt service requirements and fund ongoing operations and its capital program for 2001. However there can be no assurance that any necessary covenant waivers will be obtained, or that there will not be a material reduction in sales or increase in operating costs beyond that projected. The Company's ability to continue operations as a going concern is dependent upon its ability to meet its obligations on a timely basis, and to maintain its Credit Agreement. On October 19, 2000, in connection with the settlement of an operating lease obligation, the Company issued a note for $960 thousand, bearing interest at 8%. A principal payment of $150 thousand is due on March 31, 2001, followed by quarterly principal payments of $75 thousand. The final payment of $60 thousand is due on December 31, 2003. The note is secured by certain machinery and equipment at the Alton Plant. In connection with the Plan the Company settled obligations with respect to its Solid Waste Disposal Revenue Bonds by issuing a note for $3.2 million, bearing interest at 8.5%. Commencing April 1, 2003 quarterly principal payments of $54 thousand are due until October 1, 2010, with the remaining outstanding balance of $1.6 million due on December 31, 2010. The note is secured by the common stock and machinery and equipment of Laclede Chain Manufacturing Co. Unsecured Debt -- In connection with the termination of the Company's hourly and salaried pension plans, pursuant to the Plan the Company issued a subordinated promissory note to the PBGC, with a nominal amount of $5.0 million, which has been valued at $3.5 million in the Plan. Interest on the note accrues at the rate of 8-1/2%, and is added annually to the nominal principal balance. Payment of the principal and accrued interest is not due until December 31, 2015. Voluntary prepayments of principal at agreed upon discounts are permitted so long as accrued interest is paid in full prior to any prepayment of principal. -12- 13 Item 2. LACLEDE STEEL COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As described in Note 1 to the unaudited consolidated financial statements, on December 15, 2000 the Bankruptcy Court entered an order confirming the Company's Plan of Reorganization. On December 18, 2000 the Company's subsidiary, Laclede Mid-America Inc., completed the sale of substantially all of its assets. On December 29, 2000 the Company finalized a new $61.5 million revolving credit and term loan facility for exit financing to fund its operations and capital improvement program. With the completion of the sale of Laclede Mid-America, Inc. and the agreement for exit financing, the Company completed all of the steps required for reorganization, and emerged from bankruptcy on December 29, 2000. Liquidity and Capital Resources During the three months ended December 31, 2000 operating activities used $2.9 million in cash, reflecting a decrease in accounts payable and accrued expenses of $3.7 million, a decrease in inventories of $3.7 million, and an increase in accounts receivable of $4.8 million. The changes are net of the divestiture of the Company's subsidiary, Laclede Mid-America, Inc. Net proceeds from the sale of Laclede Mid-America, Inc. were $23.3 million, and were applied to reduce borrowing under the Company's Debtor in Possession Financing Facility (DIP Facility) and notes payable. As discussed in Note 5 on December 29, 2000 the Company entered in a new three-year $61.5 million Credit Agreement replacing the DIP Facility. The new Agreement will finance the Company's future operations and its planned capital expenditure program. Capital expenditures under the program are estimated to be $4.0 million in the fiscal year ended September 30, 2001. The Credit Agreement contains a number of financial covenants, including requirements for minimum levels of EBITDA, fixed charge coverage, minimum levels of revolving loan availability, and limits on capital expenditures. The Company is presently in compliance with all financial covenants in the Agreement. The Company has unused availability under the Credit Agreement of $14.3 million at December 31, 2000. However, conditions in the markets for the Company's products, and in the steel industry in general, have deteriorated since the Bankruptcy Court confirmed the Plan of Reorganization. Revised projections for the calendar year 2001 indicate that, after completion of the quarter ended March 31, 2001, the Company may not satisfy financial covenants related to EBITDA, but will remain in compliance with the requirements to maintain minimum revolving loan availability and limit capital expenditures. The Company has reviewed its updated financial projections for 2001 with its lenders. Based on these discussions the Company expects to receive waivers of violations related to EBITDA. -13- 14 Assuming waivers of any first quarter covenant violations are obtained, if necessary, and no further material reduction in sales or increase in the costs of operations, the Company believes the Credit Agreement and internally generated cash flow will provide sufficient liquidity for the Company to meet its debt service requirements and fund ongoing operations and its capital program for 2001. However there can be no assurance that any necessary covenant waivers will be obtained, or that there will not be a material reduction in sales or increase in operating costs beyond that projected. The Company's ability to continue operations as a going concern is dependent upon its ability to meet its obligations on a timely basis, and to comply with the terms of its Credit Agreement. Results of Operations Net Sales Net sales decreased by $8.4 million or 14.1% in the quarter ended December 31, 2000 compared to the same period of the prior year. Steel shipments declined by 28.1%, while average sales prices for steel products increased slightly. Chain product sales increased 29.6% in 2000 reflecting higher sales of anti-skid devices for trucks and automobiles. Such sales in the quarter ended December 31, 1999 were adversely affected by a mild winter. The cost of products sold decreased by $6.7 million of 11.8% in the quarter ended December 31, 2000. This reflects lower steel shipments, offset by higher chain shipments discussed above. In the fiscal 2000 quarter the Company incurred significantly higher costs for natural gas. Operating Expenses Selling, general and administrative expenses decreased approximately $200 thousand in the quarter ended December 31, 2000, primarily reflecting reductions in the salaried workforce. As discussed in Note 2 to the Financial Statements, other credits of $2.4 million in the quarter ended December 31, 2000 consist of the gain recognized on the sale of the Company's subsidiary, Laclede Mid-America, Inc. In the quarter ended December 31, 1999 the Company recorded a gain on the sale of its Madison, Illinois facility of $373 thousand. Reorganization and restructuring costs and the credit for income taxes are discussed in Notes 1 and 4 to the Financial Statements, respectively. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The foregoing Management's Discussion and Analysis and other portions of this report on Form 10-Q and previous reports, contain various "forward-looking statement" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including the following: statements regarding the ability to maintain sales and sales prices; statements regarding operating costs; and statements related to the Credit Agreement, including potential covenant waivers. In addition, statements containing expressions such as "believes", "anticipates" or "expects" used in the Company's periodic reports on Form 10-K, 10-Q and 8-K filed with the SEC are intended to identify forward-looking statements. -14- 15 Forward-looking statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. The Company cautions that these and similar statement included in this report and in previously filed periodic reports including reports filed on Form 10-K, 10-Q and 8-K and further qualified by important factors that could cause actual results to differ materially from those in the forward-looking statement, including, without limitation, the following: statements regarding the ability to maintain sales and sales prices; statements regarding operating costs; and statements related to the Credit Agreement, including potential covenant waivers. -15- 16 PART II -- OTHER INFORMATION Item 1. Legal Proceedings. There is a pending administrative complaint before the United States Environmental Protection Agency, In Re Laclede Steel Company (Docket No. RCRA-5-99-003). The USEPA alleges that there is EAF dust present in areas surrounding the melt shop baghouse which constitutes illegal disposal of the material. The proposed fine was $110,000 but the parties have had discussions that would reduce this amount. In addition, USEPA amended the complaint to add a count for failure to maintain financial assurance during the bankruptcy period and requested an additional penalty of $80,000. In the Court approved Plan of Reorganization, the Company agreed to satisfy financial assurance requirements post bankruptcy and the parties are currently negotiating the scope of the necessary financial assurance. To the extent, the financial assurance ultimately required is materially greater than that currently provided by the Company, it could have a material adverse effect on credit available to the Company. Item 2. Changes in Securities On December 29, 2000 (the "Effective Date"), the Company emerged from bankruptcy proceedings pursuant to its Plan of Reorganization (the "Plan"). On such date, the Company canceled all existing equity securities. Pursuant to the Plan, the Company filed a Restated Certificate of Incorporation with the Delaware Secretary of State under which the authorized capital stock of the Company consists of 8,000,000 shares divided into the following two classes: (i) Seven Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Nine (7,999,999) shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"); and (ii) one (1) share of Class B Common Stock, par value $.01 per share. Under the Plan, approximately 3,500,000 shares of Class A Common Stock will be issued shortly following the Effective Date, approximately 250,000 shares of Class A Common Stock will be issued to certain members of management ("Management Stock") as determined by the Board of Directors of the Company (e.g., in the form of restricted stock or options), 600,000 options for new Common Stock will be issued to non-management employees one year after the Effective Date and 625,000 shares will be issued to an employee stock ownership plan ("ESOP") over a three year period. Approximately fifty-four percent of the New Common Stock issued and outstanding shortly following the Effective Date will be allocated to the Pension Benefit Guaranty Corporation ("PBGC") with the remainder allocated to the unsecured creditors of Registrant and Laclede Chain Manufacturing Company ("Laclede Chain"). Upon issuance of shares to the ESOP, the exercise of non-management stock options, the issuance of the Management Stock and other issuances of New Common Stock authorized by the Board of Directors following the Effective Date, the ownership percentage of the PBGC and the other stockholders of the Registrant will be diluted. For more information, see the Company's Form 8-A, filed on February 15, 2001. -16- 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (3)(a) Registrant's Certificate of Incorporation as restated December 29, 2000. (Incorporated by reference to Exhibit 1.1 in Registrant's Form 8-A filed February 15, 2001.) (3)(b) By-laws of Registrant amended December 29, 2000. (Incorporated by reference to Exhibit 1.2 in Registrant's Form 8-A filed February 15, 2001. (4)(a) Registrant's Credit Agreement dated December 29, 2000. (10)(a) Restated Employment Agreement dated June 1, 2000 between the Company and Michael H. Lane. (Incorporated by reference to Exhibit (10)(a) in Registrant's Form 10-Q for the fiscal quarter ended June 30, 2000.) (10)(b) Employment Agreement dated July 1, 2000 between the Company and David A. Higbee. (Incorporated by reference to Exhibit (10)(b) in Registrant's Form 10-Q for the fiscal quarter ended June 30, 2000.) (10)(c) Executive Retention Agreements dated July 1, 2000 between the Company and Ralph M. Cassell and James Caporaletti. (Incorporated by reference to Exhibit (10)(c) in Registrant's Form 10-Q for the fiscal quarter ended June 30, 2000.) (b) Reports on Form 8-K. The following reports on Form 8-K were recently filed: Current report filed on December 22, 2000 reporting that the Bankruptcy Court had entered an order confirming the Company's Plan of Reorganization. -17- 18 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LACLEDE STEEL COMPANY --------------------------------------------------- /s/ Michael H. Lane ----------------------------------------- Michael H. Lane Executive Vice President Chief Financial Officer Duly Authorized Officer and Principal Financial Officer Date: February 20, 2001 -----------------------