-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GE/A3Xf6lCz6TQ/u0oJIL0nQHqQkIPJChUJf90mWEl6RtlDaVWN0NaqBkZ39nfmx j13YckXpAao5pjREcMlniw== 0000950124-99-004532.txt : 19990810 0000950124-99-004532.hdr.sgml : 19990810 ACCESSION NUMBER: 0000950124-99-004532 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LACLEDE STEEL CO /DE/ CENTRAL INDEX KEY: 0000057187 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 430368310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-03855 FILM NUMBER: 99681542 BUSINESS ADDRESS: STREET 1: ONE METROPOLITAN SQ STREET 2: 211 N BROADWY CITY: ST LOUIS STATE: MO ZIP: 63102 BUSINESS PHONE: 3144251400 MAIL ADDRESS: STREET 1: ONE METROPOLITAN SQ CITY: ST LOUIS STATE: MO ZIP: 63102 10-Q 1 QUARTERLY REPORT DATED 6/30/99 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- ----------------- Commission File Number 0-3855 Laclede Steel Company - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 43-0368310 ----------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) One Metropolitan Square St. Louis, Missouri 314-425-1400 - --------------------------------------- ------------------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (314) 425-1400 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- As of July 19, 1999 there were 4,056,140 shares of $.01 par value common stock outstanding. 1 2 ITEM 1: FINANCIAL STATEMENTS LACLEDE STEEL COMPANY AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (In Thousands Except Per Share Data)
Three Months Ended Nine Months Ended June 30, June 30, -------------------------- ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net sales $ 56,354 $ 76,840 $ 184,363 $ 241,068 --------- --------- ---------- --------- Costs and expenses: Cost of products sold 50,762 78,279 166,342 233,001 Selling, general and administrative expenses 2,557 4,315 8,667 12,121 Depreciation 1,531 1,712 4,715 5,337 Interest expense, net 1,084 2,714 5,342 8,183 Asset impairments and other charges (credits) -- 22,870 (1,831) 24,963 --------- --------- ---------- --------- Total costs and expenses 55,934 109,890 183,235 283,605 --------- --------- ---------- --------- Earnings (loss) before reorganization items and income taxes 420 (33,050) 1,128 (42,537) Reorganization items (2,000) -- (4,453) -- --------- --------- ---------- --------- Loss before income taxes (1,580) (33,050) (3,325) (42,537) Provision for income taxes 47 32,418 141 28,641 --------- --------- ---------- --------- Net loss (1,627) (65,468) (3,466) (71,178) Preferred stock dividend requirement 126 (93) (62) (281) --------- --------- ---------- --------- Net loss - common shareholders (1,501) (65,561) (3,528) (71,459) --------- --------- ---------- --------- Other comprehensive income: Minimum pension liability adjustment -- -- -- 11,674 Income tax provision -- -- -- 4,436 --------- --------- ---------- --------- Total other comprehensive income -- -- -- 7,238 --------- --------- ---------- --------- Comprehensive loss $ (1,501) $ (65,561) $ (3,528) $ (64,221) ========= ========= ========== ========= Basic and diluted net loss per share $ (0.37) $ (16.16) $ (0.87) $ (17.62) ========= ========= ========== =========
-2- 3 LACLEDE STEEL COMPANY AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS (In Thousands)
Jun. 30, Sep. 30, ASSETS 1999 1998 (Unaudited) ----------- --------- CURRENT ASSETS Cash and cash equivalents $ 205 $ 192 Accounts receivable, less allowances 33,223 39,761 Prepaid expenses 3,591 1,936 Inventories: Finished 38,961 37,871 Semi-finished 8,990 11,595 Raw materials 5,345 3,478 Supplies 11,371 12,922 -------- -------- Total inventories 64,667 65,866 -------- -------- Total current assets 101,686 107,755 -------- -------- -------- -------- NON-CURRENT ASSETS 18,991 19,389 -------- -------- PLANT AND EQUIPMENT, At cost 220,525 220,578 Less - accumulated depreciation 136,153 131,531 -------- -------- Net plant and equipment 84,372 89,047 -------- -------- TOTAL $205,049 $216,191 ======== ========
-3- 4 LACLEDE STEEL COMPANY AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) CONSOLIDATED BALANCE SHEETS (In Thousands Except Per Share Data)
Jun. 30, Sep. 30, LIABILITIES AND STOCKHOLDERS' DEFICIT 1999 1998 (Unaudited) ----------- ---------- LIABILITIES NOT SUBJECT TO COMPROMISE: Current liabilities: Accounts payable and accrued expenses $ 9,760 $ 56,357 Accrued compensation 5,494 5,400 Current portion of long-term debt 63,412 106,048 Accrued costs of pension plans -- 15,000 Other 4,098 3,684 -------- -------- Total current liabilities 82,764 186,489 -------- -------- Non-current liabilities: Accrued costs of pension plans -- 57,328 Accrued postretirement medical benefits -- 73,470 Other 4,452 1,923 -------- -------- Total non-current liabilities 4,452 132,721 -------- -------- LIABILITIES SUBJECT TO COMPROMISE: Accounts payable & accrued expenses 50,033 -- Accrued postretirement medical benefits 71,076 -- Accrued costs of pension plans 74,242 -- Long-term debt 25,990 -- Other 3,039 -- -------- -------- Total liabilities subject to compromise 224,380 -- -------- -------- STOCKHOLDERS' DEFICIT: Preferred stock, no par value, authorized 2,000,000 shares; issued and outstanding 416,667 shares 83 83 Common stock, $0.01 par value, authorized 25,000,000 shares; issued and outstanding 4,056,140 shares 41 41 Capital in excess of par value 59,420 59,482 Accumulated deficit (102,585) (99,119) Minimum pension liability adjustment (63,506) (63,506) --------- --------- Total stockholders' deficit (106,547) (103,019) --------- --------- TOTAL $ 205,049 $ 216,191 ========= =========
-4- 5 LACLEDE STEEL COMPANY AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands)
Nine Months Ended June 30, -------------------- 1999 1998 ---- ---- Cash flows from operating activities: Net loss $ (3,466) $(71,178) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 4,715 5,337 Other charges -- 24,963 Change in deferred income taxes -- 28,354 Changes in assets and liabilities that provided (used) cash: Accounts receivable 6,538 8,602 Inventories 1,199 3,965 Accounts payable and accrued expenses 5,655 11,705 Accrued pension cost 2,573 7,344 Pension cash funding (609) (8,859) Accrued postretirement medical benefits (2,394) (2,916) Other assets and liabilities 2,616 1,124 -------- ------- Net cash provided by operating activities 16,827 8,441 -------- ------- Cash flows provided by investing activities: Capital expenditures (902) (4,209) Proceeds from sale of assets 834 3,625 -------- ------- Net cash used in investing activities (68) (584) -------- ------- Cash flows from financing activities: Net change in pre-petition bank facility (36,853) (6,483) Net change in post-petition bank facility 20,525 -- Payment on long-term debt (prior to bankruptcy filing) (318) (954) Other (100) (361) -------- ------- Net cash used in financing activities (16,746) (7,798) -------- ------- Cash and cash equivalents: Net increase during the period 13 59 At beginning of year 192 136 -------- ------- At end of period $ 205 $ 195 ======== ========
-5- 6 LACLEDE STEEL COMPANY AND SUBSIDIARIES (DEBTORS-IN-POSSESSION) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. GENERAL The accompanying unaudited consolidated financial statements include the accounts of Laclede Steel Company and its subsidiaries (the "Company"). All intercompany accounts and transactions have been eliminated. The consolidated financial statements reflect all adjustments (such adjustments are of a normal recurring nature unless otherwise disclosed in these interim financial statements) which are in the opinion of management necessary for a fair statement of the results for the interim periods. The results of operations for the nine months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 1999. The financial results for the fiscal year ending September 30, 1999 are subject to annual audit. The Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the nine month period ended September 30, 1998. The unaudited consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The financial statements have been prepared using accounting principles applicable to a going concern, which assumes realization of assets and settlement of liabilities in the normal course of business. The appropriateness of using the going concern basis is dependent upon, among other things, the ability to comply with debtor-in-possession financing agreements, confirmation of a plan of reorganization, the ability to achieve profitable operations, and the ability to generate sufficient cash flow from operations to meet its obligations. The accompanying unaudited consolidated balance sheet as of June 30, 1999 segregates liabilities subject to compromise, such as unsecured claims, from liabilities not subject to compromise, such as fully secured liabilities and liabilities arising subsequent to filing bankruptcy. A plan of reorganization could materially change the amounts currently recorded in the consolidated financial statements. The consolidated statements that might result from the outcome of this uncertainty may be materially different than those presented herein. Reorganization items represent expenses incurred by the Company as a result of the bankruptcy filing and proceedings which are required to be expensed as incurred. 2. BANKRUPTCY PROCEEDINGS On November 30, 1998, as a result of a decline in the Company results of operations during the nine months ended September 30, 1998 reflecting, among other factors the deterioration in steel demand and selling prices since the end of 1997, the Company and its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. The Company is in possession of its properties and assets and continues to operate with its existing directors and officers as debtors-in-possession. As debtors-in-possession, the Company is authorized to operate its business, but may not engage in transactions outside of the normal course of business without approval, after notice and hearing, of the Bankruptcy Court. 6 7 Pursuant to the provisions of the Bankruptcy Code, as of the petition date actions to collect pre-petition indebtedness owed by the Company are stayed and other pre-petition contractual obligations may not be enforced against the Company. In addition, as debtors-in-possession, the Company has the right, subject to the Bankruptcy Court's approval and certain other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by these rejections may file claims with the Bankruptcy Court in accordance with the reorganization process. The Company cannot presently determine or reasonably estimate the ultimate liability that may result from rejecting leases or executory contracts, and no provisions have been made for these items. In addition, the Company expects the Pension Benefit Guaranty Corporation to assume its defined benefit pension plans. Accordingly, these obligations have been included as liabilities subject to compromise. Beginning in December 1998 pension cost accruals have been adjusted to reflect only the estimated cost related to service subsequent to the petition date. Schedules have been filed by the Company with the Bankruptcy Court setting forth the assets and liabilities of the debtors as of the filing date as reflected in the Company's accounting records. Differences between amounts reflected in such schedules and claims filed by creditors will be investigated and resolved or adjudicated before the Bankruptcy Court. The ultimate amount and settlement terms for such liabilities are subject to a plan of reorganization, and accordingly, are not presently determinable. The disposition of the company's postretirement medical obligations has not as yet been determined and these obligations have been included as liabilities subject to compromise. Pursuant to the provisions of the Bankruptcy Code the Company currently continues to incur the cost of the postretirement medical plans and appropriate accruals have been recorded in the financial statements. The Bankruptcy Court has approved payment of certain pre-petition liabilities such as employee wages and benefits. The Bankruptcy Court has also allowed for the retention of legal and financial professionals. These items are recorded as accounts payable and accrued expenses not subject to compromise. On November 30, 1998 the Company obtained an $85,000,000 thirteen-month debtor-in-possession financing facility (the "DIP Facility") from its existing lenders, which replaced its existing Bank Credit Facility. On December 23, 1998 the Court issued an order approving the new facility. The DIP Facility provides for revolving credit loans based on accounts receivable and inventory levels with advance rates comparable to the prior Bank Credit Facility. Under terms of the DIP Facility, the Company also has access to additional availability in excess of that provided under the previous agreement. As of June 30, 1999 the Company had unused availability under the DIP Facility of approximately $8,100,000. In connection with the DIP Facility, as amended, the Company must maintain compliance with several restrictive financial covenants, including the maintenance of specific levels of operating cash flow and minimum operating contributions from the Alton Steel operations, as defined. As of June 30, 1999 the Company was in compliance with these covenants. The Company intends to present a plan of reorganization to the Bankruptcy Court to reorganize the Company's businesses and to restructure the Company's obligations. Under the provisions of the Bankruptcy Code, the Company has the exclusive right to file such plan at any time during the 120-day period following November 30, 1998. The exclusive filing time period has been extended by the Bankruptcy Court until September 30, 1999. 7 8 3. ASSET IMPAIRMENTS AND OTHER CHARGES (CREDITS)
Nine Months Ended June 30 --------------------------- 1999 1998 ------------- ----------- Lawsuit Settlement $ (1,831,000) $ -- Impairment Loss - HTMR Facility -- 15,362,000 - Memphis Plant -- 4,712,000 Executive Retirements -- 4,889,000 ------------ ----------- $ (1,831,000) $24,963,000
============ =========== During the quarter ended December 31, 1998, the Company received $1,831,000 as a settlement in connection with a class action lawsuit involving electrode manufacturers. In December 1997, the Company idled its High Temperature Metal Recovery ("HTMR") facility after the facility was damaged in an accident. This facility was previously used to dispose of the EAF dust generated in the Melt Shop at the Alton Plant. Subsequent to the accident, the Company disposed of the EAF dust through alternative methods. During 1998, management completed an evaluation of the HTMR facility to determine the economic feasibility of repairing and operating the unit, and determined that the HTMR facility currently could not function on an economically feasible basis. As there is a limited market for this type of facility, the entire carrying cost of $15,362,000 was written off and recorded as an impairment loss. In June 1998, management implemented its program to consolidate the wire operations at its Fremont facility and to shut down the Memphis Wire Plant. In connection with the shut down, the Company recorded a charge of $6,000,000 of which $4,712,000 is reflected in the accompanying statement of operations and comprehensive loss as asset impairments and other charges. The remaining write-off associated with the closing of approximately $1,288,000 relates to inventory losses and termination shutdown costs incurred which have been reflected in cost of products sold. Executive retirements resulted in charges of $4,889,000 in the first nine months of 1998. The majority of these charges are non-cash in nature and are related to the accounting requirements for the Key Employee Retirement Plan. 4. PIPE AND SKELP OPERATIONS In August 1998, the Company announced that, in accordance with its Labor Agreement, it planned to discontinue operation of its 22" Mill at its Alton, Illinois Plant. Since the announcement, the Company has continued to operate the mill, primarily as a result of the decline in scrap prices, which has made the operation of the 22" Mill more economical. On January 14, 1999 the Company announced, in accordance with its Labor Agreement, it had given formal notice to the United Steelworkers of America of its intention to permanently discontinue the operations of its Alton, Illinois Tube Mill. Although the Company informed officials of the Union of its intention, at this date the Company has remained willing to explore other alternatives with the Union. The Company continues to meet with the Union to determine whether there are realistic alternatives to closing the Alton 22" Mill and Tube Mill. 8 9 Shutdown of the Alton 22" Mill and Tube Mill could affect the employment of certain employees of the Alton Plant. After a final decision is made the 22" Mill and one of the Company's pipe-making facilities may be sold or abandoned, and recording of an impairment charge is likely at that time. 5. PER SHARE DATA Per share amounts have been calculated based on weighted average shares outstanding of 4,056,140. Prior to the bankruptcy filing, net loss per share was computed by dividing the net loss after deducting preferred dividend requirements by the weighted average shares outstanding. In June 1999 the Company reversed preferred dividends of $126,000 accrued after the November 30, 1998 bankruptcy date and a credit of this amount is reflected in net loss per share for the quarter ended June 30, 1999. * * * * * * 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis below should be read in conjunction with the unaudited consolidated financial statements of the Company and the notes to the unaudited consolidated financial statements included elsewhere in the Form 10-Q. As described in Note 2 to the unaudited consolidated financial statements, the Company filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on November 30, 1998. For more information see Note 2 as well as the Company's Annual Report on Form 10-K for the nine-month transition period ended September 30, 1998. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended June 30, 1999, operating activities provided $16.8 million in cash primarily as the result of decreases in inventory of $1.2 million, decreases in accounts receivable of $6.5 million and increases in accounts payable and accrued expenses of $5.7 million. Also included were net proceeds of $3.7 million from a refund from the Internal Revenue Service in connection with the carryback of certain losses incurred in 1997. Cash flow used in financing activities included a $16.3 million reduction in revolving credit borrowings under the Company's bank facility, and payments on long-term debt of $.3 million. Under the terms of the Bankruptcy case, liabilities in the amount of $224.4 million are subject to compromise under a plan of reorganization. Pursuant to the provisions of the Bankruptcy Code and during the pendency of the Bankruptcy proceeding, the Company does not intend to make contributions to its pension plans. Generally, actions to enforce or otherwise effect repayment of all prepetition liabilities as well as all pending litigation against the Company are stayed while the Company continues its business operations as debtors-in-possession. The ultimate amount and settlement terms for such liabilities are subject to a plan of reorganization, and accordingly, are not presently determinable. The Company's projections indicate that availability under the DIP Facility should be adequate to finance its operations through 1999 and all planned capital expenditures, which, under terms of the DIP Facility, cannot exceed $6.5 million during its thirteen-month term ending December 31, 1999. Although the Company believes that anticipated cash flows from future operations and borrowings under the DIP Facility should provide sufficient liquidity for the Company to meet its debt service requirements, satisfy covenants under the DIP Facility and fund ongoing operations, there can be no assurance these or other possible sources will be adequate. RESULTS OF OPERATIONS Net sales decreased by $20.5 million in the quarter ended June 30, 1999 compared to the same period of the prior year. This reflects a 23.1% decrease in steel shipments, as well as a 5.9% decrease in average sales prices for steel products. Sales efforts in the quarter ended June 30, 1999 continued to be hampered by the overall weak demand for steel products. Shipments of wire products were adversely affected by the shutdown of the Company's Memphis Wire Mill in July 1998. 10 11 The cost of products sold decreased $27.5 million or 35.1% in the quarter ended June 30, 1999. This decrease is the result of the reduction in shipping volume, a 30.0% decrease in steel scrap prices and lower production costs compared to the same quarter in the previous year. Selling, general and administrative expenses decreased from $4.3 million for the quarter ended June 30, 1998 to $2.6 million for the quarter ended June 30, 1999, primarily as a result of reductions in the salaried workforce. In the quarter ended June 30, 1998 the Company also incurred significant costs for outside business consultants. The decrease of $1.6 million in interest expense is reflective of a decreased average balance of borrowings as well as the discontinuance of recording interest expense on unsecured prepetition debt pursuant to SOP 90-7. Contractual interest was $2.0 million for the quarter ended June 30, 1999. Net sales decreased by $56.7 million in the nine months ended June 30, 1999 compared to the same period of the prior year. Steel shipments decreased by 21.5%, and average sales prices for steel products decreased by 6.5%. This reflects the continued overall low level of demand for steel products, and the high level of foreign imports. Shipments of wire products declined as the result of the shutdown of the Company's Memphis Wire Mill. The cost of products sold decreased $66.7 million or 28.6% for the nine months ended June 30, 1999. This decrease is the result of a reduction in shipping volume, a 28.0% decrease in steel scrap prices and lower production costs compared to the same period in the previous year. Selling, general and administrative expenses decreased from $12.1 million for the nine months ended June 30, 1998 to $8.7 million for the nine months ended June 30, 1999, primarily as a result of reductions in the salaried workforce and unusual consulting projects in 1998. The decrease of $2.8 million in interest expense is reflective of a decreased average balance of borrowings as well as the discontinuance of recording interest expense on unsecured prepetition debt pursuant to SOP 90-7. Contractual interest was $6.5 million for the nine months ended June 30, 1999. As discussed in Note 3, the Company recorded asset impairment and other charges of $25.0 million in the nine months ended June 30, 1998, and received proceeds from the settlement of a lawsuit of $1.8 million in the quarter ended December 31, 1998. YEAR 2000 The Company has been focused on the year 2000 issue since 1996. The first phase of the Company's year 2000 management was to designate a project leader, identify specific plant and business operation team leaders and create a list of business and information systems and non-information systems that required assessment. The second phase was to form teams to evaluate identified systems for year 2000 readiness. The Company has completed phase one and two and begun phase three, which is to develop a schedule to achieve readiness and begin to repair and/or replace non-ready systems. The Company expects to be year 2000 ready in all material respects by the end of calendar 1999. BUSINESS AND INFORMATION SYSTEMS ("IT SYSTEMS") - The Company believes that its mainframe business computer system will be fully year 2000 ready by the end of calendar 1999. The Company also has desktop computers that will require replacement or upgrades during 1999. 11 12 NON-IT SYSTEMS - There are a number of non-IT system issues at the Company's Alton, Illinois facility. Several systems related to the electric melt shop will require software upgrades or replacement including the power measurement software, the ladle metallurgy furnace, the caster control system and the chemical analysis equipment. The Alton facility's 14-inch mill also has a number of systems that will require software upgrades or replacement including the process logic control system and the mill's tracking device and monitor equipment. In addition, the Company has been unable to independently evaluate several systems related to the Alton 14" mill and is awaiting response from various equipment or software vendors as to year 2000 readiness. No material year 2000 readiness issues have been identified at the Company's Fremont Wire Mill, Fairless Hills Pipe Mill or the Vandalia Pipe Finishing Facility. CUSTOMERS AND VENDORS - The Company has communicated with its significant customers and vendors to understand their year 2000 issues and how they might prepare themselves to manage these issues as they relate to the Company. To date, no significant customers or vendors have informed the Company that a material year 2000 issue exists which would have a material effect on the Company. One of the Company's primary sources of electricity, however, has informed the Company that the utility's critical systems will not be year 2000 compliant until September 1999. If such utility were unable to achieve full year 2000 compliance before December 31, 1999, and electricity is unavailable at such date, such facility of the Company would be unable to conduct manufacturing operations which would be a material adverse event. The Company is in the process of developing a comprehensive contingency plan to address year 2000 readiness matters that would interfere with or interrupt its manufacturing process. Although this plan has not been finalized, initial recommendations from the Company's year 2000 project leader include the intentional shut-down of the Alton facility immediately prior to Saturday, January 1, 2000 and a systematic start-up of each separate operating unit within the Alton facility on the next scheduled day of plant operations. During calendar 1999, the Company will continually review its progress against its year 2000 plans and conclude on the appropriate and feasible contingency plans to reduce its exposure to year 2000 related issues. Based on the Company's current assessment, the costs of addressing potential problems are not currently expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in future periods. If the Company or its customers or vendors identify year 2000 issues in the future, however, and are unable to resolve such issues in a timely manner, it could result in a material financial risk. Accordingly, the Company plans to devote the necessary resources to resolve all significant year 2000 issues in a timely manner. 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 statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Sections 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 overall demand for steel; statements regarding the ability to maintain sales prices; statements regarding productivity improvement programs; statements regarding the Company's profitability; statements regarding future borrowing capacity; statements regarding Year 2000 compliance and statements regarding future pension funding requirements. In addition, statements containing expressions such as "believes," "anticipates" or "expects" used in the Company's periodic reports on Forms 10-K, 10-Q and 8-K filed with the SEC are intended to identify forward-looking statements. 12 13 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 statements included in this report and in previously filed periodic reports including reports filed on Forms 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: decline in sales prices for steel products; increases in the cost of steel scrap; failure to obtain significant benefits from the Company's cost reduction and productivity improvement programs; increased domestic or foreign steel competition; decreases in the market value of the Company's qualified pension plan assets; increases in financing costs, labor relations, and adverse developments arising from the Chapter 11 proceedings and adverse developments in the timing or results from the Company's current business plan. 13 14 ITEM 3. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK. None PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (3)(a) Registrant's Certificate of Incorporation as restated October 28, 1996. (Incorporated by reference to Exhibit (3) in Registrant's Quarterly Report on Form 10-Q for September 30, 1996.) (3)(b) By-laws of Registrant amended October 21, 1998. (Incorporated by reference to Exhibit (3)(b) in Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1998.) (4)(a) Registrant's Postpetition Loan and Security Agreement dated December 1, 1998. (Incorporated by reference to Exhibit (4)(e) in Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1998.) (4)(b) First Amendment to Postpetition Loan and Security Agreement dated December 23, 1998. (Incorporated by reference to Exhibit (4)(f) in Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1998.) (4)(c) Second Amendment to Registrant Postpetition Loan and Security Agreement dated July 1, 1999. (4)(d) Certificate of Designation of Series A Preferred Stock dated July 30, 1996. (Incorporated by reference to Exhibit (4)(i) in the Registrant's Quarterly Report on Form 10-Q for June 30, 1996.) (b) Reports on Form 8-K - None 14 15 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: August 6, 1999 ------------------------------ 15 EX-4.(C) 2 SECOND AMEND TO REGISTRANT POSTPETITION LOAN 1 Exhibit (4)(c) AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT NO. 2 dated as of July ___, 1999 (this "Amendment") is entered into among BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("B of A"), as successor to BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, BNY FINANCIAL CORPORATION, a New York corporation ("BNY") formerly known as Bank of New York Commercial Corporation, NATIONSBANK, N.A., a national banking association ("NB") (B of A, BNY and NB and their respective successors and assigns being sometimes hereinafter referred to collectively as the "Lenders" and each of B of A, BNY and NB and its successors and assigns being sometimes hereinafter referred to individually as a "Lender"), B of A (as successor to BANKAMERICA BUSINESS CREDIT, INC.), as agent for the Lenders (in such capacity as agent, the "Agent"), LACLEDE STEEL COMPANY, a Delaware corporation, as debtor and debtor-in-possession (the "Parent"), with an office at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102-2750, LACLEDE CHAIN MANUFACTURING COMPANY, a Delaware corporation, as debtor and debtor-in-possession ("Laclede Chain"), with an office at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102-2750, and LACLEDE MID AMERICA INC., an Indiana corporation, as debtor and debtor-in-possession ("Laclede Mid America"), with an office at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102-2750 (the Parent, Laclede Chain and Laclede Mid America being sometimes hereinafter referred to collectively as the "Borrowers" and each of the Parent, Laclede Chain and Laclede Mid America being sometimes hereinafter referred to individually as a "Borrower"). W I T N E S S E T H: WHEREAS, the Borrowers, the Lenders and the Agent are parties to a certain Loan and Security Agreement dated as of December 1, 1998, as amended (the "Loan Agreement," capitalized terms used herein without definition having the meanings given such terms in the Loan Agreement, as amended by this Amendment); and WHEREAS, the Borrowers, the Lenders and the Agent have agreed to amend the Loan Agreement on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises set forth above, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrowers, the Lenders and the Agent hereby agree as follows: Section 1. Amendment of the Loan Agreement. Subject to the fulfillment of the conditions precedent set forth in Section 2 below, the Loan Agreement is amended as follows: (a) Section 1.1 is amended by adding the following new definitions: 2 "Electrode Settlement" means funds received by the Borrowers in respect of any settlements, adjudications, or other resolutions of litigation or proceedings of antitrust, price-fixing, or related (by fact or law) claims asserted by, or on behalf of, any of the Borrowers arising out of any of the Borrower's or any other party's purchase of graphite electrodes (or other items for which liability is asserted in the same or related litigation or proceedings), including, without limitation, in AmeriSteel Corp. v. the Carbide/Graphite Group, Inc., Civil Action No. 98-CV-1693, pending in the Eastern District of Pennsylvania, or any litigation or proceedings related thereto, except that the term Electrode Settlement shall not include items (a) or (b) of Exhibit D. "Electrode Settlement Reserve" means a reserve against the Maximum Revolver Amount in an amount equal to the excess, if any, of the Net Proceeds of the Electrode Settlement over $1,500,000, such reserve to be eliminated when the Agent has received all proceeds of the 1999 Tax Refund, provided that the proceeds of such 1999 Tax Refund is equal to or in excess of $1,500,000. "1999 Tax Refund" means the refund of federal income taxes with respect to the Borrowers' 1998 tax return, to be filed for in July 1999. "Net Eligible Inventory" means, at any time, Eligible Inventory at such time minus $1,153,000. (b) Section 1.1 is further amended by amending and restating the definition of "Additional Facility" as follows: "Additional Facility" means an amount equal to $5,100,000, such amount to be reduced (a) at the time of sale or disposition of, or other realization upon, any Additional Facility Related Item, in an amount equal to the Net Proceeds of such sale, disposition or realization, and (b) at the time of receipt of any Net Proceeds of the Electrode Settlement, in an amount equal to the excess, if any, of all Net Proceeds of the Electrode Settlement over $2,500,000. (c) Section 1.1 is further amended by amending the definition of "Maximum Revolver Amount" by (1) deleting "Eligible Inventory" in clause (ii)(B)(1) thereof and substituting "Net Eligible Inventory" therefor, (2) deleting "$12,769,000" in the proviso of clause (ii)(B)(2) thereof and substituting "$9,715,000" therefor, and (3) by adding the following as a new subclause (iii) to clause (b) of the definition, and renumbering the existing clause (iii) as clause (iv): "(iii) the Electrode Settlement Reserve, if any; and" 2 3 (d) Section 1.1 is further amended by amending and restating the definition of "Net Proceeds" as follows: "Net Proceeds" means, with respect to any sale or disposition of Fixed Assets, or any sale or disposition of or other realization upon any Additional Facility Related Items or the Electrode Settlement, the face amount of the sale or disposition price, settlement, or other realization, received by the Borrowers, whether paid in cash or otherwise, minus the applicable Borrower's reasonable expenses of sale or disposition and any sales or other conveyance taxes incurred by any Borrower in connection therewith. (e) Section 4.2 is amended and restated as follows: 4.2 Mandatory Prepayments of the Term Loans. Prepayments on the Term Loans shall be required to be made as provided in Sections 5.11(c), 8.5(c), 8.6(b) and 8.9(b). In addition, after the Additional Facility has been reduced to zero, (1) if any amounts are received with respect to items (a), (b), or (f) on Exhibit D, then 50% of such amounts shall be applied to the prepayment of the Term Loans, applying such amounts ratably to the installments of the Term Loans in the inverse order of maturity, and (2) if any Net Proceeds of the Electrode Settlement are received such that the amount of all Net Proceeds of the Electrode Settlement at such time is in excess of $2,500,000, then 100% of such excess Net Proceeds shall be applied to the prepayment of the Term Loans, applying such amounts ratably to the installments of the Term Loans in the inverse order of maturity. (f) Section 8.22 is amended and restated as follows: 8.22 Capital Expenditures. Neither the Parent nor any of its Subsidiaries shall make or incur any Capital Expenditure (a) other than for maintenance or repair of Equipment, or Capital Expenditures by Laclede Mid-America in an amount not to exceed $1,500,000 in connection with the addition of a production line at its Fremont, Indiana plant consistent with its Motion for approval of such capital expenditures filed with the Bankruptcy Court on June 9, 1999, and (b) if, after giving effect thereto, the aggregate amount of all Capital Expenditures by the Parent and its Subsidiaries on a consolidated basis after the Petition Date would exceed $6,500,000. Section 2. Conditions to Amendment. This Amendment shall become effective upon (a) the receipt by the Agent by facsimile transmission of a counterpart of this Amendment executed by each Borrower and each Lender, and execution of this Amendment by the Agent (provided, that each Borrower and each Lender shall promptly execute six applicable signature pages hereof and deliver such pages to the Agent), and (b) receipt by the Agent of evidence satisfactory to it that the Borrowers have filed a request for the 1999 Tax Refund in an amount 3 4 equal to or in excess of $1,500,000; and (c) entry by the Bankruptcy Court of a final order acceptable to the Agent approving the terms hereof, and no objection to such order having been filed by the time required by such order, or any objection having been fully and finally overruled to the satisfaction of the Agent, and such order being in full force and effect and not having been reversed, stayed, modified, amended, or appealed. Section 3. Representations and Warranties. Each Borrower hereby represents and warrants that (i) this Amendment constitutes a legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms, (ii) the representations and warranties contained in the Loan Agreement are correct in all material respects as though made on and as of the date of this Amendment, and (iii) no Event of Default has occurred and is continuing. In addition, each Borrower represents and warrants that the definition of "Electrode Settlement" is sufficient to incorporate all of the Net Proceeds which the Borrowers have indicated to the Agent will be subject to the relevant provisions of this Amendment. Section 4. Reference to and Effect on the Loan Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Loan Agreement to "this Agreement", "hereunder", "hereof", "herein", or words of like import shall mean and be a reference to the Loan Agreement, as amended hereby, and each reference to the Loan Agreement in any other document, instrument or agreement executed and/or delivered in connection with the Loan Agreement shall mean and be a reference to the Loan Agreement, as amended hereby. (b) Except as specifically amended above, the Loan Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed. (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or the Lenders under the Loan Agreement, nor constitute a waiver of any provision of the Loan Agreement, except as specifically set forth herein. Section 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Section 6. Governing Law. This Amendment shall be governed by and construed in accordance with the internal laws (as opposed to the conflicts of laws provisions) of the State of Illinois. 4 5 Section 7. Section Titles. The section titles contained in this Amendment are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Section 8. Parties, Successors and Assigns. This Amendment shall be binding upon and shall inure to the benefit of the Borrowers, the Agent, each Lender, and their respective successors and assigns. Section 9. Severability. To the extent any provision of this Amendment is not enforceable under applicable law, such provision shall be deemed null and void and shall have no effect on the remaining portions of the Amendment. Section 10. Construction of Amendment. Each party hereto has cooperated in the drafting and preparation of this Amendment and, as a result, this Amendment shall not be construed against any party. This Amendment may be amended or modified only by a written agreement signed by the parties hereto. This Amendment may be executed in counterparts, each of which when so executed and delivered shall be deemed an original but all such counterparts together shall constitute one and the same instrument. 5 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of July ___, 1999. LACLEDE STEEL COMPANY, as Debtor and Debtor-in-Possession By: ------------------------------- Vice President LACLEDE CHAIN MANUFACTURING COMPANY, as Debtor and Debtor-in-Possession By: ------------------------------- Vice President LACLEDE MID AMERICA INC., as Debtor and Debtor-in-Possession By: ------------------------------- Vice President S-1 7 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, (as successor to BANKAMERICA BUSINESS CREDIT, INC.), as the Agent By: ------------------------------- Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, (as successor to BANKAMERICA BUSINESS CREDIT, INC.), as a Lender By: ------------------------------- Vice President S-2 8 BNY FINANCIAL CORPORATION, (as successor to THE BANK OF NEW YORK COMMERCIAL CORPORATION), as a Lender By: ------------------------------- Vice President S-3 9 NATIONSBANK, N.A., as a Lender By: ------------------------------- Vice President S-4 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 0 0 35,634 2,411 0 0 0 0 205,049 82,764 89,402 0 83 41 (106,671) 205,049 184,363 184,363 166,342 173,679 8,667 150 5,342 (3,325) 141 (3,466) 0 0 0 (3,466) (0.87) (0.87)
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