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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to ________
Commission File Number -- 1-5210
FLORIDA STEEL CORPORATION
Florida 59-0792436
5100 W. Lemon Street
Tampa, Florida 33609
Mailing Address:
P. O. Box 31328
Tampa, Florida 33631-3328
Telephone No. 286-8383 - Area Code 813
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
First Mortgage Notes
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 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]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: None
State the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date:
Common Stock, par value $.01 per share -- 10,000,000 shares as of the
close of the date of this filing.
Documents incorporated by reference: None
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PART I
ITEM 1. BUSINESS
Florida Steel Corporation ("the Company") operates a group of five union-free
minimills, located in the southeastern United States, that produce steel
products, including concrete reinforcing bar ("rebar"), merchant bars, and
rods. Rebar is used primarily for strengthening concrete in highway and
building construction and other construction applications. Merchant bars and
light structural shapes ("merchant bars"), which include rounds, squares,
flats, angles and channels are used in a wide variety of applications including
floor and roof joists, transmission towers, and farm equipment. Rods are used
in a variety of applications, including the manufacture of welded wire fabric
and nails. The Company's rebar either is sold directly to distributors and
third-party fabricating companies in stock lengths and sizes or is transferred
to one of the Company's 13 fabricating plants where it is cut and bent to meet
engineering, architectural or other end-product specifications. Merchant bars
and rods generally are sold directly to customers in stock lengths and sizes.
For the year ended March 31, 1995, approximately 23% of the Company's sales
were derived from fabricated rebar, 27% were from stock rebar, 31% were from
merchant rebar, 7% were from rods, and 12% were from other products.
The Company currently operates minimills located in Tampa and Jacksonville,
Florida; Charlotte, North Carolina; and Jackson and Knoxville, Tennessee.
Minimills are steel mills that use electric arc furnaces to melt scrap steel
and cast the resulting molten steel into long strands called billets in a
continuous casting process. Billets are then reheated and rolled into rebar,
merchant bars, and rods. The Company also sells billets to other steel mills.
The Company estimates that it currently has annual steel melting capacity of
1.8 million tons and finished product rolling capacity of 1.8 million tons.
The predecessor of the Company was formed in 1937 as a rebar fabricator. In
1956, it merged with five steel fabricators in Florida to form the Company,
which began construction of its first minimill in Tampa. The Company
subsequently built minimills in Charlotte, North Carolina; Indiantown and
Jacksonville, Florida; and Jackson, Tennessee and acquired a minimill in
Knoxville, Tennessee, (the Indiantown minimill was closed for economic reasons
in 1982). In 1988, the Company was acquired by FLS Holdings Inc. ("Holdings" or
"FLS") in a leveraged buyout ("The 1988 Acquisition").
ACQUISITION
FLS, the Company's parent, on June 26, 1992, signed an agreement of merger
providing for its acquisition by Kyoei Steel Ltd. ("Kyoei") (the
"Acquisition").
On December 21, 1992, closing of the Acquisition by Kyoei occurred. For
financial reporting purposes, the Company accounted for the transaction
effective December 31, 1992. In connection with the closing, FLS received an
equity infusion of $150 million. Of the $150 million, $29 million was used or
reserved to retire all of the outstanding Redeemable Preferred Stock, and $9
million was paid to the holders of common stock of FLS. In addition, the
Company received net proceeds of approximately $93 million from the issuance of
new 11 1/2% First Mortgage Notes (the "First Mortgage Notes"), $50 million from
an Intercompany Note from FLS, and $16 million under a Revolving Credit
Agreement. The Revolving Credit agreement provided the Company aggregate
borrowings up to the lesser of $100 million or a borrowing base amount
generally based on 85% of eligible accounts receivable and 62.5% of eligible
inventory. The proceeds provided by the new debt agreements, together with the
remaining proceeds from the additional equity infusion were used to retire all
of the previously outstanding indebtedness under the senior term loan and
revolving credit agreement, plus accrued and unpaid interest. Additionally, $92
million of the subordinated
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debentures were retired, representing the debentures which were purchased
pursuant to the tender offer. Interest was paid on the tendered debentures
through the date of closing. Interest on the untendered debentures was paid
through the regularly scheduled interest payment date of November 15, 1992.
Payment of such interest eliminated the Company's covenant noncompliance with
respect to the subordinated debentures.
The statement of financial position as of December 31, 1992 reflected a new
basis of accounting in which the total cost of the purchase was allocated to
the assets and liabilities using estimates of fair values (known as the
purchase method of accounting pushed down to the subsidiary's financial
statements or "push-down" accounting). The excess purchase price over net
assets acquired was recorded as goodwill. The deficit at September 30, 1992,
and the loss for three-months ended December 31, 1992, were eliminated under
purchase accounting. The net adjustment to assets and liabilities, as a result
of applying push-down accounting, was to increase assets and liabilities by
approximately $14 million.
The Company has changed its fiscal year-end from September 30th to March 31st
to coincide with Kyoei's fiscal year-end. Financial data as of or for any
period prior to December 31, 1992, pertains to the "Predecessor" Company.
CUSTOMERS
Principal customers of the Company include steel distributors, steel service
centers, reinforcing steel fabricators, other metal fabricators and
manufacturers, railroads, building material dealers, and contractors. Its
fabricated products are sold to contractors performing work for residential and
nonresidential building, road, bridge, public works, utility and other
miscellaneous construction. The Company's business is not dependent upon any
particular single customer or group of customers. During fiscal year 1995, the
largest single customer accounted for 2.9% of total sales and the five largest
customers accounted for 10.8% of total sales.
Sales under patents, trademarks, licenses, franchises, and concessions amount
to less than 1% of sales for the 1995 fiscal year.
Sales order backlog is meaningful only as it pertains to fabrication contract
sales inasmuch as stock sales are primarily on a spot order basis. The amount
of sales order backlog pertaining to fabrication contracts was approximately
$86 million at March 31, 1995, as compared to $83 million at March 31, 1994.
All of the backlog at March 31, 1995 is expected to be filled during fiscal
1996.
None of the business for the 1995 fiscal year is subject to renegotiation or
termination of subcontract at the election of the government.
The Company's payment terms to customers are generally determined based on
market conditions given the cyclical nature of its sales. However, the Company
generally does not offer extended payment terms to customers.
PRODUCTION AND FACILITIES
Steel Production. Minimills are steel mills that use electric arc furnaces to
melt scrap steel and cast the resulting molten steel into long strands called
billets in a continuous casting process. The billets are typically transferred
to a rolling mill where they are reheated, passed through roughing mills for
size reduction and then rolled into rebar, merchant bars, or rods. These
products emerge from the rolling mill and are allowed to cool uniformly on a
cooling bed.
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Steel can be produced at significantly lower costs by minimills than by
integrated steel operations. Integrated steel mills, which typically process
iron ore and other raw materials in blast furnaces to produce steel, generally
use costlier raw materials, consume more energy, consist of older facilities
that are more labor intensive and employ a larger and more highly paid labor
force. In general, minimills serve localized markets and produce a limited line
of commodity steel products.
The domestic minimill steel industry currently has excess production capacity.
This excess capacity has resulted in competitive product pricing and cyclical
pressures on industry profit margins. The high fixed costs of operating a
minimill encourage mill operators to maintain high levels of output even during
periods of reduced demand which exacerbates the pressures on profit margins. In
this environment, efficient production and cost controls are important to
domestic minimill steel producers.
The Company's Jackson, Tennessee; Jacksonville, Florida and Charlotte, North
Carolina minimills operated their melting facilities seven days per week, the
Knoxville mill five days per week, and have an annual aggregate melting
capacity of approximately 1.8 million tons. The Jackson, Charlotte and
Jacksonville mills operated their rolling facilities seven days per week. The
Knoxville, Tennessee and Tampa, Florida minimills operated their rolling
facilities five days per week. On June 15, 1994, the Tampa Melting facility was
closed and production transferred to the other four mills.
The following table sets forth the estimated annual production capacity and
actual production of the Company's five minimills in thousands of tons at March
31, 1995.
<TABLE>
<CAPTION>
Annual FY 1995 Capacity FY 1995 Capacity
Start-Up Melting Melting Utilization Rolling Rolling Utilization
Location Date Capacity Production Percentage Capacity Production Percentage
-------- -------- -------- ---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jackson, TN 1981 550 528 96% 420 391 93%
Jacksonville, FL 1976 500 428 86 450 400 89
Charlotte, NC 1961 430 412 96 340 314 92
Knoxville, TN 1987 (a) 320 309 97 330 299 91
Tampa, FL 1958 -- -- -- 260 187 72
----- ----- ----- ----- ----- -----
Total 1,800 1,677 93% 1,800 1,591 88%
===== ===== ===== ===== ===== =====
</TABLE>
(a) Purchase Date
JACKSON MINIMILL
The Jackson minimill produces mostly merchant bars and some rebar. This
minimill is the Company's largest single producer of merchant bars. The
merchant bars are marketed primarily in the southeastern United States, as well
as into southern Illinois, Indiana, and Ohio.
The Jackson minimill, constructed in 1981, is the newest of the Company's steel
making facilities. Jackson's melting equipment includes an electric arc
furnace, a continuous caster, and material handling equipment. The rolling mill
consists of a reheat furnace, 16 in-line mill stands, a cooling bed, an in-line
straightener, a cut-to-length product shear, an automatic stacker, and
associated shipping and material handling facilities.
The facility has 298 employees.
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JACKSONVILLE MINIMILL
The Jacksonville minimill produces rebar and rods. The rebar is marketed
primarily in Florida, the nearby Gulf Coast states and Puerto Rico, with coiled
and 3/8 inch diameter rebar, being shipped throughout the Company's marketing
area. The rod products are sold throughout the southeastern United States.
Jacksonville's melting equipment consists of an electric arc furnace,
continuous caster, and material handling equipment. The rolling mill includes a
reheat furnace, a #1-stand in-line mill, a 10-stand rod block, two cooling
beds, a cut-to-length product shear, and associated shipping and material
handling facilities.
The facility has 271 employees.
CHARLOTTE MINIMILL
The Charlotte minimill produces rebar and merchant bars. Rebar produced in
Charlotte is marketed in the states from South Carolina to Pennsylvania.
Merchant bar produced in Charlotte is marketed along the eastern seaboard
states from Florida to Pennsylvania.
Charlotte melting equipment includes an electric arc furnace, a continuous
scrap feeding and preheating system and a ladle refining station, all of which
were installed in 1989. The melting facilities also include a continuous caster
and material handling equipment. Charlotte's rolling mill, which was upgraded
in 1988, includes a reheat furnace, 15 in-line mill stands, a cooling bed, a
cut-to-length shear, and an automated material bundling unit.
The facility has 275 employees.
KNOXVILLE MINIMILL
The Knoxville minimill, which the Company acquired in 1987, produces almost
exclusively rebar and some merchant bars. The rebar is marketed throughout the
Ohio Valley, including all areas of Ohio and Kentucky and parts of Illinois,
Indiana, Virginia, West Virginia, Tennessee and rebar is sold in portions of
North and South Carolina, Georgia and Alabama.
Knoxville melting equipment includes two electric arc furnaces, a continuous
caster, and material handling equipment. The rolling mill, which was installed
in 1986, consists of a reheat furnace, 16 in-line mill stands, a cooling bed, a
cut-to-length shear line and associated shipping and material handling
facilities.
The facility has 223 employees.
TAMPA MINIMILL
The Tampa minimill has 117 employees who produce rebar that is sold primarily
in Florida. In March 1994, the Company decided to close the Tampa Melt Shop and
only roll excess billets from the other plants to serve the Florida market. The
Tampa Melt Shop was the highest cost melt shop within the Company, and the lack
of a market for export billets and export rebar was also a contributing factor
to the announced closing.
The rolling mill includes a reheat furnace, a roughing mill, four cross-country
rolling stands, four in-line finishing stands, a cooling bed, a cut-to-length
product shear and storage and shipping facilities.
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FABRICATION: The Company's 13 fabricating plants are located throughout the
southeastern United States and have an annual capacity of 334 thousand tons.
The following table shows the plant locations and approximate annual tonnage on
a two-shift per day, five days per week operating basis.
<TABLE>
<CAPTION>
FABRICATING PLANT CAPACITY IN TONS
-------------------------------------------------------------------------------------
<S> <C>
Ft. Lauderdale, FL.............................................................30,000
Jacksonville, FL...............................................................30,000
Orlando, FL....................................................................20,000
Plant City, FL (Tampa).........................................................40,000
Duluth, GA (Atlanta)...........................................................30,000
Louisville, KY.................................................................20,000
Charlotte, NC..................................................................30,000
Raleigh, NC....................................................................18,000
Aiken, SC......................................................................16,000
Collierville, TN (Memphis).....................................................20,000
Knoxville, TN..................................................................40,000
Nashville, TN..................................................................20,000
St. Albans, WV................................................................ 20,000
-------
Total.........................................................................334,000
=======
</TABLE>
During 1994, the Company announced the closing of the Fort Myers, Florida and
Woodbridge, Virginia fab shops. The Fort Myers facility was sold in March 1995.
OTHER OPERATIONS
The Company's railroad spike operation, located in Lancaster, South Carolina,
forges steel squares into railroad spikes that are sold on an annual contract
basis to various railroad companies. A new plant in Arkansas, will be completed
in fiscal 1996 and will enable the Company to efficiently serve the Western
U.S. market. The Company's facility in New Orleans, Louisiana, produces wire
from steel rod. The wire is then either manufactured into welded wire fabric
for concrete pavement or converted into collated nails for use in high-speed
nail machines.
CAPITAL EXPENDITURES
Over the years, the Company has expanded capacity by means of modernizing and
upgrading facilities together with selective acquisitions. Capital expenditures
were $25.8 million for the year ended March 31, 1995, $18.2 million for the
year ended March 31, 1994, $1.8 million for the period ended March 31, 1993,
and $1.7 million in fiscal 1992. The major projects in fiscal 1995 included a
new bag house in Knoxville, a cooling bed in Jacksonville, mill stands in the
Jackson rolling mill, the new Arkansas spike plant, a new warehouse in
Charlotte, and the start of a new rolling mill in Charlotte that will be
complete by the end of fiscal 1996.
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RAW MATERIALS
Scrap steel, which is the Company's primary raw material and comprises
approximately 49% of finished steel products cost, is presently supplied by one
company, David Joseph, Inc. ("David Joseph"). David Joseph is a scrap broker
and scrap yard operator headquartered in Cincinnati, Ohio, with locations
throughout the United States, buys substantially all of the scrap required by
the Company, for which it receives a fixed brokerage fee per ton. In addition,
David Joseph operates shredders for the Company at the Jacksonville, Florida
and Jackson, Tennessee minimill sites for a fixed gross profit amount per ton.
Although the Company obtains its scrap steel from David Joseph, Management
believes that the Company readily could obtain adequate supplies of scrap, if
necessary, from suppliers other than David Joseph at competitive prices. In
fiscal 1995, the Company consolidated the scrap purchasing activities under the
newly established position of Vice President of Material Procurement. This
position will focus on optimizing the purchasing, scheduling, and delivery of
scrap and other related items.
The Company's manufacturing processes consume large amounts of energy in the
form of electricity and natural gas. The Company purchases its electricity from
regulated utilities under interruptible service contracts. Under such
contracts, the utility provides service at discount rates in return for the
right to interrupt service during peak demand periods. These interruptions are
generally limited to several hours and have occurred on no more than five to
ten days per year. Since deregulation of the natural gas industry, natural gas
requirements generally have been provided through negotiated contract purchases
of well-head gas with supplemental transportation through local pipeline
distribution networks.
The other important raw or stock materials required for the Company's business,
such as refractories, ferro alloys, carbon electrodes, etc., are supplied by
various domestic and foreign firms. The Company has historically obtained
adequate quantities of scrap steel and other raw materials to permit efficient
mill operations.
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PRODUCTS AND MARKETS
The following tables set forth the tonnage shipped and average selling price
per ton of the Company's five major product groups.
<TABLE>
<CAPTION>
P R E D E C E S S O R
--------------------------------
YEAR ENDED YEAR ENDED THREE MONTHS THREE MONTHS YEAR ENDED
PRODUCT (TONS) ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
---------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Stock Rebar 535,358 465,824 115,602 108,078 378,793
Merchant Bar (a) 549,151 468,004 121,344 93,377 400,370
Fabricated Rebar 346,484 329,647 71,696 74,665 335,455
Rods (a) 129,337 121,539 40,077 32,916 138,831
Billets 141,271 263,074 49,382 47,173 201,885
--------- --------- --------- --------- ---------
Total Tonnage 1,701,601 1,648,088 398,101 356,209 1,455,334
========= ========= ========= ========= =========
</TABLE>
(a) Includes products that are further fabricated by the Company.
<TABLE>
<CAPTION>
P R E D E C E S S O R
------------------------------
YEAR ENDED YEAR ENDED THREE MONTHS THREE MONTHS YEAR ENDED
PRODUCT ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
---------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
PRICE PER TON
Stock Rebar $326 $283 $261 $256 $270
Merchant Bar (a) 359 332 308 305 302
Fabricated Rebar (plain) 421 371 364 371 376
Rods (a) 338 329 283 280 293
Billets 228 219 195 184 186
</TABLE>
(a) Includes products that are further fabricated by the Company.
REBAR PRODUCTS. The Company produces rebar products at all five of its
minimills. The Company's rebar either is sold directly to distributors and
third-party fabricating companies in stock lengths and sizes or is transferred
to one of the Company's 13 fabricating plants where it is cut and bent to meet
engineering, architectural or other end product specifications. Rebar is used
primarily for strengthening concrete in highway and building construction and
other construction applications. Rebar is consumed in a wide variety of private
sector applications and public works projects. Private sector applications
include construction of commercial and industrial buildings, apartments and
hotels, utility construction, agricultural uses and various maintenance and
repair applications. Public works projects include construction of highways,
streets and bridges, public buildings, water treatment facilities and other
projects.
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MERCHANT BARS. The Company produces merchant bars at its minimills in Jackson,
Tennessee and Charlotte, North Carolina, and to a lesser degree in Knoxville,
Tennessee. Merchant bars consist of rounds, squares, flats, angles and
channels. Merchant bars are generally sold to fabricators, steel service
centers, and manufacturers who fabricate the steel to meet engineering or end
product specifications. Merchant bars are used to manufacture a wide variety of
products, including gratings, transmission towers, steel floor and roof joists,
safety walkways, ornamental furniture, stair railings, and farm equipment.
Merchant bar products typically require more specialized processing and
handling than rebar, including straightening, stacking, and specialized
bundling. Because of the greater variety of shapes and sizes, merchant bars
typically are produced in shorter production runs, necessitating more frequent
changeovers in rolling mill equipment. Merchant products generally command
higher prices and produce higher profit margins than rebar.
RODS. The Company produces steel rod at its Jacksonville, Florida minimill.
Most of this rod is sold directly to third-party customers, while the
remainder, depending on market conditions, is shipped to the Company's New
Orleans, Louisiana facility, where the rod is drawn down to wire for use in the
manufacture of welded wire fabric and nails.
MARKETING AND CUSTOMERS. The Company conducts its marketing operation through
its own sales personnel who specialize in either mill products or fabricated
rebar. Sales personnel for mill products including stock rebar and merchant
bars are located in major metal markets in the Company's market area.
Metallurgical service representatives located at the Company's minimills
provide technical and sales support to the mill products sales force and
fabricated rebar sales force, where needed. Fabricated rebar sales personnel
are located at the Company's 13 fabricating facilities where engineering
service representatives provide technical and sale support.
The Company's customer base is fairly stable from year to year, and currently
no one customer accounts for more than 2.9% of sales. The Company's business is
slightly seasonal with orders in the second and third calendar quarters tending
to be strongest and those in the rest of the year tending to be the weakest.
Stock rebar and merchant bar are generally sold from inventory. Fabricated
rebar is generally produced in response to specific customer orders, rather
than selling from inventory.
Despite the commodity characteristics of the stock rebar and merchant bar
markets, the Company believes that it is able to distinguish itself from its
competitors to some extent due to its product quality, its consistent delivery
record, its capacity to service large orders and its ability to fill most
orders quickly from inventory. Moreover, while construction and infrastructure
projects are generally nonrecurring in nature, the steel fabricators,
distributors and service centers which supply many of these projects directly
tend to be long-time customers of the Company.
ENVIRONMENTAL MATTERS
The Company is subject to federal and state requirements governing the
remediation of environmental contamination associated with past releases of
hazardous substances (collectively, "Environmental Cleanup Laws") and to
extensive federal, state, and local laws and regulations governing discharges
to the air and water as well as the handling and disposal of solid and
hazardous wastes (collectively, "Environmental Regulatory Laws"). Governmental
authorities have the power to enforce compliance with these requirements, and
violators may be subject to civil or criminal penalties, injunctions or both.
Third parties also may have the right to sue to enforce compliance. The Company
anticipates that it will incur significant costs under Environmental Cleanup
Laws and Environmental Regulatory Laws, as discussed below.
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Environmental Cleanup Laws. The Company is subject to federal and state
hazardous substance cleanup laws that impose liability for the costs of
cleaning up contamination resulting from past spills, disposal, or other
releases of hazardous substances. In particular, the Company may be subject to
liability under the federal Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA" or "Superfund") and similar state laws that impose
liability--without a showing of fault, negligence, or regulatory violation--on
the generation of hazardous substances that have caused, or may cause,
environmental contamination. The current owner and operator of contaminated
property also are liable for cleanup of the property even if they have not
contributed to the contamination of such property. The Company expects to incur
assessment, remediation, and related costs at Company-owned minimills and at
certain off-site locations.
The on-site cleanups of which the Company is presently aware relate primarily
to emission control ("EC") dust and, in two instances, to polychlorinated
biphenyls ("PCBs"). EC dust, which is a hazardous waste under federal and most
state regulations, is generated in large quantities by electric arc furnaces,
and currently is collected by air emission control devices associated with the
furnaces. EC dust generated by the Company currently is shipped to zinc
reclamation facilities under applicable Environmental Regulatory Laws. Prior to
the early 1970s, air emission control devices generally were not required and
prior to approximately 1980, EC dust generally was not regulated as, or known
to be, a hazardous waste and often was disposed of on minimill property. The
Company is also aware that during the early 1970s contamination involving PCBs
occurred at two of the Company's facilities.
The Company's inactive minimill in Indiantown, Florida, was placed on the
National Priorities List ("NPL") as a Superfund site in 1982. The NPL is the
formal list of sites maintained by the U.S. Environmental Protection Agency
("EPA") which are likely to require long-term cleanups. The Indiantown site has
undergone extensive investigation and study under the Superfund program. The
EPA has issued two Records of Decision selecting remedial measures for soil and
groundwater respectively and specifying the remedial goals for the site. The
Company has negotiated two consent orders with the EPA regarding the
preparation and implementation of remedial design plans to comply with the
Records of Decision.
The Company's Charlotte, North Carolina minimill is included on the North
Carolina Inactive Hazardous Waste Sites Priority List because of an on-site
landfill for EC dust that was used from approximately 1968 to 1980. In 1988,
North Carolina recommended that the landfill be included on the NPL, but to
date the EPA has not taken such action. The Company is now independently
conducting the necessary remediation.
The Company is currently negotiating a consent order with the Florida
Department of Environmental Protection relating to an investigation and major
cleanup, involving both soil and ground water, at the Tampa minimill. The
Company also is investigating its Jacksonville minimill for potential soil or
groundwater contamination and with respect to past use of EC dust as fill
material and believes that some remediation will be required. There can be no
assurance that the Company will not be required to conduct additional
investigations and cleanups at these or other Company facilities in the future.
Off-site contamination problems involving the Company primarily relate to the
disposal of EC dust historically generated by the Company and shredder fluff
generated by David Joseph. Shredder fluff is the largely nonmetallic waste that
remains after scrap steel has been reclaimed from discarded cars and
appliances. Under an agreement with David Joseph, the Company is responsible,
with certain limited exceptions, for paying any remediation costs incurred by
David Joseph at sites operated for the Company and any claims against David
Joseph for environmental matters associated with the shredder fluff generated
by the David Joseph operations for the benefit of the Company. The Company or
David Joseph (with respect to alleged Company matters) has been identified as a
potentially responsible party ("PRP") for the cleanup of contamination at eight
off-site NPL sites to which it has been alleged that the Company or David
Joseph sent hazardous substances in the past. Under CERCLA, in certain
circumstances, the
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EPA may order one or more PRPs to clean up environmental contamination. In
other cases, the EPA may clean up a site and then seek reimbursement of
expenditures of federal funds plus punitive damages from PRPs. Often, however,
some PRPs cooperate with the EPA and each other to conduct voluntarily needed
investigation and cleanup.
Courts have interpreted CERCLA generally to impose joint and several liability
for cleanup (and certain other) costs on all PRPs. This means that each PRP
conceivably could be held liable for the entire amount of necessary cleanup
costs.
The Company also may incur cleanup liabilities at certain off-site locations
that have not been added to the NPL. For example, the Company recently
completed remediation of contaminated soils at two formerly owned facilities.
Generally, state environmental protection agencies provide oversight of such
cleanups under the state cleanup laws.
Overall, the Company has been notified that it is potentially liable for
remediation costs at 21 off-site locations, eight of which are the previously
mentioned NPL sites. The Company has fulfilled its obligations for the
investigation and/or cleanup at ten of these sites, and is participating in the
assessment and clean-up at the other sites.
During April 1994, the radiation detection alarms at the Company's Jackson
minimill were set off by two loads of outgoing EC dust. The dust was held
on-site and, upon confirming the validity of the alarm, the Company immediately
shut down the melt shop. The subsequent investigation, which was conducted by a
specialty contractor licensed by the State of Tennessee to perform assessment
and remediation activities involving radioactive contamination, revealed that a
radioactive source containing Cesium 137, a man-made, radioactive material, had
in fact been received, undetected with a load of scrap and melted along with
the scrap. The assessment identified EC dust contaminated with low levels of
Cesium within the baghouse and connected ductwork and equipment, all of which
had to be decontaminated and verified clean prior to melt shop startup. Low
level Cesium contamination has also been identified in the soil and in drums of
splash condenser dross residue (SCDR) located at the mill, at an off-site
warehouse and at the contractors off-site SCDR processing facility.
Decontamination of the SCDR at the off-site warehouse is almost complete. The
last remaining task is the disposal. After a review of the data available
regarding the extent of the contamination and the options and associated costs
for cleanup and disposal, the Company has estimated its potential costs to be
approximately $10.0 million of which $5.4 million has been spent to-date.
Based on past use of certain technologies and remediation methods by third
parties, evaluation of those technologies and methods by the Company's
consultants and quotations and third-party estimates of costs of
remediation-related services provided to the Company or of which the Company
and its consultants are aware, the Company and its consultants continue to
believe that the Company's cost estimates are reasonable. The Company has
estimated its potential costs for further remediation under Environmental
Cleanup Laws at on-site and off-site locations through 2009 to be approximately
$19 million and has included this amount in the Company's recorded liabilities
as of March 31, 1995.
Environmental Regulatory Laws. The Company anticipates that it will incur
potentially significant costs to comply with Environmental Regulatory Laws,
including correcting existing noncompliance with such laws and achieving
compliance with anticipated future standards for air emissions.
The Company will spend approximately $9.3 million on environmental compliance
during fiscal 1996 (not including remediation costs or capital expenditures).
This includes costs for baghouse waste disposal, maintenance, permits,
monitoring, investigation, consulting fees, and legal fees. Similar annual
compliance costs are expected to be incurred for the foreseeable future and
will continue to be reflected in the Company's cost of sales.
11
<PAGE> 12
The Company's projected capital budget for its fiscal year ending March 31,
1996 of approximately $30 million includes capital expenditures for air
pollution control equipment at the Knoxville and Jackson, Tennessee minimills.
In addition, the Company expects to spend approximately $2 million annually for
the foreseeable future for environmentally related maintenance capital
expenditures.
Based on a preliminary EPA determination, the Company no longer expects to
incur significant costs to comply with the recent amendments to the federal
Clean Air Act under which the EPA was expected to promulgate strict standards
that would govern the emission of hazardous air pollutants from electric arc
furnaces such as those used by the Company. The EPA regulations are not
scheduled to be promulgated until 1997, with compliance expected to be required
by 2000, and it is not known when a final determination as to electric arc
furnaces will be made by the EPA.
LITIGATION
See "Environmental Matters" for a discussion of the Company's cleanup
liabilities and its consent agreements with state and federal regulators
regarding the investigation and/or cleanup of certain Superfund and
non-Superfund sites.
COMPETITION
The Company experiences substantial competition in the sale of each of its
products from a large number of domestic companies in its geographic markets.
Rebar and merchant bars are commodity steel products, making price the primary
competitive factor. Due to the high cost of freight relative to the value of
the Company's steel products, competition from non-regional producers is
limited; and rebar deliveries are generally concentrated within a 350 mile
radius of a minimill while merchant bar deliveries are generally concentrated
within a 500 mile radius of a minimill. Except in unusual circumstances, the
customer's delivery expense is limited to freight charges from the nearest
competitive minimill and any incremental freight charges must be absorbed by
the supplier.
The level and degree of foreign competition faced by the Company within the
Florida rebar market have varied from time to time depending upon factors
including foreign government subsidies and currency exchange rates. Very little
rebar has been imported into Florida in the last five years and, consequently,
rebar imports have had little effect on the market.
The Company's competitive environment varies by product. The following is a
discussion of the Company's competitive environment with respect to its five
major product categories: stock rebar, fabricated rebar, merchant bars, rods
and billets.
STOCK REBAR. The boundary of the current market area for the Company's rebar
products is roughly defined by a line running through New Orleans, Louisiana;
Little Rock, Arkansas; Kansas City, Kansas; St. Louis, Missouri; Indianapolis,
Indiana; Columbus, Ohio; and Baltimore, Maryland. The Company has found
shipping outside of this market area to be only marginally profitable because
of freight cost considerations.
MERCHANT BAR. The Company's primary marketing area for merchant bars
encompasses the southeastern and midwestern United States. The Company did not
enter the merchant bar market in a significant way until 1982 and does not have
the same market strength as it does in the rebar market. The Company's presence
in the southeastern and midwestern markets has grown steadily, and its merchant
bar sales now represent approximately 31% of the Company's total sales.
12
<PAGE> 13
The market for merchant bars is very competitive, with price being the primary
competitive factor. In the last two years, the Company has upgraded its rolling
mill facilities at Charlotte, to increase the Company's ability to shift
production from rebar to merchant bar depending upon market conditions and
demand.
RODS. The Company produces rods at its Jacksonville minimill. The Company's
primary marketing area for rods includes Florida, South Carolina, Georgia,
Alabama and Louisiana. The Company does not intend to geographically expand its
marketing beyond these states due to the relatively low margins and prohibitive
freight cost inherent to rod products. While the market for rods can be heavily
influenced by foreign imports, rod sales by foreign competitors did not have a
material effect on the Company's rod sales in the last three years.
FABRICATED REBAR. With 13 fabricating plants located throughout the
southeastern United States, all within good support distance from one of the
Company's five minimills, the Company is a major factor in all markets it
serves. The Company believes its intracompany minimill support gives it a
significant competitive advantage on major construction projects. In the sale
of fabricated rebar, the Company competes with other steel fabricators in its
marketing area some of whom purchase their stock rebar from the Company.
BILLETS. The Company produces billets (semi-finished steel) for conversion to
rebar, merchant bar and rods. When the market for finished product is down, the
Company sells the excess billet production.
EMPLOYEES
The Company has approximately 2,000 employees, none of whom is covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good and a participatory style of labor-management relations
is important to the efficiency of the Company's operations.
On January 1, 1995 an incentive plan based on production tons, was put into
effect at the five mills. Each mill has a melting and rolling target which
provide a 1.5% increase in pay for each 1% increase in production. Effective
April 1, 1995, the fab group, mill sales and the corporate administrative group
pay policy included monthly incentives similar to the mills. The executive
group (approximately 40 key executives) are covered by an incentive plan that
is based on return on capital.
ITEM 2. PROPERTIES
The Company's buildings are of various ages and forms of construction and are
all properly maintained and adequately equipped for the purposes for which they
are used. The Company's five minimills are owned in fee simple and serve as the
collateral for the First Mortgage Notes together with the other collateral.
13
<PAGE> 14
The following tables present information with respect to the buildings and
facilities:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
OF BUILDING OWNED
LOCATION ACREAGE FLOOR SPACE OR LEASED
-------- ------- ----------- ---------
<S> <C> <C> <C>
MILLS (A)
Tampa, FL................................................65.2 228,046 Owned
Jacksonville, FL........................................160.9 288,564 Owned
Charlotte, NC............................................77.2 299,401 Owned
Jackson, TN.............................................300.1 424,878 Owned
Knoxville, TN(b).........................................49.9 217,988 Owned
</TABLE>
(a) The First Mortgage Notes are secured by a first priority lien
on substantially all the real property, machinery, equipment,
and fixtures of each of the Company's five minimills.
(b) Includes a fabricating plant, which is not a part of the
collateral package.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
OF BUILDING OWNED
LOCATION ACREAGE FLOOR SPACE OR LEASED
-------- ------- ----------- ---------
<S> <C> <C> <C>
FABRICATING PLANTS (C)
Ft. Lauderdale, FL.........................................7.3 55,254 Owned
Jacksonville, FL...........................................8.0 56,565 Owned
Orlando, FL................................................2.8 22,929 Owned
Plant City, FL (Tampa).....................................9.2 63,892 Owned
Duluth, GA (Atlanta).......................................6.5 48,500 Owned
Louisville, KY.............................................4.3 37,338 Owned
Charlotte, NC..............................................7.0 57,867 Owned
Raleigh, NC................................................7.2 39,836 Owned
Aiken, SC..................................................7.5 32,340 Owned
Nashville, TN..............................................5.0 46,760 Owned
Collierville, TN (Memphis).................................2.7 26,664 Owned
St. Albans, WV.............................................5.0 27,300 Leased
</TABLE>
(c) These properties do not constitute collateral for either the
First Mortgage Notes or the Revolving Credit Agreement.
14
<PAGE> 15
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
OF BUILDING OWNED
OTHER (D) USE ACREAGE FLOOR SPACE OR LEASED
--------------------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Tampa, FL Corporate offices -- 28,000 Leased
Tampa, FL Old Corporate offices 2.4 35,077 Owned
held for sale
Tampa, FL Land held for sale 432.4 -- Owned
Indiantown, FL Closed minimill 151.5 130,340 Owned
New Orleans, LA Wire fabric and 5.0 120,000 Leased
nail facility
Lancaster, SC Rail spike facility 41.0 52,000 Owned
Paragould, AR Rail spike facility 7.7 23,000 Owned
</TABLE>
(d) These properties do not constitute collateral for either the
First Mortgage Notes or the Revolving Credit Agreement.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
MARKET PRICE AND CASH DIVIDENDS
Effective with the 1988 Acquisition, through May 31, 1994, all of the
outstanding common stock of the Company was owned by Holdings. On June 1, 1994,
Phillip E. Casey (as part of an employment agreement) received 7 1/2% of the
outstanding shares and purchased an additional 2 1/2% of the shares in November
1994. No established public trading market exists for the Company's common
stock. No dividends were declared or paid on the Company's common stock during
any of the reporting periods.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The summary financial information presented below should be read in conjunction
with the Financial Statements of Florida Steel Corporation and the notes
thereto ($ in thousands except per share data):
<TABLE>
<CAPTION>
P R E D E C E S S O R
----------------------------
YEAR ENDED YEAR ENDED THREE MONTHS ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
---------- ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $ 639,908 $ 547,118 $ 122,736 $ 108,358 $ 465,233
Operating expenses:
Cost of sales, excluding
depreciation 545,725 498,692 109,607 99,355 404,750
Selling and administrative 29,959 22,993 5,459 6,071 24,398
Depreciation 14,046 15,369 3,770 3,890 15,643
Amortization of goodwill 4,130 4,061 1,015 667 2,670
Other operating expenses -- 15,220 -- -- 9,000
---------- ---------- ---------- ---------- ----------
593,860 556,335 119,851 109,983 456,461
---------- ---------- ---------- ---------- ----------
Income (loss) from operations 46,048 (9,217) 2,885 (1,625) 8,772
Other expense:
Interest 23,330 21,027 5,290 14,482 35,465
Amortization of deferred
financing costs 2,863 2,552 653 288 1,276
---------- ---------- ---------- ---------- ----------
26,193 23,579 5,943 14,770 36,741
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes (benefit), extraordinary item,
and cumulative effect of change
in accounting principle 19,855 (32,796) (3,058) (16,395) (27,969)
Income taxes (benefit) 9,354 (10,833) (769) (6,001) (8,030)
---------- ---------- ---------- ---------- ----------
Income (loss) before extra-
ordinary item and cumulative
effect of change in accounting
principle 10,501 (21,963) (2,289) (10,394) (19,939)
Extraordinary item, net of income
tax benefit -- (748) -- (4,185) --
Cumulative effect of change in
accounting principle, net of
income tax benefit -- -- -- -- (4,270)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 10,501 $ (22,711) $ (2,289) $ (14,579) $ (24,209)
---------- ---------- ---------- ---------- ----------
Earnings (loss) per share $ 1.05 $ (2.27) $ (.23)
========== ========== ==========
</TABLE>
17
<PAGE> 18
The following table shows the percentage of the Company's revenues derived from
each product category in the relevant time period:
<TABLE>
<CAPTION>
P R E D E C E S S O R
-------------------------------
YEAR YEAR THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
--------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Fabricated Rebar 23% 23% 22% 27% 29%
Stock Rebar 27 24 25 26 22
Merchant Bars 31 28 30 26 26
Rods 7 8 9 9 9
Other (includes billets) 12 17 14 12 14
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
<TABLE>
<CAPTION>
P R E D E C E S S O R
AS OF AS OF AS OF ----------------------
MARCH 31, MARCH 31, MARCH 31, AS OF SEPTEMBER 30,
1995 1994 1993 1992 1991
--------- --------- --------- ----- ----
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
($ in thousands)
Current assets $ 223,444 $ 187,672 $ 148,335 $ 146,061 $ 138,372
Current liabilities 102,080 76,006 59,530 352,599 214,576
Working capital (deficit) 121,364 111,666 88,805 (206,538) (76,204)
Current ratio 2.2 2.5 2.5 (.4) (.6)
Property, plant and equipment, net 231,108 222,861 229,665 222,620 236,613
Goodwill 94,033 98,163 100,530 95,893 98,563
Deferred financing costs 4,504 7,367 9,725 7,622 8,325
Total assets 561,748 523,706 495,884 479,827 489,961
Long-term and other borrowings 243,030 247,128 212,002 284,568 286,875
Other liabilities 18,388 28,721 24,490 16,153 3,000
Deferred tax liabilities 60,500 46,852 52,151 59,285 71,385
Redeemable preferred stock -- -- -- 94,707 80,079
Shareholders' equity (deficit) 137,750 124,999 147,711 (42,918) (4,079)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MANAGEMENT DISCUSSION AND ANALYSIS
The Company changed its year-end from September 30th to March 31st effective
March 1993. References to fiscal years 1991 and 1992 are the fiscal years of
the Company ended September 30th. To assist in the analysis of fiscal year
ended March 31, 1994 and the period October 1, 1992 to March 31, 1993, the
quarter ended December 31, 1992 of the Predecessor has been combined with the
March 31, 1993 quarter. Results for the comparable six month period, October 1,
1991 to March 31, 1992 and the twelve month period ended March 31, 1993, are
provided.
18
<PAGE> 19
RESULTS OF OPERATIONS
($ in thousands)
<TABLE>
<CAPTION>
APRIL 1, APRIL 1, APRIL 1, OCTOBER 1, OCTOBER 1,
1994- 1993- 1992- 1992- 1991-
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1995 1994 1993 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 639,908 $ 547,118 $ 479,972 $ 231,094 $ 216,356
Cost of Sales excluding depreciation 545,725 498,692 431,459 208,962 182,429
Selling and Administrative 29,959 22,993 25,286 11,530 10,637
Depreciation 14,046 15,369 15,495 7,660 7,808
Amortization of Goodwill 4,130 4,061 3,017 1,682 1,335
Other Operating Expenses -- 15,220 9,000 -- --
Interest 23,330 21,027 37,535 19,773 17,703
Amortization of deferred financing costs 2,863 2,552 1,547 940 669
Extraordinary item net of income tax benefit -- (748) (4,185) (4,185) --
Cumulative effect of change in accounting
principle net of income tax benefit -- -- -- -- (4,270)
Income tax (benefit) 9,354 (10,833) (13,881) (6,770) (1,089)
Net income (loss) 10,501 (22,711) (33,671) (16,868) (7,406)
</TABLE>
FISCAL 1995 VERSUS FISCAL 1994
<TABLE>
<CAPTION>
TONS SHIPPED (THOUSANDS) SELLING PRICES (PER TON)
FY 1995 FY 1994 FY 1995 FY 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Stock Rebar 535 465 $ 326 $ 283
Merchant Bar 549 468 359 332
Fabricated Rebar 347 330 421 371
Rods 129 122 338 329
Billets 141 263 228 219
----- -----
1,701 1,648
===== =====
</TABLE>
19
<PAGE> 20
Liquidity and Capital Resources
As of March 31, 1995, the Company's total outstanding borrowings were $259.3
million of which $16.2 million is due within fiscal 1996. Outstanding
borrowings under the Revolving Credit Agreement totaled $65.2 million.
Effective June 1995 the Company negotiated a New Revolving Credit Agreement to
replace the Revolving Credit Agreement and provide additional liquidity. See
Note F - Notes to Financial Statements for additional details concerning the
new agreement.
Net cash provided by operating activities improved substantially in fiscal 1995
as a result of improved net income. Working capital requirements increased
because of the higher volume and the payments of environmental clean up
previously expensed. Capital expenditures increased to $25.8 million as
compared with $18.2 million in fiscal 1994. The Note to Parent totaled $18.2
million with $.9 million outstanding at March 31, 1995.
The First Mortgage notes, the Revolving Credit Agreement and the New Revolving
Credit agreement contain certain restrictions to incur additional indebtedness
and other covenants deemed appropriate. The Company, however, believes that the
available borrowings and the cash flow generated from operations will be
sufficient to fund the current operations and the current capital expenditure
program. The Company is currently in compliance with all of the covenants of
its loan agreements.
Seasonality
The Company's business is slightly seasonal with orders in the second and third
calendar quarters tending to be stronger than the rest of the year.
Impact of Inflation
The Company's primary costs include ferrous scrap, energy and labor which can
be affected by inflationary conditions. The Company has been able to pass on
cost increases through price adjustments, however the ability to pass on these
increases depends on the level of construction activity. Another factor that
may limit the Company's ability to increase prices is the over-capacity in the
industry.
FISCAL 1995 VERSUS FISCAL 1994
Sales
Net sales for fiscal 1995 were 17% higher than fiscal 1994 as a result of both
higher volume and improved selling prices. Shipments for all finished products
were up 12.6% while billet shipments, primarily export shipments at low
margins, were lower. All selling prices were higher this year over last year
with mill finished products 10.3% higher and fabricated rebar 13.5% higher.
Cost of Sales
Cost of sales excluding depreciation was 85.3% of net sales as compared with
91.2% for the previous year. The substantial improvement was the result of the
increased sales volume and prices and a $11 per ton decrease in mill conversion
costs. While scrap costs increased $12 per ton the spread between mill finished
products average selling prices and scrap increased $20 per ton in fiscal 1995
versus fiscal 1994.
20
<PAGE> 21
Selling and Administrative Expenses
Selling and administrative expenses for fiscal 1995 were higher than fiscal
1994 primarily because of employment costs related to the hiring of the new
Chairman of the Board and Chief Executive Officer and higher wages and
benefits.
Depreciation
Depreciation expense was lower in fiscal 1995 versus fiscal 1994 because of the
shut down of the Tampa melt shop in June 1994.
Interest
Interest expense was higher in fiscal 1995 versus fiscal 1994 as a result of
higher rates and higher average borrowings. The Company capitalized $654
thousand of interest in the current year versus zero a year ago.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs were higher in fiscal 1995 versus a
year ago primarily because of financing costs associated with the Revolving
Credit Agreement.
Income Taxes
The effective federal and state income tax rate for fiscal 1995 was 38.8%
compared with 36.5% for the previous year, excluding the effect of goodwill
amortization which is not deductible for income tax purposes. The increased
rate reflects the higher federal rate and to a lesser extent higher state
rates, based on net income levels.
FISCAL 1994 VERSUS TWELVE MONTHS ENDED MARCH 31, 1993
Sales
Net sales for the fiscal year ended March 31, 1994, were 14.0% higher than the
twelve month period ended March 31, 1993. Total tons shipped were up 6.0% while
selling prices for rolled products were up 5.8%. Higher billet sales accounted
for the balance of the increase.
The higher volume reflects an improving market during the year with the
increased billet sales the result of higher production. Selling prices, with
the exception of the Fab Group, were higher, primarily driven by higher scrap
costs.
Cost of Sales
Cost of sales, excluding depreciation, was 91.2% of sales for fiscal 1994 as
compared with 89.9% for the twelve month period ended March 31, 1993. The
primary reasons for this increase in cost of sales, excluding depreciation,
were higher scrap costs and higher mill conversion costs. Scrap costs increased
$26 per ton during the year.
Overall, the various product groups selling price increases covered the scrap
increases except the Fab Group, which was not able to recover any of the scrap
increases because of the competitive market and the longer term contracts
associated with this part of the business. Conversion costs were higher
primarily as a result of higher maintenance costs.
21
<PAGE> 22
Selling and Administrative Expenses
Selling and administrative expenses for fiscal 1994 were lower than the
comparable period a year ago primarily due to higher outside professional
service fees incurred in connection with the Company's restructuring efforts in
the prior twelve month period ended March 31, 1993.
Amortization of Goodwill
Amortization of goodwill was higher in the current year versus the comparable
prior year period as a result of using a twenty-five year period as compared
with a forty year period used prior to January 1, 1993.
Other Operating Expenses
Other operating expenses for fiscal 1994 included the write-down of fixed
assets of $9.1 million and $1.2 million for employee benefits, as a result of
the Tampa Melt Shop closing, a $.6 million charge for the effect of the Fort
Myers, Florida and Woodbridge, Virginia Fab Shop closings and a $4.3 million
charge for anticipated increases in the environmental clean up of sites
previously identified. As a result of the Tampa Melt Shop closing working
capital should be reduced and operating results should improve. In fiscal 1995
billets from the other Florida Steel mills will be shipped to Tampa for
finishing. Expansion of the current Company's melt shops are planned to meet
the anticipated domestic market demands.
Interest
Interest expense was substantially lower in fiscal 1994 as compared with the
same period a year ago primarily because of the lower debt as a result of the
Acquisition and lower interest rates.
Amortization of Deferred Financing Costs
Amortization of deferred financing costs were higher in fiscal 1994 versus a
year ago primarily because of financing costs associated with the new capital
structure.
Extraordinary Item
The Company redeemed $20 million of the 14.5% subordinated debentures at a
premium of 6% or $1.2 million. The expense net of income tax was $748,000. The
$4.2 million charge in the twelve month period ended March 31, 1993, was
related to the repayment of existing debt as of December 1992. See Note C for
additional information.
Income Taxes
The effective federal and state income tax rate for the fiscal year ended March
31, 1994, was 37.7% as compared with 34.4% for the comparable period a year
ago, excluding the effect of goodwill amortization which is not deductible for
income tax purposes.
22
<PAGE> 23
SIX MONTHS ENDED MARCH 31, 1993 VERSUS SIX MONTHS ENDED MARCH 31, 1992
Sales
Net sales for the six month period ended March 31, 1993 were $231.1 million or
6.8% higher than the six month period ended March 31, 1992. Total tons shipped
were 754,305 versus 655,816 for the prior year period or a 15% increase while
selling prices, with the exception of merchant bar, were down.
Stock rebar shipments were up 32%, merchant bar was up 14%, rod was up 7%,
fabricated rebar was down 11% and billet shipments were up 46%.
Stock rebar selling prices were down 7%, rod was down 4%, fabricated rebar was
down 4%, billets were down 2% and merchant bar selling prices were up 2%,
The higher shipments of billets and stock rebar were primarily the result of
higher exports. The lower selling prices reflect the competitive pricing in the
industry.
Cost of Sales
Cost of sales excluding depreciation was 90.4% of net sales for the six month
period ended March 31, 1993 as compared with 84.3% for the six month period
ended March 31, 1992. The primary reason for the increase in cost of sales
excluding depreciation was the effect of the lower selling prices and product
mix. Scrap costs were 4.6% higher for the current period as compared with a
year ago. As a result of the higher volume and production efficiencies, the
cost to convert scrap to finished products remained approximately the same even
though wages were increased as of the merger date after being frozen for
approximately 19 months.
Selling and Administrative Expenses
Selling and administrative expenses increased in 1993 versus the comparable
period, primarily due to higher outside professional services fees incurred in
connection with the Company's restructuring efforts. Non-recurring costs
related to the restructuring totaled $1.4 million for the six month period
ended March 31, 1993.
Depreciation
Depreciation was lower in the 1993 period versus the 1992 comparable period
primarily because of the reduction in the recorded values of fixed assets of
the Acquisition.
Amortization
Amortization of goodwill and deferred financing costs for the 1993 period was
higher than the comparable period a year ago. The amortization of goodwill
costs for the quarter ended March 31, 1993, was based on a 25 year period as
compared with 40 years in the prior period.
Interest Expense
Interest expense for the six months ended March 31, 1993, was lower than the
1992 comparable period because of substantially lower debt as a result of the
Acquisition, and to a lesser extent lower interest rates.
23
<PAGE> 24
Income Taxes
The effective federal and state income tax rate for the six months period ended
March 31, 1993 was 38.1% compared with 37.7% for the six months period ended
March 31, 1992, excluding the effect of goodwill amortization, which is not
deductible for income tax purposes.
FISCAL 1992 VERSUS FISCAL 1991
Sales
Net sales for the fiscal year ended September 30, 1992 were $465.2 million
compared to $463.2 million for the fiscal year ended September 30, 1991.
Finished tons shipped during fiscal 1992 were less than 1% higher than the
prior year. Average selling prices for fiscal 1992 were 4.5% lower than in the
prior year. The effect of lower average selling prices, however, was offset by
an increase in billet shipments from approximately 71,000 tons in 1991 to
202,000 tons in 1992. Billet production in fiscal 1992 was higher than in
fiscal 1991 because of improved production efficiency and the effect on fiscal
1991 production of the start-up of the new Tampa melting facility. Billet
shipments rose in fiscal 1992 because the Company's higher production of
billets was not matched by increased demand for finished products.
Stock rebar shipments were down 3.8% as compared to the prior year, fabricated
rebar shipments decreased 1.9% while merchant bar and rod shipments increased
4.2% and 7.3%, respectively. Stock rebar selling prices decreased 4.2% from a
year ago, fabricated rebar prices decreased 8.2%, merchant bar prices decreased
1.0% and rod prices decreased 1.3%.
Cost of Sales
Cost of sales, including depreciation, was 90.4% of net sales for the year
ended September 30, 1992 as compared to 89.4% for the fiscal year ended
September 30, 1991. Mill production costs for fiscal 1992 decreased 8.7% versus
fiscal 1991. Approximately one-third of the reduction in mill production costs
was the result of lower scrap costs. The remainder of the reduction was
primarily the result of an 11% increase in melting production, and the effects
of the continuing improvements in production efficiency resulting from new
technology and improved equipment.
The favorable mill production costs were, however, offset by the lower average
selling prices and $7.9 million of expenses associated with increasing the
reserve for environmental remediation costs. This increase in the reserve plus
expenditures resulted in environmental remediation costs of $9.6 million in
1992 versus costs of $0.8 million in 1991. Of the $8.8 million increase in
environmental remediation expense (i) $2.7 million related to the
identification of new sites in fiscal 1992 and related testing costs; (ii) $1.9
million related to an April 1992 regulatory change regarding tolerable limits
for lead in soil, which increased the volume of soil which had to be remediated
by the Company; and (iii) $1.4 million related to regulatory communications
received in 1992 concerning one of the Company's identified sites, which made
the Company's previously planned remediation methodology unfeasible. The
remaining increase, resulting from the Company's regular review of the costs
associated with environmental remediation at previously identified sites, was
attributable to changes in the estimates of contaminated material quantities,
prices to be obtained from the sale of remediation by-products and costs of
expected technology for remediation. Results for the year ended September 30,
1991 were adversely affected by approximately $8 million for the start-up costs
related to the newly installed electric arc furnace at the Tampa, Florida
minimill.
24
<PAGE> 25
From April 1991 through the closing of the Acquisition, the Company had frozen
compensation for all employees and had reduced compensation for management and
had curtailed or scaled back some employee benefit programs. Management
estimates that if the wage and salary freeze had not been instituted, expenses
would have been higher by approximately $1.2 million and $3.2 million for the
years ended September 30, 1991 and 1992, respectively.
Selling and Administrative Expenses
Selling and administrative expenses increased in the year ended September 30,
1992 versus fiscal 1991, primarily due to higher outside professional services
fees incurred in connection with the Company's restructuring efforts.
Nonrecurring costs related to the restructuring totaled $3.9 million for the
year ended September 30, 1992.
Depreciation
Depreciation was higher for the year ended September 30, 1992, when compared to
fiscal 1991 primarily because of the depreciation attributable to additional
capital expenditures.
Amortization
Amortization of goodwill and deferred financing costs for the year ended
September 30, 1992 was generally consistent with that for fiscal 1991.
Interest Expense
Interest expense for the year ended September 30, 1992, was lower than in
fiscal 1991, primarily because of lower interest rates payable on a portion of
the Company's borrowings.
Income Taxes
The effective federal and state tax rate for the year ended September 30, 1992
was 31.7% as compared to 37.7% for fiscal 1991, excluding the effect of
goodwill amortization, which is not deductible for income tax purposes. The
lower effective tax rate for fiscal 1992 was the result of additional
nondeductible costs related to the proposed merger and settlement of an
investigation as discussed below.
Other Operating Expense
The Company recorded a liability of $9.0 million as of September 30, 1992
representing the settlement of an investigation by the U.S. Attorney's Office
regarding the Company's compliance with Florida Department of Transportation
epoxy coated rebar specifications. See Note L of the Notes to Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to index in Item 14 for financial statements and supplementary data filed
as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
25
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
General: The Bylaws of the Company provide that the business shall be managed
by a Board of Directors.
The name, age, present principal occupation or employment and five-year
employment history of each of the directors and executive officers of the
Company are set forth below. All officers serve at the pleasure of the Board.
Directors serve no specific term of office. Each director and executive officer
listed below is a citizen of the United States, except as noted below. Refer to
Item 13 for information on other directorships held by each director.
<TABLE>
<CAPTION>
NAME AND AGE
------------ PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
DIRECTORS AND FIVE-YEAR EMPLOYMENT HISTORY
--------- ------------------------------------------
<S> <C>
Koichi Takashima (72) Chairman of the Board of Florida Steel from December 21, 1992 through May 31, 1994. Director
of Florida Steel since December 21, 1992. Chairman of Kyoei Steel for more than five years.
Citizen of Japan.
Phillip E. Casey (52) Chairman of the Board and Chief Executive Officer, Director of Florida Steel since June 1,
1994. Prior to that date was an officer with Birmingham Steel Corporation for more than five
years.
Thomas G. Creed (61) Chief Operating Officer; President and Chief Operating Officer of Florida Steel for more than
five years. Director since 1987.
J. Donald Haney (58) Vice President; Group Vice President Fabricated Reinforcing Products of Florida Steel for more
than five years. Director since 1988.
Akihiko Takashima (58) Director of Florida Steel since December 21, 1992. Director, Kyoei Steel for more than five
years. Citizen of Japan. Mr. A. Takashima is the brother of Mr. K. Takashima.
Hideichiro Takashima (37) Director of Florida Steel since May 22, 1995. Executive of Kyoei Steel for more than five
years. Citizen of Japan and son of Koichi Takashima.
Ryutaro Yoshioka (60) Director of Florida Steel since May 22, 1995. Executive of Kyoei Steel since July 1, 1994.
Executive of Bank of Tokyo for more than five years. Citizen of Japan.
Takeshi Fujimura (70) Director of Florida Steel and Chairman of the Executive Committee since December 21, 1992.
Advisor to President, Kyoei Steel since 1990. Prior to that date was Executive Vice President
of Sumikin Bussan Kaisha, LTD., for more than two years. Citizen of Japan.
Shoji Nakamura (58) Director of Florida Steel since December 21, 1992. Vice President--Engineering, Florida Steel
since December 21, 1992. Managing Director, Kyoei Steel since April 1990. Prior to that
date, Director for more than three years. Citizen of Japan.
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
----------------------------------------
<S> <C>
Tom J. Landa (43) Vice President; Chief Financial Officer and Secretary since April 1, 1995. Prior to that
time, spent almost 20 years in various financial management positions with Exxon Corporation
and its affiliates worldwide.
James C. Hogue (62) Vice President Human Resources of Florida Steel for more than five years.
Robert P. Muhlhan (45) Vice President - Material Procurement: Last two years Regional Vice President of National
Material Trading. Prior to that time was manager with LTV Steel Company, for more than five
years.
</TABLE>
Committees of the Board of Directors
Florida Steel's Board of Directors has an executive committee consisting of Mr.
Casey, Mr. Fujimura, and Mr. Creed. The Company also has an Executive
Compensation Committee and an Audit Committee. Committees of the Board of
Directors may be appointed by the Board of Directors in accordance with the
Bylaws of Florida Steel.
27
<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
The tables and descriptive information set forth below are intended to comply
with the amendments adopted by the SEC to the executive compensation
requirements applicable to, among other filings, this report. This information
is being furnished with respect to those persons who, were the Company's Chief
Executive Officer and its four most highly compensated executive officers,
other than the Chief Executive Officer, whose salary and bonus (see adjusted
for the short 1993 fiscal year) exceeded $100,000 for the most recent fiscal
year (together, the "named executive officers"). Tables have been omitted where
no compensation was awarded to, earned by or paid to any of the named
executives required to be reported in any fiscal year covered by that table.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARIES BONUS
--------------------------- ---- -------- -----
<S> <C> <C> <C>
Phillip E. Casey (2) 1995 $249,167 $7,192,170
Chairman of the Board, Chief Executive Officer
Thomas G. Creed 1995 282,204 221,779
President and Chief Operating Officer 1994 272,328
1993 253,532
1992 221,636
J. Donald Haney 1995 216,594 140,995
Vice President Fabricating Reinforcing Products 1994 209,016
1993 201,906
1992 168,201
Ralph R. Boswell 1995 227,640 128,720
Vice President Steel Mills 1994 216,792
1993 206,862
1992 185,814
James C. Hogue 1995 180,936 105,872
Vice President Human Resources 1994 171,210
1993 165,216
1992 143,398
</TABLE>
28
<PAGE> 29
(1) This table sets forth certain information concerning compensation for
services rendered to the Company in all capacities by the named executive
officers for the fiscal years ending March 31, 1995, March 31, 1994, and
September 30, 1992. Columns have been omitted where no compensation was
awarded to, earned by, or paid to any of the named executives required to
be reported in any fiscal year covered by that column. Salaries for 1993
for comparability are double the amounts for the six month period ended
March 31, 1993.
(2) Effective June 1, 1994, the Company entered into an employment agreement
with Mr. Phillip Casey to serve as the Company's Chairman of the Board of
Directors and Chief Executive Officer. The Agreement includes a one time
signing bonus of $500,000, base annual salary of $300,000, equity
interest of 7.5% of the outstanding common stock of the Company ($4.5
million to vest ratably over the next five years), a tax bonus in the
amount of $1,946,000 paid to Mr. Casey with respect to his receipt of the
7.5% equity interest, and other benefits commensurate with his position.
In addition, Mr. Casey was granted and exercised an option to purchase an
additional 2.5% of the outstanding common stock of the Company for $1.5
million. The agreement provides for certain termination benefits and
places restrictions on the disposition of the Company's stock. On April
17, 1995, the Company made a Tax Loan agreement with Mr. Phillip Casey
for $731,511 at market interest rates to be paid over the next 5 years.
Mr. Casey also received a bonus based on the fiscal 1995 short term plan.
(3) Effective April 1, 1995, the Company entered into an employment offer
with Mr. Tom J. Landa to serve as the Vice-President and Chief Financial
Officer of the Company. The agreement includes a one time signing bonus
of $100,000, base annual salary of $160,000 and a grant of 12,000 shares
of restricted common stock and a grant of 12,000 common stock options.
29
<PAGE> 30
Pension Benefit
The Pension Table sets forth the estimated annual benefits, payable as a single
life annuity, at various remuneration levels and for representative years of
service at normal retirement date under the Company's tax-qualified
noncontributory defined benefit pension plan. The years of credited service for
the named executives are 22 years for Thomas G. Creed, 37 years for J. Donald
Haney and 29 years for James C. Hogue. The final average compensation for the
named executives, for purposes of this plan for 1995 is, for, Thomas G. Creed -
$219,224, J. Donald Haney - $198,896 and James C. Hogue - $175,704. The table
does not reflect the maximum benefit limitations under Internal Revenue Code
Section 415.
<TABLE>
<CAPTION>
P E N S I O N T A B L E
------------------------
Y E A R S O F S E R V I C E
-----------------------------
20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000 $ 27,408 $ 34,260 $ 41,112 $ 47,964 $ 52,964
150,000 42,408 53,010 63,612 74,214 81,714
200,000 57,408 71,760 86,112 100,464 110,464
235,000 67,908 84,885 101,862 118,839 130,589
250,000 72,408 90,510 108,612 126,714 139,214
300,000 87,408 109,260 131,112 152,964 167,964
350,000 102,408 128,010 153,612 179,214 196,714
</TABLE>
30
<PAGE> 31
Supplemental Retirement Plan. The Company maintains a nonqualified, unfunded
supplemental retirement plan, which provides certain officers defined pension
benefits in addition to those provided under the Company's other plans. The
supplemental plan provides an annual retirement benefit equal to the greater of
(i) 50% of final average compensation (as defined above), and (ii) 2.4% of
final average compensation multiplied by years of service (up to 25), plus 1%
of final average compensation multiplied by years of service in excess of 25
(up to 10), less (in either case) amounts to which the participant is entitled
under other retirement plans of the Company and prior employers and under
Social Security. In 1988, as a result of the Change in Control of the Company,
the accrued benefits under this Plan became immediately due and payable in a
lump sum, although all of the active officers in the Company elected to waive
receipt of their accrued benefits in exchange for common stock of Holdings.
Additional benefits over and above those resulting from the acceleration
continue to be earned. Upon retirement at January 26, 1995, R. R. Boswell
received a one-time payment of $332,223 for supplemental retirement benefit. As
of March 31, 1995 the Company has accrued approximately $470,000 in supplemental
retirement benefits for the remaining active employees covered by the Plan.
In connection with the Acquisition, the officers covered by this Plan have all
waived their rights to an immediate lump sum payment, provided, that if such
officers are terminated without Cause (as defined in the severance agreements
entered into with such officers), resign for Good Reason (as defined in the
severance agreements) or die, retire or become disabled, then such officers
will be entitled to receive the amounts they would have received had such
officers not waived the above described rights.
Severance Agreements
The Company and the senior executives have entered into an agreement providing
that, if the Company terminates any executive other than for cause, or
reassigns such executive to a new position, the Company shall continue to pay
the executive his current base pay through August 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Item 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
90% of the outstanding stock of Florida Steel is owned by FLS Holdings, with
10% owned by Phillip E. Casey. All of the outstanding stock of FLS Holdings is
owned by Kyoei Steel Ltd.
Management believes all of the transactions discussed above were on terms
comparable to those that could have been obtained from unaffiliated third
parties.
31
<PAGE> 32
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.
FLORIDA STEEL CORPORATION
By: /s/ Phillip Casey June 15,1995
-------------------------------------------
Phillip Casey, Chairman of the Board Date
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE
- -------------------------------------------- -------------------------------------------
<S> <C>
/s/ Phillip Casey June 15, 1995 Chief Executive Officer
- -------------------------------------------- Chairman of the Board; Director
Phillip Casey Date
/s/ Director
- --------------------------------------------
Koichi Takashima Date
/s/ Director
- --------------------------------------------
Akihiko Takashima Date
/s/ Director
- --------------------------------------------
Takeshi Fujimura Date
/s/ Director
- --------------------------------------------
Hiderchiro Takashima Date
/s/ Ryutaro Yoshioka June 15, 1995 Director
- --------------------------------------------
Ryutaro Yoshioka Date
/s/ Thomas G. Creed June 15, 1995 President; Director
- --------------------------------------------
Thomas G. Creed Date
/s/ Shoji Nakamura June 15, 1995 Vice President, Engineering; Director
- --------------------------------------------
Shoji Nakamura Date
/s/ J. Donald Haney June 15, 1995 Vice President; Director
- --------------------------------------------
J. Donald Haney Date
/s/ Tom J. Landa June 15, 1995 Vice President; Chief Financial Officer and
- -------------------------------------------- Secretary (Principal Financial Officer and
Tom J. Landa Date Principal Accounting Officer)
</TABLE>
32
<PAGE> 33
PART IV
ITEM 14, (a),(1),(2),(B)1
FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND REPORTS ON FORM 8-K
(A) (1) The following financial statements of Florida Steel Corporation as of
the dates and for the periods indicated are included herein:
<TABLE>
<S> <C>
Reports of Independent Certified Public Accountants
Statements of Financial Position March 31, 1995 and March 31, 1994
Statements of Operations Years Ended March 31, 1995 and March 31, 1994,
Three Months Ended March 31,1993 and
December 31, 1992 and Year Ended
September 30, 1992.
Statements of Shareholder's Equity (Deficit) Years Ended March 31, 1995 and March 31, 1994,
Three Months Ended March 31, 1993 and
December 31, 1992 and Year Ended
September 30, 1992.
Statements of Cash Flows Years Ended March 31, 1995 and March 31, 1994,
Three Months Ended March 31, 1993 and
December 31, 1992 and Year Ended
September 30, 1992.
</TABLE>
(2) The following financial statement schedules of Florida Steel
Corporation are filed as part of this report:
Schedule II Valuation and qualifying accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
(B) Reports on Form 8-K.
None for the quarter ended March 31, 1995.
33
<PAGE> 34
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Florida Steel Corporation:
We have audited the accompanying statement of financial position of Florida
Steel Corporation (a Florida corporation) as of March 31, 1995, and the related
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit 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 audit provides 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 Florida Steel Corporation as
of March 31, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states, 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
Tampa, Florida,
April 28, 1995 (except with respect to the
matter discussed in Note F, as to which the
date is June 9, 1995, and the matter discussed
in the third section of Note M, as to which
the date is May 22, 1995)
34
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholder
Florida Steel Corporation
Tampa, Florida
We have audited the accompanying statement of financial position of Florida
Steel Corporation (the "Company") as of March 31, 1994 (Successor Company
statement of financial position), and the related statements of operations,
shareholders' equity (deficit), and cash flows for the year ended March 31,
1994 and the three months ended March 31, 1993 (Successor Company operations)
and for the three months ended December 31, 1992 (Predecessor Company
operations). Our audits also included the financial statement schedules listed
in the Index at Item 14(a) for the year ended March 31, 1994 and for each of
the three-month periods ended March 31, 1993 and December 31, 1992. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules 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 Successor Company's financial statements referred to above
present fairly, in all material respects, the financial position of Florida
Steel Corporation at March 31, 1994, and the results of its operations and its
cash flows for the year ended March 31, 1994 and for the three months ended
March 31, 1993, in conformity with generally accepted accounting principles.
Further, in our opinion the Predecessor Company statements of operations,
shareholders' equity (deficit) and cash flows for the three months ended
December 31, 1992 present fairly, in all material respects, the
35
<PAGE> 36
results of its operations and its cash flows in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedules, for the year ended March 31, 1994 and for each of the three-month
periods ended March 31, 1993 and December 31, 1992, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein for the year ended March
31, 1994 and for each of the three-month periods ended March 31, 1993 and
December 31, 1992.
As discussed in Note B to the financial statements, the Company changed its
method of accounting for income taxes effective December 31, 1992 to conform
with Statement of Financial Accounting Standards No. 109 and its method of
accounting for post-retirement benefits effective December 31, 1992 to conform
with Statement of Financial Accounting Standards No. 106.
/s/ Deloitte & Touche LLP
June 6, 1994
(May 22, 1995 as to
the portion of Note M
captioned "Stock Dividend")
36
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Florida Steel Corporation
We have audited the accompanying statements of operations, shareholders' equity
(deficit), and cash flows of Florida Steel Corporation and subsidiaries for the
year ended September 30, 1992. Our audit also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Florida
Steel Corporation and subsidiaries for the year ended September 30, 1992, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note J to the financial statements, the Company is responsible
for the remediation of hazardous waste at some of its facilities and at other
locations. The ultimate amount of the liability for remediation cannot be
determined at this time.
As discussed in Note C to the financial statements, during fiscal 1992 the
Company changed its method of accounting for the liability for environmental
remediation costs.
Ernst & Young LLP
Tampa, Florida
November 4, 1992, except for the third
paragraph of Note A, as to which the
date is December 21, 1992
37
<PAGE> 38
FLORIDA STEEL CORPORATION
STATEMENTS OF FINANCIAL POSITION
($ in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,854 $ 1,774
Accounts receivable, less allowance of
$1,000 at March 31, 1995 and 1994
for doubtful accounts 80,360 69,218
Recoverable income taxes -- 300
Inventories 127,680 115,210
Deferred tax assets 11,800 --
Other current assets 750 1,170
--------- ---------
TOTAL CURRENT ASSETS 223,444 187,672
REAL ESTATE HELD FOR SALE 8,631 7,600
PROPERTY, PLANT AND EQUIPMENT (including property
and equipment, net, held for disposition of
$6,642 at March 31, 1995)
Land 10,953 11,691
Building and improvements 31,902 32,012
Machinery and equipment 197,720 184,334
Construction in progress 21,566 13,898
--------- ---------
262,141 241,935
Less accumulated depreciation 31,033 19,074
--------- ---------
231,108 222,861
GOODWILL 94,033 98,163
DEFERRED FINANCING COSTS 4,504 7,367
OTHER ASSETS 28 43
--------- ---------
TOTAL ASSETS $ 561,748 $ 523,706
========= =========
</TABLE>
See notes to financial statements.
38
<PAGE> 39
FLORIDA STEEL CORPORATION
STATEMENTS OF FINANCIAL POSITION -- Continued
($ in thousands except share data)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1994
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 49,364 $ 46,049
Salaries, wages and employee benefits 16,520 17,388
Environmental remediation 10,919 5,914
Other current liabilities 3,774 1,923
Interest payable 5,258 4,732
Current maturities of long-term borrowings (Including note
payable to parent of $944 at March 31, 1995) 16,245 --
---------- ----------
TOTAL CURRENT LIABILITIES 102,080 76,006
LONG-TERM BORROWINGS, LESS CURRENT PORTION (INCLUDING NOTE
PAYABLE TO PARENT OF $50,000 AND $69,100 AT MARCH 31, 1995
AND 1994, RESPECTIVELY) 243,030 247,128
OTHER LIABILITIES 18,388 28,721
DEFERRED TAX LIABILITIES 60,500 46,852
COMMITMENTS -- --
SHAREHOLDERS' EQUITY
CommonStock, $.01 par value; 30,000,000 and 10,000,000
shares authorized and outstanding, respectively,
at March 31, 1995 (see note M); 1,000 and 200
shares authorized and outstanding, respectively,
at March 31, 1994 100 --
Capital in excess of par 155,900 150,000
Accumulated Deficit (14,500) (25,001)
Deferred Compensation (3,750) --
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 137,750 124,999
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 561,748 $ 523,706
========== ==========
</TABLE>
See notes to financial statements.
39
<PAGE> 40
FLORIDA STEEL CORPORATION
STATEMENTS OF OPERATIONS
($ in thousands except earnings per share)
<TABLE>
<CAPTION>
P R E D E C E S S O R
------------------------------
YEAR YEAR THREE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 639,908 $ 547,118 $ 122,736 $ 108,358 $ 465,233
Operating expenses:
Cost of sales, excluding depreciation 545,725 498,692 109,607 99,355 404,750
Selling and administrative 29,959 22,993 5,459 6,071 24,398
Depreciation 14,046 15,369 3,770 3,890 15,643
Amortization of goodwill 4,130 4,061 1,015 667 2,670
Other operating expenses -- 15,220 -- -- 9,000
----------- ----------- ----------- ----------- -----------
593,860 556,335 119,851 109,983 456,461
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 46,048 (9,217) 2,885 (1,625) 8,772
Other expenses:
Interest 23,330 21,027 5,290 14,482 35,465
Amortization of deferred financing costs 2,863 2,552 653 288 1,276
----------- ----------- ----------- ----------- -----------
26,193 23,579 5,943 14,770 36,741
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES (BENEFIT), EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 19,855 (32,796) (3,058) (16,395) (27,969)
Income taxes (benefit) 9,354 (10,833) (769) (6,001) (8,030)
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 10,501 (21,963) (2,289) (10,394) (19,939)
Extraordinary item, net of income
tax benefit -- (748) -- (4,185) --
Cumulative effect of change in accounting
principle, net of income tax benefit -- -- -- -- (4,270)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 10,501 $ (22,711) $ (2,289) $ (14,579) $ (24,209)
=========== =========== =========== =========== ===========
Weighted average shares outstanding
(in thousands) 10,000 10,000 10,000
=========== =========== ===========
Earnings (loss) per common share:
Income (loss) before extraordinary item $ 1.05 $ (2.20) $ (.23)
Extraordinary item -- (.07) --
----------- ----------- -----------
Net income (loss) $ 1.05 $ (2.27) $ (.23)
=========== =========== ===========
</TABLE>
See notes to financial statements.
40
<PAGE> 41
FLORIDA STEEL CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
($ in thousands except share data)
<TABLE>
<CAPTION>
Common Stock Capital
------------ in Excess Accumulated Deferred
Shares Amount of Par Deficit Compensation Total
---------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT
OCTOBER 1, 1991 (Predecessor) 100 $ -- $ 23,024 $ (27,103) $ -- $ (4,079)
Net loss -- -- -- (24,209) -- (24,209)
Preferred stock dividends -- -- -- (14,630) -- (14,630)
---------- ----------- ----------- ----------- ----------- -----------
BALANCES AT
SEPTEMBER 30, 1992 (Predecessor) 100 -- 23,024 (65,942) (42,918)
Net loss -- -- -- (14,579) -- (14,579)
Preferred stock dividends -- -- -- (3,320) -- (3,320)
---------- ----------- ----------- ----------- ----------- -----------
BALANCES AT
DECEMBER 31, 1992 (Predecessor) 100 -- 23,024 (83,841) -- (60,817)
Elimination of old stockholder's
interest and deficit (100) -- (23,024) 83,841 -- 60,817
Common stock proceeds 200 150,000 -- -- 150,000
Net loss -- -- -- (2,289) -- (2,289)
---------- ----------- ----------- ----------- ----------- -----------
BALANCES AT
MARCH 31, 1993 200 -- 150,000 (2,289) -- 147,711
Net loss -- -- -- (22,711) -- (22,711)
---------- ----------- ----------- ----------- ----------- -----------
BALANCES AT
MARCH 31, 1994 200 -- 150,000 (25,001) -- 124,999
Repurchase of common stock (20) -- -- -- -- --
Common stock issuance 15 -- 4,500 (4,500) --
Exercise of stock options 5 -- 1,500 -- -- 1,500
Net income -- -- -- 10,501 -- 10,501
Reduction in deferred compensation -- -- -- -- 750 750
49,999 for 1 stock dividend 9,999,800 100 (100) -- -- --
---------- ----------- ----------- ----------- ----------- -----------
BALANCES AT
MARCH 31, 1995 10,000,000 $ 100 $ 155,900 $ (14,500) $ (3,750) $ 137,750
========== =========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
41
<PAGE> 42
FLORIDA STEEL CORPORATION
STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
P R E D E C E S S O R
---------------------------
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 10,501 $ (22,711) $ (2,289) $ (14,579) $ (24,209)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation 14,046 15,369 3,770 3,890 15,643
Amortization 6,993 6,614 1,668 955 3,946
Provision for uncollectible accounts -- 714 -- 230 859
Cumulative effect of change in accounting principle -- -- -- -- 4,270
Extraordinary item -- 748 -- 4,185 --
Deferred income taxes 1,849 (5,129) (4,245) (801) (9,530)
Writedown of real estate held for sale -- -- -- -- 430
Loss on disposition of plant and equipment 600 9,408 6 26 61
Other, net -- 282 269 -- --
Deferred compensation 750 -- -- -- --
Changes in operating assets and liabilities:
Accounts receivable (11,142) (12,607) (9,768) 12,087 (1,054)
Recoverable income taxes 300 4,200 700 (4,999) 2,882
Inventories (12,470) (31,329) (2,946) (8,543) (3,243)
Other current assets 420 (263) (418) 241 (271)
Other assets 15 (14) (3) 5 27
Trade accounts payable 3,315 13,627 6,109 4,301 (5,383)
Salaries, wages and employee benefits (868) 1,662 440 182 1,530
Other current liabilities 6,856 2,356 (1,788) (318) 2,821
Liability for epoxy coating settlement -- -- -- (9,000) 9,000
Interest payable 526 (1,168) 4,782 (15,446) 7,362
Other liabilities (10,334) 4,231 -- -- 6,313
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 11,357 (14,012) (3,713) (27,584) 11,454
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment (25,781) (18,193) (1,583) (190) (1,738)
Proceeds from sales of property, plant and equipment 1,857 221 16 3 27
--------- --------- --------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES $ (23,924) $ (17,972) $ (1,567) $ (187) $ (1,711)
--------- --------- --------- --------- ---------
</TABLE>
See notes to financial statements.
42
<PAGE> 43
FLORIDA STEEL CORPORATION
STATEMENTS OF CASH FLOWS - - Continued
($ in thousands)
<TABLE>
<CAPTION>
P R E D E C E S S O R
---------------------------
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from short-term and long-term borrowing $ 30,325 $ 55,125 $ 6,399 $ 161,693 $ 27,303
Payments of short-term and long-term borrowings (18,178) -- -- (1,136) (29,610)
Purchases of redeemable preferred stock -- -- -- -- (2)
Additions to deferred financing costs -- (194) (121) -- (573)
Contributions of equity -- -- -- 150,000 --
Repurchase of subordinated debentures -- (21,200) -- -- --
Proceeds from exercise of stock options 1,500 -- -- -- --
Payments for acquisition of Company:
Repayments of borrowings -- -- -- (147,557) --
Repurchase of subordinated debentures -- -- -- (91,965) --
Repurchase of preferred stock -- (1,695) -- (29,020) --
Repurchase of common stock -- -- -- (8,978) --
Settlement of interest rate swap -- -- -- (8,200) --
Other payments -- -- -- (4,482) --
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 13,647 32,036 6,278 20,355 (2,882)
--------- --------- --------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,080 51 998 (7,416) 6,861
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,774 1,723 725 8,141 1,280
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,854 $ 1,774 $ 1,723 $ 725 $ 8,141
========= ========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 22,150 $ 22,195 $ 508 $ 29,928 $ 28,103
========= ========= ========= ========= =========
Cash paid for income taxes $ 5,645 $ 300 $ 2,722 $ 260 $ 944
========= ========= ========= ========= =========
Payment-in-kind dividends on Redeemable
Preferred Stock $ -- $ -- $ -- $ 3,320 $ 14,630
========= ========= ========= ========= =========
</TABLE>
See notes to financial statements.
43
<PAGE> 44
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE A--ACQUISITION, MERGER AND BASIS OF PRESENTATION
These financial statements include the accounts of Florida Steel Corporation
(the "Company"). During the year ended March 31, 1994, all wholly owned
subsidiaries were liquidated into the Company. The financial statements for the
previous periods include the accounts of the Company and its wholly owned
subsidiaries. Financial statements of the Company as of and for any period
prior to the Acquisition described below are designated as "Predecessor".
FLS Holdings Inc. ("FLS" or "Holdings"), the Company's parent, on June 26, 1992
signed an agreement of merger providing for its acquisition (the "Acquisition")
by Kyoei Steel Ltd. ("Kyoei"), which closed December 21, 1992. For financial
reporting purposes, the Company accounted for the transaction effective
December 31, 1992. In connection with the closing, FLS received an equity
infusion of $150 million from Kyoei.
The statement of financial position at December 31, 1992 reflected a new basis
of accounting in which the total cost of the purchase was allocated to the
assets and liabilities using estimates of fair values (known as the purchase
method of accounting pushed down to the Company's financial statements or
"pushdown" accounting). The excess purchase price over net assets acquired is
reflected as goodwill. The deficit at September 30, 1992 and the loss for
three-months ended December 31, 1992, were eliminated under purchase
accounting. The following Condensed Statement of Financial Position at December
31, 1992, reflects the purchase accounting adjustments and the new basis of the
assets and liabilities.
44
<PAGE> 45
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE A--ACQUISITION, MERGER AND BASIS OF PRESENTATION -- Continued
($ in thousands)
<TABLE>
<CAPTION>
PREDECESSOR PURCHASE
PRE-PURCHASE ACCOUNTING POST ACQUISITION
ACCOUNTING ADJUSTMENTS BALANCE SHEET
------------ ----------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets $ 139,629 $ (4,728) $ 134,901
Real estate held for sale 7,600 -- 7,600
Plant and equipment 218,891 12,983 231,874
Goodwill 95,171 6,375 101,546
Deferred financing fees 11,196 (940) 10,256
Other assets 26 -- 26
---------- ---------- ----------
$ 472,513 $ 13,690 $ 486,203
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 47,750 $ 664 $ 48,414
Long-term borrowings 205,603 -- 205,603
Other liabilities 16,153 9,637 25,790
Deferred income taxes 56,050 346 56,396
Shareholders' Equity:
Common stock and capital in
excess of par 230,797 (80,797) 150,000
Reinvested earnings (deficit) (83,840) 83,840 --
---------- ---------- ----------
$ 472,513 $ 13,690 $ 486,203
========== ========== ==========
</TABLE>
The following unaudited Predecessor proforma condensed consolidated results of
operations were prepared assuming the acquisition of the Company occurred at
the beginning of each of the periods presented. The proforma information
includes adjustments for the amortization of asset value changes based on fair
value adjustments, amortization of the excess of cost over fair value of assets
acquired, interest expense related to acquisition indebtedness and the
elimination of nonrecurring expenses related to the transactions:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
($ in thousands) DECEMBER 31, SEPTEMBER 30,
1992 1992
------------ -------------
<S> <C> <C>
Net Sales $ 108,358 $ 465,233
Income (loss) before extraordinary item and cumulative
effect of change in accounting principle $ (4,904) $ (18,073)
Net loss $ (9,089) $ (22,343)
</TABLE>
45
<PAGE> 46
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE A--ACQUISITION, MERGER AND BASIS OF PRESENTATION -- Continued
CHANGE IN YEAR END
Effective March 18, 1993, the Company adopted a March 31 fiscal year end. The
accompanying financial statements include audited financial statements for the
transition periods ended December 31, 1992 and March 31, 1993.
The following unaudited Predecessor information is presented for comparative
purposes only:
($ in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, 1992 DECEMBER 31, 1991
-------------- -----------------
<S> <C> <C>
Sales $ 111,352 $ 105,003
Operating expenses 101,301 100,907
--------- ---------
Income from operations 10,051 4,096
Other expenses 9,258 9,114
--------- ---------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle 793 (5,018)
Income taxes (benefit) 551 (1,640)
--------- ---------
Income (loss) before cumulative
effect of change in accounting principle 242 (3,378)
Cumulative effect of change in accounting
principle, net of income tax benefit -- (4,270)
--------- ---------
NET INCOME (LOSS) $ 242 $ (7,648)
========= =========
</TABLE>
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Credit Risk: The Company extends credit, primarily on a basis of 30-day terms,
to various customers in the steel distribution, fabrication and construction
industries, primarily located in the southeastern United States. The Company
performs periodic credit evaluations of its customers and generally does not
require collateral. Credit losses, in the past, have not been significant.
Business Segment: The Company is engaged in steel production and the
manufacture, fabrication and marketing of steel products, primarily for use in
construction and industrial markets. In the year ended March 31, 1995, export
sales were less than 1% of total sales, in fiscal year 1994 approximately 6%.
For the six months ended March 31, 1993, approximately 12% of total sales
represented export sales and for the year ended September 30, 1992, export
sales were approximately 3% of total sales.
46
<PAGE> 47
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Cash Equivalents: The Company considers all highly liquid investments, with a
maturity of three months or less when purchased, to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Real Estate Held for Sale: Real estate held for sale is carried at the lower of
cost or estimated fair value.
Property, Plant and Equipment: Major renewals and betterments are capitalized
and depreciated over their estimated useful lives. Maintenance and repairs are
charged against operations as incurred. Upon retirement or other disposition of
property, plant and equipment, the cost and related allowances for depreciation
are removed from the accounts and any resulting gain or loss is reflected in
operations.
Plant start-up and other preoperating costs of new facilities are charged
against operations as incurred. Interest costs for property, plant and
equipment construction expenditures of $654 thousand were capitalized for the
year ended March 31, 1995. For financial reporting purposes, the Company
provides for depreciation of property, plant and equipment using the
straight-line method over the estimated useful lives of 20 to 30 years for
buildings and improvements and 4 to 15 years for all other property, plant and
equipment.
Goodwill: Goodwill consists of the excess of purchase price over the fair value
of acquired assets and liabilities. Goodwill is stated at cost less accumulated
amortization of $9,207,375 and $5,077,155 at March 31, 1995 and 1994,
respectively. Goodwill was being amortized over a 40-year period for the
reporting periods through December 31, 1992. Effective January 1, 1993, the
balance of goodwill was adjusted to reflect the Acquisition and the
amortization period was reduced to 25 years. The cost to finalize the Preferred
Stock Redemption of $1,695,210 has been accounted for as an increase in
goodwill as of March 31, 1994.
Deferred Financing Costs: The deferred financing costs as of March 31, 1995 and
1994, are net of accumulated amortization of $6,067,332 and $3,204,600,
respectively, and relate principally to the debt issued in December 1992. These
amounts will be amortized over the term of the respective debt instruments,
which range from 3 to 8 years.
Earnings per Common Share Earnings per common share are computed using
the weighted average number of outstanding common shares. On May 22, 1995, the
Company's Board of Directors authorized a 49,999 for 1 stock dividend.
Earnings per common share and weighted average shares outstanding have been
retroactively adjusted for the stock dividend for all periods subsequent to
December 31, 1992.
Income Taxes: The provision for income taxes is based on financial statement
income and, therefore, includes deferred income taxes on items reported in
different periods for income tax purposes. The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes"
("SFAS 109") effective October 1, 1992. The Company had previously followed
SFAS 96. The effect of adopting SFAS 109 was immaterial for all periods
presented.
47
<PAGE> 48
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Post-Retirement Benefits: In December 1990, the Financial Accounting Standards
Board issued SFAS No. 106 "Employers' Accounting for Post Retirement Benefits
Other Than Pensions" which requires that the projected future cost of providing
post-retirement benefits, such as health care and life insurance, be recognized
as an expense as employees render service instead of when the benefits are
paid. Companies can elect to record the cumulative effect of the accounting
change as a charge against income in the year the rules are adopted, or
alternatively, on a prospective basis as a part of the future annual benefit
cost. The Company has applied the new rules at the time of the Acquisition
using the cumulative effect method. Under this method, the Company recorded a
liability of $7.3 million at the date of acquisition.
Delivery Expenses: The Company's policy is to include all delivery expenses in
cost of goods sold.
Self Insurance: As part of its risk management strategies, the Company is
self-insured, up to certain amounts, for risks such as workers' compensation,
employee health benefits, and long-term disability. Risk retention is
determined based on savings from insurance premium reductions, and, in the
opinion of management, does not result in unusual loss exposure relative to
other companies in the industry.
Reclassifications: Certain amounts in the fiscal 1994 financial statements have
been reclassified to conform to the fiscal 1995 financial statement
presentation.
NOTE C--ACCOUNTING CHANGE AND EXTRAORDINARY ITEM
During fiscal 1992, the Company changed its method of accounting for the
liability for environmental remediation costs. Events which occurred during
fiscal 1992 resulted in the Company concluding that it can no longer estimate
the effects of changes in environmental laws and regulations regarding the
timing of the cash flows required to remediate environmental contamination. In
addition, estimates of the cost of remediation are impacted by rapid changes in
available technologies. Under the newly adopted method, the Company has
recorded the gross amount of the liability whereas in the past, the Company had
recorded the net present value of the amount. The cumulative effect of this
change, after reduction for an income tax benefit of $2,570,000, was to
increase the net loss by $4,270,000 and is shown separately in the consolidated
statement of operations for the year ended September 30, 1992.
In March 1994, the Company redeemed $20,000,000 of 14.5% subordinated
debentures. The 6% premium, equal to $1,200,000 was charged to expense net of a
$452,000 income tax benefit, and was classified as an extraordinary item for
financial reporting purposes.
In December 1992, the Company repaid $239,619,000 of existing debt. The net
carrying amount of this debt was $233,017,000 resulting in a loss of
$4,185,000, net of an income tax benefit of $2,417,000 which has been
classified as an extraordinary item for financial reporting purposes.
48
<PAGE> 49
NOTE D--INVENTORIES
Inventories consist of the following:
($ in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1994
--------- ---------
<S> <C> <C>
Finished goods $ 81,375 $ 67,147
Work in-process 21,620 23,201
Raw materials and operating supplies 24,685 24,862
--------- ---------
$ 127,680 $ 115,210
========= =========
</TABLE>
NOTE E--BORROWINGS
Long-term borrowings consist of the following:
($ in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1994
-------- --------
<S> <C> <C>
Revolving Credit Agreement $ 65,161 $ 41,279
First Mortgage Notes 100,000 100,000
Subordinated Intercompany Note 50,000 50,000
Subordinated Debentures ("Debentures") 13,035 13,035
Industrial Revenue Bonds 10,875 10,875
Note to Parent 944 19,122
Trade Loan Agreements 9,260 2,817
Bank of Tokyo Loan 10,000 10,000
-------- --------
259,275 247,128
Less Current Maturities 16,245 --
-------- --------
$243,030 $247,128
======== ========
</TABLE>
The Debentures bear interest at 14.5% and mature in fiscal 2001, but will be
redeemable if certain tests are met, at the option of the Company, in whole or
in part from time to time, on and after September 30, 1994 at redemption prices
(expressed as percentages of the outstanding principal amount) if redeemed
during the twelve-month period commencing on November 15 of the year set forth
below, plus, in each case accrued interest thereon to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1994 104%
1995 102%
1996 and Thereafter 100%
</TABLE>
The Company maintains a revolving credit agreement with BT Commercial
Corporation ("BTCC"), as agent, which consists of a three year revolving credit
facility for making revolving credit loans and issuing letters of credit in the
aggregate principal amount of up to $100 million (the "Revolving Credit
Agreement"). Loans and letters of credit under the Revolving Credit Agreement
are limited, in the aggregate, to the lesser of the $100 million commitment
amount and a "borrowing base" amount. Letters of credit are subject to an
aggregate sublimit of $30 million. The borrowing base will not exceed the sum
of 85% of eligible accounts receivable plus 60.0% of eligible inventory.
The Revolving Credit Agreement provides that the foregoing advance rates and
the criteria for eligibility of accounts receivable and inventory may be
adjusted by BTCC from time to time. Loans based on eligible inventory are
subject to an inventory sublimit.
49
<PAGE> 50
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE E--BORROWINGS -- Continued
The Revolving Credit Agreement contains (a) covenants standard for BTCC's
secured financing generally and other covenants deemed appropriate by BTCC,
including, without limitation, financial ratios, limitations on indebtedness,
limitations on liens and limitations on loans, investments, dispositions of
assets and dividends and distributions and (b) events of default deemed
appropriate by BTCC. The Company is in compliance with these covenants at March
31, 1995.
The Revolving Credit Agreement is collateralized by first priority security
interests in all accounts receivable and inventory of the Company.
A portion of the loans under the Revolving Credit Agreement bear interest at a
per annum rate equal to the Bankers Trust Company Prime Rate plus 1.75%, and a
portion of the loans bear interest at a percent per annum rate equal to the
Bankers Trust Company's 30-, 60-, or 90-day Eurodollar Rate (the "Eurodollar
Rate") plus 3.25%. The average interest rate at March 31, 1995 was 9.6%. In
addition, the Revolving Credit Agreement provides for a .5% per annum unused
line fee on the unused portion of the Revolving Credit Agreement.
The First Mortgage Notes were issued under an indenture (the "Indenture") as of
December 15, 1992 by and among the Company and Shawmut Bank Connecticut, N.A.,
as Trustee (the "Trustee"). The First Mortgage Notes are collateralized senior
obligations of the Company limited in aggregate principal amount to $100
million and will mature on December 15, 2000. Interest on the First Mortgage
Notes will accrue at the rate of 11.5% per annum and are payable semiannually
on each June 15 and December 15, commencing on June 15, 1993, to the holder of
record on the immediately preceding June 1 and December 1. Interest on the
First Mortgage Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the original date of
issuance. The Company shall pay interest on overdue principal and (to the
extent permitted by law) on overdue installments of interest at a rate equal to
13.5% per annum.
The First Mortgage Notes will be redeemable, at the option of the Company, in
whole or in part from time to time, on or after December 15, 1996 at redemption
prices (expressed as percentages of the outstanding principal amount) if
redeemed during the twelve-month period commencing on December 15 of the year
set forth below, plus, in each case, accrued interest thereon to the date of
redemption:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1996 103.833%
1997 101.916%
1998 and thereafter 100.000%
</TABLE>
The First Mortgage Notes rank pari passu with respect to the payment in full of
the principal and interest on all existing and future senior indebtedness of
the Company and rank senior to all subordinated indebtedness of the Company,
including the Debentures and the Subordinated Intercompany Note described
below. The Company will not issue any indebtedness that is subordinated to any
other indebtedness of the Company unless each subordinated indebtedness is
subordinated to the same extent to the First Mortgage Notes.
50
<PAGE> 51
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE E--BORROWINGS -- Continued
The Company has assigned and pledged as collateral (the "Collateral") to the
Trustee for the benefit of the Trustee and the Holders of the First Mortgage
Notes a security interest in certain of its real and personal property
summarized below, whether now owned or hereafter acquired, together with the
proceeds therefrom and permanent additions and accessions thereto, but such
security interest will not extend to the inventory or accounts receivable of
the Company, which will be pledged to secure the obligations under the
Revolving Credit Agreement. The Collateral for the First Mortgage Notes will
represent substantially all the real and personal property (other than
inventory and accounts receivable) of the Company's five minimills. The
security interest in the Collateral will be a first priority interest (to the
extent attainable by filing or possession), subject to certain permitted
encumbrances, which encumbrances, in the judgment of the Company, will not
adversely affect the value of the collateral.
The First Mortgage Notes contain covenants that include, without limitation,
maintenance of sufficient consolidated net worth and limitations on additional
indebtedness, transactions with affiliates, dispositions of assets, liens,
dividends and distributions. The Company is in compliance with these covenants
at March 31, 1995.
The Company has issued to Holdings a $50 million note (the "Subordinated
Intercompany Note") which matures December 21, 2001, and is not transferable,
by way of sale, pledge, hypothecation or otherwise and is subordinated to the
First Mortgage Notes, the Revolving Credit Agreement and the IRBs. The
Subordinated Intercompany Note bear interest at variable rates. The weighted
average interest rate at March 31, 1995 was 8.3%.
The Company also has outstanding borrowings obtained through industrial revenue
bonds ("IRBs") issued to construct facilities in Jackson, Tennessee; Charlotte,
North Carolina; Jacksonville, Florida; and Plant City, Florida. The interest
rates on these bonds range from 50% to 75% of the prime rate. The IRBs mature
in fiscal 2004. The IRBs are backed by irrevocable letters of credit issued
pursuant to the Revolving Credit Agreement. As of March 31, 1995, the Company
had approximately $17.8 million of outstanding letters of credit, primarily for
IRBs, insurance-related matters and surety bonds.
The Note to Parent is an unsecured non-interest bearing note with no stated
maturity. Accordingly, amounts due are classified as current as of March 31,
1995 in the accompanying statements of financial position.
The Company has borrowed $5.3 million as of March 31, 1995 from Mitsubishi
International Corporation, (the "Mitsubishi Trade Loan Agreement"). The loan
bears interest at 7.75% and matures on December 29, 1995. The Company has also
borrowed $3.9 million as of March 31, 1995 from Marubeni America Corporation
(The "Marubeni Trade Loan Agreement"). The loan bears interest at 8.50% and
matures on April 15, 1996. The proceeds from both loans are to be used for the
purchase of steel mill equipment which shall collateralize the loans.
As of March 28, 1994, the Company entered into a subordinated note agreement
(the "Bank of Tokyo Loan") with the Bank of Tokyo, LTD., New York Agency. The
Company pays interest on the $10 million note semiannually commencing September
28, 1994. Interest will be computed at the six-month Eurodollar Rate plus 1.5%.
(7.9% effective March 31, 1995). This note, which matures March 28, 1996, is
subordinated to the Company's senior debt and the Company may not make payments
if the senior debt is in default until certain conditions are met.
51
<PAGE> 52
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE E--BORROWINGS -- Continued
The maturities of long-term borrowings for the years subsequent to March 31,
1995 are as follows:
($ in thousands)
<TABLE>
<CAPTION>
Year
----
<S> <C>
1996 $ 16,245
1997 3,959
1998 65,161
1999 1,480
2000 --
Thereafter 172,430
-----------
$ 259,275
===========
</TABLE>
NOTE F -- NEW REVOLVING CREDIT AGREEMENT
Effective June 9, 1995, the Company entered into a two-year revolving bank
agreement (the "New Revolving Credit Agreement"), which replaces the Revolving
Credit Agreement and provides up to $140 million borrowings subject to a
"borrowing base" amount. The borrowing base amount will not exceed the sum of
85% of eligible accounts receivable plus 65% of eligible inventory. Letters of
credit are subject to an aggregate sublimit of $50 million.
The New Revolving Credit Agreement contains certain covenants including
financial ratios and limitations on indebtedness, liens, investments and
disposition of assets and dividends.
Revolving Loans under the New Revolving Credit Agreement bear interest at a per
annum rate equal to one of several rate options (LIBOR, Fed Funds, or Cost of
Funds) at the discretion of the Company plus an applicable margin determined by
tests of performance from time to time. Prime interest rate loans, not
previously mentioned , have no additional margin. In addition to Revolving
Loans, the Company has the option of incurring Swingline Loans, subject to an
aggregate sub-limit of $10 million, for short-term cash needs at rates near
prime. The initial borrowing under the New Revolving Credit Agreement, used to
pay off the Revolving Credit Agreement, was LIBOR plus 1.5%.
The New Revolving Credit Agreement is collateralized by first priority security
interests in substantially all accounts receivable and inventory of the
Company.
52
<PAGE> 53
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE G -- INCOME TAXES
The provision (benefit) for income taxes are comprised of the following
amounts:
($ in thousands)
<TABLE>
<CAPTION>
P R E D E C E S S O R
-------------------------------
YEAR YEAR THREE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
--------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Currently payable (recoverable):
Federal $ 3,572 $ (6,156) $ 500 $ (5,000) $ 1,406
State -- -- -- -- 94
-------- -------- -------- -------- --------
3,572 (6,156) 500 (5,000) 1,500
-------- -------- -------- -------- --------
Deferred:
Federal 4,785 (4,509) (1,288) (3,034) (8,140)
State 997 (620) 19 (384) (1,390)
-------- -------- -------- -------- --------
5,782 (5,129) (1,269) (3,418) (9,530)
-------- -------- -------- -------- --------
$ 9,354 $(11,285) $ (769) $ (8,418) $ (8,030)
======== ======== ======== ======== ========
</TABLE>
For the year ended March 31, 1994, and for the three months ended December 31,
1992, the benefit for income taxes includes a $452,000 and $2,417,000 current
benefit, respectively, for an extraordinary item related to the early
extinguishment of debt. The benefit from continuing operations of $10,833,000
and $6,001,418, respectively, is exclusive of this amount.
A reconciliation of the difference between the effective income tax rate for
each period and the statutory federal income tax rate follows:
($ in thousands)
<TABLE>
<CAPTION>
P R E D E C E S S O R
-------------------------------
YEAR YEAR THREE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
--------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Tax provision (benefit)
at statutory rates $ 6,949 $(11,151) $ (1,023) $ (5,574) $ (9,510)
State income taxes, net of
federal income tax effect 997 (819) (91) (581) (855)
Goodwill amortization 1,611 1,381 345 227 908
Epoxy settlement -- -- -- -- 1,100
Restructuring-related costs -- -- -- -- 350
Other items, net (203) (244) -- (73) (23)
-------- -------- -------- -------- --------
$ 9,354 $(10,833) $ (769) $ (6,001) $ (8,030)
======== ======== ======== ======== ========
</TABLE>
53
<PAGE> 54
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE G --INCOME TAXES -- CONTINUED
The sources of temporary differences on which deferred income taxes have been
provided and the related income tax effect follows:
($ in thousands)
<TABLE>
<CAPTION>
P R E D E C E S S O R
------------------------------
YEAR YEAR THREE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
--------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Depreciation and property, plant
and equipment sales $(1,543) $(4,943) $ (375) $ (375) $ (931)
Pension expense 71 (9) 811 (251) (508)
AMT Credit carryforward (1,075) 746 -- (567) (1,041)
Deferred compensation 1,463 -- -- -- --
Deferred financing costs -- -- -- 665 (744)
Writedown of real estate
held for sale -- -- -- -- (163)
Reserve for environmental
remediation 3,029 (1,656) (111) (373) (2,721)
Liability for epoxy settlement -- -- -- 3,034 (2,262)
Subordinated debentures -- -- -- (178) --
Accruals deductible in different
periods for income tax purposes (240) (157) (43) (194) (730)
Federal income tax net
operating loss carryforwards 4,203 (1,819) (1,918) (4,264) --
State income tax net
operating loss carryforwards 797 83 (109) (1,089) (46)
Change in method of accounting
for inventories (996) 660 170 -- --
Other items, net 73 1,966 306 174 (384)
------- ------- ------- ------- -------
$ 5,782 $(5,129) $(1,269) $(3,418) $(9,530)
======= ======= ======= ======= =======
</TABLE>
54
<PAGE> 55
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE G -- INCOME TAXES -- Continued
The components of the deferred tax assets and liabilities consisted of the
following at March 31:
($ in thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets:
Allowance for doubtful accounts $ 390 $ 390
Pension accrual 1,907 1,928
Post retirement benefits accrual 3,106 2,865
Workers' compensation accrual 1,141 804
Employee benefits and related accruals 2,361 1,459
Environmental remediation accrual 7,449 9,531
Federal loss carryforward 2,569 8,001
State loss carryforward 1,189 1,336
Alternative minimum tax credit
carryforward 3,164 863
Other 512 --
-------- --------
23,788 27,177
-------- --------
Liabilities:
Property, plant and equipment (67,453) (67,245)
Inventories (3,572) (6,126)
Deferred compensation (1,463) --
Other -- (658)
-------- --------
(72,488) (74,029)
-------- --------
Net deferred tax liability $(48,700) $(46,852)
======== ========
</TABLE>
The Company has net operating loss carryforwards of approximately $7.3 million
and $29.9 million for federal and state income taxes, respectively, expiring
through 2009. As a result of a change in tax fiscal year, recognition of
federal net operating loss carryforwards are limited to approximately $1.5
million each year. The Company also has alternative minimum tax credit
carryforwards of approximately $3.1 million which have no expiration.
The Company changed its Federal and state tax year end from September 30, to
March 31, effective March 31, 1994, to conform with its financial reporting
year end.
55
<PAGE> 56
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE H --BENEFIT PLANS
The Company maintains a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and compensation during
the period of employment. Annual contributions are made in conformity with
minimum funding requirements and maximum deductible limitations.
The plan's funded status and the amounts recognized in the accompanying
statements of financial position are as follows:
($ in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested
benefits of $55,930 and $52,074, at March 31, 1995
and 1994, respectively $ 59,292 $ 55,394
======== ========
Projected benefit obligation for service
rendered to date $(73,857) $(68,619)
Plan assets at fair value 69,926 64,414
-------- --------
Projected benefit obligation in excess
of plan assets (3,931) (4,205)
Unrecognized net (gain) loss 161 (154)
Unrecognized prior service cost (461) --
-------- --------
Net accrued pension cost included in accrued
salaries, wages and employee benefits $ (4,231) $ (4,359)
======== ========
</TABLE>
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0% and 4.5%, respectively for both the years ended March 31,
1995 and March 31, 1994, and 8.4% and 4.5% for both the three months ended
March 31, 1993, and for the three months ended December 31, 1992, and 8.75% and
5.0%, respectively, for the year ended September 30, 1992. The expected rate of
return on plan assets was 9.5% for the years ended March 31, 1995 and March 31,
1994 and 9% for all other periods.
56
<PAGE> 57
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE H --BENEFIT PLANS -- Continued
Pension cost included in the accompanying statements of operations are
comprised of the following:
($ in thousands)
<TABLE>
<CAPTION>
P R E D E C E S S O R
-------------------------------
YEAR YEAR THREE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, SEPTEMBER 30,
1995 1994 1993 1992 1992
--------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Service cost $ 2,574 $ 2,578 $ 594 $ 596 $ 2,437
Interest cost 5,357 5,228 1,267 1,245 4,678
Actual income from
plan assets (6,783) (3,295) (3,444) (3,752) (6,807)
Net amortization and deferral 982 (1,887) 2,238 2,518 2,004
-------- -------- -------- -------- --------
Net pension cost $ 2,130 $ 2,624 $ 655 $ 607 $ 2,312
======== ======== ======== ======== ========
</TABLE>
The Company also has a voluntary savings plan available to substantially all of
its employees. Under this plan, the Company contributes amounts based upon a
percentage of the savings paid into the plan by employees. Effective January,
1993, the Company matched 50% of the employees' contribution up to 4% of
employees' salaries. Costs under this plan were $1.2 million, $1.2 million, $.2
million, $0, and $.1 million for the years ended March 31, 1995 and March 31,
1994, the three month periods ended March 31, 1993 and December 31, 1992 and
for the year ended September 30, 1992.
The Company has an unfunded Supplemental Benefits Plan, which is a nonqualified
plan that provides certain officers defined pension benefits in excess of
limits imposed by federal tax laws. The charges to earnings under the
Supplemental Benefits Plan for the years ended March 31, 1995 and March 31,
1994, the three month periods ended March 31, 1993 and December 31, 1992 were
$159 thousand, $765 thousand, $23 thousand and $347 thousand, respectively. The
charge to earnings under this plan for fiscal year ended September 30, 1992,
was $59 thousand. Approximately $470 thousand was included in salaries, wages
and employee benefits as of March 31, 1995.
57
<PAGE> 58
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE H --BENEFIT PLANS -- Continued
Post Retirement Benefits:
The Company currently provides specified health care benefits to retired
employees. Employees who retire after a certain age with specified years of
service become eligible for benefits under this unfunded plan. The Company has
the right to modify or terminate these benefits. The Company adopted SFAS No.
106, "Employers' Accounting for Post Retirement Benefits Other Than Pensions as
of December 31, 1992. SFAS 106 requires the cost of these benefits be
recognized in the Company's financial statements over an employee's service
period with the Company. The following table summarizes the accumulated post
retirement benefit obligations included in the Company's statements of
financial position:
<TABLE>
<CAPTION>
($ in thousands) MARCH 31, MARCH 31,
1995 1994
--------- ---------
<S> <C> <C>
Retirees $ 4,371 $ 4,987
Fully eligible active participants 235 421
Other active plan participants 3,367 3,094
-------- --------
Total 7,973 8,502
Plan assets at fair value -- --
Unrecognized net gain (loss) 634 (358)
Accrued post retirement benefit
obligation $ 8,607 $ 8,144
======== ========
</TABLE>
The following table summarizes the net post retirement benefit costs:
($ in thousands)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1994
--------- ---------
<S> <C> <C>
Service cost $234 $251
Interest Cost 610 662
---- ----
Net post retirement benefit cost $844 $913
==== ====
</TABLE>
The weighted average discount rate used in determining the accumulated benefit
obligation was 8.25%. The gross medical trend rate was assumed to be 11.0% in
1994 and dropping .346% per year to 6.5% in 2007 and beyond for pre-65 retirees
that retired before January 1, 1994 and 10% decreasing by .5% per year to 5.5%
in 2003 and beyond for post 65-retirees that retired before January 1, 1994.
For retirees on or after January 1, 1994, the trend rate is the same until the
Company's expected costs are double the 1992 costs. At that point, future
increases in the medical trend will be paid by the retirees. The health care
cost trend rate assumption has a significant effect on the amount of the
obligation reported.
58
<PAGE> 59
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE H --BENEFIT PLANS -- Continued
The incremental effect of a 1% increase in the medical trend rate would result
in an increase of approximately $230,000 and $17,000 to the accumulated post
retirement benefit obligation and net post retirement benefit cost,
respectively, as of and for the year ended March 31, 1995.
NOTE I--INCENTIVE COMPENSATION PLAN
During 1989, the Board of Directors of Holdings approved a short-term incentive
plan to reward key employees who are significant to the Company's long-term
success. The awards are based on the Company's actual operating results, as
compared to targeted results. The plan provides for annual distributions to
participants based on that relationship. The plan is amended annually by the
Board of Directors to reflect changes in expected operating results, and to
adjust target results accordingly. The award for fiscal 1995 was $1.9 million
which is included in salaries, wages and employee benefits at March 31, 1995.
No amounts were awarded under the plan for the year ended March 31, 1994, the
six month period ended March 31, 1993 or for the year ended 1992.
NOTE J--ENVIRONMENTAL MATTERS
Because the Company is involved in the manufacture of steel, it produces and
uses certain substances that may pose environmental hazards. The principal
hazardous waste generated by current and past operations is emission control
dust ("EC dust"), a residual from the production of steel in electric arc
furnaces. The emission control dust generated by current operations is shipped
to zinc reclamation facilities under applicable environmental laws. In the
past, some of the Company's facilities and those of some reclaimers to whom
shipments were made became contaminated by emission control dust. In addition,
during the early 1970s, contamination involving polychlorinated biphenyls
(PCBs), occurred at several of the Company's facilities. Environmental
legislation and regulation at both the federal and state level is subject to
change, which may change the cost of compliance. Various possible methods of
remediation are presently being studied for approval; however, it is expected
that the investigation and remediation process will take a number of years.
Although the ultimate costs associated with the remediation are not presently
known, the Company has estimated the cost to be approximately $21.7 million.
Approximately $19.1 million of these costs is recorded in accrued liabilities
as of March 31, 1995. The remaining amounts consist of site restoration and
environmental exit costs to ready idle facilities for sale, and have been
considered in determining whether the carrying amounts of the properties exceed
their net realizable values. The Company paid approximately $14 million in
remediation costs in fiscal 1995. Of the amount accrued at March 31, 1995, the
Company expects to pay approximately $10.9 million in fiscal 1996, the timing
of future payments are uncertain due to the various remediation alternatives
being considered. The Company had recorded a reserve of approximately $27
million as of March 31, 1994 and approximately $21 million at March 31, 1993.
The Company's estimate of the remediation costs is based on its review of each
site and the nature of such problems. The Company then determines for each site
the expected remediation methods, and the estimated cost for each step of
remediation. In all such determinations, the Company employs outside
consultants, and providers of such remedial services where necessary, to assist
in making such determinations.
59
<PAGE> 60
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE J--ENVIRONMENTAL MATTERS -- Continued
During the years ended March 31, 1995, March 31, 1994, and three months ended
March 31, 1993 and December 31, 1992 and the fiscal year 1992, the Company
expensed approximately $6 million, $10 million, $.6 million, $.5 million, and
$9.6 million, respectively, for environmental remediation costs. Such amounts
are included in the accompanying statements of operations as a component of
costs of sales, excluding depreciation.
Based on past use of certain technologies and remediation methods by third
parties, evaluation of those technologies and methods by the Company's
consultants and quotations and third-party estimates of costs of
remediation-related services provided to the Company or of which the Company
and its consultants are aware, the Company and its consultants believe that the
Company's cost estimates are reasonable. In light of the uncertainties inherent
in determining the costs associated with the clean-up of such contamination,
including the time periods over which such costs must be paid, the extent of
contribution by parties which are joint and severally liable, and the nature
and timing of payments to be made under cost sharing arrangements; there can be
no assurance the ultimate costs of remediation may not be greater or less than
the estimated remediation costs.
NOTE K -- COMMITMENTS
Operating Leases
The Company leases certain equipment and real property under noncancelable
operating leases. Aggregate future minimum payments under these leases are as
follows:
($ in thousands)
<TABLE>
<CAPTION>
Year Ending
March 31, Amount
----------- ------
<S> <C>
1996 $1,464
1997 1,177
1998 932
1999 742
2000 461
Thereafter 2,342
------
$7,118
======
</TABLE>
Total rent expense was approximately $5.0 million, $4.8 million, $1.0 million,
$.9 million, and $3.9 million for the years ended March 31, 1995 and March 31,
1994, the three months ended March 31, 1993, the three months ended December
31, 1992 and the year-ended September 30, 1992, respectively.
On April 1, 1995, the Company entered into two noncancelable operating lease
agreements with an initial lease term of five years to lease land and land
improvements to a third party. Aggregate future minimum gross rentals under
these leases is $100,000 per year. Cost of the land and land improvements was
$1.6 million.
60
<PAGE> 61
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE K -- COMMITMENTS - Continued
Service Commitments
The Company entered into two noncancelable agreements to purchase
transportation services. The rates charged are based on a fixed dollar amount
and number of miles. These rates are subject to change each year based on
inflation. The term for each agreement is 5 years, beginning April 1, 1995,
renewable for successive one-year periods.
Employment Agreement
On June 1, 1994, the Company entered into a five-year employment agreement (the
"Employment Agreement") with a senior member of management. The Employment
Agreement provides for, among other benefits, a one-time bonus of $2,446,000,
base annual salary of $300,000, and equity interest of 7.5% of the outstanding
common stock of the Company to vest ratably over the next five years. Deferred
compensation of $4,500,000 was recorded related to the common stock granted,
and is being amortized on a straight-line basis over the term of the Employment
Agreement. The Employment Agreement also provides for certain additional
benefits in the event of termination.
Interest Rate Swap
The Company maintains an interest rate swap (the "Swap") agreement as a hedge
against fluctuations in interest rates on certain debt. The Swap has a notional
amount of $20 million and a three-year term expiring February 24, 1997. Under
the terms of the Swap the Company has agreed to pay fixed interest at 9% and
receive variable interest at the LIBOR Rate (6.38% at March 31, 1995) + 3.0%,
computed based on the notional amount. The Company is amortizing the premium
paid to acquire the Swap over its term as an adjustment to interest expense.
Litigation
The Company is defending various claims and legal actions which are common to
its operations. While it is not feasible to predict or determine the ultimate
outcome of these matters, none of them, in the opinion of management, will have
a material effect on the Company's financial position or results of operations.
NOTE L--OTHER OPERATING EXPENSES
In March 1994, the Company announced the closing of the Tampa Mill melt shop
resulting in a $10.3 million charge of which $9.1 million was to reduce fixed
assets to realizable value and the balance was primarily benefit costs for
affected employees. The Company also announced the closing of the Ft. Myers,
Florida and Woodbridge, Virginia fabricating shops at a cost of $600,000.
On November 4, 1992, the Company entered into a Settlement Agreement with the
United States and Florida Departments of Transportation (the "Departments").
The Company paid the Departments $9 million five days after the closing of the
Acquisition by Kyoei Steel (Note A). The Company recorded the $9 million as of
September 30, 1992 in other operating expenses.
61
<PAGE> 62
FLORIDA STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE M--SUBSEQUENT EVENTS
Employment Agreement
On April 1, 1995, the Company entered into an employment agreement with a
senior member of management that provides for, among other things, a signing
bonus and the receipt of restricted common stock and options to purchase common
stock.
Shareholder Loan
On April 15, 1995, the Company loaned approximately $731,000 to a shareholder.
The loan bears interest at 7.15% and calls for quarterly interest payments
until September 1997. Quarterly interest and principal payments are due
starting September 1, 1997 to June 1, 2000.
Stock Dividend
On May 22, 1995, the Company's Board of Directors and shareholders
authorized an increase in the number of shares of common stock from 1,000 to
30,000,000 and the Board of Directors declared a stock dividend of 49,999
shares for 1, pending approval of an amendment to the Company's Articles of
Incorporation by the State of Florida. These changes have been retroactively
reflected to March 31, 1995, in the accompanying financial statements.
62
<PAGE> 63
FLORIDA STEEL CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ ---------- ---------- ---------
BALANCE CHARGED TO BALANCE
AT BEGINNING COST AND AT END
CLASSIFICATION OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
- ----------------------------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Predecessor Year ended September 30, 1992:
Allowance for possible losses
on accounts and notes receivable $1,000 $ 859 $ 859 (1) $1,000
====== ========= ======= ======
Predecessor
Three months ended December 31, 1992:
Allowance for possible losses
on accounts and notes receivable $1,000 $ 230 $ (35)(1) $1,265
====== ========= ======= ======
The Company
Three months ended March 31, 1993:
Allowance for possible losses
on accounts and notes receivable $1,265 $ (5) $ 160 (1) $1,100
====== ========= ======= ======
Year Ended March 31, 1994:
Allowance for possible losses
on accounts and notes receivable $1,100 $ 714 $ 814 (1) $1,000
====== ========= ======= ======
Year Ended March 31, 1995:
Allowance for possible losses
on accounts and notes receivable $1,000 $ 559 $ (559) $1,000
====== ========= ======= ======
</TABLE>
(1) Represents accounts considered to be uncollectible and charged off,
less recoveries on accounts previously charged off.
See notes to financial statements.
63
<PAGE> 64
INDEX TO EXHIBITS
-----------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 2,854
<SECURITIES> 0
<RECEIVABLES> 81,360
<ALLOWANCES> (1,000)
<INVENTORY> 127,680
<CURRENT-ASSETS> 223,444
<PP&E> 262,141
<DEPRECIATION> (31,033)
<TOTAL-ASSETS> 561,748
<CURRENT-LIABILITIES> 102,080
<BONDS> 243,030
<COMMON> 100
0
0
<OTHER-SE> 137,650
<TOTAL-LIABILITY-AND-EQUITY> 561,748
<SALES> 639,908
<TOTAL-REVENUES> 639,908
<CGS> 559,771
<TOTAL-COSTS> 559,771
<OTHER-EXPENSES> 34,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,193
<INCOME-PRETAX> 19,855
<INCOME-TAX> (9,354)
<INCOME-CONTINUING> 10,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,501
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 0
</TABLE>
