<PAGE> 1
SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
</TABLE>
AmeriSteel Corporation
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[LOGO]
AMERISTEEL CORPORATION
5100 W. Lemon Street, Suite 312
Tampa, Florida 33609
INFORMATION STATEMENT
Written Consent of Stockholders
In Lieu of a
Special Meeting of Stockholders
To the Stockholders of November 17, 1997
AmeriSteel Corporation:
This Information Statement is furnished pursuant to Regulation 14C of
the Securities Exchange Act of 1934, as amended, to provide information
regarding certain action being taken by written consent by the holders of a
majority of the outstanding shares of common stock (the "Common Stock") of
AmeriSteel Corporation ("AmeriSteel" or the "Company"). Certain stockholders of
the Company, owning approximately 99.0% of the outstanding Common Stock, intend
to act by written consent in lieu of a Special Meeting of Stockholders for the
following purposes:
1. To approve an amendment to the Company's Articles of
Incorporation to create two classes of Common Stock - Class A
and Class B - and to increase the authorized number of shares
of Common Stock from 30,000,000 shares to 100,000,000 shares
of Class A Common Stock and 22,000,000 shares of Class B
Common Stock; and
2. To approve an amendment to the Company's Equity Ownership
Plan.
The written consent is to be submitted to the Company and become
effective on or about December 8, 1997.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND TO
THE COMPANY A PROXY.
At the close of business on October 31, 1997, there were 10,114,385
shares of Common Stock outstanding, each of which is entitled to one vote.
The approximate date on which this Information Statement is to be
mailed to stockholders is November 18, 1997.
<PAGE> 3
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 31, 1997, the number of
shares of the Common Stock beneficially owned by (i) each person known to the
Company as having beneficial ownership of more than 5% of the Common Stock,
(ii) each of its directors and nominees to become a director, (iii) each named
executive officer (as defined pursuant to Securities and Exchange Commission
rules) and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-----------------------
Percentage of
Number Common Stock
------ ------------
<S> <C> <C>
Kyoei Steel, Ltd. . ................................ 9,000,000(2) 89.0
Phillip E. Casey.................................... 1,005,792(3) 9.9
J. Donald Haney .................................... 6,676 *
Tom J. Landa........................................ 14,660 *
James F. Oliver..................................... 4,172 *
Koichi Takashima.................................... 500 --
Akihiko Takashima................................... -0- --
Shuzo Hikita........................................ -0- --
Hideichiro Takashima................................ 300 --
Ryutaro Yoshioka.................................... -0- --
Thomas G. Creed(4).................................. -0- --
James C. Hogue(4)................................... -0- --
All Directors and Executive Officers
as a Group (13 persons)............................. 1,041,877 10.3
</TABLE>
- --------------------
(1) Beneficial ownership of shares, as determined in accordance with
applicable Securities Exchange Commission rules, includes shares as to
which a person has or shares voting power and/or investment power.
Except as otherwise indicated, all shares are held of record with sole
voting and investment power. For purposes of the table, a person or
group of persons is deemed to have beneficial ownership of any shares
as of a given date which such person has the right to acquire within 60
days after such date.
(2) All shares shown are owned directly by FLS Steel Ltd. Holdings, Inc.,
a wholly owned subsidiary of Kyoei Steel, Ltd. Kyoei Steel Ltd.'s
address is 18F Aqua Dojima, West Building, 1-4-16 Dojimahama, Kita-Ku,
Osaka 530, Japan.
(3) Includes 129,408 shares of Common Stock that have been gifted by Mr.
Casey pursuant to Transfer and Proxy Agreements between Mr. Casey and
certain donees. The gifted shares are subject to certain restrictions
set forth in the agreements. Under the agreements, Mr. Casey is
appointed as attorney-in-fact with full power to vote the shares in
accordance with the decision of the holders of a majority of the
shares of Common Stock held by the donee stockholders and Mr. Casey.
As a result, Mr. Casey has the right to vote all 129,408 shares. The
restrictions (including those relating to voting) will expire upon the
effectiveness of a Registration Statement filed with Securities and
Exchange Commission. Mr. Casey's address is 5100 W. Lemon Street,
Suite 312, Tampa, Florida 33609.
(4) Messrs. Creed and Hogue retired from the Company in November 1996 and
May 1997, respectively.
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DESCRIPTION OF CAPITAL STOCK
The Company has authority under its Articles of Incorporation to issue
up to 30,000,000 shares of Common Stock, par value $.01 per share, of which
there are 10,114,385 shares outstanding as of October 31, 1997. Of such shares,
9,000,000 shares, or approximately 89.0%, are held of record by FLS Holdings,
Inc. ("FLS"), a wholly owned subsidiary of Kyoei Steel, Ltd. ("Kyoei"). See
"Principal Stockholders." Holders of Common Stock do not have any preemptive
rights or rights to subscribe for additional securities of the Company.
1. AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION
Note: References below to the proposed amendment to the Company's
Articles of Incorporation are qualified in their entirety by reference to the
form of proposed Articles of Amendment attached as Exhibit A to this Information
Statement (the "Amendment"). For information regarding the Company's results of
operation and financial condition, see the Management's Discussion and Analysis
of Financial Condition and Results of Operations attached hereto as Exhibit B
and the Company's financial statements attached as Exhibit C.
GENERAL
The Company is proposing that its Articles of Incorporation be amended
to (i) increase the authorized number of shares of Common Stock from 30,000,000
shares to 100,000,000 shares of Class A Common Stock and 22,000,000 shares of
Class B Common Stock, (ii) convert all outstanding shares of Common Stock into a
new class of stock, referred to as Class B Common Stock, which will have two (2)
votes per share on all matters, and (iii) authorize a new class of stock,
referred to as Class A Common Stock, which will have one (1) vote per share on
all matters. Generally, shares of Class A Common Stock and Class B Common Stock
would be identical except as to voting rights.
The amendment to the Company's Articles of Incorporation will be
approved if written consents representing a majority of all of the votes
entitled to be cast by the stockholders of the Company are received by the
Company. Stockholders owning approximately 99% of the outstanding shares of
Common Stock (the "Majority Stockholders") intend by written consent to approve
the amendment to the Company's Articles of Incorporation.
BACKGROUND
The Company has filed with the U. S. Securities and Exchange Commission
a Registration Statement on Form S-1 (the "Registration Statement") pursuant to
which the Company may make a public offering of its common stock ("IPO"). The
net proceeds from the IPO are currently estimated to be $78.2 million and are
intended to be used to pay $50.0 million of the Company's Subordinated
Intercompany Note. The balance of the estimated net proceeds of the IPO will
be used first to repay the outstanding balance under the Company's Revolving
Credit Agreement (currently estimated to be $16.3 million) and then to fund
working capital and for general corporate purposes. The Company believes it
would be in the best interests of the Company and its current shareholders if
such current shareholders were granted greater voting rights per share than
persons purchasing common stock in an IPO. The proposed Amendment would have
the effect of granting such greater voting rights.
It should be noted that the proposed Amendment, if adopted, may
discourage or make more difficult attempts to acquire control of the Company on
terms not approved by the Board of Directors by making it difficult for a
potential acquiror to obtain a majority of the voting power in the Company
against the wishes of holders of a substantial number of shares of Class B
Common Stock. This may assist certain directors and executive officers of the
Company in retaining their existing positions, and could result in stockholders
not having an opportunity to sell their shares to a third party seeking to
acquire the Company on terms opposed by the holders of Class B Common Stock who
do not elect to sell their Class B Common Stock. In addition, the holding of
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<PAGE> 5
greater voting rights by current stockholders could adversely affect any market
demand for, and thereby the initial offering price of, Class A Common Stock in
an IPO and could adversely affect any trading market for the Class A Common
Stock.
EFFECT OF THE AMENDMENT
If the Amendment is adopted, the Company will have authority under its
Articles of Incorporation to issue up to 100,000,000 shares of Class A Common
Stock, par value $.01 per share, and up to 22,000,000 shares of Class B Common
Stock, par value $.01 per share (together referred to as "Common Stock"). Shares
of Class A Common Stock and shares of Class B Common Stock generally will carry
the same rights, powers, preferences, privileges and limitations, except that
Class A Common Stock will have one vote per share while Class B Common Stock
will have two votes per share. Upon effectiveness of the Amendment, 9,000,000
shares of Class B Common Stock will be held of record by FLS, a wholly owned
subsidiary of Kyoei, which shares then will represent approximately 89.0% of the
combined voting power of all Common Stock. Holders of Common Stock will not
have any preemptive rights or rights to subscribe for additional securities of
the Company.
VOTING RIGHTS
The holders of Class A Common Stock will be entitled to one vote per
share. Holders of Class B Common Stock will be entitled to two votes per share.
Except as otherwise required by law or the Company's Articles of Incorporation,
the holders of all classes of Common Stock entitled to vote will vote together
as a single class on all matters presented to the stockholders for their vote or
approval. Because of the disproportionate voting rights of the Class B Common
Stock, holders of Class B Common Stock may be able to control the outcome of
matters submitted to a vote of the Company's stockholders, including the
election of directors, when the number of outstanding shares of Class B Common
Stock is less than a majority of the number of shares of all classes of Common
Stock then outstanding.
DIVIDENDS
Holders of Class A Common Stock and Class B Common Stock will be
entitled to receive dividends at the same rate on a per share basis if, as and
when such dividends are declared by the Board of Directors of the Company out
of assets or funds legally available therefor. In the case of dividends or
other distributions payable in shares of a class of Common Stock, including
distributions pursuant to stock splits or divisions of Common Stock, only
shares of Class A Common Stock may be distributed with respect to Class A
Common Stock and only shares of Class B Common Stock may be distributed with
respect to Class B Common Stock. The number of shares of each class of Common
Stock so distributed shall be equal in number on a per share basis.
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CONVERSION
Class A Common Stock will have no conversion rights. Shares of Class B
Common Stock will be convertible into Class A Common Stock, in whole or in part,
at any time and from time to time at the option of the holder, on the basis of
one share of Class A Common Stock for each share of Class B Common Stock
converted. Each share of Class B Common Stock shall automatically convert into
one share of Class A Common Stock on the date on which the number of shares of
Class B Common Stock then owned of record by Kyoei, its wholly owned
subsidiaries and Phillip E. Casey would be entitled to cast fewer than 50% of
the aggregate number of votes that would be entitled to be cast by all holders
of shares of Common Stock then outstanding at a meeting of such holders. The
Company covenants that (i) it will at all times reserve and keep available, out
of its authorized but unissued shares of Class A Common Stock, such number of
shares of Class A Common Stock issuable upon the conversion of all outstanding
shares of Class B Common Stock, (ii) it will cause any share of Class A Common
Stock issuable upon conversion of a share of Class B Common Stock that requires
registration with or approval of any governmental authority under federal or
state law before such shares may be issued upon conversion to be so registered
or approved and (iii) it will use its best efforts to list the shares of Class A
Common Stock required to be delivered upon conversion prior to such delivery
upon such national securities exchange upon which the outstanding Class A Common
Stock is listed at the time of such delivery.
RESTRICTIONS ON ADDITIONAL ISSUANCES AND TRANSFER
Other than pursuant to options or other rights to purchase already
outstanding, or pursuant to a stock split, stock dividend or similar transaction
effected in accordance with the Company's Articles of Incorporation, the Company
may not issue or sell any shares of Class B Common Stock or any securities
(including, without limitation, any rights, options, warrants or other
securities) convertible into, or exchangeable or exercisable for, shares of
Class B Common Stock to any person who is not then a record holder of Class B
Common Stock, Kyoei or a wholly owned subsidiary of Kyoei. Additionally,
shares of Class B Common Stock may not be transferred, whether by sale,
assignment, gift, bequest, appointment or otherwise, to a person other than
another record holder of Class B Common Stock, Kyoei or a wholly owned
subsidiary of Kyoei. Notwithstanding the foregoing (i) any holder of Class B
Common Stock may pledge his, her or its shares of Class B Common Stock to a
financial
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institution pursuant to a bona fide pledge of such shares as collateral security
for indebtedness due to the pledgee provided that such shares remain subject to
the transfer restrictions and that, in the event of foreclosure or other similar
action by the pledgee, such pledged shares of Class B Common Stock may only be
transferred to as provided above or converted into shares of Class A Common
Stock, as the pledgee may elect, and (ii) the foregoing transfer restrictions
shall not apply in the case of a merger, consolidation or business combination
of the Company with or into another corporation in which all of the outstanding
shares of Common Stock of the Company regardless of class are purchased by the
acquiror.
RECLASSIFICATION AND MERGER
In the event the Company enters into any consolidation, merger,
combination or other transaction in which shares of Common Stock are exchanged
for or changed into other stock or securities, cash and/or any other property,
then, and in such event, the shares of each class of Common Stock will be
exchanged for or changed into either (i) the same amount of stock, securities,
cash and/or any other property, as the case may be, into which or for which each
share of any other class of Common Stock is exchanged or changed; provided,
however, that if shares of Common Stock are exchanged for or changed into shares
of capital stock, such shares so exchanged for or changed into may differ to the
extent and only to the extent that the Class A Common Stock and Class B Common
Stock differ as provided in the Company's Articles of Incorporation or (ii) if
holders of each class of Common Stock are to receive different distributions of
stock, securities, cash and/or any other property, an amount of stock,
securities, cash and/or property per share having a value, as determined by an
independent investment banking firm of national reputation selected by the Board
of Directors, equal to the value per share into which or for which each share of
any other class of Common Stock is exchanged or changed.
OTHER PROVISIONS
In the event of any dissolution, liquidation or winding up of the
affairs of the Company, after payment of the debts and other liabilities of the
Company, the remaining assets of the Company will be distributable ratably among
the holders of the Class A Common Stock and Class B Common Stock treated as a
single class. The holders of the Class A Common Stock and Class B Common Stock
are not entitled to preemptive rights. None of the Class A Common Stock or Class
B Common Stock may be reclassified, subdivided or combined in any manner unless
the other class is simultaneously reclassified, subdivided or combined in the
same proportion.
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LISTING
The Class A Common Stock has been approved, subject to notice of
issuance, for listing on the New York Stock Exchange ("NYSE") under the trading
symbol "AST." Although transfer of Class B Common Stock generally would be
prohibited (except to another holder of Class B Common Stock), shares of Class
B Common Stock would be convertible at any time into an equal number of shares
of Class A Common Stock.
2. AMENDMENT OF THE COMPANY'S EQUITY OWNERSHIP PLAN
In 1995, the Board of Directors and stockholders of the Company adopted
the AmeriSteel Corporation Equity Ownership Plan. The purpose of the Equity
Ownership Plan is to enable the Company to be in a position to continue to
effectively attract and retain executive officers and other key employees. As
of October 31, 1997, approximately 1,870 employees are eligible to participate
in the Equity Ownership Plan.
The amendment to the Company's Equity Ownership Plan will be approved
if written consents representing a majority of all of the votes entitled to be
cast by the Company's stockholders are received by the Company. The Majority
Stockholders intend by written consent to approve the amendment to the Company's
Equity Ownership Plan.
EFFECT OF THE AMENDMENT
The Equity Ownership Plan as originally adopted covers a maximum of
438,852 shares of Common Stock. As set forth above, the Board of Directors has
recommended that the Company's Articles of Incorporation be amended to convert
all shares of Common Stock into a new class of stock, referred to as Class B
Common Stock and to authorize a new class of stock, referred to as Class A
Common Stock. See "Amendment of the Company's Articles of Incorporation."
The Board of Directors has approved, subject to approval by the stockholders of
the Company, an amendment to the Equity Ownership Plan whereby any shares to be
issued pursuant to options outstanding as of the effective date of the amendment
to the Articles of Incorporation (the "Effective Date") shall be of shares of
Class B Common Stock and any award of shares and grants of options or other
benefits under the Equity Ownership Plan from and after the Effective Date shall
be of or with respect to Class A Common Stock. The Amended Equity Ownership Plan
(the "Plan") will have an aggregate of 243,002 shares of Class A Common Stock
reserved for issuance under the Plan and an aggregate of 143,750 shares of Class
B Common Stock reserved for issuance in connection with stock options previously
granted under the Plan and currently unexercised.
The Majority Stockholders intend by written consent in lieu of a
Special Meeting of Stockholders of the Company to approve the amendment to the
Company's Equity Ownership Plan.
SUMMARY OF THE PLAN
An aggregate of 438,852 shares of Common Stock have been reserved for
issuance under the Plan of which, if the amendment is approved, approximately
243,002 shares will be Class A Common Stock reserved for issuance in connection
with awards after the Effective Date and approximately 143,750 shares will be
Class B Common Stock reserved for issuance in connection with stock options
granted prior to the Effective Date and currently unexercised. Under the Plan,
award shares, incentive stock options, nonqualified stock options and stock
appreciation rights ("SARs") or any combination thereof may be granted to
eligible individuals. The Plan is administered by the Board of Directors.
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All employees are eligible to receive options under the Plan, except
with respect to incentive stock options for any employee ineligible by reason of
the provisions of Section 422 of the Internal Revenue Code (e.g., an employee
owning or who would own upon the exercise of the option more than 10% of the
outstanding common stock of the Company, unless the option price is at least
110% of the fair market value of the Common Stock subject to the option and the
option is not exercisable after five years from the date of grant). No
consideration will be received by the Company for the granting of options or
SARs under the Plan other than the services rendered to the Company by the
employee in such capacity. The Board of Directors has discretion to condition
the grant of award shares upon the payment of cash which may not exceed the
fair market value of the shares.
The aggregate number of shares covered by the Plan, as well as the
number of shares covered by outstanding options (and the per share purchase
price thereof) are subject to automatic adjustment, without further action of
the Board of Directors or the stockholders, in the event of a stock dividend, a
stock split or certain other recapitalizations with respect to the Company's
stock.
The Board of Directors may amend the Plan (or suspend or discontinue
it) without further stockholder approval, except with respect to certain major
changes such as changing the number of shares subject to the Plan or the minimum
option price or the class of employees eligible to receive options. No amendment
may adversely affect any then outstanding award.
All recipients of awards under the Plan agree that they will not
transfer or otherwise dispose of any shares acquired under the Plan without
first offering to sell the shares to the Company in accordance with the terms
and conditions of the Plan. The restrictions will expire upon the effectiveness
of a Registration Statement filed with Securities and Exchange Commission.
INCENTIVE STOCK OPTIONS. The per share exercise price of each incentive
stock option may not be less than the fair market value of the stock on the date
of grant or, in the case of an employee owning more than 10% of the outstanding
Common Stock of the Company, not less than 110% of such fair market value.
Also, the aggregate fair market value of the stock with respect to which
options are exercisable for the first time by an employee in any calendar year
may not exceed $100,000.
NONQUALIFIED STOCK OPTIONS. The per share exercise price of each
nonqualified stock option may not be less than the fair market value of the
stock on the date of grant.
If exercised, an option must be exercised within the exercise period by
payment of the option price in cash, by check or by other means prescribed by
the Board of Directors.
Options are exercisable based on vesting schedules established by the
Board of Directors, generally in one-third increments each year beginning two
years from the date of grant. An option may not be exercised more than 10 years
after the date of grant, or, in the case of an individual who owns more than
10% of the outstanding common stock of the Company, more than five years after
the date of grant. Options granted prior to the Effective Date will be
exercisable into shares of Class B Common Stock and options granted after the
Effective Date will be exercisable into shares of Class A Common Stock. If the
individual's employment with the Company is terminated during the term of the
option, the end of the option period will be accelerated. Notwithstanding the
foregoing general rules, the Board of Directors may issue options for shorter
periods of time and may permit the earlier exercise of outstanding options.
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SARS. An SAR is payable at such time or times, or upon the occurrence
of such event or events, and in such amounts or types of consideration
(including cash or Shares) as the Board of Directors shall specify in the SAR
Agreement. An SAR may be granted in connection with all or any portion of a
previously or contemporaneously granted award (other than an SAR), or by itself
and not in connection with any other award.
AWARD SHARES. All award shares granted under the Plan shall be
shares of Class A Common Stock. During the restriction period determined in the
discretion of the Board of Directors, award shares may not be sold, transferred,
assigned, pledged, conveyed, hypothecated or otherwise disposed of (other than
by operation of law). Award shares may be subject to such additional terms,
conditions or limitations, not inconsistent with the specific provisions of the
Plan, as may be approved by the Board of Directors in it sole discretion.
The price of the Common Stock pursuant to the latest independent
appraisal prior to the Effective Date was $13.50 per share. The Company's
prospectus contained in the Registration Statement provides for the shares to
be sold at a range of between $20 to $23 per share.
FEDERAL INCOME TAX CONSEQUENCES
The recipient of an incentive stock option should not recognize any
taxable income or loss for federal income tax purposes at the time the incentive
stock option is granted or exercised; however, upon exercise, the difference
between the stock purchase price set forth in the option and the fair market
value of the shares received may be subject to the alternative minimum tax. If
the Common Stock purchased upon the exercise of an incentive stock option is
held for at least two years after the granting of the option and at least one
year after exercise, the recipient should receive a long term capital gain or
loss upon the sale or disposition of the Common Stock based on the difference
between the fair market value of the Common Stock on the date of sale or other
disposition and the purchase price of the Common Stock under the option. The
Company will not be entitled to any deductions with respect to the granting or
exercise of the incentive stock option in such cases.
If the recipient of an incentive stock option does not hold the shares
for two years after the grant of the option and one year after exercise, the
recipient will generally recognize as ordinary income in the year of disposition
the difference between (1) the purchase price of Common Stock covered by the
option and (2) the lesser of the sales price or the fair market value of the
shares on the date of exercise; and the Company will be entitled to a
corresponding deduction for such amount in that year. Any remaining gain would
be taxable to the recipient as capital gain. However, if the sales price is less
than the purchase price under the option, no income will be recognized; the
recipient would generally realize a capital loss equal to the difference between
the purchase price and the disposition price; and the Company will not receive
any deduction.
The general rules described in the preceding paragraph apply only when
the sale is made to an unrelated party. If the recipient makes a sale or other
disposition to certain related persons or entities before the end of the
applicable holding periods, then the recipient will be treated as having
received ordinary income (with a corresponding deduction to the Company) in the
year of disposition in an amount equal to the difference between the sales price
and the fair market value of the shares on the date of exercise (even if the
fair market value of the shares is less on the date of sale or other
disposition).
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Because the Company does not anticipate that any nonqualified stock
option will have a readily ascertainable fair market value when issued, the
recipient of such an option should not recognize any taxable income or loss for
federal income tax purposes at the time the option is granted. The exercise of
the nonqualified stock option, however, will result in the immediate recognition
of taxable income by its holder at ordinary income rates based on the difference
between the purchase price for shares covered by the option and the fair market
value of the shares received at the time of exercise. The Company will receive a
corresponding deduction at the same time. Additional gain or loss, determined
under general rules of taxation, may be realized upon the sale of the shares.
The specific application and impact of the tax rules will vary
depending on the specific personal situation of individual option recipients.
PLAN BENEFITS TABLE -- AMENDED EQUITY OWNERSHIP PLAN
The following table provides information regarding the number
of awards and the dollar value of awards under the Plan.
<TABLE>
<CAPTION>
Amended Equity Ownership Plan
-----------------------------
Number
Name and Position Dollar Value of Units
----------------- ------------ --------
<S> <C> <C>
Phillip E. Casey, Chairman of the Board
and Chief Executive Officer (1) (1)
J. Donald Haney, Group Vice President,
Fabricated Reinforcing Steel (1) (1)
Tom J. Landa, Vice President and Chief (1) (1)
Financial Officer
James C. Hogue, Vice President, Human (1) (1)
Resources
James F. Oliver, Vice President, Knoxville (1) (1)
Steel Mill Division
Thomas G. Creed, President and Chief (1) (1)
Operating Officer
Executive Group(2) (1) (1)
Non-Executive Director Group * *
Non-Executive Officer Employee Group (1) (1)
</TABLE>
- ----------------------------
* Not eligible for participation
(1) Awards under the Plan are entirely within the discretion of the Board
of Directors. The Company cannot determine the nature or amount of
awards that will be made in the future. During fiscal 1997, Messrs.
Casey, Haney, Landa, Hogue, Oliver and Creed were granted options to
purchase 0, 3,500, 0, 3,000, 3,000 and 0 shares of Common Stock,
respectively. No other awards were
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made to such individuals in fiscal 1997. During fiscal 1997, 12,500
stock options and 12,500 stock options were granted and remain
outstanding under the Plan to the Executive Group and Non-Executive
Officer Employee Group, respectively. The dollar value of such awards
cannot be determined.
(2) Consists of 13 executive officers including the six executive officers
listed above.
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EXHIBIT "A"
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
AMERISTEEL CORPORATION
AMERISTEEL CORPORATION, a corporation organized and existing under the
laws of the State of Florida (the "Corporation"), in order to amend its Articles
of Incorporation as now in effect (the "Articles of Incorporation"), in
accordance with the requirements of Chapter 607, Florida Statutes, does hereby
certify as follows:
1. The name of the Corporation is AMERISTEEL CORPORATION and its
Document Number with the Florida Department of State is 195537.
2. The amendment being effected hereby (the "Amendment") was duly
adopted and approved by the Board of Directors of the Corporation at a meeting
thereof on October 16, 1997.
3. In accordance with Section 607.0704, Florida Statutes: the Amendment
was duly adopted and approved by a majority of the shareholders of the
Corporation by the execution of one or more written consents effective December
7, 1997, dated and signed by shareholders having the requisite number of votes
to vote thereon, such vote was sufficient for approval of the Amendment, such
consents described the action taken and were duly and timely delivered to the
Corporation by delivery to its corporate secretary, and notice thereof was given
to those shareholders who did not consent in writing to the matters approved.
4. These Articles of Amendment of the Articles of Incorporation of
AmeriSteel Corporation (these "Articles of Amendment") shall be effective upon
filing hereof with the Department of State of the State of Florida.
5. Immediately prior to the filing of these Articles of Amendment, the
authorized capital stock of the Corporation consists of 30,000,000 shares of
common stock ("Old Common Stock"), par value $.01 per share, of which 10,114,385
shares are issued and outstanding. The Amendment causes the authorized capital
stock of the Corporation to consist of 100,000,000 shares of Class A Common
Stock ("Class A Common Stock"), par value $.01 per share, and 22,000,000 shares
of Class B Common Stock ("Class B Common Stock"), par value $.01 per share. Upon
the effectiveness of these Articles and the Amendment, each issued and
outstanding share of Old Common Stock shall be automatically converted and
reclassified into one issued and outstanding share of Class B Common Stock and
every option or other right to purchase or otherwise acquire a share of Old
Common Stock shall be automatically converted and reclassified into an identical
option or other right to purchase or otherwise acquire one share of Class B
Common Stock, in each case without any other or further action by or on the part
of the Corporation or any other person. Further,
Page 1 of 6
<PAGE> 14
every reference to any number of shares of Old Common Stock in any contract,
agreement, document or instrument to which the Corporation is a party shall be
deemed to be a reference to the same number of shares of Class B Common Stock.
6. The Articles of Incorporation are hereby amended by deleting Article
IV thereof, and in its place and stead substituting the following:
ARTICLE IV
4.1 General. The total number of shares of stock which the Corporation shall
have authority to issue is 100,000,000 shares of Class A Common Stock ("Class A
Common Stock"), par value $.01 per share, and 22,000,000 shares of Class B
Common Stock ("Class B Common Stock"), par value $.01 per share. Class A Common
Stock and Class B Common Stock are together referred to as "Common Stock."
Except as otherwise set forth below, the rights, powers, preferences, privileges
and limitations of shares of Class A Common Stock and Class B Common Stock shall
be identical in all respects.
4.2 Voting Rights. Every holder of Class A Common Stock shall be entitled to one
vote in person or by proxy for each share of Class A Common Stock standing in
his or her name on the transfer books of the Corporation, and every holder of
Class B Common Stock shall be entitled to two votes in person or by proxy for
each share of Class B Common Stock standing in his or her name on the transfer
books of the Corporation, in connection with all other matters submitted to a
vote of shareholders. Except as may be otherwise required by law or by these
Articles of Incorporation, the holders of Class A Common Stock and Class B
Common Stock shall vote together as a single voting group on all matters
submitted to a vote of the holders of Common Stock. Every reference in these
Articles of Incorporation or in the Bylaws of the Corporation to a majority or
other proportion of shares of Common Stock, Class A Common Stock or Class B
Common Stock, as the case may be, shall refer to such majority or other
proportion of the votes to which such shares of Common Stock, Class A Common
Stock or Class B Common Stock, as the case may be, are entitled.
4.3 Voluntary Conversion of Class B Common Stock. Each share of Class B Common
Stock is convertible at any time at the option of the holder thereof into one
share of Class A Common Stock. In connection with any such conversion, the
holder of the share or shares of Class B Common Stock to be converted shall
surrender to the office of the Corporation, or to such other person as may be
designated from time to time by the Corporation, (i) the certificate or
certificates representing the shares of Class B Common Stock to be converted,
duly endorsed in blank or accompanied by proper instruments of transfer, and
(ii) written notice to the Corporation stating that such holder elects to
convert such share or shares and stating the name and address in which each
certificate for shares of Class A Common Stock issued upon such conversion is to
be issued. Such conversion shall be deemed to have been effected at the close of
business on the date when such surrender is made to the Corporation (or, as the
case may be, to such other person as may be designated from time to time by the
Corporation) of the shares to be converted.
Page 2 of 6
<PAGE> 15
4.4 Automatic Conversion of Class B Common Stock. Each share of Class B Common
Stock shall automatically convert into one share of Class A Common Stock on the
first date on which the number of shares of Class B Common Stock then owned of
record by Kyoei Steel, Ltd. ("Kyoei")and Phillip E. Casey would be entitled to
cast fewer than 50% of the aggregate number of votes that would be entitled to
be cast by all holders of shares of Common Stock then outstanding at a meeting
of such holders. For purposes of these Articles of Incorporation, any reference
to Kyoei shall be deemed to include wholly owned subsidiaries of Kyoei.
4.5 Reservation of Shares. The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its authorized
but unissued Common Stock and its issued Common Stock held in its treasury for
the purpose of effecting any conversion of the Class B Common Stock pursuant to
these Articles of Incorporation, the full number of shares of Class A Common
Stock then deliverable upon any such conversion of all outstanding shares of
Class B Common Stock. Shares of Class A Common Stock have no conversion rights.
4.6 Notice of Automatic Conversion. The Corporation will provide notice of the
conversion of shares of Class B Common Stock pursuant to Section 4.4 to holders
of record of Common Stock not less than 30 nor more than 60 days prior to the
date fixed for such conversion; provided, however, that if the timing or nature
of the effectiveness of such conversion makes it impracticable to provide at
least 30 days' notice, the Corporation shall provide such notice as soon as
practicable. Such notice shall be provided by mailing notice of such conversion,
first class postage prepaid, to each holder of record of Common Stock, at such
holder's address as it appears on the transfer books of the Corporation;
provided, however, that no failure to give such notice nor any defect therein
shall affect the validity of the conversion of the shares of Class B Common
Stock. Each such notice shall state, as appropriate, (i) the date upon which
such conversion was or shall be effective, (ii) the place or places where
certificates for such shares are to be surrendered for conversion, and (iii)
that no dividends will be declared on the shares of Class B Common Stock after
such conversion date.
4.7 Effect of Conversion. Immediately upon any conversion of one or more shares
of Class B Common Stock to Class A Common Stock, the rights of the holders of
such share or shares of Class B Common Stock as such shall cease and such
holders shall be treated for all purposes as having become the holders of the
shares of Class A Common Stock issuable upon such conversion; provided, however,
that such persons shall be entitled to receive when paid any dividends declared
on the Class B Common Stock as of a record date preceding the time of such
conversion and unpaid as of the time of such conversion. As promptly as
practicable after the time of conversion, upon the surrender of certificates
formerly representing shares of Class B Common Stock, the Corporation shall
deliver or cause to be delivered, to or upon the written order of the record
holder of the surrendered certificates formerly representing shares of Class B
Common Stock, a certificate or certificates representing the number of fully
paid and nonassessable shares of Class A Common Stock into which the shares of
Class B Common Stock formerly represented by such certificates have been
converted in accordance with the provisions of these Articles of Incorporation.
The Corporation will pay any and all documentary, stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of Class A
Common Stock or the related stock certificates on the conversion of shares of
Class B Common Stock; provided, however, that the Corporation shall not be
required to pay any
Page 3 of 6
<PAGE> 16
tax which may be payable in respect of any registration of transfer involved in
the issue or delivery of shares of Class A Common Stock or the related stock
certificates in a name other than that of the registered holder of such
converted shares of Class B Common Stock, and no such issue or delivery shall be
made unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
4.8 Restrictions on Additional Issuances, Etc. Other than pursuant to options or
other rights to purchase already outstanding, or pursuant to a stock split,
stock dividend or similar transaction effected in accordance with these
Articles of Incorporation, from and after the effective date of this provision
the Corporation may not issue or sell any shares of Class B Common Stock or any
securities (including, without limitation, any rights, options, warrants or
other securities) convertible into, or exchangeable or exercisable for, shares
of Class B Common Stock to any person who is not then either a record holder of
Class B Common Stock or Kyoei. Shares of Class B Common Stock may not be
transferred, whether by sale, assignment, gift, bequest, appointment or
otherwise, to a person other than another record holder of Class B Common Stock
or Kyoei. Notwithstanding the foregoing (i) any holder of Class B Common Stock
may pledge his, her or its shares of Class B Common Stock to a financial
institution pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledgee provided that such shares remain
subject to the transfer restrictions and that, in the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class B Common
Stock may only be transferred as provided above or converted into shares of
Class A Common Stock, as the pledgee may elect, and (ii) the foregoing transfer
restrictions shall not apply in the case of a merger, consolidation or business
combination of the Corporation with or into another corporation in which all of
the outstanding shares of Common Stock of the Corporation regardless of class
are purchased by the acquiror.
4.9 Dividends. Holders of Class A Common Stock and Class B Common Stock shall be
entitled to receive such dividends and other distributions in cash, stock of any
corporation (other than Common Stock of the Corporation) or property of the
Corporation if, when and as may be declared thereon by the Board of Directors
from time to time out of assets or funds of the Corporation legally available
therefor and shall share equally on a per share basis in all such dividends and
other distributions. In the case of dividends or other distributions payable in
Common Stock, including distributions pursuant to stock splits or divisions of
Common Stock of the Corporation, only shares of Class A Common Stock shall be
paid or distributed with respect to Class A Common Stock and only shares of
Class B Common Stock shall be paid or distributed with respect to Class B Common
Stock. The number of shares of Class A Common Stock and Class B Common Stock so
distributed shall be equal in number on a per share basis.
4.10 Reclassification and Merger. Neither the shares of Class A Common Stock nor
the shares of Class B Common Stock may be reclassified, subdivided or combined
unless such reclassification, subdivision or combination occurs simultaneously
and in the same proportion for each class. In the event the Corporation enters
into any consolidation, merger, combination or other transaction in which shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then, and in such event, the shares of each
class of Common Stock will
Page 4 of 6
<PAGE> 17
be exchanged for or changed into either (1) the same amount of stock,
securities, cash and/or any other property, as the case may be, into which or
for which each share of any other class of Common Stock is exchanged or changed;
provided, however, that if shares of Common Stock are exchanged for or changed
into shares of capital stock, such shares so exchanged for or changed into may
differ to the extent and only to the extent that the Class A Common Stock and
Class B Common Stock differ as provided in the Corporation's Articles of
Incorporation or (2) if holders of each class of Common Stock are to receive
different distributions of stock, securities, cash and/or any other property, an
amount of stock, securities, cash and/or property per share having a value, as
determined by an independent investment banking firm of national reputation
selected by the Board of Directors, equal to the value per share into which or
for which each share of any other class of Common Stock is exchanged or changed.
4.11 Amendment to Eliminate Class B Common Stock. If at any time there are no
shares of Class B Common Stock issued and outstanding and the Corporation would
not then be permitted under these Articles of Incorporation to issue any shares
of Class B Common Stock, then the Board of Directors of the Corporation, without
shareholder action, may adopt and caused to be filed one or more amendments to
these Articles of Incorporation to delete any reference to or provision relating
to Class B Common Stock as a matter of historical interest, to change the
designation or name of Class A Common Stock and to make any appropriate
conforming changes to these Articles of Incorporation, including but not limited
to changing the numbering or the headings of the provisions hereof.
4.12 No Preemptive Rights. No holder of any share or shares of Common Stock
shall have or be entitled to, as a matter of right solely by reason of such
holding, any preemptive or other right to subscribe for or purchase any number
of such additional shares of Common Stock (or any other class or series of
capital stock now or hereafter authorized for issuance by the Corporation) as
may be issued by the Corporation from time to time, whether such additional
shares are issued for cash, property, services or any other consideration and
whether or not such shares are now authorized or are authorized by subsequent
amendment to these Articles of Incorporation, nor shall any such holder have or
be entitled to, as a matter of right solely by reason of such holding, any
preemptive or other right to subscribe for or purchase securities convertible
into or exchangeable for shares of the Corporation or to which there shall be
attached or appertain any warrants or rights entitling the holders thereof to
purchase or subscribe for such shares.
4.13 Dissolution, Liquidation, Etc. In the event of any dissolution, liquidation
or winding up of the affairs of the Corporation, whether voluntary or
involuntary, the assets and funds of the Corporation, if any, available for
distribution to shareholders shall be distributed equally on a per share basis
to the holders of Common Stock. For the purposes of this paragraph, the
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
assets of the Corporation or a consolidation or merger of the Corporation with
one or more other corporations (whether or not the Corporation is the
corporation surviving such consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
Page 5 of 6
<PAGE> 18
4.14 Payment for Stock. The consideration for the issuance of shares of Common
Stock may be paid, in whole or in part, in cash, in promissory notes, in other
property (tangible or intangible), in labor or services actually performed for
the Corporation, in promises to perform services in the future evidenced by a
written contract, or in other benefits to the Corporation at a fair valuation to
be fixed by the Board of Directors. When issued, all shares of Common Stock
shall be fully paid and nonassessable.
4.15 Treasury Stock. The Board of Directors of the Corporation shall have the
authority to acquire by purchase and hold from time to time any shares of its
issued and outstanding capital stock for such consideration and upon such terms
and conditions as the Board of Directors in its discretion shall deem proper and
reasonable in the interests of the Corporation.
7. Any reference in the Amendment to "these Articles of Incorporation"
or any other reference of similar import shall be deemed a reference to the
Articles of Incorporation as amended by the Amendment.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has
executed these Articles of Amendment of the Articles of Incorporation of
AmeriSteel Corporation this day of November, 1997.
AMERISTEEL CORPORATION
By:
-------------------------------------
Page 6 of 6
<PAGE> 19
EXHIBIT "B"
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Information Statement contains certain forward-looking statements
that are based on the beliefs of the Company's management, as well as
assumptions made by, and information currently available to, the Company's
management. Such statements include, among others, (i) the highly cyclical
nature and seasonality of the steel industry, (ii) the fluctuations in the cost
and availability of raw materials, (iii) the possibility of excess production
capacity, (iv) the potential costs of environmental compliance, (v) the risks
associated with potential acquisitions, (vi) further opportunities for industry
consolidation, (vii) the impact of inflation and (viii) the fluctuations in the
cost of electricity. Because such statements involve risks and uncertainties,
actual actions and strategies and the timing and expected results thereof may
differ materially from those expressed or implied by such forward-looking
statements, and the Company's future results, performance or achievements could
differ materially from those expressed in, or implied by, any such
forward-looking statements. The following presentation of management's
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the Company's Financial
Statements and the Notes thereto, and other financial information, included
elsewhere in this Information Statement.
GENERAL
The results of operations of the Company are largely dependent on the level
of construction and general economic activity in the U.S. The Company's sales
are seasonal with sales in the Company's fiscal first and second quarters
generally stronger than the rest of the year. The Company's cost of sales
includes the cost of its primary raw material, steel scrap, the cost of
converting the scrap to finished steel products, the cost of warehousing and
handling finished steel products and freight costs. The following table sets
forth information regarding the historical results of operations:
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------ -------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Net sales............................... $639,908 $628,404 $617,289 $327,908 $343,805
Cost of sales........................... 545,725 533,965 531,190 285,173 277,251
Cost of sales as a percent of net
sales................................. 85.3% 85.0% 86.1% 87.0% 80.6%
Selling and administrative.............. 29,959 29,605 29,068 14,261 12,834
Depreciation............................ 14,046 14,619 16,654 8,091 9,643
Amortization of goodwill................ 4,130 4,130 4,130 2,065 2,065
Other operating expenses................ -- 16,013 -- -- --
-------- -------- -------- -------- --------
Income from operations........ $ 46,048 $ 30,072 $ 36,247 $ 18,318 $ 42,012
Interest expense........................ 23,330 22,000 19,473 9,898 10,115
Amortization of deferred financing
costs................................. 2,863 1,956 934 467 353
Income taxes............................ 9,354 3,996 7,788 3,907 13,108
-------- -------- -------- -------- --------
Net income.................... $ 10,501 $ 2,120 $ 8,052 $ 4,046 $ 18,436
======== ======== ======== ======== ========
</TABLE>
1
<PAGE> 20
SIX MONTHS ENDED SEPTEMBER 30, 1997 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
TONS SHIPPED (THOUSANDS) AVERAGE SELLING PRICES (PER TON)
------------------------- ---------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ---------------------------------
1996 1997 1996 1997
----- ----- -------- --------
<S> <C> <C> <C> <C>
Mill Finished Goods:
Stock Rebar................... 242 291 $313 $334
Merchant Bar.................. 253 283 354 367
Rods.......................... 62 48 322 344
--- --- ---- ----
557 622 332 349
Fabricated Rebar................ 170 174 453 457
Billets......................... 188 106 225 232
--- ---
Total................. 915 902
=== ===
</TABLE>
NET SALES. Net sales in the six months ended September 30, 1997 increased
approximately 5% from the same period last year as both prices and volumes of
mill finished goods increased. Average mill finished goods prices increased over
5%. Overall shipped tonnage was down over 1% due to a decline in semi-finished
billet tons shipped, however shipments of higher margin mill finished goods
increased over 11%. The volume shift towards higher margin finished goods and
away from semi-finished billets is a direct result of higher rolling mill
production levels from completion of mill modernization projects at the
Charlotte and Jackson mills.
COST OF SALES. Increased production levels, lower average unit costs and
the shift towards higher margin finished steel products resulted in higher
margins. Cost of sales declined from 87% to 81% of net sales in the six months
ended September 30, 1997.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses for the
six months ended September 30, 1997 include a $3.3 million charge for the
disposition of environmental waste, offset by $6.8 million received in
connection with an insurance settlement related to cleanup of the 1995 melting
of radioactive scrap at the Jackson mill. The Company also incurred $1.4 million
in startup expenses associated with its facility at the Jackson mill that is
designed to utilize a technology developed by a third party to recycle the
Company's electric arc furnace/emission control dust ("EC dust") that is
currently regulated as a hazardous waste.
DEPRECIATION. Depreciation expense of $9.6 million for the six months
ended September 30, 1997 increased 19% over the same period last year due to
capital improvement spending of $19.3 million since September 30, 1996.
FISCAL 1997 VERSUS FISCAL 1996
<TABLE>
<CAPTION>
TONS SHIPPED (THOUSANDS) AVERAGE SELLING PRICES (PER TON)
------------------------- ---------------------------------
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
------------------------- ---------------------------------
1996 1997 1996 1997
----- ----- -------- --------
<S> <C> <C> <C> <C>
Mill Finished Goods:
Stock Rebar................ 508 472 $310 $316
Merchant Bar............... 544 512 362 352
Rods....................... 133 105 336 322
----- ----- ---- ----
1,185 1,089 337 333
Fabricated Rebar............. 315 326 460 451
Billets...................... 175 281 233 227
----- -----
Total.............. 1,675 1,696
===== =====
</TABLE>
NET SALES. Net sales in fiscal 1997 declined 1.8% from fiscal 1996 as both
prices and sales volumes of finished goods declined. Mill finished product
prices declined $4 per ton, while fabricated rebar prices declined $9 per ton.
Mill finished steel production and shipment volumes were limited by the
2
<PAGE> 21
start-up of major capital improvement projects at the Charlotte and Jackson
rolling mills. As a result, shipments were more heavily weighted in favor of
lower-priced semi-finished billet products during the equipment installation and
start-up period. Fabricating revenues improved modestly as volume increases
offset the decline in price.
COST OF SALES. Cost of sales were 86.1% of net sales in fiscal 1997 versus
85.0% of net sales in fiscal 1996 due to the higher costs associated with the
decline in production tonnage at the Charlotte and Jackson mills during the
startup of capital projects for the rolling mills. Average scrap costs were down
$1 per ton for the year due to a fourth quarter decline in scrap prices.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses remained
constant at 4.7% of sales in fiscal 1997 as compared to fiscal 1996.
DEPRECIATION. Depreciation increased to $16.7 million in fiscal 1997 from
$14.6 million in fiscal 1996 due to increased capital expenditures at all four
mills during the last two years.
OTHER OPERATING EXPENSES. The Company decided in June 1995 to close the
Tampa rolling mill effective September 1995. The Tampa mill was the Company's
oldest facility and represented the Company's highest operating cost minimill.
In fiscal 1996, the Company incurred non-cash charges of $12 million
representing the write-down of property, plant and equipment to its estimated
fair market value, and incurred cash charges of $3 million for severance
payments and benefits costs for the termination of substantially all 116 Tampa
rolling mill employees. All severance payroll and benefit costs were paid and
charged against the liability during fiscal 1996, resulting in no liability for
severance payroll and benefit costs at March 31, 1996. Approximately $1.8
million in net book value of property, plant and equipment related to the Tampa
site, primarily land and buildings, was retained and is currently being used by
the Company. The Company currently incurs minimal ongoing costs related to the
Tampa mill land and building, primarily for ongoing warehousing and shipping
operations, and the caretaking of environmental cleanup (see "Note E to
September 30, 1997 unaudited condensed financial statements -- Environmental
Matters"), totaling approximately $300,000 annually. These costs are offset by
short-term rental income attributable to this property of approximately $225,000
annually. Approximately $3.5 million remains in Assets Held for Sale, which
represents appraised values of machinery and equipment and land being marketed
for sale. Since the closure, the Tampa market has been served by the Company's
Jacksonville mill, minimizing lost sales. The Company intends to sell the Tampa
minimill property.
The Company incurred an additional $.8 million charge in fiscal 1996 for
the write-off of all future lease obligations (through November 1998) related
to the closure of its fabricating plant in Woodbridge, Virginia.
INTEREST EXPENSE. Interest expense declined from $22.0 million in fiscal
1996 to $19.5 million in fiscal 1997 as cash generated from operations was used
to lower debt by $29.6 million and average annual interest rates declined from
9.3% to 8.7%. Capitalized interest for fiscal 1997 was $2.0 million compared to
$2.1 million in fiscal 1996.
AMORTIZATION OF DEFERRED FINANCING COSTS. Amortization of deferred
financing costs declined from $2.0 million in fiscal 1996 to $.9 million in
fiscal 1997 due to the refinancing of the Company's Revolving Credit Agreement
in June 1995. See "-- Liquidity and Capital Resources".
INCOME TAXES. The Company's effective federal and state income tax rate
for fiscal 1997 and 1996 was 39% excluding the effect of goodwill amortization,
which is not deductible for income tax purposes.
3
<PAGE> 22
FISCAL 1996 VERSUS FISCAL 1995
<TABLE>
<CAPTION>
TONS SHIPPED (THOUSANDS) AVERAGE SELLING PRICES (PER TON)
-------------------------- ---------------------------------
YEAR ENDED MARCH 31, YEAR ENDED MARCH 31,
-------------------------- ---------------------------------
1995 1996 1995 1996
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Mill Finished Goods:
Stock Rebar.................... 536 508 $326 $310
Merchant Bar................... 549 544 359 362
Rods........................... 129 133 338 336
----- ----- ---- ----
1,214 1,185 342 337
Fabricated Rebar................. 347 315 421 460
Billets.......................... 141 175 228 233
----- -----
Total.................. 1,702 1,675
===== =====
</TABLE>
NET SALES. Net sales for fiscal 1996 were 1.8% lower than fiscal 1995 due
to lower volume and lower mill average selling prices. Although semi-finished
billet shipments were 24.1% higher than in fiscal 1995, finished product
shipments were down 4.1%. Average mill selling prices declined $5 per ton.
Although fabricated rebar prices increased $39 per ton, fabricated rebar
shipments were down 9.2%.
COST OF SALES. Cost of sales were 85.0% of net sales in fiscal 1996 versus
85.3% of net sales in the previous year. Mill conversion costs were the same
while scrap steel costs were $1 per ton higher than in fiscal 1995.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses remained
constant at 4.7% of sales in fiscal 1996 compared to fiscal 1995.
DEPRECIATION. Depreciation increased to $14.6 million in fiscal 1996 from
$14.0 million in fiscal 1995 due to increased capital expenditures that were
placed in service at all four mills.
OTHER OPERATING EXPENSES. The Company decided in June 1995 to close the
Tampa rolling mill effective September 1995. The Tampa mill was the Company's
oldest facility and represented the Company's highest operating cost minimill.
In 1996, the Company incurred non-cash charges of $12 million representing the
write-down of property, plant and equipment to its estimated fair market value,
and incurred cash charges of $3 million for severance payments and benefits
costs for the termination of substantially all 116 Tampa rolling mill employees.
All severance payroll and benefit costs were paid and charged against the
liability during fiscal 1996, resulting in no liability for severance payroll
and benefit costs at March 31, 1996. The Company believed that the closing of
the Tampa minimill would improve future operating results, liquidity and cash
flows. Approximately $1.8 million in net book value of property, plant and
equipment related to the Tampa site, primarily land and buildings, was retained
and is currently being used by the Company. The Company currently incurs minimal
ongoing costs related to the Tampa mill land and buildings, primarily for
ongoing warehousing and shipping operations, and the caretaking of environmental
cleanup (see "Note E to September 30, 1997 unaudited condensed financial
statements -- Environmental Matters"), totaling approximately $300,000 annually.
These costs are offset by short-term rental income attributable to this property
of approximately $225,000 annually. Approximately $3.5 million remains in Assets
Held for Sale, which represents appraised values of machinery and equipment and
land being marketed for sale. Since the closure, the Tampa market has been
served by the Company's Jacksonville mill, minimizing lost sales. The Company
intends to sell the Tampa minimill property.
The Company incurred an additional $.8 million charge in fiscal 1996 for
the write-off of all future lease obligations (through November 1998) related
to the closure of its fabricating plant in Woodbridge, Virginia.
INTEREST EXPENSE. Interest expense declined from $23.3 million in fiscal
1995 to $22.0 million in fiscal 1996 primarily because of lower average interest
rates and higher capitalized interest. Average annual interest rates declined
from 9.8% in fiscal 1995 to 9.3% in fiscal 1996. Average borrowings were
4
<PAGE> 23
higher in fiscal 1996 than in fiscal 1995. Capitalized interest for fiscal 1996
was $2.1 million versus $654 thousand in fiscal 1995.
AMORTIZATION OF DEFERRED FINANCING COSTS. Amortization of deferred
financing costs declined in fiscal 1996 as compared to fiscal 1995 due to
refinancing of the Company's Revolving Credit Agreement. See "-- Liquidity and
Capital Resources".
INCOME TAXES. The effective federal and state income tax rate for fiscal
1996 was 39% compared to 38.8% for fiscal 1995 excluding the effect of goodwill
amortization, which is not deductible for income tax purposes.
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1997 1997 1997
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT AVERAGE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales.................. $158,086 $139,948 $149,433 $168,359 $175,446
Operating expenses:
Cost of sales............ 136,261 119,602 126,415 135,037 142,214
Selling and
administrative......... 7,328 7,184 7,623 7,572 5,262
Depreciation............. 4,096 4,193 4,370 4,827 4,816
Amortization of
goodwill............... 1,032 1,032 1,033 1,033 1,032
-------- -------- -------- -------- --------
$148,717 $132,011 $139,441 $148,469 $153,324
Income from operations... 9,369 7,937 9,992 19,890 22,122
Other expense:
Interest................. 5,043 4,786 4,789 5,188 4,927
Amortization of deferred
financing costs........ 233 233 234 234 119
-------- -------- -------- -------- --------
$ 5,276 $ 5,019 $ 5,023 $ 5,422 $ 5,046
Income before income
taxes.................... 4,093 2,918 4,969 14,468 17,076
Income taxes............... 1,999 1,541 2,340 6,045 7,063
-------- -------- -------- -------- --------
Net income........ $ 2,094 $ 1,377 $ 2,629 $ 8,423 $ 10,013
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
Shipped Tons
Stock rebar.............. 108 104 125 140 151
Merchant bar............. 133 123 135 136 147
Rod...................... 26 19 25 29 19
-------- -------- -------- -------- --------
Subtotal mill finished
goods.................. 267 246 285 305 317
Fabricated rebar......... 86 82 74 85 89
Billets.................. 79 47 47 56 50
-------- -------- -------- -------- --------
Total shipped tons....... 432 375 406 446 456
======== ======== ======== ======== ========
Average mill finished goods
prices (per ton)......... $ 334 $ 334 $ 334 $ 346 $ 352
Average scrap cost (per
ton)..................... 134 129 125 129 134
Average metal spread (per
ton)..................... 200 205 209 217 218
Average mill conversion
costs (per ton).......... 134 137 134 125 130
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's three largest financial obligations currently outstanding are
the $100 million aggregate principal amount of First Mortgage Notes, a $140
million aggregate revolving credit facility (the "Revolving Credit Agreement"),
and a $50 million aggregate principal amount Subordinated Intercompany Note due
December 21, 2002 and owed to FLS.
5
<PAGE> 24
The First Mortgage Notes are secured by the real property, equipment and
certain other assets at the Company's minimills. The First Mortgage Notes are
redeemable, at the option of the Company, in whole or in part from time to time,
at the redemption prices set forth below (expressed as percentages of the
outstanding principal amount) if redeemed during the twelve-month period
commencing on December 15 of each year referenced below, plus, in each case,
accrued interest thereon to the date of the redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
1996........................................................ 103.833%
1997........................................................ 101.916
1998 and thereafter......................................... 100.000
</TABLE>
The Revolving Credit Agreement is secured by the Company's inventory and
receivables and matures on June 9, 1999. The Revolving Credit Agreement provides
for a substantial portion of the Company's liquidity by making available up to
$140 million in borrowings, subject to a "borrowing base". As of September 30,
1997, the Revolving Credit Agreement had a borrowing base of approximately
$121.9 million, of which approximately $51.0 million was available to the
Company for further borrowings, $31.0 million was outstanding and $39.9 million
was allocated to letters of credit (most of which are being provided as credit
backing for the Company's outstanding Industrial Revenue Bonds). These
Industrial Revenue Bonds were 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 Company increased its outstanding Industrial Revenue Bonds by $20.0
million in fiscal 1996 and $5.0 million in fiscal 1998 for a solid waste
recycling facility in Jackson, Tennessee. The Industrial Revenue Bonds mature in
fiscal 2004 except for the 1996 and 1998 Industrial Revenue Bonds which mature
in fiscal 2018 and 2014, respectively.
The First Mortgage Notes and the Revolving Credit Agreement contain certain
restrictions regarding the incurrence of additional indebtedness by the
Company, restrictions on the Company's ability to pay dividends and other
restrictive covenants relating to the Company's business. The Company continues
to comply with all of the covenants of its loan agreements. See "Note D to
Financial Statements -- Borrowings". In addition, the Notes being offered in
the Notes Offering will also contain restrictions on the Company's ability to
pay dividends and certain restrictive covenants relating to the Company's
business.
Net cash provided by operating activities for the six months ended
September 30, 1997 was $27.0 million compared with $29.4 million for the same
period last year. Cash flow from net income increased by $14.4 million but was
offset principally because finished product inventories were restored from the
period ended September 30, 1996 when inventories were drawn down during
production disruptions caused by mill modernization projects at the Charlotte
and Jackson mills. The Company used $20.4 million in cash to repay debt and
$11.3 million to invest in capital projects, mostly for mill modernization. In
September 1997, the Company incurred additional indebtedness of $5.0 million
through an Industrial Revenue Bond issue for construction of a facility at the
Jackson mill to recycle EC dust. Net cash provided by operating activities in
fiscal 1997 was $43.9 million compared to $44.1 million in fiscal 1996.
Over the years, the Company has expanded capacity by means of modernizing
and upgrading facilities. Capital expenditures were $34.4 million for the year
ended March 31, 1997, $36.9 million for the year ended March 31, 1996 and $25.8
million for the year ended March 31, 1995. The Company anticipates spending
approximately $28.0 million for capital expenditures in fiscal 1998, of which
approximately $9.1 million were made in the six months ended September 30, 1997.
Prior to the completion of the Offerings, the Company intends to declare
and pay a special dividend of approximately $6.1 million to its then current
stockholders. The dividend will be paid from current fiscal year earnings. The
Company plans to use available cash provided from operating activities, and if
necessary, additional borrowings under its Revolving Credit Agreement (under
which there was $51.0 million available for further borrowings as of September
30, 1997) to fund the payment of this $6.1 million cash dividend.
6
<PAGE> 25
The Company believes that the amounts available from operating cash flows
and funds available through its Revolving Credit Agreement will be sufficient to
meet its expected operational cash needs and planned capital expenditures for
the foreseeable future.
The Company is aware of the Year 2000 issue and the effects it may have on
its business systems. In response, the Company has developed a detailed plan to
address the issue. This plan includes a two year campaign, which began in April
1997 and includes approved spending of approximately $2.6 million for upgrading
hardware and software, including training, prior to 2000. The Company believes
that it will be Year 2000 compliant without a material impact on its operations
or financial results.
The estimated net proceeds from the Offerings (after deduction of
underwriting discounts and the Company's estimated offering expenses) are
intended to be used first to repay all of the Company's Subordinated
Intercompany Note and then to repay the outstanding balance under the Company's
Revolving Credit Agreement (currently estimated to be $16.3 million) and then to
fund working capital and general corporate purposes.
Concurrent with the Offerings, the Company is planning to offer $100
million aggregate principal amount of its senior unsecured Notes due 2007 (the
"Notes" and the offering of such Notes, the "Notes Offering") by a separate
offering memorandum. The closing of the Notes Offering is conditioned upon the
closing of the Offerings. It is expected that the Notes Offering would be
closed shortly after the closing of the Offerings. The net proceeds to the
Company from the Notes Offering (after deduction of assumed underwriting
discounts and the Company's estimated offering expenses), if closed, are
estimated to be $97.6 million. The Company will use such proceeds to redeem the
Company's First Mortgage Notes.
Because the Notes Offering is subject to a variety of market, economic and
other factors, there can be no assurance that the Notes Offering will be
consummated.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The Company is subject to federal, state and local laws and regulations
governing the remediation of environmental contamination associated with
releases of hazardous substances which can impose joint and several liability
for contamination regardless of fault or the lawfulness of past activities
(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 and employee health
and (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 and for damages.
The Company has estimated its potential costs for further remediation under
Environmental Cleanup Laws at on-site and off-site locations to be approximately
$14.9 million and has included this amount in the Company's recorded liabilities
as of September 30, 1997. 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 jointly and severally
liable, and the nature and timing of payments to be made under cost sharing
arrangements, there can be no assurance that the ultimate costs of remediation
may not be more or less than the estimated remediation costs that the Company
has recorded.
The Company also incurs significant ongoing costs to comply with current
standards promulgated by Environmental Regulatory Laws which costs are being
expensed and paid from current operations. Although it is the Company's policy
to comply with all Environmental Regulatory Laws and the Company believes that
it is currently in material compliance with all Environmental Regulatory Laws,
Environmental
7
<PAGE> 26
Regulatory Laws may become more significant in the future and, there can be no
assurance that material environmental liabilities will not be incurred by the
Company or that compliance with Environmental Regulatory Laws (whether those
currently in effect or those that may be enacted in the future) will not require
additional expenditures by the Company or require changes to the Company's
current operations, any of which could have a material adverse effect on the
Company's results of operations and financial condition.
See "Note E to September 30, 1997 unaudited condensed financial statements
- -- Environmental Matters" for further information regarding environmental
matters.
IMPACT OF INFLATION
The Company's primary costs include ferrous scrap, energy and labor, which
can be affected by inflationary conditions. The Company has generally been able
to pass on cost increases through price adjustments. However, the ability to
pass on these increases depends on market conditions driven primarily by the
level of construction activity. Another factor that may limit the Company's
ability to pass on cost increases in materials is over-capacity in the steel
industry.
8
<PAGE> 27
EXHIBIT "C"
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Statements of Financial Position as of March 31, and
September 30, 1997 (unaudited)............................ F-2
Statements of Income (unaudited) for the Six Month Periods
Ended September 30, 1996 and 1997......................... F-3
Statements of Cash Flows (unaudited) for the Six Month
Periods Ended September 30, 1996 and 1997................. F-4
Notes to Unaudited Financial Statements..................... F-5
Report of Independent Certified Public Accountants.......... F-9
Statements of Financial Position as of March 31, 1996 and
1997...................................................... F-10
Statements of Income for the Years Ended March 31, 1995,
1996 and 1997............................................. F-11
Statements of Shareholders' Equity for the Years Ended March
31, 1995, 1996 and 1997................................... F-12
Statements of Cash Flows for the Years Ended March 31, 1995,
1996 and 1997............................................. F-13
Notes to Financial Statements for the Years Ended March 31,
1995, 1996 and 1997....................................... F-14
</TABLE>
F-1
<PAGE> 28
AMERISTEEL CORPORATION
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
MARCH 31, -------------------------
1997 HISTORICAL PRO FORMA
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,645 $ 1,848 $ 1,848
Accounts receivable....................................... 68,563 77,573 77,573
Inventories............................................... 106,173 106,830 106,830
Deferred tax assets....................................... 5,000 5,000 5,000
Other current assets...................................... 1,138 1,442 1,442
-------- -------- --------
TOTAL CURRENT ASSETS............................ 182,519 192,693 192,693
ASSETS HELD FOR SALE...................................... 14,838 14,967 14,967
PROPERTY, PLANT AND EQUIPMENT............................. 308,159 317,496 317,496
Less accumulated depreciation............................. 58,138 67,679 67,679
-------- -------- --------
250,021 249,817 249,817
GOODWILL.................................................. 85,773 83,708 83,708
DEFERRED FINANCING COSTS.................................. 2,523 2,208 2,208
OTHER ASSETS.............................................. 11 7 7
-------- -------- --------
TOTAL ASSETS.................................... $535,685 $543,400 $543,400
======== ======== ========
CURRENT LIABILITIES
Trade accounts payable.................................... $ 44,666 $ 39,779 $ 39,779
Salaries, wages and employee benefits..................... 14,598 14,926 14,926
Environmental remediation................................. 5,079 5,875 5,875
Other current liabilities................................. 4,355 9,594 9,594
Interest payable.......................................... 4,659 4,980 4,980
Current maturities of long-term borrowings................ 435 5,687 5,687
-------- -------- --------
TOTAL CURRENT LIABILITIES....................... 73,792 80,841 80,841
LONG-TERM BORROWINGS, LESS CURRENT PORTION................ 237,474 216,835 222,904
OTHER LIABILITIES......................................... 21,555 24,014 24,014
DEFERRED TAX LIABILITIES.................................. 52,300 52,300 52,300
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 30,000,000 shares
authorized at March 31, and September 30, 1997,
10,079,028 and 10,114,603 shares outstanding at March
31, and September 30, 1997, respectively............. 101 101 101
Capital in excess of par................................ 156,816 157,297 157,297
(Accumulated deficit) retained earnings................. (4,328) 14,108 8,039
Deferred compensation................................... (2,025) (2,096) (2,096)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY...................... 150,564 169,410 163,341
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $535,685 $543,400 $543,400
======== ======== ========
</TABLE>
See notes to financial statements
F-2
<PAGE> 29
AMERISTEEL CORPORATION
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
($ IN THOUSANDS EXCEPT PER
COMMON SHARE)
<S> <C> <C>
NET SALES................................................... $327,908 $343,805
Operating Expenses:
Cost of sales............................................. 285,173 277,251
Selling and administrative................................ 14,261 12,834
Depreciation.............................................. 8,091 9,643
Amortization of goodwill.................................. 2,065 2,065
-------- --------
309,590 301,793
-------- --------
INCOME FROM OPERATIONS...................................... 18,318 42,012
Other Expenses:
Interest.................................................. 9,898 10,115
Amortization of deferred financing costs.................. 467 353
-------- --------
10,365 10,468
-------- --------
INCOME BEFORE INCOME TAXES.................................. 7,953 31,544
Income taxes................................................ 3,907 13,108
-------- --------
NET INCOME.................................................. $ 4,046 $ 18,436
======== ========
Weighted average common shares outstanding (in thousands)... 10,093 10,096
EARNINGS PER COMMON SHARE................................... $ .40 $ 1.83
</TABLE>
See notes to financial statements
F-3
<PAGE> 30
AMERISTEEL CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
($ IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 4,046 $ 18,436
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 10,623 12,061
Deferred income taxes.................................. 1,300 --
Other (loss on asset disposals and deferred
compensation)........................................ 492 2,313
Changes in operating assets and liabilities:
Accounts receivable.................................... 761 (9,010)
Inventories............................................ 16,758 (657)
Other assets........................................... 270 (429)
Accounts payable, income taxes and other liabilities... (4,898) 4,256
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 29,352 26,970
INVESTING ACTIVITIES
Additions to property, plant and equipment (24,211) (9,121)
Proceeds from sales of property, plant and equipment... 519 90
Restricted IRB funds................................... 8,109 (2,252)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES..................... (15,583) (11,283)
FINANCING ACTIVITIES
Payments to short-term and long-term borrowings, net... (19,782) (20,387)
Proceeds from IRB (Bonds).............................. -- 5,000
Addition to deferred financing costs................... -- (38)
Purchase of common stock............................... (107) (59)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES..................... (19,889) (15,484)
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (6,120) 203
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 6,193 1,645
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 73 $ 1,848
======== ========
</TABLE>
See notes to financial statements
F-4
<PAGE> 31
AMERISTEEL CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The condensed financial statements include the accounts of AmeriSteel
Corporation, a Florida corporation (the "Company"). As of April 1, 1996, the
Company changed its name from Florida Steel Corporation (which it had used since
1956) to AmeriSteel Corporation. The predecessor of the Company was formed in
1937.
The accompanying unaudited condensed financial statements do not include
all the information or footnotes necessary for a complete presentation of
financial condition, results of operations and cash flows in conformity with
generally accepted accounting principles. However all adjustments which, in the
opinion of management, are necessary for a fair presentation have been
included. Such adjustments consist only of normally recurring items.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included
elsewhere in this Information Statement. The results of the six months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the fiscal year ending March 31, 1998.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements: In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, "Earnings per Share" which
establishes standards for computing and presenting earnings per share. The
statement replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires dual presentation of
basic and diluted earnings per share on the income statement and provides for
certain disclosures. The Company will adopt Statement No. 128 in the third
quarter of fiscal 1998 and does not believe the effect of adoption will be
material.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" which
establishes standards for reporting information about operating segments of a
business. The statement, which is based on the management approach to segment
reporting, includes requirements to report selected segment information and
entity-wide disclosures about products and services, major customers, and the
countries in which the Company holds assets and reports revenues. This statement
becomes effective for the Company for reporting beginning in fiscal 1999.
Management has not yet evaluated the effects of this change on the Company's
financial statements.
Reclassifications: Certain amounts in the prior period financial
statements have been reclassified to conform to the current fiscal financial
statement presentation.
NOTE C -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $ 59,299 $ 64,056
Work in-process............................................. 14,175 10,022
Raw materials and operating supplies........................ 32,699 32,752
-------- --------
$106,173 $106,830
======== ========
</TABLE>
F-5
<PAGE> 32
AMERISTEEL CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- BORROWINGS
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
(UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement.................................. $ 51,340 $ 30,960
First Mortgage Notes........................................ 100,000 100,000
Subordinated Intercompany Note.............................. 50,000 50,000
Industrial Revenue Bonds.................................... 30,875 35,875
Trade Loan Agreement........................................ 5,259 5,259
Note to Parent.............................................. 435 428
-------- --------
237,909 222,522
Less Current Maturities..................................... 435 5,687
-------- --------
$237,474 $216,835
======== ========
</TABLE>
NOTE E -- ENVIRONMENTAL MATTERS
The Company is involved in the manufacture of steel, in connection with
which it produces and uses certain substances that may pose environmental
hazards. The principal hazardous waste generated by current and past operations
is electric arc furnace/emission control dust ("EC dust"), a residual from the
production of steel in electric arc furnaces. Environmental legislation and
regulation at both the federal and state level over EC dust is subject to
change, which may change the cost of compliance. While EC dust is generated in
current production processes, such EC dust is being collected, handled and
disposed of in a manner which management believes meets all current federal and
state environmental regulations. The costs of such collection and disposal are
being expensed and paid currently from operations. In addition, the Company has
handled and disposed of EC dust in other manners in previous years, and is
responsible for the remediation of certain sites where such EC dust was
generated and/or disposed. In general, the Company's estimate of the remediation
costs is based on its review of each site and the nature of the anticipated
remediation activities to be undertaken. The Company's process for estimating
such remediation costs includes determining for each site the expected
remediation methods, and the estimated cost for each step of the remediation. In
all such determinations, the Company employs outside consultants, and providers
of such remedial services where necessary, to assist in making such
determinations. Although the ultimate costs associated with the remediation are
not presently known, the Company has estimated the total cost to be
approximately $14.9 million and has recorded these costs as accrued liabilities
as of September 30, 1997. The majority of this amount is associated with four
sites.
The Tampa mill site contains slag and soil that is contaminated with EC
dust generated by past operations. The volume and mass estimates of the
contamination was based on analytical data from approximately 600 soil borings,
700 soil samples and 91 groundwater-monitoring wells. The remediation approach
selected by the Company, excavation and on-site treatment and disposal, was
approved, and a permit issued, by the U.S. Environmental Protection Agency
during fiscal 1996 and by the Florida Department of Environmental Protection
during fiscal 1998. The Company is currently awaiting a signed Consent Order to
begin the remediation process. The remediation cost estimates are based on the
Company's previous experience with comparable projects as well as estimates
provided by outside environmental consultants. The Company is responsible for
the total remediation costs and currently
F-6
<PAGE> 33
AMERISTEEL CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
estimates those costs to be approximately $8 million for this site. The Company
expects cleanup at this site to be substantially completed during 2001.
At the Jackson Tennessee mill site, EC dust contaminated with Cesium 137, a
man-made, radioactive material (incident-related material) has been stored in
containers awaiting remediation. The remediation volumes and masses are based on
actual measurements made by the outside contractor during the now complete
cleanup, consolidation and containerization phase of the remediation. The
approach for the remaining treatment, transport and disposal phase is based on
the final Nuclear Regulatory Commission "Technical Position," dated March 20,
1997. The remediation cost estimate is based on a signed contract for the
treatment and transportation and on a written price quotation for the disposal.
The detailed workplan has been submitted to the regulatory agencies and approval
is expected within 90 days. The Company is responsible for the total remediation
cost and currently estimates those costs to be approximately $3 million for this
site. The Company expects cleanup at this site to be substantially completed
during fiscal 1998.
The Sogreen site, a third party site, contains EC dust from the Company
that was improperly stored at this recycling location. The estimate includes the
cost of soil remediation and groundwater remediation based on an approach
approved by the Georgia Environmental Protection Division. The Company has been
named as a potentially responsible party ("PRP") for this site, and thus its
estimated share of the remediation costs is approximately 43% (based on
analytical data from soil borings and samples) of the total estimated
remediation cost of $4.3 million; therefore, the Company currently estimates its
obligation to be approximately $2 million. The Company's management believes
that the impact of additional future costs on the Company's results of
operations, financial condition and liquidity from the Sogreen site, based on
the other PRPs not fulfilling their obligations, would not be significant. The
Company expects cleanup at this site to be substantially completed during
fiscal 1998.
The Stoller site, a third party site, contains EC dust from the Company
that was improperly stored at this recycling location. The Company has been
named as a PRP for this site. The estimate includes soil remediation and
groundwater remediation. Outside contractors have measured the remediation
volumes and masses during the now complete cleanup and consolidation phase of
the remediation. The remainder of the remediation approach selected by the
Company, on-site treatment and disposal, has been approved, and contract
negotiations for construction of the on-site vault are underway. The Company's
cost estimates are based on its previous experience with comparable projects as
well as estimates confirmed by the State of South Carolina. An Allocation
Agreement was issued by the State of South Carolina during fiscal 1997 that
essentially shifted some of the payment burden from the Company to other PRPs,
leaving the Company with an approximately 2% share of the remaining estimated $8
million remediation cost; therefore, the Company currently estimates its
obligation to be approximately $.2 million. The non-participating PRPs have
intervened in the proceedings for approval by the federal court in order to
contest the agreement. The Company's management believes that the agreement will
be finalized between February and May 1998. If the Allocation Agreement is not
finalized under its present terms, the Company's management believes that the
Company's overall obligation for this site would not exceed approximately 50%
of the total estimated remediation cost. The Company expects cleanup at this
site to be substantially completed during fiscal 1998.
The Company paid approximately $5.2 million in remediation costs in fiscal
1997, and $.7 million during the first six months of fiscal 1998. Of the $14.9
million accrued at September 30, 1997, the Company expects to pay approximately
$3.7 million during the remainder of fiscal 1998. The timing of the remaining
future payments for each future year is uncertain due to the various remediation
alternatives being considered. However, the Company's management has estimated
that all significant remediation
F-7
<PAGE> 34
AMERISTEEL CORPORATION
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
should be completed by 2002. The Company expensed approximately $3.3 million
during the six months ended September 30, 1997 and approximately $2 million in
each of the past two fiscal years for environmental remediation costs.
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 which the Company and is
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 jointly 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 F -- SUBSEQUENT EVENTS
The Company proposes to sell shares of common stock to the public pursuant
to a Registration Statement filed with the Securities and Exchange Commission
(the "Offering"). In connection with the Offering, the Board of Directors
approved on October 16, 1997 subject to stockholder approval, amendments to the
Company's Articles of Incorporation. The Company expects the amendments to the
Articles of Incorporation to become effective on or about December 7, 1997. The
amendment authorizes 100,000,000 shares of $.01 par value Class A common stock
and 22,000,000 shares of $.01 par value Class B common stock. The rights of the
holders of both Class A and Class B common stock will be substantially the same
except that the holders of Class A common stock and Class B common stock will be
entitled to one vote per share and two votes per share, respectively. Only
shares of Class A common stock will be sold in the Offerings.
NOTE G -- PRO FORMA INFORMATION
Prior to the completion of the Offering, the Company intends to declare and
pay a special dividend of $.60 per share to its then current stockholders.
The accompanying unaudited pro forma statement of financial position as of
September 30, 1997, is based on the Company's historical statement of financial
position as of September 30, 1997, as adjusted to reflect the payment of the
special dividend which is assumed to be funded from available borrowings under
the Revolving Credit Agreement. This transaction is presented in the unaudited
pro forma statement of financial position as if it was consummated on September
30, 1997.
F-8
<PAGE> 35
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To AmeriSteel Corporation:
We have audited the accompanying statements of financial position of
AmeriSteel Corporation (a Florida corporation) as of March 31, 1996 and 1997,
and the related statements of income, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AmeriSteel Corporation as of
March 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Tampa, Florida,
April 25, 1997 (except with
respect to the matter discussed
in Note L, as to which the
date is October 16, 1997)
F-9
<PAGE> 36
AMERISTEEL CORPORATION
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 6,193 $ 1,645
Accounts receivable, less allowance of $1,000 at March 31,
1996 and 1997 for doubtful accounts....................... 72,910 68,563
Inventories................................................. 112,753 106,173
Deferred tax assets......................................... 7,200 5,000
Other current assets........................................ 1,053 1,138
-------- --------
TOTAL CURRENT ASSETS.............................. 200,109 182,519
ASSETS HELD FOR SALE........................................ 14,411 14,838
PROPERTY, PLANT AND EQUIPMENT
Land and improvements....................................... 13,393 14,942
Building and improvements................................... 31,906 35,116
Machinery and equipment..................................... 199,350 250,299
Construction in progress.................................... 45,039 7,802
-------- --------
289,688 308,159
Less accumulated depreciation............................... 42,679 58,138
-------- --------
247,009 250,021
GOODWILL.................................................... 89,903 85,773
DEFERRED FINANCING COSTS.................................... 3,457 2,523
OTHER ASSETS................................................ 7 11
-------- --------
TOTAL ASSETS...................................... $554,896 $535,685
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable...................................... $ 40,234 $ 44,666
Salaries, wages and employee benefits....................... 14,336 14,598
Environmental remediation................................... 6,079 5,079
Other current liabilities................................... 5,057 4,355
Interest payable............................................ 4,940 4,659
Current maturities of long-term borrowings (including note
payable to parent of $444 and $435 at March 31, 1996 and
1997, respectively)....................................... 14,942 435
-------- --------
TOTAL CURRENT LIABILITIES......................... 85,588 73,792
LONG-TERM BORROWINGS, LESS CURRENT PORTION.................. 252,525 237,474
OTHER LIABILITIES........................................... 20,336 21,555
DEFERRED TAX LIABILITIES.................................... 54,700 52,300
SHAREHOLDERS' EQUITY........................................
Common stock, $.01 par value; 30,000,000 authorized,
10,095,741 and 10,079,028 shares outstanding, at March 31,
1996 and 1997, respectively............................... 101 101
Capital in excess of par.................................... 157,026 156,816
Accumulated deficit......................................... (12,380) (4,328)
Deferred compensation....................................... (3,000) (2,025)
-------- --------
TOTAL SHAREHOLDERS' EQUITY........................ 141,747 150,564
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $554,896 $535,685
======== ========
</TABLE>
See notes to financial statements
F-10
<PAGE> 37
AMERISTEEL CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997
---------- ---------- ----------
($ IN THOUSANDS EXCEPT EARNINGS PER
COMMON SHARE)
<S> <C> <C> <C>
NET SALES................................................... $639,908 $628,404 $617,289
Operating expenses:
Cost of sales............................................. 545,725 533,965 531,190
Selling and administrative................................ 29,959 29,605 29,068
Depreciation.............................................. 14,046 14,619 16,654
Amortization of goodwill.................................. 4,130 4,130 4,130
Other operating expenses.................................. -- 16,013 --
-------- -------- --------
593,860 598,332 581,042
-------- -------- --------
INCOME FROM OPERATIONS...................................... 46,048 30,072 36,247
Other expenses:
Interest.................................................. 23,330 22,000 19,473
Amortization of deferred financing costs.................. 2,863 1,956 934
-------- -------- --------
26,193 23,956 20,407
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 19,855 6,116 15,840
Income taxes................................................ 9,354 3,996 7,788
-------- -------- --------
NET INCOME.................................................. $ 10,501 $ 2,120 $ 8,052
======== ======== ========
Weighted average common shares outstanding (in thousands)... 10,000 10,062 10,087
EARNINGS PER COMMON SHARE................................... $ 1.05 $ 0.21 $ 0.80
</TABLE>
See notes to financial statements
F-11
<PAGE> 38
AMERISTEEL CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
------------------- IN EXCESS ACCUMULATED DEFERRED
SHARES AMOUNT OF PAR DEFICIT COMPENSATION TOTAL
---------- ------ --------- ----------- ------------ --------
($ IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
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
Common stock issuance............ 95,741 1 1,126 -- (150) 977
Net income....................... -- -- -- 2,120 -- 2,120
Reduction in deferred
compensation................... -- -- -- -- 900 900
---------- ---- -------- -------- ------- --------
BALANCES AT MARCH 31, 1996....... 10,095,741 101 157,026 (12,380) (3,000) 141,747
Common stock issuance............ 100 -- 1 -- -- 1
Repurchase of common stock....... (16,813) -- (211) -- -- (211)
Net income....................... -- -- -- 8,052 -- 8,052
Reduction in deferred
compensation................... -- -- -- -- 975 975
---------- ---- -------- -------- ------- --------
BALANCES AT MARCH 31, 1997....... 10,079,028 $101 $156,816 $ (4,328) $(2,025) $150,564
========== ==== ======== ======== ======= ========
</TABLE>
See notes to financial statements
F-12
<PAGE> 39
AMERISTEEL CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 10,501 $ 2,120 $ 8,052
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.............................................. 14,046 14,619 16,654
Amortization.............................................. 6,993 6,086 5,064
Deferred income taxes..................................... 1,849 (1,200) (200)
Loss on disposition of property, plant and equipment...... 600 14,312 317
Deferred compensation..................................... 750 900 975
Changes in operating assets and liabilities:
Accounts receivable....................................... (11,142) 7,450 4,347
Recoverable income taxes.................................. 300 -- --
Inventories............................................... (12,470) 14,927 6,580
Other current assets...................................... 420 (303) (85)
Other assets.............................................. 15 21 (4)
Trade accounts payable.................................... 3,315 (9,130) 4,432
Salaries, wages and employee benefits..................... (868) (2,184) 262
Other current liabilities................................. 290 769 (828)
Environmental remediation................................. (7,995) (5,421) (1,400)
Interest payable.......................................... 526 (318) (281)
Income taxes payable...................................... 1,561 514 126
Other liabilities......................................... 2,666 929 (81)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 11,357 44,091 43,930
INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (25,781) (36,894) (34,382)
Proceeds from sale of property, plant and equipment......... 1,857 788 876
Proceeds from sale of assets held for sale.................. -- 794 1,550
Purchase of assets held for sale............................ -- -- (454)
Restricted IRB Funds........................................ -- (13,700) 13,700
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES.............. $(23,924) $(49,012) $(18,710)
FINANCING ACTIVITIES
Proceeds from (payments to) short and long-term borrowings,
net....................................................... $ 12,147 $ 21,227 $(29,558)
Additions to deferred financing costs....................... -- (909) --
Repurchase of subordinated debentures....................... -- (13,035) --
Proceeds from exercise of stock options..................... 1,500 -- --
Proceeds from sale of common stock.......................... -- 977 --
Redemption of common stock.................................. -- -- (210)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 13,647 8,260 (29,768)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 1,080 3,339 (4,548)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,774 2,854 6,193
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 2,854 $ 6,193 $ 1,645
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest (net of amount capitalized).......... $ 22,150 $ 22,318 $ 19,754
======== ======== ========
Cash paid for income taxes.................................. $ 5,645 $ 4,682 $ 7,862
======== ======== ========
</TABLE>
See notes to financial statements
F-13
<PAGE> 40
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995, 1996 AND 1997
NOTE A -- BASIS OF PRESENTATION
The financial statements include the accounts of AmeriSteel, a Florida
corporation (the "Company"). As of April 1, 1996, the Company changed its name
from Florida Steel Corporation (which it had used since 1956) to AmeriSteel
Corporation. The predecessor of the Company was formed in 1937. All significant
intercompany accounts and transactions have been eliminated.
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 (recoveries)losses for the fiscal years
1995, 1996, and 1997 have been $(559,000), $184,000 and $106,000, respectively.
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 years ended March 31, 1996 and 1997,
export sales were less than 1% of total sales.
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.
Assets Held for Sale: The majority of the account consists of real estate
and machinery and equipment held for sale which are carried at the lower of cost
or estimated fair value. For the year ended March 31, 1996, the Company
transferred $5.0 million from property, plant and equipment to assets held for
sale.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. 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 income.
Restricted IRB Funds: The Company accounts for restricted funds received
from the proceeds of Industrial Revenue Bonds (IRBs) as Construction in Progress
within Property, Plant and Equipment until such funds have been spent. As of
March 31, 1996 and 1997, the Company had $13.7 million and $0 million,
respectively, of such restricted IRB funds on its balance sheet.
Interest costs for property, plant and equipment construction expenditures
of approximately $2.1 million and $2.0 million were capitalized for the years
ended March 31, 1996 and 1997, respectively. 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 $13.3 million and $17.5 million at March 31, 1996
and 1997, respectively. Goodwill is being amortized over a 25-year period.
Deferred Financing Costs: The deferred financing costs as of March 31,
1996 and 1997, are net of accumulated amortization of $8.0 million and $9.0
million, respectively. These amounts will be amortized over the term of the
respective debt instruments, which range from 3 to 8 years.
F-14
<PAGE> 41
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments: The carrying amount of long-term
borrowings approximates fair value due to market rates of interest and related
maturities.
Delivery Expenses: The Company's policy is to include all delivery
expenses in cost of sales.
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.
Recent Accounting Pronouncements: In October 1996, the American Institute
of Certified Public Accountants issued Statement of Position No. 96-1,
"Environmental Remediation Liabilities" (SOP 96-1). SOP 96-1 provides
authoritative guidance on the specific accounting issues for the recognition,
measurement, display, and disclosure of environmental remediation liabilities.
Specifically, SOP 96-1 requires (1) the recognition of an environmental
remediation liability when the criteria of Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies" are met, (2) the measurement of
the liability to include incremental direct costs of the remediation effort and
costs of compensation and benefits for those employees who are expected to
devote a significant amount of time directly to the remediation effort, (3) the
measurement of the liability to include the entity's allocable share of the
liability for a specific site and the entity's share of amounts related to the
site that will not be paid by other potentially responsible parties, (4) the
measurement of the liability be based on enacted laws, regulations and
technology, and (5) appropriate display of the liabilities in the financial
statements and disclosures in the footnotes to the financial statements. SOP
96-1 is effective for fiscal years beginning after December 15, 1996. Management
has determined that the adoption of SOP 96-1 will not have a material effect on
the accompanying financial statements.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" which establishes standards for computing and
presenting earnings per share. The statement replaces the presentation of
primary earnings per share with a presentation of basic earnings per share. It
also requires dual presentation of basic and diluted earnings per share on the
income statement and provides for certain disclosures. The Company will adopt
Statement No. 128 in the third quarter of fiscal 1998 and does not believe the
effect of adoption will be material.
Reclassifications: Certain amounts in the fiscal 1995 and 1996 financial
statements have been reclassified to conform to the fiscal 1997 financial
statement presentation.
F-15
<PAGE> 42
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Finished goods.............................................. $ 73,196 $ 59,299
Work in-process............................................. 16,291 14,175
Raw materials and operating supplies........................ 23,266 32,699
-------- --------
$112,753 $106,173
======== ========
</TABLE>
NOTE D -- BORROWINGS
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement.................................. $ 71,650 $ 51,340
First Mortgage Notes........................................ 100,000 100,000
Subordinated Intercompany Note.............................. 50,000 50,000
Industrial Revenue Bonds.................................... 30,875 30,875
Note to Parent.............................................. 444 435
Trade Loan Agreements....................................... 4,498 5,259
Bank of Tokyo Loan.......................................... 10,000 --
-------- --------
267,467 237,909
Less current maturities..................................... 14,942 435
-------- --------
$252,525 $237,474
======== ========
</TABLE>
On June 9, 1995, the Company entered into a revolving bank agreement (the
"Revolving Credit Agreement"), which 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
Revolving Credit Agreement expires on June 9, 1999.
The Revolving Credit Agreement contains certain covenants including, among
other restrictions, financial ratios and limitations on indebtedness, liens,
investments and disposition of assets and dividends. It is collateralized by
first priority security interests in substantially all accounts receivable and
inventory of the Company. The Company was in compliance with these covenants
throughout fiscal 1997.
Loans under the Revolving Credit Agreement bear interest at a per annum
rate equal to one of several rate options (LIBOR, Fed Funds, or Cost of Funds)
based on the facility chosen at the time of borrowing plus an applicable margin
determined by tests of performance from time to time. The effective interest
rate at March 31, 1997 was 7.4%.
The First Mortgage Notes are collateralized senior obligations of the
Company limited in aggregate principal amount to $100 million and mature on
December 15, 2000. Interest on the First Mortgage Notes accrues at the rate of
11.5% per annum and is payable semiannually on each June 15 and December 15. The
Company has assigned and pledged a security interest in substantially all the
real and personal property of the four mills.
F-16
<PAGE> 43
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 (none were redeemed in fiscal 1997):
<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.
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 was in compliance with these
covenants throughout fiscal 1997.
The Company has issued to a related party a $50 million note (the
"Subordinated Intercompany Note") which matures December 21, 2002. The
Subordinated Intercompany Note bears interest at variable rates. The weighted
average interest rate at March 31, 1997 was 7.01%.
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
Company increased its outstanding IRBs by $20 million in fiscal 1996 for a solid
waste recycling facility in Jackson, Tennessee. The IRBs mature in fiscal 2004
except for the new IRBs which mature in fiscal 2018. The IRBs are backed by
irrevocable letters of credit issued pursuant to the Revolving Credit Agreement.
As of March 31, 1997, the Company had approximately $37 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 which is due
on demand. Accordingly, amounts due are classified as current in the
accompanying statements of financial position.
The Company has borrowed $5.3 million as of March 31, 1997, under the Trade
Loan Agreements. The loan bears interest at 7.3% and matures on June 30, 1998.
Proceeds were used for the purchase of steel mill equipment.
The maturities of long-term borrowings for the fiscal years subsequent to
March 31, 1997 are as follows:
<TABLE>
<CAPTION>
FISCAL AMOUNT
- ------ ----------------
($ IN THOUSANDS)
<S> <C>
1998....................................................... $ 435
1999....................................................... 58,079
2000....................................................... --
2001....................................................... 100,000
2002....................................................... --
Thereafter................................................. 79,395
--------
$237,909
========
</TABLE>
F-17
<PAGE> 44
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- INCOME TAXES
The provision for income taxes is comprised of the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal........................................ $3,572 $ 4,592 $7,391
State.......................................... -- 604 597
------ ------- ------
3,572 5,196 7,988
------ ------- ------
Deferred provision (benefit):
Federal........................................ 4,785 (1,301) (594)
State.......................................... 997 101 394
------ ------- ------
5,782 (1,200) (200)
------ ------- ------
$9,354 $ 3,996 $7,788
====== ======= ======
</TABLE>
A reconciliation of the difference between the effective income tax rate
for each year and the statutory federal income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
Tax provision at statutory rates................... $6,949 $2,141 $5,544
State income taxes, net of federal income tax
effect........................................... 997 244 722
Goodwill amortization.............................. 1,611 1,611 1,446
Other items, net................................... (203) -- 76
------ ------ ------
$9,354 $3,996 $7,788
====== ====== ======
</TABLE>
F-18
<PAGE> 45
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of the deferred tax assets and liabilities consisted of the
following at March 31:
<TABLE>
<CAPTION>
1996 1997
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSET
Allowance for doubtful accounts........................... $ 390 $ 390
Worker's compensation accrual............................. 1,648 1,413
Employee benefits and related accruals.................... 2,229 2,351
Environmental remediation accrual......................... 4,611 3,414
Federal loss carryforward................................. 2,055 1,654
State loss carryforward................................... 596 40
Alternative minimum tax credit carryforward............... 468 --
Pension accrual........................................... 1,739 2,334
Post retirement benefits accrual.......................... 3,228 3,306
Other..................................................... 1,136 856
-------- --------
18,100 15,758
-------- --------
DEFERRED TAX LIABILITY
Inventories............................................... (2,988) (1,992)
Property, plant and equipment............................. (58,260) (57,903)
Assets held for sale...................................... (3,240) (2,432)
Deferred compensation..................................... (1,112) (731)
-------- --------
(65,600) (63,058)
-------- --------
NET DEFERRED TAX LIABILITY.................................. $(47,500) $(47,300)
======== ========
</TABLE>
The Company has a Federal net operating loss carryforward of approximately
$4.7 million and a state net operating loss of approximately $1.0 million, both
expiring in 2009. As a result of a change in tax fiscal year, recognition of
Federal net operating loss carryforwards are limited to approximately $1.6
million each year.
NOTE F -- BENEFIT PLANS
The Company maintains a defined benefit pension plan covering substantially
all employees. The benefits are based on years of service and compensation
during the period of employment. Annual contributions are made in conformity
with minimum funding requirements and maximum deductible limitations.
F-19
<PAGE> 46
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The plan's funded status and the amounts recognized in the accompanying
statements of financial position are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested benefits
of $65,617 and $66,249, at March 31, 1996 and 1997,
respectively........................................... $ 69,221 $ 71,157
======== ========
Projected benefit obligation for service rendered to date... $(84,950) $(84,646)
Plan assets at fair value................................... 82,808 85,828
-------- --------
Projected benefit obligation (in excess of) less than plan
assets.................................................... (2,142) 1,182
Unrecognized net gain....................................... (1,310) (6,549)
Unrecognized prior service cost............................. (426) (390)
-------- --------
Net accrued pension cost included in accrued salaries, wages
and employee benefits..................................... $ (3,878) $ (5,757)
======== ========
</TABLE>
The weighted average discount rates used in determining the actuarial
present value of the accumulated benefit obligation were 7.5% and 7.75%, for the
years ended March 31, 1996 and 1997, respectively. The rate of increase in
future compensation levels was 4.5% for both years. The expected rate of return
on plan assets was 9.5% for the years ended March 31, 1996 and 1997.
Pension cost included in the accompanying statements of income is comprised
of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997
---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................... $ 2,574 $ 2,695 $ 2,802
Interest cost.................................. 5,357 5,756 6,223
Actual income from plan assets................. (6,783) (14,561) (7,395)
Net amortization and deferral.................. 982 8,025 249
------- -------- -------
Net pension cost............................... $ 2,130 $ 1,915 $ 1,879
======= ======== =======
</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. The Company
matches 50% of the employees' contributions up to 4% of employees' salaries.
Costs under this plan were $1.2 million, $1.1 million, and $1.1 million for the
years ended March 31, 1995, 1996 and 1997, respectively.
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 income under the
Supplemental Benefits Plan for the years ended March 31, 1995, 1996 and 1997
were $159 thousand, $0 and $282 thousand, respectively.
Post Retirement Benefits
The Company currently provides specified health care benefits to retired
employees. Employees who retire after a certain age with specified years of
service become eligible for benefits under this unfunded plan. The Company has
the right to modify or terminate these benefits. The following table summarizes
F-20
<PAGE> 47
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the accumulated post retirement benefit obligations included in the Company's
statements of financial position:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Retirees.................................................... $4,176 $4,496
Fully eligible active participants.......................... 238 232
Other active plan participants.............................. 3,178 3,015
------ ------
Total............................................. 7,592 7,743
Plan assets at fair value................................... -- --
Unrecognized net gain....................................... 1,303 1,319
------ ------
Accrued post retirement benefit obligation.................. $8,895 $9,062
====== ======
</TABLE>
The following table summarizes the net post retirement benefit costs:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
($ IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 203 $ 216
Interest cost............................................... 543 558
Gain........................................................ (60) (23)
------ ------
Net post retirement benefit cost............................ $ 686 $ 751
====== ======
</TABLE>
The weighted average discount rate used in determining the accrued post
retirement benefit obligation was 7.50% for fiscal 1996 and 7.75% for fiscal
1997. The gross medical trend rate was assumed to be 10.31% in 1996 and dropping
.346% per year to 6.0% in 2008 and beyond for pre-65 retirees that retired
before January 1, 1994 and 9.0% 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.
The incremental effect of a 1% increase in the medical trend rate would
result in an increase of approximately $230,448 and $16,699 to the accrued post
retirement benefit obligation and net post retirement benefit cost,
respectively, as of and for the year ended March 31, 1997.
NOTE G -- COMMON STOCK
In fiscal 1996, the Board of Directors approved a one time Stock
Purchase/Option Plan (the "Purchase Plan") available to essentially all
employees. Employees who purchased stock were awarded stock options equal to six
times the number of shares purchased. A total of 37,689 shares were sold under
the Purchase Plan at a purchase price of $10.63 per share, with 32,448 shares
outstanding as of March 31, 1997. The options were granted at fair value at the
date of the grants, determined based on an independent appraisal as of the end
of the previous fiscal year-end. The options have a four-year vesting period. A
total of 226,134 options were granted under the Purchase Plan. No options remain
available for future grant. The issued options and shares become one-third
vested two years from the grant date, another one-third vested three years from
the grant date and the remaining balance vested four years from the grant date.
Options may be exercised for 10 years from the grant date.
F-21
<PAGE> 48
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1996, the Board of Directors also approved the AmeriSteel
Corporation Equity Ownership Plan (the "Equity Ownership Plan") which provides
for grants of common stock, options to purchase common stock and stock
appreciation rights up to 438,852 shares. The Company has granted 91,350
incentive stock options and 12,100 shares of common stock under the Equity
Ownership Plan through March 31, 1997. As of March 31, 1997, there remain
348,452 shares available for future grants. The issued options and shares become
one-third vested two years from the grant date, another one-third vested three
years from the grant date and the remaining balance vested four years from the
grant date. All grants were at the fair market value of the common stock on the
grant date, determined based on an independent appraisal as of the end of the
previous fiscal year-end. Options may be exercised for 10 years from the grant
date.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25 (APB 25), under which no compensation
expense has been recognized for the instruments issued under the Purchase Plan
or the options issued under the Equity Ownership Plan. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123),
which was effective for fiscal years beginning after December 15, 1995. SFAS No.
123 allows companies to continue following the accounting guidance of APB 25,
but requires pro forma disclosure of net income and earnings per share for the
effects on compensation expense had the accounting guidance of SFAS No. 123 been
adopted. The pro forma disclosures are required only for stock-based awards
granted subsequent to April 1, 1995.
The Company adopted SFAS No. 123 for disclosure purposes in fiscal 1997.
For SFAS No. 123 purposes, the fair value of each option grant under the
Purchase Plan and the Equity Ownership Plan has been estimated as of the date of
the grant using a minimum value calculation with the following weighted average
assumptions: risk-free interest rate of 6.5% and 6.3% for the Equity Ownership
Plan and Purchase Plan, respectively; expected life of 7 years for both the
Equity Ownership Plan and Purchase Plan; and dividend rate of 0% for both the
Equity Ownership Plan and Purchase Plan. Using these assumptions, the fair value
of the stock options granted in fiscal 1996 and 1997 is $1,009,501 and $347,159,
respectively, which would be amortized as compensation expense over the vesting
period of the options.
The fair value of the stock issued under the Purchase Plan has been
estimated at the date of the grant using a minimum value calculation with the
following weighted average assumptions: risk-free interest rate of 5.3%,
expected life of 7 years and dividend rate of zero percent. Using these
assumptions, the fair value of the issued stock in fiscal 1996 and fiscal 1997
is $75,755 and $0, respectively. The fiscal 1996 fair value would be
compensation expense for fiscal 1996. Had compensation cost been determined
consistent with SFAS No. 123, utilizing the assumptions detailed above, the
Company's net income and earnings per share ("EPS") would have been changed to
the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Net Income:
As Reported............................................... $2,120 $8,052
Pro Forma................................................. 2,003 7,858
EPS:
As Reported............................................... $ .21 $ .80
Pro Forma................................................. .20 .78
</TABLE>
F-22
<PAGE> 49
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Because the SFAS No. 123 method of accounting has not been applied to
stock-based compensation granted prior to April 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The following table summarizes stock option activity for the years ended
March 31, 1996 and 1997:
<TABLE>
<CAPTION>
EQUITY OWNERSHIP PLAN PURCHASE PLAN
--------------------------------------------- ---------------------------------------------
1996 1997 1996 1997
--------------------- --------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of
year............... -- $ -- 12,000 $ 12.50 -- $ -- 221,094 $12.50
Granted............ 12,000 12.50 79,350 12.50 226,134 12.50 -- --
Exercised.......... -- -- -- -- -- -- -- --
Forfeited.......... -- -- (13,050) (12.50) (5,040) 12.50 (26,316) 12.50
Outstanding, end of
year............... 12,000 12.50 78,300 12.50 221,094 12.50 194,778 12.50
====== ======= ======= =======
Options vested at
year-end........... -- -- -- -- -- -- -- --
Weighted-average fair
value of options
granted during the
year............... -- $ 4.46 -- $ 4.38 -- $ 4.45 -- $ --
</TABLE>
No stock option activity occurred during fiscal 1995. The weighted-average
remaining contractual life of the options under the Purchase Plan and the Equity
Ownership Plan as of March 31, 1997 is 8.50 years and 9.15 years, respectively.
The weighted-average fair value of the shares sold under the Purchase Plan
during fiscal 1996 was $12.50.
Subsequent to year end, the Board of Directors granted options for an
additional 63,550 shares with an exercise price of $13.50 per share.
NOTE H -- INCENTIVE COMPENSATION PLAN
During 1989, the Board of Directors 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 fiscal 1996 and 1997 plans were based on actual return
on capital employed as compared to target return on capital employed. The prior
fiscal years plans were based on actual operating results as compared to target
operating results. The award was $1.9 million for fiscal 1995, $1.2 million for
fiscal 1996, and $1.4 million for fiscal 1997, which amounts were included in
salaries, wages and employee benefits.
NOTE I -- ENVIRONMENTAL MATTERS
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
$12.3 million with these costs recorded in accrued liabilities as of March 31,
1997. The Company paid approximately $5.2 million in remediation
F-23
<PAGE> 50
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
costs in fiscal 1997. Of the amount accrued at March 31, 1997, the Company
expects to pay approximately $5.1 million in fiscal 1998. The timing of future
payments are uncertain due to the various remediation alternatives being
considered. 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.
The Company expensed approximately $6 million in fiscal 1995 and $2 million
in each of the past two fiscal years for environmental remediation costs.
Based on past use of certain technologies and remediation methods by third
parties, evaluation of those technologies and methods by the Company's
consultants and quotations and third-party estimates of costs of
remediation-related services provided to the Company or of which the Company and
its consultants are aware, the Company and its consultants believe that the
Company's cost estimates are reasonable. In light of the uncertainties inherent
in determining the costs associated with the clean-up of such contamination,
including the time periods over which such costs must be paid, the extent of
contribution by parties which are joint and severally liable, and the nature and
timing of payments to be made under cost sharing arrangements; there can be no
assurance the ultimate costs of remediation may not be greater or less than the
estimated remediation costs.
NOTE J -- COMMITMENTS
Operating Leases
The Company leases certain equipment and real property under noncancelable
operating leases. Aggregate future minimum payments under these leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31, AMOUNT
- --------------------- ----------------
($ IN THOUSANDS)
<S> <C>
1998..................................................... $1,644
1999..................................................... 1,210
2000..................................................... 1,134
2001..................................................... 863
2002..................................................... 735
Thereafter............................................... 1,345
--------
$6,931
========
</TABLE>
Total rent expense was approximately $5.0 million, $4.2 million, and $4.1
million, for the years ended March 31, 1995, 1996 and 1997, 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.
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.
F-24
<PAGE> 51
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 (subsequently revised to $255,000 plus incentives
based on performance), 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 maintained an interest rate swap (the "Swap") agreement as a
hedge against fluctuations in interest rates on certain debt. The Swap had a
notional amount of $20 million and expired on February 24, 1997. Under the terms
of the Swap, the Company agreed to pay fixed interest at 9% and receive variable
interest at the LIBOR Rate plus 3.0%, computed on the notional amount. The
Company amortized 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 K -- OTHER OPERATING EXPENSES
The Company decided in June 1995 to close the Tampa rolling mill effective
September 1995. The Tampa mill was the Company's oldest facility and represented
the Company's highest operating cost minimill. In fiscal 1996, the Company
incurred non-cash charges of $12 million representing the write-down of
property, plant and equipment to its estimated fair market value, and incurred
cash charges of $3 million for severance payments and benefits costs for the
termination of substantially all 116 Tampa rolling mill employees. All severance
payroll and benefit costs were paid and charged against the liability during
fiscal 1996, resulting in no liability for severance payroll and benefit costs
at March 31, 1996. Approximately $1.8 million in net book value of property,
plant and equipment related to the Tampa site, primarily land and buildings, was
retained and is currently being used by the Company. The Company currently
incurs minimal ongoing costs related to the Tampa mill land and building,
primarily for ongoing warehousing and shipping operations, and the caretaking of
environmental cleanup (see "Note E to September 30, 1997 unaudited condensed
financial statements -- Environmental Matters"), totaling approximately $300,000
annually. These costs are offset by short-term rental income attributable to
this property of approximately $225,000 annually. Approximately $3.5 million
remains in Assets Held for Sale, which represents appraised values of machinery
and equipment and land being marketed for sale. Since the closure, the Tampa
market has been served by the Company's Jacksonville mill, minimizing lost
sales. The Company intends to sell the Tampa minimill property.
The Company incurred an additional $.8 million charge in fiscal 1996 for
the write-off of all future lease obligations (through November 1998) related
to the closure of its fabricating plant in Woodbridge, Virginia.
F-25
<PAGE> 52
AMERISTEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- SUBSEQUENT EVENTS
The Company proposes to sell shares of common stock to the public pursuant
to a Registration Statement filed with the Securities and Exchange Commission
(the "Offering"). In connection with the Offering, the Board of Directors
approved on October 16, 1997, subject to stockholder approval, amendments to the
Company's Articles of Incorporation. The Company expects the amendments to the
Articles of Incorporation to become effective on or about December 8, 1997. The
amendment authorizes 100,000,000 shares of $.01 par value Class A common stock
and 22,000,000 shares of $.01 par value Class B common stock. The rights of the
holders of both Class A and Class B common stock will be substantially the same
except that the holders of Class A common stock and Class B common stock will be
entitled to one vote per share and two votes per share, respectively. Only
shares of Class A common stock will be sold in the Offering.
During September 1997, the Board of Directors granted 9,200 common stock
options with an exercise price of $13.50 per share and 40,000 restricted shares
of common stock with a price of $13.50 per share. These options and shares will
relate to Class B common stock upon the Offering.
In September 1997, the Company incurred additional indebtedness of
$5,000,000 through an industrial revenue bond for the construction of steel mill
equipment. The loan bears interest at 50% to 75% of the prime rate and matures
in September 2014.
F-26
<PAGE> 53
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report included in this information statement.
ARTHUR ANDERSEN LLP
Tampa, Florida
November 17, 1997
