<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1998
Commission File Number -- 1-5210
AMERISTEEL CORPORATION
Florida 59-0792436
(State of Incorporation) (I.R.S. EIN)
5100 W. Lemon Street
Tampa, Florida 33609
Mailing Address:
P.O. Box 31328
Tampa, Florida 33631-3328
Telephone No. (813)286-8383
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class B Common
Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $10,529,200.
Indicate the number of shares outstanding of each of the registrant's classes of
common equity, as of the latest practicable date:
Class A Common Stock, par value $.01 per share -- none as of May 15, 1998.
Class B Common Stock, par value $.01 per share -- 10,565,501 shares as of May
15, 1998.
Documents incorporated by reference: Parts of Information Statement to be
submitted to shareholders prior to July 29, 1998.
<PAGE>
PART 1
------
ITEM 1. BUSINESS
AmeriSteel Corporation, ("the Company") operates four non-union minimills
located in the southeastern U.S. that produce steel concrete reinforcing bars
("rebar"), light structural shapes such as rounds, squares, flats, angles and
channels ("merchant bars") and, to a lesser extent, wire rod ("rods") and
billets (which are semi-finished steel products). The Company also operates 13
rebar fabricating plants strategically located in close proximity to its mills;
rail spike manufacturing facilities in Paragould, Arkansas and Lancaster, South
Carolina; and a wire mesh and collated nail manufacturing facility in New
Orleans, Louisiana. Rebar is used primarily for strengthening concrete in
highway and building construction and other construction applications. Merchant
bars are used in a wide variety of applications including floor and roof joists,
transmission towers, and farm equipment. Rods are used in a variety of
applications, including the manufacture of welded wire fabric and nails.
Approximately 60% of the Company's mill rebar production is sold directly
to distributors and independent fabricating companies in stock lengths and
sizes. The remaining 40% of the rebar produced by the mills is transferred to
the Company's 13 fabricating plants where value is added by cutting and bending
the rebar to meet strict engineering, architectural and other end-product
specifications. Merchant bars and rods generally are sold to steel service
centers, original equipment manufacturers and fabricators in stock lengths and
sizes.
The Company's four minimills are located in Jacksonville, Florida,
Charlotte, North Carolina, and Jackson and Knoxville, Tennessee. Minimills are
steel mills that use electric arc furnaces to melt steel scrap and cast the
resulting molten steel into long strands called billets in a continuous casting
process. The billets are typically transferred to a rolling mill where they are
reheated, passed through roughing mills for size reduction and then rolled into
rebar, merchant bars or rods. These products emerge from the rolling mill and
are uniformly cooled on a cooling bed. Most merchant products then pass through
automated straightening and stacking equipment. Rebar and merchant products are
neatly bundled prior to shipment to customers by rail or truck.
The predecessor of the Company was formed in 1937 as a rebar fabricator. In
1956, it merged with five steel fabricators in Florida to form Florida Steel
Corporation, which then commenced construction of its first minimill in Tampa,
Florida. In 1996, the Company changed its name to AmeriSteel Corporation.
The Company was a public company from 1956 until 1988 when it was taken
private in a management led leveraged buyout. In late 1992, the Company was
purchased by Kyoei Steel, Ltd. ("Kyoei"), a private Japanese minimill company
engaged in the manufacture of commodity grade steel products, primarily rebar
and merchant bar products. Kyoei, through its wholly owned subsidiary, FLS
Holdings, Inc. ("the Holding Company"), whose only business is to own Company
Common stock, currently owns approximately 85% of the common stock of
AmeriSteel. An institutional investor owns approximately 4% of the common stock
of the Company, with the remaining 11% of the Company's common stock owned by
executives and other employees.
Products
The following table shows the percentage of the Company's net sales derived
from each product category in the relevant time period:
Year Ended
March 31,
---------
1998 1997 1996
---- ---- ----
Fabricated Rebar 24% 24% 24%
Stock Rebar 27 24 25
Merchant Bars 33 30 32
Rods 5 5 7
Billets and other 11 17 12
---- ---- ----
100% 100% 100%
==== ==== ====
Rebar Products (Stock and Fabricated)
The Company produces rebar products primarily at its minimills in
Knoxville, Jacksonville and Charlotte. The Company's rebar either is sold
directly to distributors and independent fabricating companies in stock lengths
and sizes or is transferred to the Company's 13 fabricating plants where it is
cut and bent to meet engineering, architectural and other end-product
specifications. Rebar is used primarily for strengthening concrete in highway
and building construction and other construction applications. The Company's
rebar products are used primarily in two sectors of the construction industry:
non-residential building projects, such as institutional buildings, retail
sites, commercial offices, apartments and hotels and manufacturing facilities,
and infrastructure projects such as highways, bridges, utilities, water and
waste treatment facilities and sports stadiums. The Company's rebar products are
also
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used in multi-family residential construction such as apartments, condominiums
and multi-family homes. Usage of the Company's rebar products is roughly split
evenly between private and public projects.
Merchant Bars
The Company produces merchant bars primarily at its minimills in Jackson
and Charlotte. Merchant bars consist of rounds, squares, flats, angles and
channels. Merchant bars are generally sold to fabricators, steel service
centers, and manufacturers who fabricate the steel to meet engineering or end-
product specifications. Merchant bars are used to manufacture a wide variety of
products, including gratings, transmission towers, floor and roof joists, safety
walkways, ornamental furniture, stair railings and farm equipment. Merchant bar
products typically require more specialized processing and handling than rebar,
including straightening, stacking and specialized bundling. Because of the
greater variety of shapes and sizes, merchant bars typically are produced in
shorter production runs, necessitating more frequent changeovers in rolling mill
equipment. Merchant products generally command higher prices and produce higher
profit margins than rebar.
Rods
The Company produces steel rod at its Jacksonville minimill. Most of this
rod is sold directly to third-party customers, while the remainder, depending on
market conditions, is shipped to the Company's New Orleans, Louisiana facility,
where the rod is drawn down to wire for use in the manufacture of wire mesh,
collated nails and bulk nails.
Billets
The Company produces semi-finished billets for conversion to rebar,
merchant bar and rods. When the market for finished product is down, or when
rolling production is limited--as was the case in fiscal 1997 with downtime
associated with capital improvements in the Charlotte and Jackson mills--the
Company sells the excess billet production to steel mills that have less steel
melting capacity than rolling mill capacity.
Marketing and Customers
The Company conducts its marketing operation through both its own inside
and outside sales personnel. The outside sales personnel for mill rebar and
merchant bar are located in close proximity to the Company's major markets and
customers. The Company's salespeople handle both rebar and merchant bar sales in
a geographic area. This structure has several advantages in that it eliminates
duplicate sales calls on customers, enables salespeople to cover smaller
geographic areas, improves customer relationships and facilitates flow of
reliable market information to the Company. The Company's inside sales force is
centralized at the Company's Tampa, Florida headquarters, where all order
taking, mill production scheduling, inventory management and shipping
arrangements are coordinated. Metallurgical service representatives, located at
each of the Company's mills, provide technical support to the sales force.
Principal customers of the Company include steel distributors, steel
service centers, rebar fabricators, other metal fabricators and manufacturers,
railroads, building material dealers and contractors. Its fabricated rebar
products are sold to contractors performing work for residential and
nonresidential building, road, bridge, public works, utility and other
miscellaneous construction. The Company's business is not dependent upon any
single customer. The Company's customer base is fairly stable from year to year,
and during fiscal 1998 no one customer accounted for more than 4.9% of net sales
and the five largest customers accounted for approximately 12.2% of net sales.
The Company's payment terms to customers are generally determined based on
market conditions. The Company, however, generally does not offer extended
payment terms to customers. The Company's business is seasonal, with orders in
the Company's first and second fiscal quarters tending to be stronger than the
third and fourth quarters.
Fabricated rebar sales personnel are located at the Company's 13
fabricating facilities where engineering service representatives provide
technical and sales support. Fabricated rebar is generally produced in response
to specific customer orders. The amount of sales order backlog pertaining to
fabrication contracts was approximately 205,000 tons at March 31, 1998. The
Company expects almost all of the March 31, 1998 backlog to be filled through
the third quarter of fiscal 1999.
Despite the commodity characteristics of the stock rebar and merchant bar
markets, the Company believes that it is able to distinguish itself from its
competitors to some extent due to its product quality, its consistent delivery
record, its capacity to service large orders, and its ability to fill most
orders quickly from inventory. Moreover, although construction and
infrastructure projects are generally nonrecurring in nature, the steel
fabricators, distributors and service centers which supply many of these
projects tend to be long-time customers of the Company. The Company believes
that its reputation for quality products and service is among the highest in the
industry.
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Competition
The Company experiences substantial competition in the sale of each of its
products from a large number of companies in its geographic markets. Rebar and
merchant bars are commodity steel products, making price the primary competitive
factor. Due to the high cost of freight relative to the value of the Company's
steel products, competition from non-regional producers is limited. Rebar
deliveries are generally concentrated within a 350 mile radius of a minimill,
while merchant bar deliveries are generally concentrated within a 500 mile
radius of a minimill. Except in unusual circumstances, the customer's delivery
expense is limited to freight charges from the nearest competitive minimill and
any incremental freight charges are absorbed by the supplier. The Company has
experienced some competition from foreign sources, with the level and degree of
foreign competition varying from time to time depending upon factors including
foreign government subsidies and currency exchange rates.
Stock Rebar
The boundary of the current market area for the Company's rebar products is
roughly defined by a line running through New Orleans, Louisiana, Little Rock,
Arkansas, Kansas City, Kansas, St. Louis, Missouri, Indianapolis, Indiana,
Columbus, Ohio, and Baltimore, Maryland. The Company has found shipping outside
of this market area to be only marginally profitable because of freight cost
considerations.
Merchant Bar
The Company's primary marketing area for merchant bars encompasses the
southeastern and midwestern U.S. The Company's merchant bar sales now represent
approximately 33% of the Company's total sales. The market for merchant bars is
very competitive, with price being the primary competitive factor. In the last
three years, the Company has upgraded its rolling mill facilities at Charlotte
to increase the Company's ability to shift production from rebar to merchant bar
as market conditions allow and at Jackson to increase production and improve
merchant product mix.
Rods
The Company produces rods at its Jacksonville minimill. The Company's
primary marketing area for rods includes Florida, South Carolina, Georgia,
Alabama and Louisiana. The Company does not intend to geographically expand its
marketing beyond these states due to the relatively low margins and prohibitive
freight cost inherent to rod products. Although the market for rods can be
heavily influenced by foreign imports, rod sales by foreign competitors have not
had a material effect on the Company's rod sales in the last three years.
Fabricated Rebar
With 13 fabricating plants located throughout the southeastern U.S., all
within support distance from one of the Company's four minimills, the Company is
a major factor in all the markets it serves. In the sale of fabricated rebar,
the Company competes with other steel fabricators in its marketing area, some of
whom purchase their stock rebar from the Company.
Raw Materials and Energy Costs
Steel scrap is the Company's primary raw material and comprised
approximately 46% of the Company's costs of sales in fiscal 1998. The relatively
simple metallurgical requirements of the Company's products enable the Company
to use low quality, and thus lower cost, steel scrap. Various domestic and
foreign firms supply other important raw materials or operating supplies
required for the Company's business, including refractories, ferroalloys and
carbon electrodes. The Company has historically obtained adequate quantities of
such raw materials and supplies to permit efficient mill operations.
Electricity and natural gas represent approximately 14% and 6%,
respectively, of the Company's mill conversion costs. Access to attractively
priced electric power and natural gas can be an important competitive cost
advantage to a minimill. The Company purchases its power from its utilities
under interruptible service contracts. Under such contracts, the utilities
provide service at less than firm tariff rates in return for the right to
curtail power deliveries during peak demand periods. Such interruptions are
infrequent and occur with sufficient notice to allow the Company to curtail
production in an orderly manner. Since deregulation of the natural gas industry,
natural gas requirements have generally been provided through purchase of well-
head gas delivered via the interstate pipeline system and local distribution
companies. Open access to competitively priced supply of natural gas enables the
Company to secure adequate supplies at competitive prices.
4
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Employees
As of March 31, 1998, the Company had 1,895 employees, none of whom is
covered by a collective bargaining agreement. The Company believes that its
relations with its employees are good. The Company has been, and continues to
be, proactive in establishing and maintaining a climate of good employee
relations with its employees. Ongoing initiatives include organizational
development skills training, team building programs, opportunities for
participation in employee involvement teams, and adoption of an "open book"
system of management. The Company believes high employee involvement is a key
factor in the success of the Company's operations. A compensation program
designed to make the Company's employees' financial interest congruous with
those of the Company's shareholders has been implemented.
Environmental Regulation
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Compliance with Environmental Laws and Regulations"
and "Note I to March 31, 1998 consolidated financial statements--Environmental
Matters" for a discussion of the Company's cleanup liabilities with state and
federal regulators regarding the investigation and/or cleanup of certain sites.
ITEM 2. PROPERTIES
Production and Facilities
Steel can be produced at significantly lower costs by minimills than by
integrated steel operators. Integrated steel mills, which typically process iron
ore and other raw materials in blast furnaces to produce steel, generally use
costlier raw materials, consume more energy, operate older facilities that are
more labor intensive and employ a more highly paid labor force. In general,
minimills serve localized markets and produce a limited line of steel products.
The domestic minimill steel industry currently has excess production
capacity. This excess capacity has resulted in competitive product pricing and
cyclical pressures on industry profit margins. The high fixed costs of operating
a minimill encourage mill operators to maintain high levels of output even
during periods of reduced demand, which exacerbates the pressures on profit
margins. In this environment, efficient production and cost controls are
important to domestic minimill steel producers.
The Company's minimills operate their melting facilities seven days per
week and have an annual aggregate melting capacity of approximately 2.0 million
tons. The Jackson, Charlotte and Jacksonville mills operate their rolling
facilities seven days per week while the Knoxville mill operates its rolling
facility five days per week.
The following table sets forth certain information regarding the Company's
four minimills, including the current estimated annual production capacity and
actual production of the minimills in thousands of tons. Billets produced in the
melting process in excess of rolling needs are sold to third parties.
<TABLE>
<CAPTION>
Year Ended Year Ended
Approx. March 31, Approx. March 31,
Annual 1998 Capacity Annual 1998 Capacity
Start-up Melting Melting Utilization Rolling Rolling Utilization
Location Date Capacity Production Percentage Capacity Production Percentage
- -------- ---- -------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Charlotte, NC 1961 450 443 98% 400 346 87%
Jackson, TN 1981 600 570 95 480 454 95
Jacksonville, FL 1976 600 553 92 510 504 99
Knoxville, TN 1987(1) 330 309 94 360 348 97
----- ----- -- ----- ----- --
Total 1,980 1,875 95% 1,750 1,652 94%
===== ===== == ===== ===== ==
</TABLE>
(1) Purchase Date
Charlotte Minimill
The Charlotte minimill produces rebar and merchant bars. Rebar produced in
Charlotte is marketed primarily in the states from South Carolina to
Pennsylvania. Merchant bar produced in Charlotte is marketed primarily along the
eastern seaboard states from Florida to Pennsylvania.
Charlotte's melting equipment includes a 75 ton electric arc furnace
utilizing the Consteel process, a continuous scrap feeding and preheating
system, and a ladle refining station. The melting facilities also include a 3-
strand continuous caster and material handling equipment. Charlotte's rolling
mill includes a reheat furnace, 15 in-line mill stands, a 200 foot cooling bed,
a cut-to-length shear and an automated material bundling unit. The rolling
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mill includes recently installed upgraded finishing end equipment, including a
product straightener for merchant shapes and a French manufactured Empilam
stacker. During fiscal 1997, capacity utilization of the rolling mill was
limited due to down time associated with a major capital improvement project.
The Company believes that the upgrade has improved merchant bar quality,
increased production and lowered conversion costs.
Jackson Minimill
The Jackson minimill produces mostly merchant bars and some larger size
rebar. This minimill is the Company's largest single producer of merchant bars.
The merchant bars are marketed primarily in the southeastern U.S., as well as
into southern Illinois, Indiana and Ohio.
Melting equipment includes a 135 ton electric arc furnace, a 4-strand
continuous billet caster and material handling equipment. The rolling mill
consists of a 120 tons per hour reheat furnace, 16 new in-line quick-change mill
stands, a cooling bed, an in-line straightener, a cut-to-length product shear,
an automatic stacker, and associated shipping and material handling facilities.
Installation of the new quick-change mill stands, a combination of Danieli
vertical and horizontal, began in April 1996 and was completed in December 1997.
The Company believes this investment will provide significant return on
investment in the form of decreased change time and therefore increasing
production and lowering conversion costs. The Company expects that the new mill
stands will increase rolling mill production capacity by approximately 60,000
tons per year and decrease mill conversion costs by approximately $5 per ton
when the benefits of the project are fully realized.
Jacksonville Minimill
The Jacksonville minimill produces rebar and rods. The rebar is marketed
primarily in Florida, the nearby Gulf Coast states and Puerto Rico, with coiled
rebar being shipped throughout the Company's marketing area. The rod products
are sold throughout the southeastern U.S.
Jacksonville's melting equipment consists of a 90 ton capacity electric arc
furnace and a 4-strand continuous caster. The rolling mill includes a 100 tons
per hour reheat furnace, a 16-stand horizontal Danieli in-line mill, a 10-stand
Danieli rod block, a cooling bed for straight bars and a controlled cooling line
for coiled products, a cut-to-length product shear, and automatic bundling and
tying equipment for straight bars and coils.
Knoxville Minimill
The Knoxville minimill produces almost exclusively rebar. The rebar is
marketed throughout the Ohio Valley, including all areas of Ohio and Kentucky
and parts of Illinois, Indiana, Virginia, West Virginia, Tennessee, and in
portions of North and South Carolina, Georgia and Alabama.
Knoxville's melting equipment includes two 35 ton electric arc furnaces, a
3-strand continuous caster and material handling equipment. The rolling mill
consists of a reheat furnace, 16 in-line mill stands utilizing the Thermex in-
line heat treating process, a cooling bed, a cut-to-length shear line, and
associated shipping and material handling facilities.
Fabrication
The Company believes that it operates the largest rebar fabricating group
in the U.S., consisting of a network of 13 strategically located reinforcing
steel fabricating plants throughout the southeastern U.S. with an annual
capacity of approximately 334,000 tons. The facilities are interconnected via
satellite for the immediate transfer of customer engineering and production
information utilized in its computer assisted design detailing programs. The
fabricating plants are a downstream operation of the Company, purchasing all
rebar from the Company's minimills, primarily Knoxville, Jacksonville and
Charlotte.
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Fabricated rebar is produced by cutting and bending stock rebar to meet
engineering, architectural and other end-product specifications. The fabrication
division employs about 535 employees. The following table shows the fabricating
plant locations and approximate annual tonnage on a two-shift per day, five days
per week operating basis.
Capacity
Fabricating Plant (in Tons)
----------------- ---------
Ft. Lauderdale, FL 30,000
Jacksonville, FL 30,000
Orlando, FL 20,000
Plant City, FL (Tampa) 40,000
Duluth, GA (Atlanta) 30,000
Louisville, KY 20,000
Charlotte, NC 30,000
Raleigh, NC 18,000
Aiken, SC 16,000
Collierville, TN (Memphis) 20,000
Knoxville, TN 40,000
Nashville, TN 20,000
St. Albans, WV 20,000
-------
Total 334,000
=======
Other Operations
The Company's railroad spike operations, located in Lancaster, South
Carolina and Paragould, Arkansas, forge steel square bars produced at the
Charlotte mill into railroad spikes that are sold on an annual contract basis to
various railroad companies. The Company's facility in New Orleans, Louisiana
produces wire from steel rod. The wire is then either manufactured into wire
mesh for concrete pavement, converted into collated nails for use in high-speed
nail machines, or converted to bulk nails for general construction uses.
The Company's corporate offices are located in Tampa, Florida and are
comprised of 28,000 square feet of leased office space.
In addition to the Company's four mills and 13 rebar fabricating
facilities, all of which are owned by the Company, the following represent other
facilities currently owned or operated by the Company:
<TABLE>
<CAPTION>
LOCATION USE ACREAGE FLOOR SPACE
- -------- --- ------- -----------
<S> <C> <C> <C>
Tampa, FL (Owned) Closed minimill 65.2 200,000 sq. ft.
Tampa, FL (Owned) Land held for sale 432.4
Indiantown, FL (Owned) Closed minimill 151.5 130,340 sq. ft.
New Orleans, LA (Leased) Wire fabric and nail facility 5.0 120,000 sq. ft.
Lancaster, SC (Owned) Rail spike facility 41.0 52,000 sq. ft.
Paragould, AR (Owned) Rail spike facility 7.7 23,000 sq. ft.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the Company's business, to which the Company is a party
or in which any of its property is the subject, and no such proceedings are
known to be contemplated by governmental authorities. However, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Compliance with Environmental Laws and Regulations" and "Note I to March 31,
1998 consolidated financial statements--Environmental Matters" for a discussion
of the Company's liabilities with respect to the investigation and/or
remediation at certain sites.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company has 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 carry the same rights, powers, preferences,
privileges and limitations, except that Class A Common Stock has one vote per
share while Class B Common Stock has two votes per share. Class B Common Stock
can only be issued or sold to the employees of the Company, a related party and
an institutional investor. As of March 31, 1998, there are no shares of Class A
Common Stock outstanding and there are 10,568,555 shares of Class B Common Stock
outstanding held of record by approximately 1,065 stockholders. Of such shares,
9,000,000 shares are held of record by the Holding Company, which shares
represent approximately 85.2% of the combined voting power of all Common Stock.
No established public trading market exists for the Company's Common Stock,
but the Company sells and buys shares at a price established annually by
independent appraisal, which as of March 31, 1998 was $20.00 per share.
In December 1997, the Company declared and paid a special dividend of $6.1
million to its stockholders at $0.60 per share.
On March 26, 1998 the Company sold 454,545 shares of Class B Common Stock
for $10 million to an institutional investor. The proceeds were used to retire
$10 million of the Company's $50 million Subordinated Intercompany Note.
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ITEM 6. SELECTED FINANCIAL DATA
The selected statement of operations and balance sheet data for the years
ended March 31, 1998, 1997, 1996, 1995 and 1994 are derived from the audited
financial statements of the Company. The results for the year ended March 31,
1998 are not necessarily indicative of the results to be expected for the fiscal
year ending March 31, 1999. Certain reclassifications have been made to the
March 31, 1994 financial data to conform with the financial data of the other
periods presented. The following financial data for the years presented are
qualified in their entirety by reference to the more detailed Consolidated
Financial Statements and Notes thereto, included elsewhere in this Form 10-K,
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share and average data)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net sales $ 664,566 $ 617,289 $ 628,404 $ 639,908 $ 547,118
Operating expenses:
Cost of sales 540,422 531,190 533,965 545,725 498,692
Selling and administrative 27,811 29,068 29,605 29,959 27,293
Depreciation 19,494 16,654 14,619 14,046 15,369
Amortization of goodwill 4,130 4,130 4,130 4,130 4,061
Other operating expenses (1) -- -- 16,013 -- 10,920
--------- --------- --------- --------- ---------
591,857 581,042 598,332 593,860 556,335
Income (loss) from operations 72,709 36,247 30,072 46,048 (9,217)
Other expenses
Interest 19,775 19,473 22,000 23,330 21,027
Amortization of deferred financing costs 652 934 1,956 2,863 2,552
--------- --------- --------- --------- ---------
20,427 20,407 23,956 26,193 23,579
Income (loss) before income taxes
(benefit) & extraordinary item 52,282 15,840 6,116 19,855 (32,796)
Income taxes (benefit) 22,000 7,788 3,996 9,354 (10,833)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item 30,282 8,052 2,120 10,501 (21,963)
Extraordinary item, net of income tax
benefit (2) -- -- -- -- (748)
--------- --------- --------- --------- ---------
Net income (loss) $ 30,282 $ 8,052 $ 2,120 $ 10,501 $ (22,711)
========= ========= ========= ========= =========
Earnings (loss) per share - basic $ 3.00 $ .80 $ .21 $ 1.05 $ (2.27)
========= ========= ========= ========= =========
Earnings (loss) per share - diluted $ 2.98 $ .80 $ .21 $ 1.05 $ (2.27)
========= ========= ========= ========= =========
Cash dividends declared per common share $ .60 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Other Financial Data and Selected Ratios:
EBITDA (3) $ 100,556 $ 58,323 $ 64,033 $ 65,574 $ 19,313
EBITDA margin 15.1% 9.4% 10.2% 10.2% 3.5%
Capital expenditures $ 21,107 $ 34,382 $ 36,894 $ 25,781 $ 18,193
Ratio of EBITDA to interest expense (4) 4.9x 2.9x 2.7x 2.5x 0.8x
Ratio of total debt to EBITDA 2.2x 4.1x 4.2x 4.0x 12.8x
Balance Sheet Data (end of period):
Current assets $ 210,610 $ 182,519 $ 200,109 $ 223,444 $ 187,672
Current liabilities 87,917 73,792 85,588 102,080 76,006
Working capital 122,693 108,727 114,521 121,364 111,666
Total assets 562,130 535,685 554,896 561,748 523,706
Long-term debt 214,465 237,474 252,525 243,030 247,128
Shareholders' equity 185,715 150,564 141,747 137,750 124,999
</TABLE>
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<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands, except per share and average data)
Selected Operating Data:
Shipped tons
Stock rebar 550 472 508 536 466
Merchant bar 576 512 544 549 468
Rod 92 105 133 129 121
------ ------ ------ ------ ------
Subtotal mill finished goods 1,218 1,089 1,185 1,214 1,055
Fabricated rebar 338 326 315 347 330
Billets 172 281 175 141 263
------ ------ ------ ------ ------
Total shipped tons 1,728 1,696 1,675 1,702 1,648
====== ====== ====== ====== ======
Average mill finished goods prices
(per ton) $ 351 $ 333 $ 337 $ 342 $ 310
Average yielded scrap cost (per ton) 133 130 131 130 119
Average metal spread (per ton) (5) 218 203 206 212 191
Average mill conversion costs (per ton) 129 138 135 135 146
</TABLE>
(1) In the fiscal year ended March 31, 1994, the Company recorded a $10.3
million charge related to the closing of the Tampa melt shop and a $0.6
million charge related to closing the Fort Myers, Florida and Woodbridge,
Virginia fabrication shop facilities. In the fiscal year ended March 31,
1996, the Company recorded a $15.0 million charge related to the closing of
the Tampa rolling mill and a $1.0 million charge for the closure of other
facilities.
(2) In the fiscal year ended March 31, 1994, the Company incurred a charge of
$748,000, net of income tax benefits, as a result of redeeming $20 million
of the 14.5% subordinated debentures at a premium of 6% or $1.2 million.
(3) EBITDA represents income from operations plus depreciation, amortization
and non-cash deferred compensation expense and excludes gains or losses
from asset sales and non-recurring charges. EBITDA is presented because it
is a widely accepted financial indicator of a company's ability to service
indebtedness and a similar measure is used in the Company's debt
instruments to determine compliance with certain covenants. However, EBITDA
should not be considered as an alternative to income from operations or to
cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity.
(4) Interest expense includes amortization of deferred financing costs.
(5) Average metal spread equals average mill finished goods prices minus
average scrap cost.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report 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 Consolidated Financial Statements and the Notes
thereto.
RESULTS OF OPERATIONS
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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996
---- ---- ----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Net sales $664,566 100.0% $617,289 100.0% $628,404 100.0%
Cost of sales 540,422 81.3% 531,190 86.1% 533,965 85.0%
Selling and administrative 27,811 4.2% 29,068 4.7% 29,605 4.7%
Depreciation 19,494 2.9% 16,654 2.7% 14,619 2.3%
Amortization of goodwill 4,130 .6% 4,130 .7% 4,130 .7%
Other operating expenses -- -- -- -- 16,013 2.5%
-------- ------ -------- ------ -------- ------
Income from operations 72,709 11.0% 36,247 5.9% 30,072 4.8%
Interest expense 19,775 3.0% 19,473 3.2% 22,000 3.5%
Amortization of deferred financing costs 652 .1% 934 .1% 1,956 .3%
Income taxes 22,000 3.3% 7,788 1.3% 3,996 .7%
-------- ------ -------- ------ -------- ------
Net income $ 30,282 4.6% $ 8,052 1.3% $ 2,120 .3%
======== ====== ======== ====== ======== ======
</TABLE>
Fiscal 1998 Versus Fiscal 1997
<TABLE>
<CAPTION>
Average Selling
Tons Shipped (Thousands) Prices (Per Ton)
Year Ended March 31, Year Ended March 31,
------------------------ --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Mill Finished Goods:
Stock Rebar 550 472 $331 $316
Merchant Bar 576 512 371 352
Rods 92 105 345 322
----- ----- ---- ----
1,218 1,089 350 333
Fabricated Rebar 338 326 456 451
Billets 172 281 234 227
----- -----
Total 1,728 1,696
----- -----
</TABLE>
NET SALES. Net sales in fiscal 1998 increased approximately 8% from fiscal
1997 as both prices and sales volumes of finished goods increased. Mill finished
goods sales prices increased over 5% and shipments increased
11
<PAGE>
approximately 12%. The volume shift towards higher margin finished goods and
away from semi-finished billets is a direct result of higher production levels
resulting from completion and optimization of rolling mill modernization
projects at the Charlotte, Jacksonville and Jackson mills.
COST OF SALES. Increased production levels, lower average unit costs and the
shift of shipment mix towards higher margin finished steel products resulted in
cost of sales declining from approximately 86% of net sales to approximately 81%
despite an average $3 per ton increase in scrap cost.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses for the year
ended March 31, 1998 were 4.2% of net sales compared with 4.7% of net sales in
fiscal 1997. The decrease is attributable to one-time credits including a net
gain of $1.8 million on disposition of certain assets held for sale and receipt
of $6.8 million in connection with an insurance settlement. These were offset
by a charge of $1.2 million for expenses associated with the canceled initial
public offering and debt restructuring in December 1997, $2.6 million increased
provisions for incentive wages, $2.4 million increased environmental costs and
related professional fees, and a $1.4 million charge related to startup expenses
associated with the electric are furnace/emissions control dust ("EC dust")
recycling facility at the Jackson mill.
DEPRECIATION. Depreciation increased to $19.5 million in fiscal 1998 from
$16.7 million in fiscal 1997 due to increased capital expenditures at all four
mills during the last three years.
INTEREST EXPENSE. Interest expense increased from $19.5 million in fiscal
1997 to $19.8 million in fiscal 1998. Capitalized interest decreased from $2.0
million to $0.5 million in fiscal 1998 partially offset by a $16.3 million net
reduction in debt. Average annual interest rates increased moderately from 8.7%
in fiscal 1997 to 8.9% in fiscal 1998.
INCOME TAXES. The Company's effective federal and state income tax rate for
fiscal 1998 and 1997 was 39% excluding the effect of goodwill amortization,
which is not deductible for income tax purposes.
Fiscal 1997 Versus Fiscal 1996
Average Selling
Tons Shipped (Thousands) Prices (Per Ton)
Year Ended March 31, Year Ended March 31,
------------------------ --------------------
1997 1996 1997 1996
---- ---- ---- ----
Mill Finished Goods:
Stock Rebar 472 508 $ 316 $ 310
Merchant Bar 512 544 352 362
Rods 105 133 322 336
----- ----- ----- -----
1,089 1,185 333 337
Fabricated Rebar 326 315 451 460
Billets 281 175 227 233
----- -----
Total 1,696 1,675
===== =====
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 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. In September 1995, the Company closed the Tampa
rolling mill. 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
12
<PAGE>
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 I to consolidated 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
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financial obligations outstanding as of March 31, 1998
were the $100 million aggregate principal amount of First Mortgage Notes, a $140
million revolving credit facility (the "Revolving Credit Agreement"), and a $40
million aggregate principal amount Subordinated Intercompany Note due December
21, 2002 and owed to the Holding Company.
In December 1997, the Company declared and paid a special dividend of $6.1
million to its stockholders at $0.60 per share.
On March 26, 1998 the Company sold 454,545 shares of Class B common stock for
$10 million to an institutional investor. The proceeds were used to retire $10
million of Subordinated Intercompany Note.
On April 6, 1998 the Company sold $130 million of 8.75% Senior Notes. The net
proceeds of approximately $127.1 million were used first to redeem the $100
million First Mortgage Notes on May 11, 1998 at a price of 101.916% and $20
million will be used to redeem a portion of the Subordinated Intercompany Note
before June 30, 1998. The remaining proceeds will be used to reduce outstanding
Revolving Credit Agreement borrowings and for general corporate purposes. See
"Note L to March 31, 1998 consolidated financial statements--Subsequent Events"
for further information regarding the $130 million Senior Notes.
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 March 31, 1998,
the Revolving Credit Agreement had a borrowing base of approximately $133.1
million, of which approximately $54.8 million was available to the Company for
further borrowings, $40.1 million was outstanding and $38.2 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 2015, respectively, and $1.5 million which is due November
1998 and is classified as short term.
The First Mortgage Notes, the new Senior 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."
Net cash provided by operating activities for the year ended March 31, 1998
was $35.5 million compared with $43.9 million for fiscal 1997. Cash flow from
net income increased by $22.2 million but was offset by a $30.8 million increase
in inventories. Accounts receivable also increased by $9.1 million due to
increased sales prices
13
<PAGE>
and volumes. The Company used $21.3 million to repay debt and $21.1 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.
Over the years, the Company has expanded capacity by means of modernizing and
upgrading facilities. Capital expenditures were $21.1 million for the year ended
March 31, 1998, $34.4 million for the year ended March 31, 1997 and $36.9
million for the year ended March 31, 1996. The Company anticipates spending up
to $30.0 million for capital expenditures in fiscal 1999.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) 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 determined that the adoption of SFAS
131 will not have a material effect on the consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers Disclosures about Pensions and Other Post Retirement
Benefits" (SFAS 132) which standardizes the disclosure requirements for defined
contribution plans and defined benefit plans. The statement is effective for
financial statements relating to fiscal years beginning after December 15, 1997.
Management has determined that the adoption of SFAS 132 will not have a material
effect on the consolidated financial statements.
YEAR 2000
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 and is currently in the middle of the implementation and
startup of this plan. Through March 31, 1998 the Company has spent
approximately $1.8 million towards the purchase of network compatible computer
hardware and software. The Company is currently in the process of migrating its
core business operating software from a mainframe environment to client server
compatible systems. The Company's main software programs are being re-written
to comply with both the new data processing foundation and to be Year 2000
compliant. In addition, the Company has contracted with major software
providers to implement core financial, payroll, and database programs which will
be fully integrated with the Company's in-house operating software and systems.
The Company believes that it will be Year 2000 compliant without a material
impact on its operations or financial results.
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 welfare (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
$12.7 million and has included this amount in the Company's recorded liabilities
as of March 31, 1998. 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
14
<PAGE>
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 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 I to March 31, 1998 consolidated 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.
OTHER MATTERS
The Company, through a third-party contractor and operator, constructed a
facility at the Company's Jackson mill designed to utilize a technology
developed by the third party to recycle the Company's EC dust which is regulated
as a hazardous waste due to the presence of heavy metals. The facility has a
design capacity to recycle up to 30 thousand tons of EC dust per year. The
Company currently generates approximately 24 thousand tons of EC dust per year.
The facility is designed to recycle the EC dust in two stages. In the first
stage, the dust is fed into a rotary hearth furnace where the zinc in the dust
is vaporized and collected as crude zinc oxide. The residual of the dust exits
the furnace in the form of a reduced iron unit that can be fed into an electric
furnace as a scrap substitute. In the second stage of the process, the crude
zinc oxide is fed into a wet chemical process to extract lead and cadmium and
produce a high quality saleable zinc oxide.
The facility began operations in March 1997, however the second stage
operations are undergoing further development given that new technology is
involved in the process. In fiscal 1998, the contractor and third-party operator
of the facility defaulted under its agreements with the Company. As a result,
the Company expects to incur additional costs and capital expenditures in
connection with the development and operation of the facility. The Company's
depreciation policy for the facility, with a net book value of $23.3 million at
March 31, 1998, is to depreciate the facility over its expected remaining useful
life of 14 years and to periodically evaluate the remaining life and
recoverability of the equipment. There can be no assurance, however, that the
technology or the two-stage facility and process will be commercially developed
and operated on a cost efficient basis.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the Company's
executive officers:
Name Age Position
- ---- --- --------
Phillip E. Casey 55 Chairman of the Board, Chief Executive Officer
and Director
J. Donald Haney 62 Group Vice President, Fabricated Reinforcing
Steel, and Director
Shuzo Hikita 55 Vice President, Engineering and Technology,
and Director
Tom J. Landa 46 Vice President, Chief Financial Officer,
Secretary and Director
Dennie Andrew 57 Vice President, Steel Mill Operations
15
<PAGE>
J. Neal McCullohs 41 Vice President, Mill Product Sales
Robert P. Muhlhan 47 Vice President, Material Procurement
James S. Rogers, II 50 Vice President, Human Resources
Hiroyoshi Tsuchiya 59 Vice President, Strategic Planning
Phillip E. Casey has been Chairman of the Board, Chief Executive Officer
and a director since June 1994. Prior to joining the Company, Mr. Casey held
various positions with Birmingham Steel Corporation, including Chief Financial
Officer, Executive Vice President and Vice Chairman of the Board from 1985 until
1994.
J. Donald Haney has been Group Vice President, Fabricated Reinforcing Steel
since 1979 and a director of the Company since 1988. Mr. Haney joined the
Company in 1958 and has held various management and sales positions with the
Company. Mr. Haney was promoted to the position of Vice President in 1974. Mr.
Haney is principally responsible for the Company's reinforcing steel fabricating
group.
Shuzo Hikita has been Vice President, Engineering and Technology and a
director of the Company since September 1996. Prior to September 1996, Mr.
Hikita held several management positions with Kyoei including Division Manager
of Kyoei's Hirakata and Osaka mills from 1994 to 1996. From 1992 to 1993, Mr.
Hikita was a Vice President with Auburn Steel.
Tom J. Landa has been Chief Financial Officer, Vice President and
Secretary of the Company since April 1995. Mr. Landa was elected a director of
the Company in March 1997. Before joining the Company, Mr. Landa spent over 19
years in various financial management positions with Exxon Corporation and its
affiliates worldwide.
Dennie Andrew has been Vice President, Steel Mill Operations, since October
1997. From September 1996 until September 1997, Mr. Andrew was Vice President,
Jacksonville Steel Mill Division. From 1986 until 1996, Mr. Andrew was President
of North American operations for Simac International.
J. Neal McCullohs has been Vice President, Mill Product Sales, since August
1995. Mr. McCullohs joined the Company in 1978 and has held various sales
management positions with the Company, including division manager of the St.
Albans Reinforcing Division and Atlanta Reinforcing Division.
Robert P. Muhlhan has been Vice President, Material Procurement, since
February 1995. From 1993 until 1995, Mr. Muhlhan was Regional Vice President of
National Material Trading. Prior to 1993, Mr. Muhlhan spent 24 years with LTV
Steel Company, most recently as Manager--Production Materials.
James S. Rogers, II, has been Vice President, Human Resources, since June
1997. From 1992 until 1996, Mr. Rogers was Vice President, Human Resources, at
Birmingham Steel Corporation. From 1975 until 1992, Mr. Rogers was employed by
the Company in various positions, including Manager of Corporate Personnel
Practices and Director of Human Resources.
Hiroyoshi Tsuchiya has been Vice President, Strategic Planning, since May
1994. Prior to his employment with the Company, Mr. Tsuchiya held various
management positions with Mitsubishi Corporation in Japan and Canada from 1975
to 1994.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,258 $ 1,645
Accounts receivable, less allowance
of $ 1,000 at March 31, 1998 and
March 31, 1997 for estimated losses 73,330 68,563
Inventories 130,413 106,173
Deferred tax assets 5,200 5,000
Other current assets 409 1,138
--------- ---------
TOTAL CURRENT ASSETS 210,610 182,519
ASSETS HELD FOR SALE 13,689 14,838
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 15,517 14,942
Building and improvements 35,892 35,116
Machinery and equipment 261,265 250,299
Construction in progress 14,918 7,802
--------- ---------
327,592 308,159
Less allowances for depreciation (76,420) (58,138)
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT 251,172 250,021
GOODWILL 81,643 85,773
DEFERRED FINANCING COSTS 5,009 2,523
OTHER ASSETS 7 11
--------- ---------
TOTAL ASSETS $ 562,130 $ 535,685
========= =========
</TABLE>
See notes to consolidated financial statements
17
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 49,518 $ 44,666
Salaries, wages and employee benefits 16,469 14,598
Current environmental remediation liabilities 4,863 5,079
Other current liabilities 5,126 4,355
Interest payable 4,835 4,659
Current maturities of long-term borrowings (including note payable to
Parent of $367 and $435 at March 31, 1998 and 1997, respectively) 7,106 435
--------- ---------
TOTAL CURRENT LIABILITIES 87,917 73,792
LONG-TERM BORROWINGS, LESS CURRENT PORTION 214,465 237,474
OTHER LIABILITIES 23,433 21,555
DEFERRED INCOME TAXES 50,600 52,300
SHAREHOLDERS' EQUITY
Class A Common Stock, $.01 par value, 100,000,000 and 0 shares authorized
at March 31, 1998 and 1997, respectively. No shares
issued and outstanding at March 31, 1998 and 1997. -- --
Class B Common Stock, $.01 par value, 22,000,000 and 30,000,000
shares authorized at March 31, 1998 and 1997, respectively.
10,568,555 and 10,079,028 shares issued and outstanding at
March 31, 1998 and 1997, respectively. 106 101
Capital in excess of par 167,283 156,816
Retained earnings (accumulated deficit) 19,886 (4,328)
Deferred compensation (1,560) (2,025)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 185,715 150,564
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 562,130 $ 535,685
========= =========
</TABLE>
See notes to consolidated financial statements
18
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands except earnings per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1998 1997 1996
-------------- --------------- --------------
<S> <C> <C> <C>
NET SALES $664,566 $617,289 $628,404
Operating Expenses:
Cost of sales 540,422 531,190 533,965
Selling and administrative 27,811 29,068 29,605
Depreciation 19,494 16,654 14,619
Amortization of goodwill 4,130 4,130 4,130
Other operating expenses -- -- 16,013
----------- ------------ ------------
591,857 581,042 598,332
----------- ------------ ------------
INCOME FROM OPERATIONS 72,709 36,247 30,072
Other Expenses:
Interest 19,775 19,473 22,000
Amortization of deferred financing costs 652 934 1,956
----------- ------------ ------------
20,427 20,407 23,956
----------- ------------ ------------
INCOME BEFORE INCOME TAXES 52,282 15,840 6,116
Income taxes 22,000 7,788 3,996
----------- ------------ ------------
NET INCOME $ 30,282 $ 8,052 $ 2,120
=========== ============ ============
EARNINGS PER COMMON SHARE -
BASIC (NOTE B) $ 3.00 $ 0.80 $ 0.21
=========== ============ ============
DILUTED (NOTE B) $ 2.98 $ 0.80 $ 0.21
=========== ============ ============
Weighted average number of common
shares outstanding 10,103 10,087 10,062
Weighted average number of common
and common equivalent shares 10,174 10,087 10,062
</TABLE>
See notes to consolidated financial statements
19
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ in thousands except share data)
<TABLE>
<CAPTION>
Retained
Capital Earnings
Common Stock in Excess (Accumulated Deferred
Shares Amount of Par Deficit) Compensation Total
----------- -------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
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
Common stock issuance 495,005 5 10,541 -- (540) 10,006
Repurchase of common stock (5,478) -- (74) -- -- (74)
Net income -- -- -- 30,282 -- 30,282
Dividends paid -- -- -- (6,068) -- (6,068)
Reduction in deferred compensation -- -- -- -- 1,005 1,005
----------- -------- ----------- ------------ ---------- -----------
BALANCES AT MARCH 31, 1998 10,568,555 $ 106 $ 167,283 $ 19,886 $ (1,560) $ 185,715
=========== ======== =========== ============ ========== ===========
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 30,282 $ 8,052 $ 2,120
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 19,494 16,654 14,619
Amortization 4,782 5,064 6,086
Deferred income taxes (1,900) (200) (1,200)
Loss on disposition of property, plant and equipment 2,524 317 14,312
Gain on disposition of assets held for sale (1,756) -- --
Deferred compensation 1,005 975 900
Changes in operating assets and liabilities:
Accounts receivable (4,767) 4,347 7,450
Inventories (24,240) 6,580 14,927
Other current assets 729 (85) (303)
Other assets 4 (4) 21
Trade accounts payable 4,852 4,432 (9,130)
Salaries, wages and employee benefits 1,871 262 (2,184)
Other current liabilities 479 (828) 769
Environmental remediation 384 (1,400) (5,421)
Interest payable 176 (281) (318)
Income taxes payable 292 126 514
Other liabilities 1,278 (81) 929
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,489 43,930 44,091
INVESTING ACTIVITIES
Additions to property, plant and equipment (21,107) (34,382) (36,894)
Purchase of assets held for sale (129) (454) --
Proceeds from sales of property, plant and equipment 251 876 788
Proceeds from sale of assets held for sale 3,034 1,550 794
Restricted IRB Funds (2,313) 13,700 (13,700)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (20,264) (18,710) (49,012)
FINANCING ACTIVITIES
(Payments to) proceeds from short-term and long-term (16,338) (29,558) 21,227
borrowings, net
Additions to deferred financing costs (3,138) -- (909)
Prepurchase of subordinated debentures -- -- (13,035)
Proceeds from sale of common stock 10,006 -- 977
Redemption of common stock (74) (210) --
Dividends paid (6,068) -- --
---------- ---------- ----------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (15,612) (29,768) 8,260
---------- ---------- ----------
(DECREASE)INCREASE IN
CASH AND CASH EQUIVALENTS (387) (4,548) 3,339
Cash and cash equivalents at beginning of period 1,645 6,193 2,854
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,258 $ 1,645 $ 6,193
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest (net of amount capitalized) $ 19,599 $ 19,754 $ 22,318
========== ========== ==========
Cash paid for income taxes $ 21,709 $ 7,862 $ 4,682
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998, 1997 AND 1996
NOTE A -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of AmeriSteel
Corporation, a Florida corporation and its wholly owned subsidiary (AmeriSteel
Finance Corporation, a Delaware corporation) (together, the "Company") after
elimination of all significant intercompany balances and transactions. 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 Company is a majority-owned subsidiary of FLS
Holdings, Inc. ("the Parent").
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
1998, 1997, and 1996 have been approximately $(28,000), $106,000 and $184,000,
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, 1998, 1997 and
1996, 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: Assets held for sale consists primarily of real
estate and machinery and equipment held for sale which are carried at the lower
of cost or net realizable value.
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 the income statement.
Interest costs for property, plant and equipment construction expenditures
of approximately $0.5 million and $2.0 million were capitalized for the years
ended March 31, 1998 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 other equipment.
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, 1998 and 1997, the Company had $2.7 million and $0 million,
respectively, of such restricted IRB funds on its balance sheet.
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 $21.6 million and $17.5 million at March 31, 1998
and 1997, respectively. Goodwill is being amortized over a 25-year period.
Deferred Financing Costs: The deferred financing costs as of March 31, 1998
and 1997, are net of accumulated amortization of $9.6 million and $9.0 million,
respectively. These amounts will be amortized over the term of the respective
debt instruments, which range from 1 to 10 years. The Company incurred financing
costs of approximately $3.0 million in March 1998 related to the $130 million
Senior Notes (see "Note D").
22
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per Common Share: In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). Basic
earnings per common share is based upon the weighted average number of common
shares and the diluted earnings per common share is based upon the weighted
average number of common shares plus the dilutive common equivalent shares
outstanding during the period. The following is a reconciliation of the
denominators of the basic and diluted earnings per common share computations
shown on the face of the accompanying consolidated statements of income (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Basic weighted average number of common shares 10,103 10,087 10,062
Dilutive effect of options outstanding 71 - -
Diluted weighted average number of common and
common equivalent shares outstanding 10,174 10,087 10,062
</TABLE>
The Company's previously reported primary earnings per common share and
fully diluted earnings per common share for fiscal 1997 and 1996 did not differ
from the basic earnings per common share and the diluted earnings per common
share, respectively, calculated under SFAS 128.
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 June 1997, the Financial Accounting
Standards Board issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131) 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 determined
that the adoption of SFAS 131 will not have a material effect on the
consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers Disclosures about Pensions and Other Post
Retirement Benefits" (SFAS 132) which standardizes the disclosure requirements
for defined contribution plans and defined benefit plans. The statement is
effective for financial statements relating to fiscal years beginning after
December 15, 1997. Management has determined that the adoption of SFAS 132 will
not have a material effect on the consolidated financial statements.
Reclassifications: Certain amounts in the fiscal 1996 and 1997 financial
statements have been reclassified to conform to the fiscal 1998 financial
statement presentation.
23
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVENTORIES
Inventories consist of the following:
MARCH 31, MARCH 31,
1998 1997
---- ----
($ IN THOUSANDS)
Finished goods $ 87,511 $ 59,299
Work in-process 9,694 14,175
Raw materials and operating supplies 33,208 32,699
------ ------
$130,413 $106,173
======== ========
NOTE D -- BORROWINGS
Long-term borrowings consist of the following:
MARCH 31, MARCH 31,
1998 1997
---- ----
($ IN THOUSANDS)
Revolving Credit Agreement $ 40,070 $ 51,340
Industrial Revenue Bonds 35,875 30,875
First Mortgage Notes 100,000 100,000
Subordinated Intercompany Note 40,000 50,000
Trade Loan Agreements 5,259 5,259
Note to Parent 367 435
------- -------
221,571 237,909
Less current maturities 7,106 435
------- -------
$214,465 $237,474
======== ========
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 continued to be in compliance with these covenants
throughout fiscal 1998. 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, 1998 was 7.1%.
The Company's industrial revenue bonds ("IRBs") were issued to obtain
funding 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. $1.5 million of the IRBs
matures in November 1998. $9.4 million of the IRBs matures in fiscal 2004, $5.0
million matures in fiscal 2015 and the remaining $20.0 million matures in fiscal
2018. The $5.0 million IRBs maturing in fiscal 2015 were issued in September
1997 for construction of a facility at the Jackson mill to recycle EC dust. The
IRBs are backed by irrevocable letters of credit issued pursuant to the
Revolving Credit Agreement. As of March 31, 1998, the Company had approximately
$40.5 million of outstanding letters of credit, primarily for IRBs,
insurance-related matters and surety bonds.
The First Mortgage Notes were collateralized senior obligations of the
Company limited in aggregate principal amount to $100 million and mature on
December 15, 2000 if not called before that date (see below). Interest on the
First Mortgage Notes accrued at the rate of 11.5% per annum and was payable
semiannually on each June 15 and December 15. The Company had assigned and
pledged a security interest in substantially all the real and personal property
of the four mills. The First Mortgage Notes ranked 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 ranked senior to all subordinated
indebtedness of the Company. The First Mortgage Notes contained covenants that
included, without limitation, maintenance of
24
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sufficient consolidated net worth and limitations on additional indebtedness,
transactions with affiliates, dispositions of assets, liens, dividends and
distributions. The Company continued to be in compliance with these covenants
throughout fiscal 1998.
On March 30, 1998 the Company entered into a binding agreement to refinance
the First Mortgage Notes by issuing $130 million of 8.75% unsecured Senior
Notes, (the "Senior Notes"). The Senior Notes were issued on April 6, 1998 and
mature on April 15, 2008. The First Mortgage Notes were subsequently redeemed in
whole on May 11, 1998 at a call premium of 101.916%. See "Note L - Subsequent
Events" for a detailed discussion of the Senior Notes and the redemption of the
First Mortgage Notes.
On March 31, 1998 the Company redeemed $10 million of a $50 million note to
a related party (the "Subordinated Intercompany Note") from proceeds from the
sale of 454,545 shares of Class B common stock to an institutional investor.
After this redemption, the Company's outstanding Subordinated Intercompany Note
was $40 million with maturing dates through February 25, 2004. The Subordinated
Intercompany Note bears interest at variable rates. The weighted average
interest rate at March 31, 1998 was 7.60%. The Company intends to redeem an
additional $20 million of Subordinated Intercompany Note before June 30, 1998
from proceeds of the Senior Notes. See "Note L - Subsequent Events" for a
detailed discussion of Senior Notes.
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 consolidated statements of financial position.
The Company has borrowed $5.3 million as of March 31, 1998, under the Trade
Loan Agreements. The loan bears interest at 7.3% and matures on June 30, 1998.
Proceeds were used for the purchase of steel mill equipment.
The maturities of long-term borrowings for the fiscal years subsequent to
March 31, 1998 are as follows:
FISCAL AMOUNT
------ -------
($ IN THOUSANDS)
1999 $ 7,106
2000 40,070
2001 --
2002 --
2003 40,000
Thereafter 134,395
------
$221,571
========
NOTE E -- INCOME TAXES
The provision for income taxes is comprised of the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal $20,940 $7,391 $ 4,592
State 2,960 597 604
------- ------ -------
23,900 7,988 5,196
Deferred provision (benefit):
Federal (200) (594) (1,301)
State (1,700) 394 101
------- ------ -------
(1,900) (200) (1,200)
------- ------ -------
$22,000 $7,788 $ 3,996
======= ====== =======
</TABLE>
25
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
1998 1997 1996
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Tax provision at statutory rates $18,299 $ 5,544 $ 2,141
State income taxes, net of federal
income tax effect 2,142 722 244
Goodwill amortization 1,445 1,446 1,611
Other items, net 114 76 --
------- ------- -------
$22,000 $ 7,788 $ 3,996
======= ======= =======
</TABLE>
The components of the deferred tax assets and liabilities consisted of
the following at March 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
($ IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSET
Allowance for doubtful accounts $ 390 $ 390
Worker's compensation accrual 1,097 1,413
Employee benefits and related accruals 2,666 2,351
Environmental remediation accrual 3,563 3,414
Federal loss carryforward 1,103 1,654
State loss carryforward -- 40
Pension accrual 2,823 2,334
Post retirement benefits accrual 3,313 3,306
Other 514 856
-------- --------
15,469 15,758
======== ========
DEFERRED TAX LIABILITY
Inventories (996) (1,992)
Property, plant and equipment (56,932) (57,903)
Assets held for sale (2,161) (2,432)
Deferred compensation (359) (731)
Property taxes (421) --
------- -------
(60,869) (63,058)
--------- ---------
NET DEFERRED TAX LIABILITY $(45,400) $(47,300)
========= =========
</TABLE>
The Company has a Federal net operating loss carryforward of approximately
$3.1 million expiring in 2009. As a result of a change in tax fiscal year,
recognition of Federal net operating loss carryforwards are limited to
approximately $1.6 million each year.
NOTE F -- BENEFIT PLANS
The Company maintains a defined benefit pension plan covering substantially
all employees. The benefits are based on years of service and compensation
during the period of employment. Annual contributions are made in conformity
with minimum funding requirements and maximum deductible limitations.
26
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The plan's funded status and the amounts recognized in the accompanying
consolidated statements of financial position are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
---- ----
($ IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested benefits
of $76,978 and $66,249, at March 31, 1998 and
1997, respectively $ 81,019 $ 71,157
========= =========
Projected benefit obligation
for service rendered to date $ (97,531) $ (84,646)
Plan assets at fair value 102,537 85,828
--------- ---------
Projected benefit obligation less than plan assets 5,006 1,182
Unrecognized net gain (11,769) (6,549)
Unrecognized prior service cost (354) (390)
--------- ---------
Net accrued pension cost included in other long
term liabilities $ (7,117) $ (5,757)
========= =========
</TABLE>
The weighted average discount rates used in determining the actuarial
present value of the accumulated benefit obligation were 7.25% and 7.75%, for
the years ended March 31, 1998 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, 1998 and 1997.
Pension cost included in the accompanying consolidated statements of income
is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Service cost $ 2,542 $ 2,802 $ 2,695
Interest cost 6,395 6,223 5,756
Actual income from plan assets (21,221) (7,395) (14,561)
Net amortization and deferral 13,645 249 8,025
-------- -------- --------
Net pension cost $ 1,361 $ 1,879 $ 1,915
======== ======== ========
</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 $1.3 million, $1.1 million, and $1.1 million for the
years ended March 31, 1998, 1997 and 1996, 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, 1998, 1997 and 1996
were approximately $107 thousand, $282 thousand and $0 thousand, respectively.
27
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Post Retirement Benefits
The Company currently provides specified health care benefits to retired
employees. Employees who retire after a certain age with specified years of
service become eligible for benefits under this unfunded plan. The Company has
the right to modify or terminate these benefits. The following table summarizes
the accumulated post retirement benefit obligations included in the Company's
consolidated statements of financial position:
MARCH 31, MARCH 31,
1998 1997
---- ----
($ IN THOUSANDS)
Retirees $4,931 $4,496
Fully eligible active participants 176 232
Other active plan participants 3,481 3,015
------ ------
Total 8,588 7,743
Plan assets at fair value -- --
Unrecognized net gain 391 1,319
------ ------
Accrued post retirement benefit obligation $8,979 $9,062
====== ======
The following table summarizes the net post retirement benefit costs:
MARCH 31, MARCH 31,
1998 1997
---- ----
($ IN THOUSANDS)
Service cost $ 213 $ 216
Interest cost 600 558
Gain (11) (23)
----- -----
Net post retirement benefit cost $ 802 $ 751
===== =====
The weighted average discount rate used in determining the accrued post
retirement benefit obligation was 7.25% for fiscal 1998 and 7.75% for fiscal
1997. The gross medical trend rate was assumed to be 9.96% in 1997 and dropping
.346% per year to 6.0% in 2008 and beyond for pre-65 retirees that retired
before January 1, 1994, and 8.5% 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 $211,993 and $14,956 to the accrued post
retirement benefit obligation and service cost plus interest cost, respectively,
as of and for the year ended March 31, 1998.
NOTE G -- COMMON STOCK
On October 16, 1997, the Board of Directors approved amendments to the
Company's Articles of Incorporation and were effective on December 8, 1997. The
amendments authorize 100,000,000 shares of $0.01 par value Class A common stock
and 22,000,000 shares of $0.01 par value Class B common stock. 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. Class B common stock can only be issued
or sold to the employees of the Company, a related party and an institutional
investor.
In December 1997, the Company declared and paid a special dividend of
approximately $6.1 million to its stockholders at $0.60 per share.
28
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 26, 1998 the Company issued 454,545 shares of Class B common stock
for $10 million to an institutional investor. The proceeds were used to redeem
$10 million of Subordinated Intercompany Note.
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 30,444 shares
outstanding as of March 31, 1998. The options were granted at fair value at the
date of the grant, 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, with 180,474
options outstanding as of March 31, 1998. 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.
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 164,100 incentive stock
options and 52,100 shares of common stock under the Equity Ownership Plan
through March 31, 1998, with 147,500 incentive stock options and 52,100 shares
of common stock outstanding at March 31, 1998. All issued options and 49,600
shares of issued common stock 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. The remaining 2,500 shares of
issued common stock become one-quarter vested for each of the four years
following 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 Equity
Ownership Plan and Purchase 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 percent for the Equity Ownership
Plan in fiscal 1998, 1997 and 1996 and risk-free interest rate of 6.3 percent
for the Purchase Plan in fiscal 1996; expected life of 7 years for the Equity
Ownership Plan in fiscal 1998, 1997 and 1996 and expected life of 7 years for
the Purchase Plan for fiscal 1996; and dividend rate of zero percent for the
Equity Ownership Plan in fiscal 1998, 1997 and 1996 and dividend rate of zero
percent for the Purchase Plan for fiscal 1996. Using these assumptions, the fair
value of the stock options granted in fiscal 1998, 1997 and 1996 is $328,502,
$270,363 and $806,282, respectively, which would be amortized as compensation
expense over the vesting period of the options.
The fair value of the stock issued in fiscal 1996 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
percent, expected life of 7 years and dividend rate of zero percent. Using these
assumptions, the fair value of the issued stock in fiscal 1996 is $75,755. The
fiscal 1996 fair value would be compensation expense for fiscal 1996.
29
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost been determined consistent with SFAS No. 123,
utilizing the assumptions detailed above, the Company's net income and earnings
per share would have been changed to the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income:
As reported $30,282 $8,052 $2,120
Pro forma 30,101 7,858 2,003
Earnings per common share:
Basic earnings per common share -
As reported $ 3.00 $ 0.80 $ 0.21
Pro forma 2.98 0.78 0.20
Earnings per common share:
Diluted earnings per common and common
equivalent share -
As reported $ 2.98 $ 0.80 $ 0.21
Pro forma 2.96 0.78 0.20
</TABLE>
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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Equity Ownership Plan
---------------------
Number Weighted- Number Weighted- Number Weighted-
of Average of Average of Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
1998 1998 1997 1997 1996 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 78,300 $ 12.50 12,000 $ 12.50 -- $ --
Granted 72,750 13.50 79,350 12.50 12,000 12.50
Exercised -- -- -- -- -- --
Forfeited (3,550) 12.65 (13,050) 12.50 -- --
Outstanding, end of year 147,500 12.99 78,300 12.50 12,000 12.50
------- -------- -------
Options vested at year-end 4,000 $ 12.50 -- -- -- --
Weighted-average fair value
of options granted during
the year -- $ 5.26 -- $ 4.61 -- $ 4.46
</TABLE>
30
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
Purchase Plan
-------------
Weighted- Weighted- Weighted-
Number of Average Number of Average Number of Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
1998 1998 1997 1997 1996 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year 194,778 $ 12.50 221,094 $ 12.50 -- $ --
Granted -- -- -- -- 226,134 12.50
Exercised (460) 12.50 -- -- -- --
Forfeited (13,844) 12.50 (26,316) 12.50 (5,040) 12.50
Outstanding, end of year
180,474 $ 12.50 194,778 $ 12.50 221,094 $ 12.50
------- ------- -------
Options vested at year-end
60,158 $ 12.50 -- $ -- -- $ --
Weighted-average fair value
of options granted
during the year -- $ -- -- $ -- -- $ 4.45
</TABLE>
The weighted-average remaining contractual life of the options under the
Equity Ownership Plan and the Purchase Plan as of March 31, 1998 is 8.69 years
and 7.50 years, respectively.
The weighted-average fair value of the shares sold under the Purchase Plan
during fiscal 1996 was $12.50.
NOTE H -- INCENTIVE COMPENSATION PLAN
In 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 1998, 1997 and 1996 plans were based on actual
return on capital employed as compared to target return on capital employed. The
award was $4.0 million for fiscal 1998, $1.4 million for fiscal 1997, and $1.2
million for fiscal 1996, which amounts were included in salaries, wages and
employee benefits.
NOTE I -- ENVIRONMENTAL MATTERS
As the Company is involved in the manufacture of steel, it produces and
uses certain substances that may pose environmental hazards. The principal
hazardous waste generated by current and past operations is emission control
dust (EC dust), a residual from the production of steel in electric arc
furnaces. 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
remaining costs to
31
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be approximately $12.7 million with these costs recorded as a liability as of
March 31, 1998, the majority of which is associated with four sites.
The Tampa mill site contains slag and soil that is contaminated with EC
dust, a principal hazardous waste generated by past operations. The volume and
mass estimates of the contamination is based on analytical data from soil
borings, soil samples and 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 FY 1996 and by the Florida Department of Environmental Protection during
FY 1998 and the Company received a signed Consent Order in FY 1998 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 estimates those costs to be approximately $8
million for this site. The Company expects cleanup at this site to be
substantially completed by 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 for
approval. 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 1999.
The Sogreen site, a third party site, contains EC dust from the Company
that was stored at this recycling location. 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
approximately $4.3 million. The Company currently estimates its remaining
obligation to be approximately $1 million. The estimate includes the cost of
soil remediation and groundwater remediation based on an approach approved by
the Georgia Environmental Protection Division. If the other PRPs were not to
fulfill their obligations, the Company's management believes that the impact of
additional future costs attributable to the Sogreen site on the Company's
results of operations, financial condition and liquidity, would not be
significant. The Company expects cleanup at this site to be substantially
completed during fiscal 1999.
The Stoller site, a third party site, contains metals from other PRPs
and EC dust from the Company that was stored at this recycling location. The
Company has been named as a PRP for this site. 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, on-site treatment and disposal, is being completed by the State of
South Carolina and construction of the on-site vault base was completed in April
1998. Stabilization of metals contaminated soil is underway with the vault cap
to be completed in calendar 1998. 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 published by the State
of South Carolina during 1997 that attributes approximately 2% of the remaining
estimated $10 million remediation cost to the Company, which the Company has
already paid. The non-participating PRPs have intervened in the proceedings for
approval of the agreement between the Company and the State of South Carolina in
the federal court in order to contest the agreement. The Company's management
believes that the finalized agreement will be approved by the court between July
and August, 1998. If the Allocation Agreement is not approved under its present
terms, the Company's management believes that its overall obligation could
increase to approximately 50% of the total estimated remediation cost. The
Company expects cleanup at this site to be substantially completed during fiscal
1999.
The Company paid approximately $2.9 million in remediation costs in fiscal
1998. Of the $12.7 million accrued at March 31, 1998, the Company expects to pay
approximately $4.9 million within one year. 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 should be completed by approximately 2002. The
Company expensed approximately $3.3 million in fiscal 1998, and $2 million in
each of the previous two fiscal years for environmental remediation costs.
32
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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 the ultimate costs of remediation may not be greater or less than
the estimated remediation costs.
The Company, through a third-party contractor and operator, constructed a
facility at the Company's Jackson mill designed to utilize a technology
developed by the third party to recycle the Company's EC dust which is regulated
as a hazardous waste due to the presence of heavy metals. The facility has a
design capacity to recycle up to 30 thousand tons of EC dust per year. The
Company currently generates approximately 24 thousand tons of EC dust per year.
The facility is designed to recycle the EC dust in two stages. In the first
stage, the dust is fed into a rotary hearth furnace where the zinc in the dust
is vaporized and collected as crude zinc oxide. The residual of the dust exits
the furnace in the form of a reduced iron unit that can be fed into an electric
furnace as a scrap substitute. In the second stage of the process, the crude
zinc oxide is fed into a wet chemical process to extract lead and cadmium and
produce a high quality saleable zinc oxide.
The facility began operations in March 1997, however the second stage
operations are undergoing further development given that new technology is
involved in the process. In fiscal 1998, the contractor and third-party operator
of the facility defaulted under its agreements with the Company. As a result,
the Company expects to incur additional costs and capital expenditures in
connection with the development and operation of the facility. The Company's
depreciation policy for the facility, with a net book value of $23.3 million at
March 31, 1998, is to depreciate the facility over its expected remaining useful
life of 14 years and to periodically evaluate the remaining life and
recoverability of the equipment. There can be no assurance, however, that the
technology or the two-stage facility and process will be commercially developed
and operated on a cost efficient basis.
NOTE J -- COMMITMENTS
Operating Leases
The Company leases certain equipment and real property under
noncancelable operating leases. Aggregate future minimum payments under these
leases are as follows:
YEAR ENDING MARCH 31, AMOUNT
--------------------- ------
($ IN THOUSANDS)
1999 $1,843
2000 1,531
2001 1,267
2002 1,082
2003 899
Thereafter 1,300
---------
$7,922
======
Total rent expense was approximately $3.7 million, $4.1 million, and $4.2
million, for the years ended March 31, 1998, 1997 and 1996, 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. Net book value of the land and land
improvements was $1.5 million at March 31, 1998.
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.
33
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED 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 base annual salary of $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 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.
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
In September 1995, the Company closed the Tampa rolling mill. 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 I to consolidated 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
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.
NOTE L -- SUBSEQUENT EVENTS
On April 6, 1998 the Company issued the Senior Notes which mature on April
15, 2008. The Senior Notes are senior unsecured obligations of the Company, and
rank pari passu in right of payment with all current and future unsubordinated
indebtedness. Interest on the Senior Notes is payable semiannually on April 15
and October 15 commencing October 15, 1998. The Senior Notes will be redeemable
at the option of the Company, in whole or in part, on or after April 15, 2003 at
the redemption prices set forth below:
Year Redemption Price
---- ----------------
2003............................................104.375%
2004............................................102.917%
2005............................................101.458%
2006 and thereafter.............................100.000%
On or prior to April 15, 2001 the Company may redeem, on one or more
occasions, up to 35% of the principal amount of Senior Notes with the net
proceeds of one or more public equity offerings at a redemption price equal to
108.75% of the principal amount thereof, plus accrued interest, subject to
certain other provisions.
The Senior Notes contain covenants that include, among others, maintenance
of sufficient consolidated net worth and limitations on additional indebtedness,
transactions with affiliates, dispositions of assets, liens, dividends and
distributions.
The net proceeds of approximately $127.1 million were used to redeem the
Company's $100 million, 11.5% First Mortgage Notes on May 11, 1998. Management
intends to use $20 million to repay a portion of the Company's Subordinated
Intercompany Note before June 30, 1998 and the remaining proceeds to repay
amounts owed under the Company's Revolving Credit Agreement and for general
corporate purposes.
34
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1998, the Company will incur an extraordinary pretax charge of
approximately $3.4 million when the First Mortgage Notes are redeemed. The
pretax charge consists of approximately $1.5 million of unamortized deferred
finance costs and a call premium of approximately $1.9 million.
35
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To AmeriSteel Corporation:
We have audited the accompanying consolidated statements of financial position
of AmeriSteel Corporation (a Florida corporation) and subsidiary as of March 31,
1998 and 1997, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. 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 and
subsidiary as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with generally accepted accounting principles.
Tampa, Florida,
April 24, 1998 (except with
respect to the matters discussed
in Note L, as to which the
date is May 11, 1998)
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required with respect to Directors and Executive Officers is
included in the Information Statement which will be submitted to shareholders
prior to July 29, 1998, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required with respect to Executive Compensation is included in
the Information Statement which will be submitted to shareholders prior to July
29, 1998, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required with respect to Security Ownership of Certain
Beneficial Owners and Management is included in the Information Statement which
will be submitted to shareholders prior to July 29, 1998, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required with respect to Certain Relationships and Related
Transactions is included in the Information Statement which will be submitted to
shareholders prior to July 29, 1998, and is incorporated herein by reference.
37
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of AmeriSteel Corporation as of the
dates and for the periods indicated are filed as part of this report:
<TABLE>
<S> <C>
Consolidated Statements of Financial Position March 31, 1998 and March 31, 1997
Consolidated Statements of Operations Years Ended March 31, 1998, March
31, 1997 and March 31, 1996
Consolidated Statements of Shareholder's Equity Years Ended March 31, 1998, March
31, 1997 and March 31, 1996
Consolidated Statements of Cash Flows Years Ended March 31, 1998, March
31, 1997 and March 31, 1996
</TABLE>
Consolidated Report of Independent Certified Public Accountants - April
24, 1998 (except with respect to the matters discussed in Note L, as to
which the date is May 11, 1998).
(2) The following financial statement schedules of AmeriSteel Corporation
are filed as part of this report: None
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore, have
been omitted.
(b) Reports on Form 8-K. None filed for the quarter ended March 31, 1998.
(c) The exhibits to this report are indexed below and are filed or
incorporated by reference as part of this report:
Exhibit 23 Consent of Arthur Andersen LLP
Exhibit 27 Financial Data Schedule (for SEC use only)
38
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERISTEEL CORPORATION
By: /s/ May 29, 1998
----------------------------------------------------
Phillip E. Casey, Chairman of the Board Date
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Title
- --------------------------------------- --------------------------------------
/s/ May 29, 1998 Chief Executive Officer
- --------------------------------------- Chairman of the Board; Director
Phillip E. Casey Date
/s/ May 29, 1998 Director
- ---------------------------------------
Koichi Takashima Date
/s/ May 29, 1998 Director
- ---------------------------------------
Akihiko Takashima Date
/s/ May 29, 1998 Director
- ---------------------------------------
Hideichiro Takashima Date
/s/ May 29, 1998 Director
- ---------------------------------------
Ryutaro Yoshioka Date
/s/ May 29, 1998 Vice President, Engineering; Director
- ---------------------------------------
Shuzo Hikita Date
/s/ May 29, 1998 Vice President; Director
- ---------------------------------------
J. Donald Haney Date
/s/ May 29, 1998 Vice President; Chief Financial
- --------------------------------------- Officer and Secretary (Principal
Tom J. Landa Date Financial Officer and Principal
Accounting Officer); Director
39
<PAGE>
EXHIBIT 23
CONSENT TO USE OF REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report dated April 24, 1998, except with respect to the
matters discussed in Note L, as to which the date is May 11, 1998, included in
this Form 10-K, into AmeriSteel Corporation's previously-filed Registration
Statements (File Nos. 33-60329 and 333-14547).
ARTHUR ANDERSEN LLP
Tampa, Florida,
May 29, 1998
Exhibit 27
- ----------
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERISTEEL CORPORATION FOR THE YEAR ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
40
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERISTEEL CORPORATION & SUBSIDIARY FOR THE YEAR ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,258
<SECURITIES> 0
<RECEIVABLES> 74,330
<ALLOWANCES> 1,000
<INVENTORY> 130,413
<CURRENT-ASSETS> 210,610
<PP&E> 327,592
<DEPRECIATION> 76,420
<TOTAL-ASSETS> 562,130
<CURRENT-LIABILITIES> 87,917
<BONDS> 214,465
0
0
<COMMON> 106
<OTHER-SE> 185,609
<TOTAL-LIABILITY-AND-EQUITY> 562,130
<SALES> 664,566
<TOTAL-REVENUES> 664,566
<CGS> 540,422
<TOTAL-COSTS> 591,857
<OTHER-EXPENSES> 51,435
<LOSS-PROVISION> (28,000)
<INTEREST-EXPENSE> 20,427
<INCOME-PRETAX> 52,282
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 30,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,282
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 2.98
</TABLE>
