<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
No. 1-5210
AmeriSteel Corporation
Incorporated in
State of Florida
Employer Identification
No. 59-0792436
5100 W. Lemon Street
Tampa, Florida 33609
Mailing Address:
P. O. Box 31328
Tampa, Florida 33631-3328
Telephone No. (813)286-8383
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
---------- ----------
As of July 31, 1998 the registrant had 10,561,870 shares of Class B common stock
outstanding.
<PAGE>
PART I FINANCIAL INFORMATION
------------------------------
ITEM I. FINANCIAL STATEMENTS
AMERISTEEL CORPORATION CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION
($ in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 498 $ 1,258
Accounts receivable, less allowance of $1,050
and $1,000 at June 30 and March 31, 1998
respectively, for estimated losses 76,836 73,330
Inventories 125,049 130,413
Deferred tax assets 5,200 5,200
Other current assets 209 409
-------- --------
TOTAL CURRENT ASSETS 207,792 210,610
ASSETS HELD FOR SALE 13,649 13,689
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 15,690 15,517
Buildings and improvements 35,937 35,892
Machinery and equipment 263,158 261,265
Construction in progress 15,982 14,918
-------- --------
330,767 327,592
Less allowances for depreciation (81,355) (76,420)
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 249,412 251,172
GOODWILL 80,611 81,643
DEFERRED FINANCING COSTS 3,399 5,009
OTHER ASSETS 9 7
-------- --------
TOTAL ASSETS $554,872 $562,130
======== ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
AMERISTEEL CORPORATION CONSOLIDATED
STATEMENTS OF FINANCIAL POSITION -- continued
($ in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
----------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 46,791 $ 49,518
Salaries, wages and employee benefits 15,453 17,688
Environmental remediation 5,479 4,863
Other current liabilities 7,309 3,907
Interest payable 3,644 4,835
Current maturities of long-term borrowings (including note
payable to parent of $357 and $367 at June 30 and
March 31, 1998, respectively) 1,837 7,106
--------- --------
TOTAL CURRENT LIABILITIES 80,513 87,917
LONG-TERM BORROWINGS, LESS CURRENT PORTION 208,275 214,465
OTHER LIABILITIES 23,066 23,433
DEFERRED TAX LIABILITIES 50,600 50,600
SHAREHOLDERS' EQUITY
Class A Common Stock, $.01 par value; 100,000,000 shares authorized
at June 30 and March 31, 1998. No shares issued and
outstanding at June 30 and March 31, 1998. - -
Class B Common Stock, $.01 par value; 30,000,000 shares authorized
at June 30 and March 31, 1998. 10,562,102 and 10,568,555 shares
issued and outstanding at June 30 and March 31, 1998, respectively. 106 106
Capital in excess of par 167,139 167,283
Retained earnings 26,465 19,886
Deferred compensation (1,292) (1,560)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 192,418 185,715
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 554,872 $562,130
========= ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
AMERISTEEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1998 1997
(unaudited) (unaudited)
--------------- --------------
<S> <C> <C>
NET SALES $189,403 $168,359
Operating Expenses:
Cost of sales, excluding depreciation 153,991 135,037
Selling and administrative 8,812 7,572
Depreciation 5,588 4,827
Amortization of goodwill 1,033 1,033
-------- --------
169,424 148,469
INCOME FROM OPERATIONS 19,979 19,890
Other Expenses:
Interest 5,033 5,188
Amortization of deferred financing costs 131 234
-------- --------
5,134 5,422
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 14,845 14,468
Income taxes 6,193 6,045
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM 8,652 8,423
EXTRAORDINARY ITEM NET OF TAXES (2,073) -
NET INCOME $ 6,579 $ 8,423
======== ========
EARNINGS PER COMMON SHARE - BASIC
Income before extraordinary item $ .82 $ .84
Extraordinary item (.20) -
-------- --------
Net income $ .62 $ .84
EARNINGS PER COMMON SHARE - DILUTED
Income before extraordinary item $ .81 $ .83
Extraordinary item (.19) -
-------- --------
Net income $ .62 $ .83
Weighted average number of common shares outstanding 10,566 10,078
Weighted average number of common and common
equivalent shares outstanding 10,681 10,098
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERISTEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1998 1997
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,579 $ 8,423
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 6,752 6,094
Extraordinary item net of tax 2,073 -
Other (incl (gain) loss on asset disposals and deferred compensation) 284 740
Changes in operating assets and liabilities:
Accounts receivable (3,506) (9,410)
Inventories 5,364 1,268
Other assets 198 (109)
Current and other liabilities (1,177) (1,923)
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 16,567 $ 5,083
INVESTING ACTIVITIES
Additions to property, plant and equipment (3,851) (2,895)
Proceeds from sales of property, plant and equipment 37 1
Proceeds from sale of assets held for sale 40 -
Use of restricted IRB funds (30) -
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (3,804) (2,894)
FINANCING ACTIVITIES
Proceeds from issuance of Senior Notes 130,000
Payments to short-term and long-term borrowings, net (21,459) (477)
Redemption of First Mortgage Notes & Subordinated
Intercompany Note (120,000) -
Call premium on redemption of First Mortgage Notes (1,916) -
Additions to deferred financing costs (3) -
Proceeds from sale of common stock 27 -
Redemption of common stock (172) (51)
-------- ---------
NET CASH USED IN FINANCING ACTIVITIES (13,523) (528)
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (760) 1,661
Cash and cash equivalents at beginning of period 1,258 1,645
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 498 $ 3,306
======== =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
AMERISTEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The
predecessor of the Company was formed in 1937. The Company is a majority-owned
subsidiary of FLS Holdings, Inc.
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all the information or footnotes necessary for a complete presentation of
financial condition, results of operations and cash flows in conformity with
generally accepted accounting principles. However all adjustments which, in the
opinion of management are necessary for a fair presentation, have been included.
Such adjustments consisted of only normally recurring items.
It is recommended that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. The results of the three months
ended June 30, 1998 are not necessarily indicative of the results to be expected
for the fiscal year ending March 31, 1999.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings per Common Share: Basic earnings per common share is based upon the
weighted average number of common shares outstanding during the period 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 basic and diluted earnings per
common share computations shown on the face of the accompanying consolidated
statements of income (in thousands, except per share data:)
<TABLE>
<CAPTION>
Three months ended June 30,
1998 1997
(unaudited) (unaudited)
------------- -------------
<S> <C> <C>
Income before extraordinary item $ 8,652 $ 8,423
Extraordinary item (2,073) -
------- -------
Net income $ 6,579 $ 8,423
Weighted average shares outstanding (in thousands) 10,566 10,078
Dilutive effect of stock option plan (in thousands) 115 20
Weighted average shares outstanding plus
dilutive potential shares (in thousands) 10,681 10,098
Basic EPS:
Income before extraordinary item $ .82 $ .84
Extraordinary item (.20) -
Net income $ .62 $ .84
</TABLE>
<PAGE>
AMERISTEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
<TABLE>
<CAPTION>
Diluted EPS:
<S> <C> <C>
Income before extraordinary item $ .81 $.83
Extraordinary item (.19) -
Net income $ .62 $.83
</TABLE>
The Company's previously reported primary earnings per common share and fully
diluted earnings per common share for for the three months ended June 30, 1997
did not differ from the basic earnings per common share and the diluted earnings
per common share, respectively, calculated under SFAS 128.
Recent Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board issued Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which establishes standards for
reporting information about operating segments of a business. The statement,
which is based on the management approach to segment reporting, includes
requirements to report selected segment information and entity-wide disclosures
about products and services, major customers, and the countries in which the
Company holds assets and reports revenues. This statement is effective for
financial statements relating to fiscal years beginning after December 15, 1997.
Management has determined that the adoption of SFAS 131 will not have a material
effect on the consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued Statement No.
132, "Employers Disclosures about Pensions and Other Post Retirement Benefits"
(SFAS 132), which standardizes the disclosure requirements for defined
contribution plans and defined benefit plans. The statement is effective for
financial statements relating to fiscal years beginning after December 15, 1997.
Management has determined that the adoption of SFAS 132 will not have a material
effect on the consolidated financial statements.
The Company does not have any financing instruments defined as derivatives under
SFAS 133 to make it applicable.
Reclassifications: Certain amounts in the prior period financial statements
have been reclassified to conform to the current fiscal financial statement
presentation.
NOTE C -- INVENTORIES
Inventories consist of the following:
($ in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
----------- _________
<S> <C> <C>
Finished goods $ 74,082 $ 87,511
Work in-process 15,438 9,694
Raw materials and operating supplies 35,529 33,208
-------- --------
$125,049 $130,413
</TABLE>
<PAGE>
AMERISTEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D -- BORROWINGS
Long-term borrowings consist of the following:
($ in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(unaudited)
----------- ---------
<S> <C> <C>
Revolving Credit Agreement $ 23,880 $ 40,070
Industrial Revenue Bonds 35,875 35,875
First Mortgage Notes - 100,000
Trade Loan Agreement - 5,259
Senior Notes 130,000 -
Subordinated Intercompany Note 20,000 40,000
Note to Parent 357 367
-------- --------
Less Current Maturities 1,837 7,106
-------- --------
$208,275 $214,465
</TABLE>
NOTE E -- 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 be approximately $12.7 million with these
costs recorded as a liability as of June 30, 1998, the majority of which is
associated with four sites.
The Tampa mill site contains slag and soil that is contaminated with EC dust and
polychlorinated biphenyls ("PCBs") 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
<PAGE>
AMERISTEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- ENVIRONMENTAL MATTERS (continued)
and on-site treatment and disposal, was approved, and a permit issued, by the
U.S. Environmental Protection Agency during fiscal 1996 and by the Florida
Department of Environmental Protection during fiscal 1998 and the Company
received a signed Consent Order in fiscal 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 and other materials contaminated
with Cesium 137, a man-made, radioactive material (incident-related material)
have been stored in containers awaiting remediation. Portions of these
materials are also currently stored offsite at third party storage and recycling
facilities. 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 treatment, transportation and
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
onsite treatment is in the final stages of completion with bids received to
complete construction of the vault cap. 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 in the third fiscal quarter of 1999, absent any further delays due to
additional court proceedings. 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.
<PAGE>
AMERISTEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- ENVIRONMENTAL MATTERS (continued)
The Company paid approximately $2.9 million in remediation costs in fiscal 1998,
and $1.4 million during the first three months of fiscal 1999. Of the $12.7
million accrued at June 30, 1998, the Company expects to pay approximately $5.5
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.
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 constructed a facility at the Company's Jackson mill designed to
utilize a technology developed 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 was originally 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 the Jackson mill's electric arc 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. The crude zinc oxide produced in the first stage of the process is
currently being sold to third parties. The Company may incur additional costs
and capital expenditures largely in connection with the development and
operation of the second stage of the process. The Company's depreciation policy
for the facility, with a net book value of $23.0 million at June 30, 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 F -- SUBSEQUENT EVENTS
On July 14, 1998, the Company amended the Revolving Credit Agreement (the
"Revolver") increasing the facility to $150 million and eliminating the
"borrowing base" test that previously limited availability. The Revolver now
expires on July 13, 2003. The current interest rate paid on borrowings under
the Revolver is LIBOR plus 75 basis points.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Factors That May Affect Operating Results
- -----------------------------------------
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.
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 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
General
The results of operations of the Company are largely dependent on the level of
construction and general economic activity in the U.S. The Company's sales are
seasonal with sales in the Company's fiscal first and second quarters generally
stronger than the rest of the year. The Company's cost of sales includes the
cost of its primary raw material, steel scrap, the cost of converting scrap to
finished steel products, the cost of warehousing and handling finished steel
products and freight costs. The following table sets forth information
regarding recent results of operations.
<PAGE>
AMERISTEEL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - Continued
<TABLE>
<CAPTION>
Results of Operations Three Months Ended
------------------------------- June 30, June 30,
1998 1997
(unaudited) (unaudited)
---------------- ----------------
<S> <C> <C>
Net sales $189,403 $168,359
Cost of sales 153,991 135,037
Cost of sales as percent of net sales 81.3% 80.2%
Selling and administrative 8,812 7,572
Depreciation 5,588 4,827
Amortization of goodwill 1,033 1,033
-------- --------
Income from operations 19,979 19,890
Interest expense 5,033 5,188
Deferred finance costs 131 234
-------- --------
Income before income taxes
and extraordinary item 14,845 14,468
Income tax 6,193 6,045
-------- --------
Income before extraordinary item 8,652 8,423
Extraordinary item net of taxes (2,073) -
-------- --------
Net income $ 6,579 $ 8,423
-------- --------
Tons Shipped
------------
Mill finished goods
Stock rebar 167,955 140,261
Merchant bar 174,058 136,093
Rods 18,188 29,029
-------- --------
360,201 305,383
Fabricated rebar 94,957 85,327
Billets 25,808 55,335
-------- --------
Total 480,966 446,045
======== ========
Average Selling Prices ($ Per Ton)
---------------------------------
Mill finished goods
Stock rebar $ 323 $ 331
Merchant bar 384 364
Rods 332 339
-------- --------
352 346
Fabricated rebar 456 457
Billets 235 231
Metal Margin Spread ($ Per Ton)
-------------------------------
Mill selling price $ 352 $ 346
Average yielded scrap price 134 129
-------- --------
Metal margin spread $ 218 $ 217
======== ========
Average mill conversion costs $ 129 $ 125
======== ========
</TABLE>
<PAGE>
AMERISTEEL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION - Continued
Revenues: Net sales in the quarter ended June 30, 1998 increased approximately
13% from the same period last year due to increased volumes and improved selling
prices of mill finished goods. Average mill finished goods sales prices
increased approximately 2% while tons shipped increased 17%. The increased
volumes and prices reflect continued strong demand for the Company's rebar and
merchant products.
Cost of Sales: Cost of sales as a percent of net sales increased from 80.2% in
the quarter ended June 30, 1997 to 81.3% in the quarter ended June 30, 1998 due
to increased scrap prices and slightly higher manufacturing costs due to
temporary spikes in electricity costs. Electricity costs increased from the
same period last year due to unusually high temperatures in the southeast U.S.
which caused increased demands resulting in higher utility rates charged to the
Company.
Depreciation: Depreciation expense increased by approximately 16% in the
quarter ended June 30, 1998 versus the same period last year due to continuing
investment in capital improvements during the past year. Capital expenditures
amounted to $22.1 million in the twelve month period ending June 30, 1998.
Extraordinary Item Net of Taxes: The extraordinary charge is related to the
redemption of the 11.5% First Mortgage Notes on May 11, 1998 and consists of the
writeoff of approximately $1.5 million of unamortized deferred finance costs and
a call premium of approximately $1.9 million on the early redemption, both net
of a tax benefit of approximately $1.3 million.
Liquidity and Capital Resources
- -------------------------------
The Company recently completed a refinancing of its indebtedness which included
the issuance on April 3, 1998 of $130 million unsecured 8.75% Senior Notes due
2008 to replace $100 million 11.50% First Mortgage Notes which were redeemed on
May 11, 1998. The remaining $30 million was used to repay $20 million of
Subordinated Intercompany Notes and to lower the outstanding balance under the
Company's Revolving Credit Agreement. The Company incurred an extraordinary
pretax charge of $1.9 million for the call premium associated with the early
redemption of the First Mortgage Notes. On June 30, 1998 the Company repaid its
$5.3 million Trade Loan Agreement. On July 14, 1998 the Company amended its
Revolving Credit Agreement by, among other things, extending its maturity to
July 2003, lowering the interest rate, increasing the facility from $140 million
to $150 million, and removing the "borrowing base" test. These refinancings are
expected to reduce interest costs by over $3 million annually.
At June 30, 1998 the Company had $23.9 million outstanding under the $150
million Amended and Restated Revolving Credit Agreement with an additional $40.5
million committed under Letter of Credit facilities.
Net cash provided by operating activities for the quarter ended June 30, 1998
was $16.6 million compared to $5.1 million for the same period last year. The
Company believes that the amounts available from operating cash flows and funds
available through its Revolving Credit Agreement are sufficient to meet its
expected cash needs and planned capital expenditures for the foreseeable future.
The Company continues to comply with all of the covenants of its loan
agreements.
<PAGE>
YEAR 2000
- ---------
The Company is actively working to resolve issues relating to the Year 2000
issue and the effects it may have on its business systems. With complete support
of the Company's Board of Directors and executives, 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 June 30, 1998 the Company has
spent approximately $2.2 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
that 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.
PART II -- OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 29, 1998 the Company mailed to its stockholders an Information Statement
indicating that the majority stockholders of the Company intended to sign a
Written Consent (in lieu of the annual meeting of stockholders) to reelect the
eight members of the Board of Directors for the coming year. The Written
Consent is to be signed on or about August 20.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this Quarterly
Report on Form 10-Q:
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
None
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