<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, 1999
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: $9,434,988 as of May 31, 1999.
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 31, 1999.
Class B Common Stock, par value $.01 per share -- 10,546,044 shares as of May
31, 1999.
Documents incorporated by reference: Parts of Information Statement to be
submitted to shareholders prior to July 29, 1999 are incorporated by reference
in Part III of this Form 10-K.
1
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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). At March 31, 1999, the Company
also operated 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. On April 29, 1999, the Company
acquired the operating assets of Brocker Rebar Co. and Milton Rebar Coating Co.,
expanding its fabricating operations with four additional fabricating plants and
one epoxy coating plant in the northeast. 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.
During fiscal 1999, approximately 60% of the Company's mill rebar
production was sold directly to distributors and independent fabricating
companies in stock lengths and sizes. The remaining 40% of the rebar produced by
the mills was transferred to the Company's 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. 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,
------------------
1999 1998 1997
---- ---- ----
Fabricated Rebar 25% 24% 24%
Stock Rebar 29 27 24
Merchant Bars 34 33 30
Rods 4 5 5
Billets and other 8 11 17
--- --- ---
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 fabricating plants where it is cut
and bent to meet engineering, architectural and other end-product
specifications. 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 used in multi-family residential
construction such as
2
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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 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's melt shops produce semi-finished billets for conversion to
rebar, merchant bar and rods in the rolling mills. Because the Company's melting
capacity generally exceeds rolling mill capacity, the Company sells excess
billet production to steel mills that have less steel melting capacity than
rolling mill capacity. Over the past three years, the Company has sold fewer
billets due to increased capacity and utilization of the rolling mills.
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 1999 no one customer accounted for more than 4.7% of net sales
and the five largest customers accounted for approximately 14.4% of net sales.
The Company's credit terms to customers are generally determined based on market
conditions. The Company, however, generally does not offer extended (more than
30 days) 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 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 211,000 tons at March 31, 1999. The Company expects
almost all of the March 31, 1999 backlog to be filled by the end of the third
quarter of fiscal 2000.
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.
3
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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 significant import competition from foreign finished steel bar
producers during the past year. Due to unfavorable foreign economic conditions,
imports of cheaply priced steel bar products to the U.S. market have occurred at
unusually high levels which has had a negative effect on domestic prices.
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, Chicago, Illinois,
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 34% of the Company's total sales. The market for merchant bars is
very competitive, with price being the primary competitive factor. In the last
four years, the Company has upgraded its rolling mills to increase the Company's
ability to shift production from rebar to merchant bar as market conditions
allow.
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. The market for rods can be heavily
influenced by foreign imports and in fiscal 1999, rod sales by foreign
competitors had a significant negative effect on the Company's rod prices.
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. With the Brocker acquisition,
the Company's market area now includes the northeast.
Raw Materials and Energy Costs
Steel scrap is the Company's primary raw material and comprised
approximately 45% of the Company's costs of sales in fiscal 1999. 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 15% 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, 1999, the Company had 1,894 employees, none of whom are
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 an "open book" system of
management. The Company believes high employee involvement is a key factor in
the success of the Company's operations. The Company's compensation program is
designed to make the Company's employees' financial interest congruous with
those of the Company's shareholders.
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, 1999 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. Note:
annual rolling capacities are estimates based on maximized product mix, and
actual utilization may vary significantly due to changes in customer
requirements. Decreased rolling utilization percentage (from last year) is
based on expected increased capacity.
<TABLE>
<CAPTION>
Year Ended Year Ended
Approx. March 31, Approx. March 31,
Annual 1999 Capacity Annual 1999 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 450 415 92% 400 324 81%
Jackson, TN 1981 650 611 94 600 462 77
Jacksonville, FL 1976 600 579 97 600 566 94
Knoxville, TN 1987(1) 330 311 94 400 340 85
----- ----- ----- -----
Total 2,030 1,916 94% 2,000 1,692 85%
===== ===== ===== =====
</TABLE>
(1) Purchase Date
5
<PAGE>
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,
an in-line straightener and flying cut-to-length shear, and an automatic stacker
for merchant bars and rebar.
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 Danieli vertical and
horizontal 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.
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 currently consists of 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. The Company has
embarked upon a $34 million modernization of the melt shop. The new facility, a
90 ton electric arc furnace utilizing the Consteel process, is anticipated to
start up operations in July 2000.
Fabrication
The Company believes that it operates the largest rebar fabricating group
in the U.S., consisting, during fiscal 1999, of a network of 13 strategically
located reinforcing steel fabricating plants throughout the southeastern U.S.
with an annual capacity of approximately 365,000 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.
On April 29, 1999 the Company acquired the operating assets of rebar
fabricator Brocker Rebar Co. and Milton Rebar Coating (collectively the Brocker
plants) expanding its fabricating operations into the northeast market.
Brocker, with a 45 year history in the industry, has plants in York,
Pennsylvania, Milton, Pennsylvania, Baltimore, Maryland, Wilmington, Delaware
and Sayreville, New Jersey with annual production capacity of approximately
115,000 tons.
6
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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 currently employs about 725 employees (including the Brocker plants.)
The following table shows the fabricating plant locations (including the Brocker
plants) and approximate annual capacity.
Capacity
Fabricating Plant (in Tons)
----------------- ---------
Plant City, FL (Tampa) 35,000
Jacksonville, FL 35,000
Ft. Lauderdale, FL 35,000
Orlando, FL 15,000
Charlotte, NC 35,000
Raleigh, NC 30,000
Duluth, GA (Atlanta) 35,000
Aiken, SC 15,000
Knoxville, TN 40,000
Nashville, TN 30,000
Collierville, TN (Memphis) 16,000
Louisville, KY 22,000
St. Albans, WV 22,000
York, PA 50,000
Baltimore, MD 25,000
Wilmington, DE 20,000
Sayreville, NJ 20,000
-------
Total 480,000
=======
In addition to the above fabricating capacity, the Company has epoxy
coating plants in Knoxville, TN and Milton, PA with combined annual coating
capacity of approximately 65,000 tons.
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 on a smaller scale, 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.
The Company owns its four mills and 12 of its 13 existing rebar fabricating
facilities, and leases four of the five Brocker facilities. 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>
7
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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,
1999 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
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 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, 1999, there were no shares of Class
A Common Stock outstanding and there were 10,553,263 shares of Class B Common
Stock outstanding held of record by approximately 1,000 stockholders. Of such
shares, 9,000,000 shares are held of record by the Holding Company, which shares
represent approximately 85.3% 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, 1999 was $18.00 per share.
In March 1999, the Company declared and paid a dividend of $6.3 million to
its stockholders at $0.60 per share.
8
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ITEM 6. SELECTED FINANCIAL DATA
The selected statement of operations and balance sheet data for the years
ended March 31, 1999, 1998, 1997, 1996 and 1995 are derived from the audited
financial statements of the Company. The results for the year ended March 31,
1999 are not necessarily indicative of the results to be expected for the fiscal
year ending March 31, 2000. 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,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands, except per share and average data)
Statement of Operations:
Net sales $671,476 $664,566 $617,289 $628,404 $639,908
Operating expenses:
Cost of sales 546,101 540,422 531,190 533,965 545,725
Selling and administrative 35,840 27,811 29,068 29,605 29,959
Depreciation 22,190 19,494 16,654 14,619 14,046
Amortization of goodwill 4,130 4,130 4,130 4,130 4,130
Other operating (income) expenses (1) (37) - - 16,013 -
-------- -------- -------- -------- --------
608,224 591,857 581,042 598,332 593,860
Income from operations 63,252 72,709 36,247 30,072 46,048
Other expenses
Interest 15,655 19,775 19,473 22,000 23,330
Amortization of deferred financing costs 574 652 934 1,956 2,863
-------- -------- -------- -------- --------
16,229 20,427 20,407 23,956 26,193
Income before income taxes
& extraordinary item 47,023 52,282 15,840 6,116 19,855
Income taxes 19,950 22,000 7,788 3,996 9,354
-------- -------- -------- -------- --------
Income before extraordinary item 27,073 30,282 8,052 2,120 10,501
Extraordinary item, net of income tax
benefit (2) (2,073) - - - -
-------- -------- -------- -------- --------
Net income $ 25,000 $ 30,282 $ 8,052 $ 2,120 $ 10,501
======== ======== ======== ======== ========
Earnings per share - basic $ 2.37 $ 3.00 $ .80 $ .21 $ 1.05
======== ======== ======== ======== ========
Earnings per share - diluted $ 2.34 $ 2.98 $ .80 $ .21 $ 1.05
======== ======== ======== ======== ========
Cash dividends declared per common
share outstanding $ .60 $ .60 $ - $ - $ -
======== ======== ======== ======== ========
Other Financial Data and Selected Ratios:
Adjusted EBITDA (3) $ 97,620 $100,556 $ 58,323 $ 64,033 $ 65,574
Adjusted EBITDA margin 14.5% 15.1% 9.4% 10.2% 10.2%
Capital expenditures 25,583 $ 21,107 $ 34,382 $ 36,894 $ 25,781
Ratio of adjusted EBITDA to interest
expense (4) 6.0x 4.9x 2.9x 2.7x 2.5x
Ratio of total debt to adjusted EBITDA 2.0x 2.2x 4.1x 4.2x 4.0x
Net cash provided by operating activities $ 62,186 $ 35,489 $ 43,930 $ 44,091 $ 11,357
Net cash used in investing activities (24,303) (20,264) (18,710) (49,012) (23,924)
Net cash (used in) provided by
financing activities (35,922) (15,612) (29,768) 8,260 13,647
</TABLE>
9
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<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands, except per share and average data)
Balance Sheet Data (end of period):
Current assets $203,727 $210,610 $182,519 $200,109 $223,444
Net property, plant & equipment 247,312 251,172 250,021 247,009 231,108
Total assets 545,783 562,130 535,685 554,896 561,748
Current maturities of LT borrowings 3,333 7,106 435 14,942 16,245
Total current liabilities 78,907 87,917 73,792 85,588 102,080
Long term borrowings 191,418 214,465 237,474 252,525 243,030
Total liabilities 340,640 376,415 385,121 413,149 423,998
Shareholders' equity 205,143 185,715 150,564 141,747 137,750
Current ratio 2.6x 2.4x 2.5x 2.3x 2.2x
Debt to capital ratio 48.7% 54.4% 61.2% 65.4% 65.3%
Selected Operating Data:
Shipped tons
Stock rebar 644 550 472 508 536
Merchant bar 603 576 512 544 549
Rod 82 92 105 133 129
-------- -------- -------- -------- --------
Subtotal mill finished goods 1,329 1,218 1,089 1,185 1,214
Fabricated rebar 354 338 326 315 347
Billets 108 172 281 175 141
-------- -------- -------- -------- --------
Total shipped tons 1,791 1,728 1,696 1,675 1,702
======== ======== ======== ======== ========
Average mill finished goods prices
(per ton) $ 330 $ 351 $ 333 $ 337 $ 342
Average yielded scrap cost (per ton) 115 133 130 131 130
Average metal spread (per ton) (5) 215 218 203 206 212
Average mill conversion costs (per ton) 126 129 138 135 135
</TABLE>
(1) In the fiscal year ended March 31, 1999, the Company recorded a non-
recurring gain of $5.8 million from cash settlements from graphite
electrode suppliers offset by a $5.9 million equipment write-down recorded
for certain non-productive assets at the Company's electric arc furnace
dust processing facility. 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, 1999, the Company incurred a charge of
$2.1 million, net of income tax benefits, as a result of redeeming $100
million of the 11.5% first mortgage notes at a premium of 1.916%.
(3) Adjusted 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. Adjusted EBITDA is
presented because it is a financial indicator of the 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,
adjusted 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. EBITDA excludes extraordinary charges.
10
<PAGE>
The following table reconciles EBITDA to Adjusted EBITDA:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
EBITDA $89,572 $ 96,333 $57,031 $48,821 $64,224
Addback:
Deferred compensation 1,072 1,005 975 900 750
Loss on asset dispositions 6,044 768 317 14,312 600
Loss on investments 932 - - - -
Cash gain on investments - 2,450 - - -
------- -------- ------- ------- -------
Adjustment EBITDA $97,620 $100,556 $58,323 $64,033 $65,574
</TABLE>
(4) Interest expense includes amortization of deferred financing costs.
(5) Average metal spread equals average mill finished goods prices minus
average scrap cost.
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,
1999 1998 1997
---- ---- ----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Net sales $671,476 100.0 % $664,566 100.0% $617,289 100.0%
Cost of sales 546,101 81.3 % 540,422 81.3% 531,190 86.1%
Selling and administrative 35,840 5.3 % 27,811 4.2% 29,068 4.7%
Depreciation 22,190 3.3 % 19,494 2.9% 16,654 2.7%
Amortization of goodwill 4,130 .6 % 4,130 .6% 4,130 .7%
Other operating income (37) - - - - -
-------- ----- -------- ----- -------- -----
Income from operations 63,252 9.4 % 72,709 11.0% 36,247 5.9%
Interest expense 15,655 2.3 % 19,775 3.0% 19,473 3.2%
Amortization of deferred financing costs 574 .1 % 652 .1% 934 .1%
Income taxes 19,950 3.0 % 22,000 3.3% 7,788 1.3%
-------- ----- -------- ----- -------- -----
Income before extraordinary item $ 27,073 4.0 % $ 30,282 4.6% $ 8,052 1.3%
Extraordinary item net of tax (2,073) (.3)% - - - -
-------- ----- -------- ----- -------- -----
Net income $ 25,000 3.7 % $ 30,282 4.6% $ 8,052 1.3%
======== ===== ======== ===== ======== =====
</TABLE>
11
<PAGE>
Fiscal 1999 Versus Fiscal 1998
<TABLE>
<CAPTION>
Average Selling
Tons Shipped (Thousands) Prices (Per Ton)
Year Ended March 31, Year Ended March 31,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Mill Finished Goods:
Stock Rebar 644 550 $ 304 $ 331
Merchant Bar 603 576 364 371
Rods 82 92 299 345
----- ----- ----- -----
1,329 1,218 330 350
Fabricated Rebar 354 338 458 456
Billets 108 172 221 234
----- -----
Total 1,791 1,728
===== =====
</TABLE>
NET SALES. Net sales in fiscal 1999 increased approximately 1% from fiscal
1998 as sales volumes of finished goods increased by 8.1% offset by an average
5.9% decline in mill finished goods sales prices. While lower prices for
finished steel products reflect the impact of market competition from cheaply
priced imports, demand for the Company's products remained strong in fiscal
1999.
COST OF SALES. Increased production levels, lower average unit costs and
declines in scrap cost offset lower sales prices resulting in cost of sales for
fiscal 1999 remaining at the fiscal 1998 level of 81.3% of net sales. Mill
conversion cost per ton declined from an average $129 in fiscal 1998 to $126 in
fiscal 1999. Average yielded scrap cost per ton declined from an average $133
in fiscal 1998 to $115 in fiscal 1999.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses for the
year ended March 31, 1999 were 5.3% of net sales compared with 4.2% of net sales
in fiscal 1998. The increase reflects more normalized spending levels in fiscal
1999 while fiscal 1998 includes a net non-recurring credit. These non-recurring
items included 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,
offset by a charge of $1.2 million for expenses associated with the canceled
initial public offering and debt restructuring in December 1997 and a $1.4
million charge related to startup expenses associated with the EC dust recycling
facility at the Jackson, Tennessee mill.
DEPRECIATION. Depreciation increased to $22.2 million in fiscal 1999 from
$19.5 million in fiscal 1998 due to continuing capital improvement expenditures
at all four mills during the last four years.
OTHER OPERATING EXPENSES. Other operating expenses consists of a non-
recurring net gain of $5.8 million from cash settlements from graphite electrode
suppliers offset by the $5.9 million writedown of certain non-productive assets
at the Company's electric arc furnace dust processing facility.
INTEREST EXPENSE. Interest expense decreased from $19.8 million in fiscal
1998 to $15.7 million in fiscal 1999 due to reductions in average interest rates
and total debt outstanding. Average annual interest rates decreased from 8.9%
in fiscal 1998 to 7.7% in fiscal 1999 due to debt refinancings. Total
outstanding debt declined by $26.8 million during fiscal 1999.
INCOME TAXES. The Company's effective federal and state income tax rate
for fiscal 1999 and 1998 was 39% excluding the effect of goodwill amortization,
which is not deductible for income tax purposes.
12
<PAGE>
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 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 EC dust recycling facility at the Jackson, Tennessee 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financial obligations outstanding as of March 31, 1999
were the $130 million Senior Notes, a $150 million revolving credit facility
(the "Revolving Credit Agreement"), and $17 million remaining principal amount
Subordinated Intercompany Note owed to the Holding Company.
On April 3, 1998 the Company sold $130 million of 8.75% Senior Notes. The net
proceeds of $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 was used
to redeem a portion of the Subordinated Intercompany Note. The remaining
proceeds were used to reduce outstanding Revolving Credit Agreement borrowings
and for general corporate purposes.
The Revolving Credit Agreement was amended in June 1998 and is secured by the
Company's inventory and receivables and matures on July 13, 2003. The Revolving
Credit Agreement provides for a substantial portion of the Company's liquidity
by making available up to $150 million in borrowings. As of March 31, 1999, the
Revolving Credit
13
<PAGE>
Agreement had approximately $99.5 million available to the Company for further
borrowings, $13.7 million was outstanding and $36.8 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 Industrial Revenue
Bonds mature in fiscal 2004, 2015 and 2018.
The 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, 1999
was $62.2 million compared with $35.5 million for fiscal 1998. Cash flow from
net income decreased by $5.3 million but was offset primarily by $32.8 million
cash flow swing from inventory changes. Inventory volume declined due to
increased sales volumes and inventory costs declined due to lower scrap and
conversion costs per ton. The Company used $28.7 million to repay debt and $25.6
million to invest in capital projects, mostly for mill modernization.
Over the years, the Company has expanded capacity and reduced manufacturing
costs by modernizing and upgrading facilities. Capital expenditures were $25.6
million for the year ended March 31, 1999, $21.1 million for the year ended
March 31, 1998 and $34.4 million for the year ended March 31, 1997. The Company
anticipates spending up to $42.0 million for capital expenditures in fiscal
2000, the majority of which is to modernize the Knoxville melt shop.
In March 1999, the Company declared and paid a dividend of $6.3 million to its
stockholders of $0.60 per share.
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.
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 final phase of the
implementation of this plan. Through March 31, 1999 the Company has spent
approximately $2.7 million towards the purchase of network compatible computer
hardware and software and anticipates spending an additional $200 thousand to
complete the process. The conversion of the Company's financial systems has
been completed with core operational software conversion anticipated to be
completed during the second quarter of fiscal 2000.
The Company has prioritized its Year 2000 compliance issues as follows:
safety concerns, payroll requirements, production capabilities, collecting
accounts receivable and finally administrative matters. From a safety and
production standpoint, manufacturing equipment at all plants has been or is
being reviewed on an individual basis. This includes inspections and audits
conducted by equipment vendors. Corrective actions are being taken as needed.
These include manual resetting of stand-alone clocks, upgrading software,
replacing components, etc. Payroll and accounting systems have been modified or
replaced to be year 2000 compliant. From a customer perspective, we are
requesting information on their individual statuses to assure product ordering
and cash flow is not materially disrupted, and for those vendors with electronic
links to the Company's systems, the integrity of the data links are not
compromised. Vendors of all types are being queried, verbally or in writing as
deemed necessary, as to their level of compliance. Unsatisfactory responses are
being dealt with on a case by case basis.
The Company is confident that the negative consequences of the year 2000 issue
will not materially adversely effect the Company's performance. The most likely
worst case scenario is that short production slowdowns may occur, however during
downtime, routine and scheduled maintenance operations can be conducted. Year
2000 problems, if any, would be expected to occur during the winter months when
production is at normally low seasonal levels. The Company does not have any
formal contingency plan in place nor does it deem one necessary under the
circumstances.
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
14
<PAGE>
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
$9.5 million and has included this amount in the Company's recorded liabilities
as of March 31, 1999. Based on past use of certain technologies and remediation
methods by third parties, evaluation of those technologies and methods by the
Company's consultants, and quotations and third-party estimates of costs of
remediation-related services provided to the Company, or of which the Company
and its consultants are aware, the Company and its consultants believe that the
Company's cost estimates are reasonable. In light of the uncertainties inherent
in determining the costs associated with the clean-up of such contamination,
including the time periods over which such costs must be paid, the extent of
contribution by parties which are jointly and severally liable, and the nature
and timing of payments to be made under cost sharing arrangements, there can be
no assurance that the ultimate costs of remediation may not be more or less than
the estimated remediation costs that the Company has recorded.
The Company also incurs significant ongoing costs to comply with current
standards promulgated by Environmental Regulatory Laws which costs are being
expensed and paid from current operations. Although it is the Company's policy
to comply with all Environmental Regulatory Laws and the Company believes that
it is currently in material compliance with all Environmental Regulatory Laws.
Environmental 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, 1999 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 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
began operations in March 1997 and has a design capacity to recycle up to 30
thousand tons of EC dust per year. The Company currently generates
approximately 25 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 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.
In fiscal 1999, the Company ceased processing in the second stage of the
process. The Company concluded that operation of the wet side process could not
be commercially developed without significant additional capital expenditures.
The Company is currently utilizing the first stage of the process to recycle
essentially all of the Company's EC dust and is selling the crude zinc oxide
produced in the process to third parties. In the quarter ending December 31,
1998, the Company recorded a non-cash write down of approximately $5.9 million
for equipment associated with the second stage of the process. The Company's
policy for the facility is to depreciate the facility over its expected useful
life of 14 years and to periodically evaluate the remaining life and
recoverability of the equipment. The write-down was recorded in operating
expenses as other expense. The net book value of the facility at March 31, 1999
is approximately $14.4 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material impact.
15
<PAGE>
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Phillip E. Casey 56 Chairman of the Board, Chief Executive Officer and Director
J. Donald Haney 63 Group Vice President, Fabricated Reinforcing Steel, and Director
Shuzo Hikita 56 Vice President, Engineering and Technology, and Director (resigned as officer only
effective May 1999)
Tom J. Landa 47 Vice President, Chief Financial Officer, Secretary and Director
Dennie Andrew 58 Vice President, Steel Mill Operations
J. Neal McCullohs 42 Vice President, Mill Product Sales
Robert P. Muhlhan 48 Vice President, Material Procurement
James S. Rogers, II 51 Vice President, Human Resources
Hiroyoshi Tsuchiya 60 Vice President, Strategic Planning (retiring effective June 30,1999)
</TABLE>
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 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. In May 1999, Mr. Hikita
returned to Kyoei in a senior management position. He remains on the Company's
board of directors.
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.
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. Effective June 30, 1999, Mr. Tsuchiya has elected to retire from the
Company.
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,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,219 $ 1,258
Accounts receivable, less allowance of $ 1,000
at March 31, 1999 and March 31, 1998
for estimated losses 71,516 73,330
Inventories 121,818 130,413
Deferred tax assets 5,100 5,200
Other current assets 2,074 409
-------- --------
TOTAL CURRENT ASSETS 203,727 210,610
ASSETS HELD FOR SALE 13,618 13,689
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 16,173 15,517
Building and improvements 39,007 35,892
Machinery and equipment 269,864 261,265
Construction in progress 18,523 12,591
Restricted IRB funds 1,476 2,327
-------- --------
345,043 327,592
Less accumulated depreciation (97,731) (76,420)
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 247,312 251,172
GOODWILL 77,513 81,643
DEFERRED FINANCING COSTS 3,495 5,009
OTHER ASSETS 118 7
-------- --------
TOTAL ASSETS $545,783 $562,130
======== ========
</TABLE>
See notes to consolidated financial statements
17
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 41,435 $ 49,518
Accrued salaries, wages and employee benefits 19,036 17,688
Current environmental remediation liabilities 5,226 4,863
Other current liabilities 4,319 3,907
Interest payable 5,558 4,835
Current maturities of long-term borrowings (including note payable to
Parent of $0 and $367 at March 31, 1999 and 1998, respectively) 3,333 7,106
--------- --------
TOTAL CURRENT LIABILITIES 78,907 87,917
LONG-TERM BORROWINGS, LESS CURRENT MATURITIES 191,418 214,465
OTHER LIABILITIES 21,815 23,433
DEFERRED INCOME TAXES 48,500 50,600
--------- --------
SHAREHOLDERS' EQUITY
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized at March 31, 1999 and 1998. No shares
issued and outstanding at March 31, 1999 and 1998. - -
Class B Common Stock, $.01 par value, 22,000,000 shares
authorized at March 31, 1999 and 1998, respectively.
10,553,263 and 10,568,555 shares issued and outstanding at
March 31, 1999 and 1998, respectively. 106 106
Capital in excess of par 166,950 167,283
Retained earnings 38,552 19,886
Deferred compensation (465) (1,560)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 205,143 185,715
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $545,783 $562,130
======== ========
</TABLE>
See notes to consolidated financial statements
18
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands except earnings per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
NET SALES $671,476 $664,566 $617,289
-------- -------- --------
Operating Expenses:
Cost of sales 546,101 540,422 531,190
Selling and administrative 35,840 27,811 29,068
Depreciation 22,190 19,494 16,654
Amortization of goodwill 4,130 4,130 4,130
Other operating income (37) - -
-------- -------- --------
608,224 591,857 581,042
-------- -------- --------
INCOME FROM OPERATIONS 63,252 72,709 36,247
-------- -------- --------
Other Expenses:
Interest 15,655 19,775 19,473
Amortization of deferred financing costs 574 652 934
-------- -------- --------
16,229 20,427 20,407
-------- -------- --------
INCOME BEFORE INCOME TAXES 47,023 52,282 15,840
Income taxes 19,950 22,000 7,788
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 27,073 30,282 8,052
EXTRAORDINARY ITEM
(Net of applicable income taxes of $1,325) (2,073) - -
-------- -------- ---------
NET INCOME $ 25,000 $ 30,282 $ 8,052
======== ======== =========
EARNINGS PER COMMON SHARE -
BASIC (NOTE B)
Income before extraordinary item $ 2.57 $ 3.00 $ .80
Extraordinary item (0.20) - -
-------- -------- ---------
Net income $ 2.37 $ 3.00 $ .80
======== ========= =========
DILUTED (NOTE B)
Income before extraordinary item $ 2.53 $ 2.98 $ .80
Extraordinary item (0.19) - -
-------- -------- ---------
Net income $ 2.34 $ 2.98 $ .80
======== ========= =========
Weighted average number of common
shares outstanding 10,561 10,103 10,087
Weighted average number of common
and common equivalent shares 10,663 10,174 10,087
</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
Common Stock Capital Earnings
------------------- in Excess (Accumulated Deferred
Shares Amount of Par Deficit) Compensation Total
------ ----- -------- ---------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
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
========== ==== ======== ======== ======= ========
Common stock issuance 5,781 - 72 - - 72
Repurchase of common stock (21,073) - (405) - 23 (382)
Net income - - - 25,000 - 25,000
Dividends paid - - - (6,334) - (6,334)
Reduction in deferred compensation - - - - 1,072 1,072
---------- ---- -------- -------- ------- --------
BALANCES AT MARCH 31, 1999 10,553,263 $106 $166,950 $ 38,552 $ (465) $205,143
========== ==== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements
20
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 25,000 $ 30,282 $ 8,052
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 22,190 19,494 16,654
Amortization 4,704 4,782 5,064
Extraordinary item 3,398 - -
Deferred income taxes (2,000) (1,900) (200)
Loss on disposition of property, plant and equipment 6,044 2,524 317
Gain on disposition of assets held for sale - (1,756) -
Deferred compensation 1,072 1,005 975
Changes in operating assets and liabilities:
Accounts receivable 1,814 (4,767) 4,347
Inventories 8,595 (24,240) 6,580
Other current assets (1,665) 729 (85)
Other assets (111) 4 (4)
Trade accounts payable (8,083) 4,852 4,432
Salaries, wages and employee benefits 1,348 1,871 262
Other current liabilities (71) 479 (828)
Environmental remediation (3,200) 384 (1,400)
Interest payable 723 176 (281)
Income taxes payable 483 292 126
Other liabilities 1,945 1,278 (81)
------- -------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 62,186 35,489 43,930
------- -------- -------
INVESTING ACTIVITIES
Additions to property, plant and equipment (25,583) (21,107) (34,382)
Purchase of assets held for sale - (129) (454)
Proceeds from sales of property, plant and equipment 231 251 876
Proceeds from sale of assets held for sale 213 3,034 1,550
Restricted IRB Funds 836 (2,313) 13,700
------- -------- -------
NET CASH USED IN INVESTING ACTIVITIES (24,303) (20,264) (18,710)
------- -------- -------
FINANCING ACTIVITIES
Proceeds from issuance of Senior Notes 130,000 - -
Proceeds from IRB (Bonds) - 5,000 -
Payment of short-term and long-term borrowings, net (56,820) (21,338) (29,558)
Redemption of First Mortgage Notes (100,000) - -
Call premium on redemption of First Mortgage Note (1,916) - -
Additions to deferred financing costs (542) (3,138) -
Proceeds from sale of common stock 72 10,006 -
Redemption of common stock (382) (74) (210)
Dividends paid (6,334) (6,068) -
------- -------- -------
NET CASH USED IN
FINANCING ACTIVITIES (35,922) (15,612) (29,768)
------- -------- -------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,961 (387) (4,548)
Cash and cash equivalents at beginning of period 1,258 1,645 6,193
------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,219 $ 1,258 $ 1,645
======= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest (net of amount capitalized) $ 14,932 $ 19,599 $ 19,754
======== ======== ========
Cash paid for income taxes $ 20,791 $ 21,709 $ 7,862
======== ======== ========
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
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.
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. The Company performs periodic credit evaluations of
its customers and generally does not require collateral. Credit losses, net of
recoveries, for fiscal years 1999, 1998, and 1997 have been approximately
$566,000, $(28,000), and $106,000, respectively.
Business Segments: The Company is engaged in two primary business segments,
steel production and fabrication, both primarily for use in construction and
industrial markets. In the years ended March 31, 1999, 1998 and 1997, export
sales were less than 1% of total sales.
Cash Equivalents: The Company considers all highly liquid investments, with
a maturity of three months or less when purchased, to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Assets Held for Sale: Assets held for sale consists of real estate held for
sale which is 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 $0.2 million and $0.5 million were capitalized for the years
ended March 31, 1999 and 1998, 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) within Property, Plant and
Equipment until such funds have been spent. As of March 31, 1999 and 1998, the
Company had $1.5 million and $2.3 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 $25.7 million and $21.6 million at March 31, 1999
and 1998, respectively. Goodwill is being amortized over a 25-year period.
Deferred Financing Costs: The deferred financing costs as of March 31, 1999
and 1998, are net of accumulated amortization and are amortized over the term of
the respective debt instruments, which range from 5 to 22 years from debt
inception date. The Company incurred financing costs of approximately $0.5
million in fiscal 1999 related to the $150 million amended Revolving Credit
Agreement (see "Note D").
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):
22
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Basic weighted average number of common shares 10,561 10,103 10,087
Dilutive effect of options outstanding 102 71 -
Diluted weighted average number of common and
common equivalent shares outstanding 10,663 10,174 10,087
</TABLE>
The Company's previously reported primary earnings per common share and
fully diluted earnings per common share for fiscal 1998 and 1997 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.
Reclassifications: Certain amounts in the fiscal 1998 and 1997 financial
statements have been reclassified to conform to the fiscal 1999 financial
statement presentation.
NOTE C -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
---------- ----------
($ in thousands)
<S> <C> <C>
Finished goods $ 72,688 $ 87,511
Work in-process 16,565 9,694
Raw materials and operating supplies 32,565 33,208
-------- --------
$121,818 $130,413
======== ========
</TABLE>
NOTE D -- BORROWINGS
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
($ in thousands)
<S> <C> <C>
Revolving Credit Agreement $ 13,690 $ 40,070
Industrial Revenue Bonds 34,395 35,875
First Mortgage Notes 0 100,000
Senior Notes 130,000 0
Subordinated Intercompany Note 16,666 40,000
Trade Loan Agreements 0 5,259
Note to Parent 0 367
-------- --------
Total borrowings 194,751 221,571
Less current maturities 3,333 7,106
-------- --------
Total long-term borrowings $191,418 $214,465
======== ========
</TABLE>
23
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Letters of credit are subject to an aggregate sublimit of
$50 million. 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 1999. 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, 1999 was
5.5%.
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
matured 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, 1999, the Company had approximately
$36.8 million of outstanding letters of credit, primarily for IRBs, insurance-
related matters and surety bonds.
On April 3, 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. The Senior Notes are 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:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003......................................104.375%
2004......................................102.917%
2005......................................101.458%
2006 and thereafter.......................100.000%
</TABLE>
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 were used, in
part, to redeem the Company's $100 million, 11.5% First Mortgage Notes on May
11, 1998. The Company incurred an extraordinary pretax charge of $1.9 million
for the call premium associated with the early redemption of the First Mortgage
Notes.
The Subordinated Intercompany Note represents an unsecured note due FLS
Holdings, Inc. bearing variable rates of interest. The note was amended in
August 1998 to amortize semiannual payments beginning in August 1998 and
maturing February 2004.
The maturities of long-term borrowings for the fiscal years subsequent to
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL AMOUNT
------ ------
($ in thousands)
<S> <C>
2000 $ 3,333
2001 3,333
2002 3,333
2003 3,333
2004 26,419
Thereafter 155,000
-------
$194,751
========
</TABLE>
24
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- INCOME TAXES
The provision for income taxes is comprised of the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1997
---------- ----------- ----------
($ in thousands)
<S> <C> <C> <C>
Currently payable:
Federal $17,589 $20,940 $7,391
State 3,036 2,960 597
------- ------- ------
20,625 23,900 7,988
Deferred provision (benefit):
Federal (1,849) (1,700) (594)
State (151) (200) 394
------- ------- ------
(2,000) (1,900) (200)
------- ------- ------
$18,625 $22,000 $7,788
======= ======= ======
</TABLE>
A reconciliation of the difference between the effective income tax rate
for each year and the statutory federal income tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1997
---------- ----------- ----------
($ in thousands)
<S> <C> <C> <C>
Tax provision at statutory rates $15,269 $18,299 $5,544
State income taxes, net of federal
income tax effect 1,790 2,142 722
Goodwill amortization 1,446 1,445 1,446
Other items, net 120 114 76
------- ------- ------
$18,625 $22,000 $7,788
======= ======= ======
</TABLE>
The components of the deferred tax assets and liabilities consisted of the
following at March 31:
<TABLE>
<CAPTION>
1999 1998
-------- -------
($ in thousands)
<S> <C> <C>
DEFERRED TAX ASSET
Allowance for doubtful accounts $ 390 $ 390
Worker's compensation accrual 979 1,097
Employee benefits and related accruals 3,074 2,666
Environmental remediation accrual 2,315 3,563
Federal net operating loss carryforward 551 1,103
Pension accrual 3,394 2,823
Post retirement benefits accrual 3,454 3,313
Other -- 514
--------- --------
14,157 15,469
--------- --------
DEFERRED TAX LIABILITY
Inventories -- (996)
Property, plant and equipment (55,331) (56,932)
Assets held for sale (1,799) (2,161)
Deferred compensation -- (359)
Property taxes (427) (421)
--------- --------
(57,557) (60,869)
--------- --------
NET DEFERRED TAX LIABILITY $ (43,400) $(45,400)
========= ========
</TABLE>
25
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a Federal net operating loss carryforward of approximately
$1.6 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 $1.6 million each year.
NOTE F -- BENEFIT PLANS
The Company maintains a defined benefit pension plan covering substantially
all employees. The benefits are based on years of service and compensation
during the period of employment. Annual contributions are made in conformity
with minimum funding requirements and maximum deductible limitations.
The Company currently provides specified health care benefits to retired
employees. Employees who retire after a certain age with specified years of
service become eligible for benefits under this unfunded plan. The Company has
the right to modify or terminate these benefits.
The following table summarizes the accumulated pension benefits and
postretirement medical benefit obligations included in the Company's
consolidated statements of financial position:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Medical
----------------------------- --------------------------
Fiscal 1999 Fiscal 1998 Fiscal 1999 Fiscal 1998
-------------- ------------ ----------- -----------
($ in thousands)
<S> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 2,984,982 $ 2,542,103 $ 228,008 $ 213,207
Interest cost 6,909,853 6,394,650 553,090 599,747
Expected return on plan assets (8,257,373) (7,540,698) - -
Amortization of prior service cost (35,455) (35,455) (11,009) -
Recognized actuarial gain - - (4,688) (10,965)
------------ ------------ ----------- -----------
Net periodic benefit cost $ 1,602,007 $ 1,360,600 $ 765,401 $ 801,989
Change in benefit obligations
Benefit obligation at beginning of year $ 97,531,207 $ 84,645,751 $ 8,587,603 $ 7,742,799
Service cost 2,984,982 2,542,103 228,008 213,207
Interest cost 6,909,853 6,394,650 553,090 599,747
Plan participants' contributions - - 406,086 373,699
Amendments - - (165,128) -
Actuarial loss (gain) 6,509,947 8,460,247 (127,067) -
Benefits and administrative expenses paid (4,712,281) (4,511,544) (1,185,422) (1,259,089)
------------ ------------ ----------- -----------
Benefit obligation at end of year $109,223,708 $ 97,531,207 $ 8,297,170 $ 8,587,603
============ ============ =========== ===========
Change in plan assets
Fair value of plan assets at beginning of year $102,537,142 $ 85,827,562 $ - $ -
Actual return on plan assets 1,812,711 21,221,124 - -
Employer contribution - - 779,336 885,390
Plan participants' contributions - - 406,086 373,699
Benefits and administrative expenses paid (4,712,281) (4,511,544) (1,185,422) (1,259,089)
------------ ------------ ----------- -----------
$ 99,637,572 $102,537,142 $ - $ -
============ ============ =========== ===========
Reconciliation of funded status - March 31
Funded status $ (9,586,136) $ 5,005,935 $(8,297,170) $(8,587,603)
Unrecognized prior service cost (319,093) (354,548) - -
Unrecognized actuarial loss (gain) 1,186,041 (11,768,568) (154,119) (391,026)
------------ ------------ ----------- -----------
Net amount recognized $ (8,719,188) $ (7,117,181) $(8,964,694) $(8,978,629)
============ ============ =========== ===========
</TABLE>
26
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average discount rates used in determining the actuarial
present value of the accumulated pension benefit obligations were 7.00% and
7.25%, for the years ended March 31, 1999 and 1998, 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, 1999 and
1998.
The weighted average discount rate used in determining the accrued
post retirement medical benefit obligation was 7.00% for fiscal 1999 and 7.25%
for fiscal 1998. The gross medical trend rate was assumed to be 9.62% in 1998
and dropping .346% per year to 6.5% in 2007; 6.0% in 2008 and beyond for pre-65
retirees that retired before January 1, 1994, and 8.0% decreasing by .5% per
year to 5.5% in 2003 and beyond for post-65 retirees that retired before January
1, 1994. For retirees on or after January 1, 1994, the trend rate is the same
until the Company's expected costs are double the 1992 costs. At that point,
future increases in the medical trend will be paid by the retirees. The health
care cost trend rate assumption has a significant effect on the amount of the
obligation reported.
The incremental effect of a 1% increase in the medical trend rate would
result in an increase of approximately $191 thousand and $13 thousand to the
accrued post retirement benefit obligation and service cost plus interest cost,
respectively, as of and for the year ended March 31, 1999.
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, 1999, 1998 and 1997
were approximately $88 thousand, $107 thousand and $133 thousand, respectively.
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 $1.5 million, $1.3 million, and $1.1 million for the
years ended March 31, 1999, 1998 and 1997, respectively.
NOTE G -- COMMON STOCK
In March 1999, the Company declared and paid a dividend of $6.3 million to
its stockholders of $0.60 per share.
In fiscal 1996, the Board of Directors approved a 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 28,988 of these shares outstanding as
of March 31, 1999. 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. A total of 226,134 options were granted under the
Purchase Plan, with 167,241 of these options outstanding as of March 31, 1999.
No options remain available for future grant. The issued options 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 204,950 incentive stock
options and 52,100 shares of common stock under the Equity Ownership Plan
through March 31, 1999, with 172,700 incentive stock options and 48,975 shares
of common stock outstanding at March 31, 1999. All issued options and 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. 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.
27
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 4.9, 6.5 and 6.5 percent for the Equity
Ownership Plan in fiscal 1999, 1998, and 1997, respectively, 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 1999, 1998 and 1997 and
expected life of 7 years for the Purchase Plan for fiscal 1996; and dividend
rate of three percent for fiscal 1999 and zero percent for fiscal 1998 and 1997
for the Equity Ownership Plan and dividend rate of zero percent for fiscal 1996
for the Purchase Plan. Using these assumptions, the fair value of the stock
options granted in fiscal 1999, 1998 and 1997 is $66,853, $311,915 and $222,572,
respectively, which would be amortized as compensation expense over the vesting
period of the options.
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>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Net Income:
As reported $25,000 $30,282 $8,052
Pro forma 24,816 30,101 7,858
Earnings per common share:
Basic earnings per common share -
As reported $2.37 $3.00 $0.80
Pro forma 2.34 2.98 0.78
Earnings per common share:
Diluted earnings per common share and
common equivalent -
As reported $2.34 $2.98 $0.80
Pro forma 2.31 2.96 0.78
</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, 1999, 1998 and 1997:
Equity Ownership Plan
---------------------
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
1999 1999 1998 1998 1997 1997
-------- --------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year 147,500 $12.99 78,300 $12.50 12,000 $12.50
Granted 40,850 20.00 72,750 13.50 79,350 12.50
Exercised (1,898) 12.50 - - - -
Forfeited (13,752) 13.86 (3,550) 12.65 (13,050) 12.50
------- ------- -------
Outstanding, end of year 172,700 14.58 147,500 12.99 78,300 12.50
======= ======= =======
Options vested at year-
end 27,100 $12.50 4,000 $12.50 - -
Weighted-average fair
value of options granted
during the year - $1.93 - $5.26 - $4.61
</TABLE>
28
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase Plan
-------------
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
1999 1999 1998 1998 1997 1997
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 180,474 $12.50 194,778 $12.50 221,094 $12.50
Granted - - - - - -
Exercised (3,883) 12.50 (460) 12.50 - -
Forfeited (9,350) 12.50 (13,844) 12.50 (26,316) 12.50
Outstanding, end of year 167,241 $12.50 180,474 $12.50 194,778 $12.50
======= ======= =======
Options vested at year-end 111,494 $12.50 60,158 $12.50 - $ -
</TABLE>
The weighted-average remaining contractual life of the options under
the Equity Ownership Plan and the Purchase Plan as of March 31, 1999 is 7.69
years and 7.50 years, respectively.
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 1999, 1998 and 1997 plans were based on actual
return on capital employed as compared to target return on capital employed.
The award was $3.6 million for fiscal 1999, $4.0 million for fiscal 1998, and
$1.4 million for fiscal 1997, which amounts were included in salaries, wages and
employee benefits.
On March 18, 1999, under the AmeriSteel Equity Ownership Plan, the
Company granted 500,000 Stock Appreciation Rights (SARs) to key executives. The
SARs vest equally over four years and the payment amount is equal to the number
of vested shares times the amount the fair value of the common stock exceeds the
value at the date of grant. Compensation expense is accrued during each vesting
period based on the amount the market value of the stock exceeds the value at
the date of grant.
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 be approximately $9.5 million with these
costs recorded as a liability as of March 31, 1999. Of this amount, the Company
expects to pay approximately $5.2 million within one year. The timing of the
remaining future payments is uncertain due to the various remediation processes
involved.
29
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Tampa mill site contains slag and soil that is contaminated with EC
dust and polychlorinated biphenyl ("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 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. Consequently, the remediation work has begun. 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
the remaining costs to be approximately $6.5 million for this site. The Company
expects cleanup at this site to be substantially completed during fiscal 2001.
At the Jackson, Tennessee mill and two third party locations in Utah, EC
dust and other materials contaminated with Cesium 137, a man-made, radioactive
material (incident-related material), were formerly stored in containers on
these sites. The treatment, transport and disposal of these materials was based
on the final Nuclear Regulatory Commission "Technical Position," dated March 20,
1997. The remediation cost estimate was based on a signed contract for
treatment, transportation and disposal. Final disposition of the contaminated
materials was substantially completed during fiscal 1999. The Company estimates
the remaining costs to be approximately $.2 million for this site.
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 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
cleanup at this site was substantially completed during fiscal 1999. The Company
currently estimates its remaining obligation to be approximately $.7 million.
The Stoller site, a third party site, contained metals from other PRPs and
EC dust from the Company that was stored at this recycling location. The Company
was named as a PRP for this site. Outside contractors measured the remediation
volumes and masses during the now complete cleanup. On-site treatment, disposal
and construction of the vault cap were completed by the PRPs under a consent
order with the State of South Carolina. The soil cleanup at this site was
completed during fiscal 1999. A Settlement Agreement was lodged by the State of
South Carolina with the Federal Court in 1997. That Agreement contains an
allocation which attributes approximately 2% of the remaining estimated $10
million groundwater remediation cost to the Company. The non-participating PRPs
have intervened in the pending court proceedings to contest approval of the
Agreement.
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
began operations in March 1997 and has a design capacity to recycle up to 30
thousand tons of EC dust per year. The Company currently generates approximately
25 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 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.
30
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In fiscal 1999, the Company ceased processing in the second stage of the
process. The Company concluded that operation of the wet side process could not
be commercially developed without significant additional capital expenditures.
The Company is currently utilizing the first stage of the process to recycle
essentially all of the Company's EC dust and is selling the crude zinc oxide
produced in the process to third parties. In the quarter ending December 31,
1998, the Company recorded a non-cash write down of approximately $5.9 million
for equipment associated with the second stage of the process. The Company's
policy for the facility is to depreciate the facility over its expected useful
life of 14 years and to periodically evaluate the remaining life and
recoverability of the equipment. The write-down was recorded in operating
expenses as other expense. The net book value of the facility at March 31, 1999
is approximately $14.4 million.
NOTE J -- COMMITMENTS
Operating Leases
The Company leases certain equipment and real property under noncancelable
operating leases. Aggregate future minimum payments under these leases,
reflected with and without Brocker, are as follows (see Note N Subsequent
Events for an explanation of Brocker):
<TABLE>
<CAPTION>
FISCAL AMOUNT AMOUNT
------ ------ ------
($ in thousands) w/ Brocker w/o Brocker
<S> <C> <C>
2000 $ 2,517 $1,840
2001 2,277 1,538
2002 2,035 1,295
2003 1,804 1,066
2004 1,422 684
Thereafter 1,051 805
------- ------
$11,106 $7,228
======= ======
</TABLE>
Total rent expense was approximately $4.1 million, $3.7 million, and $4.1
million, for the years ended March 31, 1999, 1998 and 1997, respectively.
Service Commitments
The Company entered into two 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. The Company canceled one agreement as of June 1, 1998.
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. The agreement expired June 1,
1999.
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 -- UNUSUAL CHARGES AND CREDITS
In fiscal 1998, the Company realized unusual charges and credits consisting of a
one-time gain of $1.8 million on the disposition of certain assets held for
sale; receipt of $6.8 million in connection with an insurance settlement; $1.2
million in expenses associated with the cancelled IPO and debt restructuring in
December 1997; and a $1.4 million charge related to startup expenses associated
with the Company's electric arc furnace dust processing facility. These items
were recorded in selling and administrative expenses.
31
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- OTHER OPERATING EXPENSES
Other operating expenses for fiscal 1999 includes non-recurring gains of
$5.8 million from cash settlements from graphite electrode suppliers offset by
the $5.9 million equipment write-down recorded for certain non-productive assets
at the Company's electric arc furnace dust processing facility.
NOTE M -- SEGMENT INFORMATION
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131 superseded FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise". SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS 131 did not affect results of operations or financial position, but did
affect the disclosure of segment information. Prior year information has been
changed to conform to the provisions of SFAS 131.
The Company is organized into two primary business segments: (a) Mill
Operations and (b) Steel Fabrication. Steel products sold to the fabricating
divisions are sold at market prices with intracompany transactions eliminated
upon consolidation. Performance is evaluated and resources allocated based on
specific segment requirements and measurable factors. Segment assets are those
assets that are specifically identified with the operations in each operational
segment. Corporate assets include primarily cash, a portion of goodwill, assets
held for sale, some property, plant and equipment, deferred income taxes and
deferred financing costs. Corporate expense includes corporate headquarters
staff including executive management, human resources, finance and accounting,
procurement and environmental, and management information systems. Included in
these respective areas are payroll costs, travel & entertainment, professional
fees and other costs that may not be directly attributable to either specific
segment.
Operational results and other financial data for the two manufacturing
segments for the years ended March 31, 1999, 1998 and 1997 are presented below
(in thousands):
<TABLE>
<CAPTION>
Year Ending March 31, 1999 Mill Operations Steel Fabrication Total Segments
<S> <C> <C> <C>
Revenue from external customers $447,963 $223,513 $671,476
Intracompany revenues 158,663 -- 158,663
Depreciation and amortization expense 22,621 2,719 25,340
Segment profit 53,762 13,411 67,173
Segment assets 437,018 83,648 520,666
Additions to long-lived assets 21,527 3,550 25,077
Year Ending March 31, 1998 Mill Operations Steel Fabrication Total Segments
Revenue from external customers $449,330 $215,236 $664,566
Intracompany revenues 150,730 -- 150,730
Depreciation and amortization expense 20,251 2,516 22,767
Segment profit 62,737 9,292 72,029
Segment assets 451,656 85,254 536,910
Additions to long-lived assets 16,088 3,271 19,359
Year Ending March 31, 1997 Mill Operations Steel Fabrication Total Segments
Revenue from external customers $408,870 $208,419 $617,289
Intracompany revenues 137,663 -- 137,663
Depreciation and amortization expense 17,515 2,375 19,890
Segment profit 28,303 14,424 42,727
Segment assets 432,497 75,590 508,087
Additions to long-lived assets 32,587 1,272 33,859
</TABLE>
32
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of reportable segments to consolidated total
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
<S> <C> <C> <C>
Revenues
Total segments revenues $ 830,139 $ 815,296 $ 754,952
Other revenues - - -
Elimination of intersegment revenues (158,663) (150,730) (137,663)
---------------------------------------
Consolidated revenues $ 671,476 $ 664,566 $ 617,289
---------------------------------------
Depreciation and amortization
Total segments depreciation and amortization $ 25,340 $ 22,767 $ 19,890
Corporate depreciation and amortization 2,616 2,513 2,803
---------------------------------------
Consolidated depreciation and amortization $ 27,956 $ 25,280 $ 22,693
---------------------------------------
Profit
Total segments profit $ 67,173 $ 72,029 $ 42,727
Other profit or loss (37) - -
Elimination of intersegment profits (2,164) 202 (862)
Unallocated amounts:
Other corporate income (expense) (1,720) 477 (5,618)
Unallocated interest expense (16,229) (20,426) (20,407)
Unallocated taxes (19,950) (22,000) (7,788)
Extraordinary items (2,073) - -
---------------------------------------
Consolidated profit $ 25,000 $ 30,282 $ 8,052
---------------------------------------
Assets
Total segments assets $ 520,666 $ 536,910 $ 508,087
Elimination of intersegment receivables (214,418) (191,692) (170,446)
Other unallocated assets 239,535 216,912 198,044
---------------------------------------
Consolidated assets $ 545,783 $ 562,130 $ 535,685
---------------------------------------
Expenditures for long-lived assets
Total segments expenditures $ 25,077 $ 19,359 $ 33,859
Corporate expenditures 506 1,748 523
---------------------------------------
Consolidated expenditures for
long-lived assets $ 25,583 $ 21,107 $ 34,382
---------------------------------------
</TABLE>
NOTE N -- SUBSEQUENT EVENTS
On April 29, 1999 the Company acquired the operating assets of rebar
fabricator Brocker Rebar Co. and Milton Rebar Coating expanding its fabricating
operations into the northeast market. Brocker has plants in York, Pennsylvania,
Milton, Pennsylvania, Baltimore, Maryland, Wilmington, Delaware and Sayreville,
New Jersey with annual rebar fabricating capacity of approximately 115,000 tons.
33
<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,
1999 and 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Tampa, Florida,
April 26, 1999 (except with
respect to the matters discussed
in Note N, as to which the
date is April 29, 1999)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
34
<PAGE>
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, 1999, 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, 1999, 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, 1999, 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, 1999, and is incorporated herein by reference.
35
<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:
Consolidated Statements of Financial Position March 31, 1999 and
March 31, 1998
Consolidated Statements of Operations Years Ended March 31, 1999, March
31, 1998 and March 31, 1997
Consolidated Statements of Shareholder's Equity Years Ended March 31,
1999, March 31, 1998
and March 31, 1997
Consolidated Statements of Cash Flows Years Ended March 31, 1999,
March 31, 1998 and March 31, 1997
Consolidated Report of Independent Certified Public Accountants -
April 26, 1999 (except with respect to the matters discussed in Note N, as to
which the date is April 29, 1999)
(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, 1999.
(c) The exhibits to this report are indexed below and are filed or
incorporated by reference as part of this report:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
3.1 -- Articles of Incorporation, as amended to date (incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-1, as
amended, Registration Statement No. 333-37679))
3.2 -- Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, as amended,
(Registration Statement No. 333-37679))
4.1 -- Indenture, dated as of April 3, 1998, by and among the Company, State
Street Bank and Trust Company relating to $130,000,000 of the Company's
8 3/4% Senior Notes Due 2008 (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-4, as amended,
(Registration StatementNo. 333-55857))
10.1 -- AmeriSteel Equity Ownership Plan (incorporated by reference to Exhibit
10 to the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996)
10.2 -- AmeriSteel Strategic Value Added Executive Short-Term Incentive Plan
(incorporated by reference to Exhibit 10 to the Company's Annual Report
on Form 10-K for the fiscal year ended March 31, 1996)
10.3 -- $150,000,000 Amended and Restated Credit Agreement dated July 14, 1998
by and among the Company, NationsBank, National Association, The Bank
of Tokyo-Mitsubishi, Ltd., First Union National Bank and certain other
lenders (incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-4, as amended (Registration Statement
No. 333- 55857)).
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule (for SEC use only)
36
<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/ Phillip E. Casey June 25, 1999
------------------------------------------------------
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/ Phillip E. Casey June 25, 1999 Chief Executive Officer
- --------------------------------------- Chairman of the Board; Director
Phillip E. Casey Date
/s/ Koichi Takashima June 25, 1999 Director
- ---------------------------------------
Koichi Takashima Date
/s/ Akihiko Takashima June 25, 1999 Director
- ---------------------------------------
Akihiko Takashima Date
/s/ Hideichiro Takashima June 25, 1999 Director
- ---------------------------------------
Hideichiro Takashima Date
/s/ Ryutaro Yoshioka June 25, 1999 Director
- ---------------------------------------
Ryutaro Yoshioka Date
/s/ Shuzo Hikita June 25, 1999 Director
- ---------------------------------------
Shuzo Hikita Date
/s/ J. Donald Haney June 25, 1999 Vice President; Director
- ---------------------------------------
J. Donald Haney Date
/s/ Tom J. Landa June 25, 1999 Vice President; Chief Financial
- --------------------------------------- Officer and Secretary (Principal
Tom J. Landa Date Financial Officer and Principal
Accounting Officer); Director
37
<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 26, 1999, except with respect to the
matters discussed in Note N, as to which the date is April 29, 1999, 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,
June 25, 1999
EXHIBIT 27
- ----------
(SEC use only)
38
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERISTEEL CORPORATION FOR THE YEAR ENDED MARCH 31, 1999
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-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 3,219
<SECURITIES> 0
<RECEIVABLES> 72,516
<ALLOWANCES> 1,000
<INVENTORY> 121,818
<CURRENT-ASSETS> 203,727
<PP&E> 345,043
<DEPRECIATION> 97,731
<TOTAL-ASSETS> 545,783
<CURRENT-LIABILITIES> 78,907
<BONDS> 191,418
0
0
<COMMON> 106
<OTHER-SE> 545,677
<TOTAL-LIABILITY-AND-EQUITY> 545,783
<SALES> 671,476
<TOTAL-REVENUES> 671,476
<CGS> 568,291
<TOTAL-COSTS> 568,291
<OTHER-EXPENSES> (37)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,229
<INCOME-PRETAX> 47,023
<INCOME-TAX> 19,950
<INCOME-CONTINUING> 27,073
<DISCONTINUED> 0
<EXTRAORDINARY> (2,073)
<CHANGES> 0
<NET-INCOME> 25,000
<EPS-BASIC> 2.37
<EPS-DILUTED> 2.34
</TABLE>
