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, 2000
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 A 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 stock held by non-affiliates of the
registrant: $14,529,956 as of May 31, 2000.
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 - 10,382,223 as of May 31, 2000.
Class B Common Stock, par value $.01 per share -- none as of May 31, 2000.
Documents incorporated by reference: Parts of Information Statement to be
submitted to shareholders prior to July 29, 2000 are incorporated by reference
in Part III of this Form 10-K.
<PAGE>
PART 1
------
ITEM 1. BUSINESS
AmeriSteel Corporation ("the Company") operates four non-union
minimills located in the southeastern U.S. that produce steel concrete
reinforcing bars ("rebar"), light structural shapes such as rounds, squares,
flats, angles and channels ("merchant bars") and, to a lesser extent, wire rod
("rods") and billets (which are semi-finished steel products). The Company also
operates 18 rebar fabricating plants, 13 of which are located throughout the
southeast in close proximity to its mills and five in the northeast as a result
of the acquisition of Brocker Rebar Co. and Milton Rebar Coating on April 29,
1999. Additionally, the Company operates two rail spike manufacturing facilities
in Paragould, Arkansas and Lancaster, South Carolina, and a wire mesh and
collated nail manufacturing facility in New Orleans, Louisiana.
During fiscal 2000, approximately 57% of the Company's mill rebar
production was sold directly to distributors and independent fabricating
companies in stock lengths and sizes. The remaining 43% 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 Company is organized into two primary business segments: (a) Mill
Operations and (b) Steel Fabrication. For financial information concerning
segments, see "Note M to March 31, 2000 Consolidated Financial
Statements--Segment Information."
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, Kyoei Steel, Ltd. ("Kyoei"), a private Japanese
minimill company purchased 100% of FLS Holdings, Inc. (the "Holding Company" or
"FLS"), whose only business is to own AmeriSteel common stock. In September
1999, Kyoei sold 88% of its interest in FLS to Brazilian steel manufacturer,
Gerdau S.A. ("Gerdau") through one of Gerdau's Canadian subsidiaries. As a
result, Gerdau is the majority owner of AmeriSteel with an indirect controlling
interest of approximately 76%. Kyoei retains an indirect 10% minority interest
in the Company while an institutional investor owns approximately 4% of the
common stock of the Company. The remaining 10% of the Company's common stock is
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,
---------
2000 1999 1998
---- ---- ----
Fabricated Rebar 31% 25% 24%
Stock Rebar 25 29 27
Merchant Bars 33 34 33
Rods 3 4 5
Billets and other 8 8 11
----- --- ----
100% 100% 100%
=== === ===
The increase in fabricated rebar sales and the decrease in stock rebar
sales are attributable to the new northeast region. A greater percentage of the
Company's stock rebar sales from the mills are shipped to the northeast region,
however the intercompany sales are eliminated upon consolidation.
2
<PAGE>
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 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 and collated 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.
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.
3
<PAGE>
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 2000 no one customer accounted for more than 4.6% of net sales
and the five largest customers accounted for approximately 12.9% 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 285,000 tons at March 31, 2000. The
Company expects almost all of the March 31, 2000 backlog to be filled by
December 31, 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.
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
continued to occur 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 represent
approximately 33% of the Company's total sales. The market for merchant bars is
very competitive, with price being the primary competitive factor. In the last
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 2000, rod sales by foreign
competitors had a significant negative effect on the Company's rod prices.
4
<PAGE>
Fabricated Rebar
With 18 rebar fabricating plants located throughout the eastern U.S.,
generally within support distance from one of the Company's four minimills, the
Company is a major factor in all the markets it serves. In the sale of
fabricated rebar, the Company competes with other steel fabricators in its
marketing area, some of whom purchase their stock rebar from the Company.
Raw Materials and Energy Costs
Steel scrap is the Company's primary raw material and comprised
approximately 36% of the Company's costs of sales in fiscal 2000. 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 usually
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.
Employees
As of March 31, 2000, the Company had 2,201 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, 2000 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.
5
<PAGE>
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 2.1 million
tons. The Company's rolling facilities are also operated seven days per week.
The annual aggregate rolling capacity is approximately 2.0 million tons, however
this capacity is dependent on the types, sizes and grades of bar products
rolled.
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 and production efficiencies. Increased utilization at the
mills is a result of upgraded machinery and equipment capital spending programs
in conjunction with an incentive oriented workforce.
<TABLE>
<CAPTION>
Year Ended Year Ended
Approx. March 31, Approx. March 31,
Annual 2000 Capacity Annual 2000 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 480 429 89% 400 363 91%
Jackson, TN 1981 700 667 95 550 526 96
Jacksonville, FL 1976 620 598 96 600 579 97
Knoxville, TN 1987(1) 330 304 92 480 388 81
----- ----- ----- -----
Total 2,130 1,998 94% 2,030 1,856 91%
===== ===== ===== =====
</TABLE>
(1) Purchase Date
Charlotte Minimill
The Charlotte minimill produces rebar and merchant bars. Rebar produced
in Charlotte is marketed primarily in the states from South Carolina to
Pennsylvania. Merchant bar produced in Charlotte is marketed primarily along the
eastern seaboard states from Florida to Pennsylvania.
Charlotte's melting equipment includes a 75 ton electric arc furnace
utilizing the Consteel process, a continuous scrap feeding and preheating
system, and a ladle refining station. The melting facilities also include a
3-strand continuous caster and material handling equipment. Charlotte's rolling
mill includes a reheat furnace, 15 in-line mill stands, a 200 foot cooling bed,
an in-line straightener and flying cut-to-length shear, and an automatic stacker
for merchant bars and rebar.
6
<PAGE>
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. Melting capacity is expected to increase to
450 tons annually.
Fabrication
The Company believes that it operates the largest rebar fabricating
group in the U.S., consisting of a network of 18 strategically located
reinforcing steel fabricating plants throughout the southeastern and
northeastern U.S. with an annual capacity of approximately 480,000 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 the majority of its rebar from the
Company's minimills, primarily Knoxville, Jacksonville and Charlotte.
Included in fiscal 2000 results are the acquired operating assets of
rebar fabricator Brocker Rebar Co. and Milton Rebar Coating which expanded the
Company's fabricating operations into the northeast market. The additional
operations have a 45 year history in the industry, with plants in York,
Pennsylvania, Milton, Pennsylvania, Baltimore, Maryland, Wilmington, Delaware
and Sayreville, New Jersey with annual production capacity of approximately
115,000 tons.
7
<PAGE>
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 800 employees. The following table shows the
fabricating plant locations 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 or converted into collated nails for use in
high-speed nail machines.
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 13 of its 18 rebar fabricating
facilities, and leases the five other fabricating 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 ~57.0
Indiantown, FL (Owned) Closed minimill 151.5 130,340 sq. ft.
New Orleans, LA (Leased) Wire fabric and nail facility 5.0 120,000 sq. ft.
Lancaster, SC (Owned) Rail spike facility 41.0 52,000 sq. ft.
Paragould, AR (Owned) Rail spike facility 7.7 23,000 sq. ft.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than routine
litigation incidental to the Company's business, to which the Company is a party
or in which any of its property is the subject, and no such proceedings are
known to be contemplated by governmental authorities. However, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Compliance with Environmental Laws and Regulations" and "Note I to
March 31, 2000 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.
8
<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 57 President, Chief Executive Officer
and Director
J. Donald Haney 64 Group Vice President, Fabricated Reinforcing
Steel and Director
Tom J. Landa 48 Vice President, Chief Financial Officer,
Secretary and Director
Dennie Andrew 59 Vice President, Steel Mill Operations
J. Neal McCullohs 43 Vice President, Mill Product Sales
Robert P. Muhlhan 49 Vice President, Material Procurement
James S. Rogers, II 52 Vice President, Human Resources
</TABLE>
Phillip E. Casey has been Chief Executive Officer and a director since
June 1994 and President since September 1999. Mr. Casey was Chairman of the
Board of AmeriSteel from June 1994 until September 1999.
J. Donald Haney has been Group Vice President, Fabricated Reinforcing
Steel since 1979. Mr. Haney joined the Company in 1958 and is principally
responsible for the Company's reinforcing steel fabricating group.
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.
Officers are appointed annually by the Board of Directors.
9
<PAGE>
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.
As of March 31, 2000, there were 10,377,183 shares of Class A Common
Stock outstanding held of record by approximately 1,000 stockholders and there
were no shares of Class B Common Stock outstanding. Of such shares outstanding,
9,000,000 shares are held of record by FLS, which shares represent approximately
86.7% of the combined voting power of all Common Stock.
On September 27, 1999, Gerdau, through a subsidiary, purchased 88% of
the outstanding shares of FLS from Kyoei with Kyoei retaining the remaining 12%
ownership interest in FLS. As a result of Gerdau's purchase of a majority
interest in FLS, Gerdau has the right to elect a majority of the Board of
Directors of FLS, which in turn provides Gerdau with voting and investment
control of the shares of common stock of the Company owned by FLS. Concurrently
with the purchase, all Class B common stock of AmeriSteel Corporation
automatically converted to Class A common stock so that there is now only one
class of common stock outstanding.
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, 2000 was $28.00 per share.
No dividends were declared or paid in fiscal year 2000.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected statement of operations and balance sheet data for the
years ended March 31, 2000, 1999, 1998, 1997 and 1996 are derived from the
audited financial statements of the Company. The results for the year ended
March 31, 2000 are not necessarily indicative of the results to be expected for
future periods. 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,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share and average data)
Statement of Operations:
<S> <C> <C> <C> <C> <C>
Net sales $706,774 $671,476 $664,566 $617,289 $628,404
Operating expenses:
Cost of sales 566,579 546,101 540,422 531,190 533,965
Selling and administrative 39,355 35,840 27,811 29,068 29,605
Depreciation 23,519 22,190 19,494 16,654 14,619
Amortization of goodwill 4,413 4,130 4,130 4,130 4,130
Other operating (income) expenses (1) 2,519 (37) 16,013
-------- -------- -------- ------- -------
- -
636,385 608,224 591,857 581,042 598,332
Income from operations 70,389 63,252 72,709 36,247 30,072
Other expenses
Interest 14,199 15,655 19,775 19,473 22,000
Amortization of deferred financing costs 613 574 652 934 1,956
-------- -------- -------- ------- -------
14,812 16,229 20,427 20,407 23,956
Income before income taxes
& extraordinary item 55,577 47,023 52,282 15,840 6,116
Income taxes 23,922 19,950 22,000 7,788 3,996
-------- -------- -------- ------- -------
Income before extraordinary item 31,655 27,073 30,282 8,052 2,120
Extraordinary item, net of income tax
benefit (2) (2,325) (2,073) - - -
-------- -------- -------- ------- -------
Net income $ 29,330 $ 25,000 $30,282 $ 8,052 $ 2,120
======== ======== ======= ------- -------
Earnings per share - basic $ 2.80 $ 2.37 $ 3.00 $ .80 $ .21
====== ====== ====== ======= =======
Earnings per share - diluted $ 2.78 $ 2.34 $ 2.98 $ .80 $ .21
====== ====== ====== ======= =======
Cash dividends declared per common
share outstanding $ - $ .60 $ .60 $ - $ -
====== ====== ====== ======= =======
Other Financial Data and Selected Ratios:
Adjusted EBITDA (3) 99,313 $97,620 $100,556 $ 58,323 $64,033
Adjusted EBITDA margin 14.1% 14.5% 15.1% 9.4% 10.2%
Capital expenditures 42,329 25,583 $21,107 $ 34,382 $36,894
Ratio of adjusted EBITDA to interest
expense (4) 7.0x 6.0x 4.9x 2.9x 2.7x
Ratio of total debt to adjusted EBITDA 2.2x 2.0x 2.2x 4.1x 4.2x
Net cash provided by operating activities 40,904 $62,186 $35,489 $43,930 $44,091
Net cash used in investing activites (50,820) (24,303) (20,264) (18,710) (49,012)
Net cash (used in) provided by
financing activities 9,374 (35,922) (15,612) (29,768) 8,260
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share and average data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (end of period):
Current assets $ 241,107 $203,727 $210,610 $ 182,519 $ 200,109
Net property, plant & equipment 265,376 247,312 251,172 250,021 247,009
Total assets 595,835 545,783 562,130 535,685 554,896
Total current liabilities (excluding S/T
borrowings) 85,379 75,574 80,811 73,357 70,646
Current maturities of LT borrowings 90,311 3,333 7,106 435 14,942
Long term borrowings 124,668 191,418 214,465 237,474 252,525
Total liabilities 369,897 340,640 376,415 385,121 413,149
Shareholders' equity 225,938 205,143 185,715 150,564 141,747
Current ratio 1.4x 2.6x 2.4x 2.5x 2.3x
Debt to capital ratio 48.8% 48.7% 54.4% 61.2% 65.4%
Selected Operating Data:
Shipped tons
Stock rebar 620 644 550 472 508
Merchant bar 675 603 576 512 544
Rod 64 82 92 105 133
-- -- -- --- ---
Subtotal mill finished goods 1,359 1329 1,218 1,089 1,185
Fabricated rebar 476 354 338 326 315
Billets 109 108 172 281 175
--- --- --- --- ---
Total shipped tons 1,944 1,791 1,728 1,696 1,675
===== ===== ===== ===== =====
Average mill finished goods prices
(per ton) $307 $330 $351 $333 $337
Average yielded scrap cost (per ton) 106 115 133 130 131
Average metal spread (per ton) (5) 201 215 218 203 206
Average mill conversion costs (per ton) 124 126 129 138 135
</TABLE>
(1) In the fiscal year ended March 31, 2000, the Company recorded a
non-recurring gain of $5.8 million from cash settlements from graphite
electrode suppliers offset by $8.3 million in charges relating to
accelerated vesting in stock appreciation rights and other charges
relating to the Change of Control. 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, 2000, the Company incurred a charge
of $2.3 million, net of income tax benefits, as a result of the put by
holders of the Senior Notes due to the change of control provision in
the notes. 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.
12
<PAGE>
The following table reconciles EBITDA to Adjusted EBITDA:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EBITDA $ 98,321 $ 89,572 $ 96,333 $ 57,031 $ 48,821
Addback:
Deferred compensation 262 1,072 1,005 975 900
Loss on asset dispositions 730 6,044 768 317 14,312
Loss on investments - 932 - - -
Cash gain on investments - - 2,450 - -
------------- -------------- ------------- ------------- --------------
Adjustment EBITDA $ 99,313 $97,620 $ 100,556 $ 58,323 $ 64,033
</TABLE>
(4) Interest expense includes amortization of deferred financing costs.
(5) Average metal spread equals average mill finished goods prices minus
average yielded 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,
2000 1999 1998
---- ---- ----
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Net sales $706,774 100.0% $671,476 100.0% $664,566 100.0%
Cost of sales 566,579 80.2% 546,101 81.3% 540,422 81.3%
Selling and administrative 39,355 5.6% 35,840 5.3% 27,811 4.2%
Depreciation 23,519 3.3% 22,190 3.3% 19,494 2.9%
Amortization of goodwill 4,413 .6% 4,130 .6% 4,130 .6%
Other operating income 2,519 .3% (37) - - -
-------- ----- -------- ----- -------- -----
Income from operations 70,389 10.0% 63,252 9.4% 72,709 11.0%
Interest expense 14,199 2.0% 15,655 2.3% 19,775 3.0%
Amortization of deferred financing costs 613 .1% 574 .1% 652 .1%
Income taxes 23,922 3.4% 19,950 3.0% 22,000 3.3%
-------- ----- -------- ----- -------- -----
Income before extraordinary item $31,655 4.5% $27,073 4.0% $30,282 4.6%
Extraordinary item net of tax (2,325) (.3%) (2,073) (.3)% - -
-------- ----- -------- ----- -------- -----
Net income $29,330 4.2% $25,000 3.7% $30,282 4.6%
======== ===== ======== ===== ======== ======
</TABLE>
13
<PAGE>
Fiscal 2000 Versus Fiscal 1999
Average Selling
Tons Shipped (Thousands) Prices (Per Ton)
Year Ended March 31, Year Ended March 31,
-------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
Mill Finished Goods:
Stock Rebar 620 644 $280 $304
Merchant Bar 675 603 335 364
Rods 64 82 291 299
----- ----- ---- ----
1,359 1,329 307 330
Fabricated Rebar 476 354 447 458
Billets 109 108 208 221
----- -----
Total 1,944 1,791
===== =====
NET SALES. Net sales in fiscal 2000 increased approximately 5.3% from
fiscal 1999 as sales volumes of finished goods increased by 9.0%, the majority
of which was attributable to the Brocker acquisition. Sales were also favorably
impacted by an improved product mix, with an increased ratio of higher margin
merchant bar products versus stock rebar. These increases were partially offset
by an average 6.9% decline in mill finished goods sales prices. These lower
prices for finished steel products primarily reflect the continuing impact of
market competition from cheaply priced imports.
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 2000 of 80.2% of net sales, improved from the fiscal 1999 level of 81.3%
of net sales. Mill conversion cost per ton declined from an average $126 in
fiscal 1999 to $124 in fiscal 2000. Average yielded scrap cost per ton declined
from an average $115 in fiscal 1999 to $106 in fiscal 2000.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses for the
year ended March 31, 2000 were 5.6% of net sales compared with 5.3% of net sales
in fiscal 1999.
DEPRECIATION. Depreciation increased to $23.5 million in fiscal 2000 from
$22.2 million in fiscal 1999 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 a charge of $8.3 million associated with the
accelerated vesting of stock options and stock appreciation rights as a result
of the change of control.
INTEREST EXPENSE. Interest expense decreased to $14.2 million in fiscal
2000 from $15.7 million in fiscal 1999 due primarily to lower average interest
rates. Average annual interest rates decreased from 7.7% in fiscal 1999 to 7.3%
in fiscal 2000 in part due to refinancings (see Note D to March 31, 2000
Consolidated Financial Statements--Borrowings" for a more detailed explanation
of debt activity during fiscal 2000.) Total outstanding debt increased by $20.2
million during fiscal 2000 primarily due to increased capital expenditures.
INCOME TAXES. The Company's effective federal and state income tax rate was
40% for fiscal 2000 and 39% for fiscal 1999, excluding the effect of goodwill
amortization which is not deductible for income tax purposes.
14
<PAGE>
Fiscal 1999 Versus Fiscal 1998
Average Selling
Tons Shipped (Thousands) Prices (Per Ton)
Year Ended March 31, Year Ended March 31,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
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
===== =====
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, 2000 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.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financial obligations outstanding as of March 31,
2000 were a $150 million revolving credit facility (the "Revolving Credit
Agreement") and a $90 million short term bank facility (the "364-Day Facility").
Included in the Revolving Credit Agreement are obligations securing $33 million
of Industrial Revenue Bonds ("IRBs").
On December 23, 1999, $129 million face value of the Company's 8.75% Senior
Notes were redeemed at 101% of face value due to the triggering of a change of
control provision in the notes as a result of the Gerdau acquisition. The
Company incurred an extraordinary pretax charge of $1.3 million for the call
premium associated with the change of control put. The redemption was funded
with $70 million provided by the 364-Day Facility and $60 million provided from
the Revolving Credit Agreement. $1.0 million of the notes remain outstanding.
The Revolving Credit Agreement 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, 2000, the Revolving
Credit Agreement had approximately $26.1 million available to the Company for
further borrowings, $89.1 million was outstanding and $34.8 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 364-Day Facility bears terms and conditions similar to the Revolving
Credit Agreement but matures January 18, 2001 and is secured by a lien on the
Company's Charlotte Mill property, plant and equipment. The 364-Day Facility was
used to fund, in part, the redemption of $129 million, face value of Senior
Notes as a result of Change of Control provisions in the notes, and to repay the
Company's $15 million Subordinated Intercompany Note, also due to the change of
control. The 364-Day Facility is classified as a current liability. The Company
intends to refinance the 364-Day Facility prior to its stated termination date
in January 2001.
The Senior Notes, the Revolving Credit Agreement and the 364-Day Facility
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 March
31, 2000 Consolidated Financial Statements -- Borrowings."
Net cash provided by operating activities for the year ended March 31, 2000
was $40.9 million compared with $62.2 million for fiscal 1999. Cash flow from
net income increased by $4.3 million but was offset primarily by $39.4 million
cash flow from accounts receivable and inventory increases. The increased
inventory levels reflect the Company's improved production capacity and
utilization, softening sales due to cheaply priced imports, higher cost scrap
and additional inventory associated with new fabricating operations in the
northeast. The Company used $28.7 million to repay debt and $42.3 million to
invest in capital projects, the majority of which was incurred for the melt shop
modernization project in the Knoxville, TN mill.
Over the years, the Company has expanded capacity and reduced manufacturing
costs by modernizing and upgrading facilities. Capital expenditures were $42.3
million for the year ended March 31, 2000, $25.6 million for the year ended
March 31, 1999 and $21.1 million for the year ended March 31, 1998. The Company
anticipates spending up to $35.0 million for capital expenditures in fiscal
2001.
The Company paid no dividends to its stockholders in fiscal 2000.
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. It will be necessary to refinance the 364-Day Facility
prior to its termination.
16
<PAGE>
YEAR 2000
The Company spent less than $3.0 million on computer hardware and software
systems to bring them into compliance with dating conventions associated with
"Y2K" issues and has incurred no problems with the date change.
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 (collectively, "Environmental Cleanup Laws").
These laws and regulations can impose joint and several liability for
contamination regardless of fault or the lawfulness of past activities. The
Company is also subject to extensive federal, state, and local laws and
regulations governing discharges to the air and water, handling and disposal of
solid and hazardous wastes, and employee health and welfare (collectively,
"Environmental Regulatory Laws"). Governmental authorities have the power to
enforce compliance with these requirements, and violators may be subject to
civil or criminal penalties, injunctions or both. Third parties also may have
the right to sue to enforce compliance and for damages.
The Company has estimated its potential costs for further remediation
under Environmental Cleanup Laws at on-site and off-site locations to be
approximately $3.2 million and has included this amount in the Company's
recorded liabilities as of March 31, 2000. Based on the use of certain
technologies and remediation methods by third parties, evaluation of those
technologies and methods by the Company's consultants, and quotations and
estimates of costs of remediation-related services provided to the Company, or
of which the Company and its consultants are aware, the Company believes the
cost estimates are reasonable. Considering 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 and these costs
are being expensed and paid from current operations. 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.
However, 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, 2000 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. Other factors that may limit the Company's
ability to pass on cost increases in materials is over-capacity in the steel
industry and foreign dumping of steel.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material impact.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
-------------- --------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $2,677 $ 3,219
Accounts receivable, less allowance of $ 1,500 and
$1,000 at March 31, 2000 and March 31, 1999,
respectively, for estimated losses 82,577 71,516
Inventories 147,064 121,818
Deferred tax assets 5,600 5,100
Other current assets 3,189 2,074
-------------- --------------
TOTAL CURRENT ASSETS 241,107 203,727
ASSETS HELD FOR SALE 7,434 13,618
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 18,396 16,173
Building and improvements 42,070 39,007
Machinery and equipment 284,886 269,864
Construction in progress 37,090 18,523
Restricted IRB funds - 1,476
-------------- --------------
382,442 345,043
Less accumulated depreciation (117,066) (97,731)
-------------- --------------
NET PROPERTY, PLANT AND EQUIPMENT 265,376 247,312
GOODWILL 80,819 77,513
DEFERRED FINANCING COSTS 1,088 3,495
OTHER ASSETS 11 118
-------------- --------------
TOTAL ASSETS $595,835 $545,783
============== ==============
</TABLE>
See notes to consolidated financial statements
18
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable $54,180 $41,435
Accrued salaries, wages and employee benefits 19,647 19,036
Current environmental remediation liabilities 1,294 5,226
Other current liabilities 8,393 4,319
Interest payable 1,865 5,558
Current maturities of long-term borrowings 90,311 3,333
--------------- ----------------
TOTAL CURRENT LIABILITIES 175,690 78,907
LONG-TERM BORROWINGS, LESS CURRENT MATURITIES 124,668 191,418
OTHER LIABILITIES 22,032 21,815
DEFERRED INCOME TAXES 47,507 48,500
--------------- ----------------
SHAREHOLDERS' EQUITY
Class A Common Stock, $.01 par value, 100,000,000 shares
authorized at March 31, 2000 and 1999. 10,377,183 and 0 shares
issued and outstanding at March 31, 2000 and 1999, respectively. 104 -
Class B Common Stock, $.01 par value, 22,000,000 shares
authorized at March 31, 2000 and 1999. 0 and 10,553,263 shares
issued and outstanding at March 31, 2000 and 1999,
respectively. - 106
Capital in excess of par 158,117 166,950
Retained earnings 67,882 38,552
Deferred compensation (165) (465)
--------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 225,938 205,143
--------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $595,835 $545,783
=============== ================
</TABLE>
See notes to consolidated financial statements
19
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands except earnings per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
2000 1999 1998
------------------ -------------- -----------------
<S> <C> <C> <C>
NET SALES $706,774 $ 671,476 $ 664,566
----------------- ---------------- ----------------
Operating Expenses:
Cost of sales 566,579 546,101 540,422
Selling and administrative 39,355 35,840 27,811
Depreciation 23,519 22,190 19,494
Amortization of goodwill 4,413 4,130 4,130
Other operating expense (income) 2,519 (37) -
----------------- ---------------- ----------------
636,385 608,224 591,857
----------------- ---------------- ----------------
INCOME FROM OPERATIONS 70,389 63,252 72,709
----------------- ---------------- ----------------
Other Expenses:
Interest 14,199 15,655 19,775
Amortization of deferred financing costs 613 574 652
----------------- ---------------- ----------------
14,812 16,229 20,427
----------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 55,577 47,023 52,282
Income taxes 23,922 19,950 22,000
----------------- ---------------- ----------------
INCOME BEFORE EXTRAORDINARY ITEM 31,655 27,073 30,282
EXTRAORDINARY ITEM
(Net of applicable income taxes of $1,486
and $1,325 for the years ended march 31, 2000
and 1999, respectively) (2,325) (2,073) -
----------------- ---------------- ----------------
NET INCOME $29,330 $ 25,000 $ 30,282
================= ================ ================
EARNINGS PER COMMON SHARE -
BASIC (NOTE B)
Income before extraordinary item $ 3.02 $ 2.57 $ 3.00
Extraordinary item (0.22) (0.20) -
----------------- ---------------- ----------------
Net income $ 2.80 $ 2.37 $ 3.00
================= ================ ================
DILUTED (NOTE B)
Income before extraordinary item $ 3.00 $ 2.53 $ 2.98
Extraordinary item (0.22) (0.19) -
----------------- ---------------- ----------------
Net income $ 2.78 $ 2.34 $ 2.98
================= ================ ================
Weighted average number of common
shares outstanding 10,487 10,561 10,103
Weighted average number of common
and common equivalent shares 10,569 10,663 10,174
</TABLE>
See notes to consolidated financial statements
20
<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, 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
Common stock issuance 247,071 2 3,223 - - 3,225
Repurchase of common stock (423,151) (4) (12,056) - - (12,060)
Net income - - - 29,330 - 29,330
Reduction in deferred compensation - - - - 300 300
-------------- ----------- ------------ ----------- -------------- ----------
BALANCES AT MARCH 31, 2000 10,377,183 $104 $158,117 $67,882 $ (165) $225,938
============== =========== ============ =========== ============== ==========
</TABLE>
See notes to consolidated financial
statements
21
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
2000 1999 1998
-------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income 29,330 $ 25,000 $ 30,282
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 23,519 22,190 19,494
Amortization 5,025 4,704 4,782
Extraordinary item 3,813 3,398 -
Deferred income taxes (1,493) (2,000) (1,900)
(Gain) loss on disposition of property, plant and equipment (125) 6,044 2,524
Loss (gain) on disposition of assets held for sale 481 - (1,756)
Deferred compensation 300 1,072 1,005
Changes in operating assets and liabilities:
Accounts receivable (11,061) 1,814 (4,767)
Inventories (17,954) 8,595 (24,240)
Other current assets (1,061) (1,665) 729
Other assets 107 (111) 4
Trade accounts payable 12,745 (8,083) 4,852
Salaries, wages and employee benefits 611 1,348 1,871
Other current liabilities 2,743 (71) 479
Environmental remediation (6,230) (3,200) 384
Interest payable (3,693) 723 176
Income taxes payable 1,331 483 292
Other liabilities 2,515 1,945 1,278
NET CASH PROVIDED BY OPERATING ACTIVITIES 40,903 62,186 35,489
----------------- ------------- ------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (42,329) (25,583) (21,107)
Asset acquisition (17,664) - -
Purchase of assets held for sale - - (129)
Proceeds from sales of property, plant and equipment 578 231 251
Proceeds from sale of assets held for sale 7,120 213 3,034
Restricted IRB Funds 1,476 836 (2,313)
----------------- ------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (50,819) (24,303) (20,264)
----------------- ------------- ------------
FINANCING ACTIVITIES
Proceeds from issuance of new debt 91,835 130,000 5,000
Proceeds from (payment of) short-term and long-term borrowings, 72,393 (56,820) (21,338)
net
Redemption of senior debt (129,000) (100,000) -
Redemption of subordinated intercompany note (15,000) - -
Call premium on redemption of senior debt (1,290) (1,916) -
Additions to deferred financing costs (729) (542) (3,138)
Proceeds from sale of common stock 3,225 72 10,006
Redemption of common stock (12,060) (382) (74)
Dividends paid - (6,334) (6,068)
------------- ------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,374 (35,922) (15,612)
------------- ------------- ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (542) 1,961 (387)
Cash and cash equivalents at beginning of period 3,219 1,258 1,645
------------- ------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,677 $ 3,219 $ 1,258
============= ============= ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest (net of amount capitalized) $ 17,892 $ 14,932 $ 19,599
============= ============= ============
Cash paid for income taxes $ 22,591 $ 20,791 $ 21,709
============= ============= ============
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000, 1999 AND 1998
NOTE A -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
AmeriSteel Corporation, a Florida corporation and its wholly owned subsidiary
(AmeriSteel Finance Corporation, a Delaware corporation) (together, the
"Company") after elimination of all significant intercompany balances and
transactions.
The Company is a majority owned subsidiary of FLS Holdings, Inc. (FLS),
whose only business is to own common stock of the Company. FLS was a wholly
owned subsidiary of Kyoei Steel, Ltd. (Kyoei), a private Japanese minimill
company. In September 1999, Kyoei sold 88% of its interest in FLS to Brazilian
steel manufacturer, Gerdau S.A. (Gerdau) through one of Gerdau's Canadian
subsidiaries (Change in Control). As a result, Gerdau is the majority owner of
the Company, with an indirect controlling interest of approximately 76%. Kyoei
retains an indirect 10% minority interest in the Company while an institutional
investor owns approximately 4% of the common stock of the Company. Executives
and other employees own the remaining 10% of the Company's common stock. Push
down accounting has not been applied to the financial statements of the Company
as a result of the Change of Control, therefore the historical cost basis of the
Company's assets have not been changed.
In March 2000, the Board of Directors approved changing the fiscal year
end of the Company from March 31 to December 31 effective for the period ending
December 31, 2000. For comparative purposes, and to be consistent with prior
periods, all references to future fiscal years in these notes refer to periods
ending March 31 of that year.
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 2000, 1999, and 1998 have been approximately
$871,000, $566,000, and $(28,000), 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, 2000, 1999 and
1998, export sales were less than 1% of total sales.
Revenue Recognition: Revenues are recognized as product is shipped to
customers.
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 $1.1 million and $0.2 million were capitalized for
the years ended March 31, 2000 and 1999, 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, 2000 and
1999, the Company had $0 and $1.5 million, respectively, of such restricted IRB
funds on its balance sheet.
23
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $30.1 million and $25.7 million at March 31, 2000
and 1999, respectively. Goodwill is being amortized over a 25-year period.
Deferred Financing Costs: Deferred financing costs are reflected net of
accumulated amortization and are amortized over the term of the respective debt
instruments, which range from 5 to 22 years from the debt inception date. The
Company incurred financing costs of approximately $0.7 million and $0.5 million
in fiscal 2000 and fiscal 1999, respectively, related to refinancing of long
term debt (see "Note D").
Income Taxes: Income taxes are accounted for using Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
establishes financial accounting and reporting standards for the effects of
income taxes that result from a company's activities.
Earnings per Common Share: In fiscal 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). Basic earnings per common share is based upon the weighted average number
of common shares and the diluted earnings per common share is based upon the
weighted average number of common shares plus the dilutive common equivalent
shares outstanding during the period. The following is a reconciliation of the
denominators of the basic and diluted earnings per common share computations
shown on the face of the accompanying consolidated statements of income (in
thousands):
<TABLE>
<CAPTION>
2000 1999 1998
------ ------- ------
<S> <C> <C> <C>
Basic weighted average number of common shares 10,487 10,561 10,103
Dilutive effect of options outstanding 82 102 71
------ ------- ------
Diluted weighted average number of common and
common equivalent shares outstanding 10,569 10,663 10,174
====== ======= ======
</TABLE>
The Company's previously reported primary earnings per common share and
fully diluted earnings per common share for fiscal 1998 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 1999 and 1998
financial statements have been reclassified to conform to the fiscal 2000
financial statement presentation.
24
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following:
MARCH 31, MARCH 31,
2000 1999
---- ----
($ in thousands)
<S> <C> <C>
Finished goods $ 96,165 $ 72,688
Work in-process 14,818 16,565
Raw materials and operating supplies 36,081 32,565
------ ------
$147,064 $121,818
======== ========
</TABLE>
NOTE D -- BORROWINGS
<TABLE>
<CAPTION>
Long-term borrowings consist of the following:
MARCH 31, MARCH 31,
2000 1999
----- ----
($ in thousands)
<S> <C> <C>
Revolving Credit Agreement $89,130 $13,690
Industrial Revenue Bonds 33,195 34,395
364-Day Facility 90,000 0
Senior Notes 1,000 130,000
TVA Loan 1,357 0
Capital Lease 297 0
Subordinated Intercompany Note 0 16,666
-------- --------
Total borrowings 214,979 194,751
Less current maturities 90,311 3,333
-------- --------
Total long-term borrowings $124,668 $191,418
======== ========
</TABLE>
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 2000. 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,
2000 was 6.9%.
The Company's 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, $3.8 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 emission control dust (EC dust). Of this
amount, $1.2 million was unused for construction purposes and repaid in October
1999. Irrevocable letters of credit issued pursuant to the Revolving Credit
Agreement backs the IRBs. As of March 31, 2000, the Company had approximately
$34.8 million of outstanding letters of credit, primarily for IRBs,
insurance-related matters and surety bonds. Interest on the IRBs was
approximately 4.6% at March 31, 2000.
The 364-Day Facility bears terms and conditions similar to the
Revolving Credit Agreement but matures January 18, 2001 and is secured by a lien
on the Company's Charlotte Mill property, plant and equipment. The 364-Day
Facility was used to fund the redemption of $129 million, face value of Senior
Notes as a result of change of control provisions in the notes, and to repay the
Subordinated Intercompany Note, also due to the change of control. The 364-Day
Facility bears variable interest based on leverage ratios which was
approximately 7.6% at March 31, 2000. The 364-Day Facility is classified as a
current liability.
25
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On April 3, 1998 the Company issued $130 million Senior Notes which
originally matured on April 15, 2008. On December 23, 1999, $129 million face
value Senior Notes were redeemed at 101% of face value due to a change of
control provision in the notes. The Company incurred an extraordinary pretax
charge of $1.3 million for the call premium associated with the Change of
Control put as well as $2.5 million for the write-off of deferred financing
costs associated with the redeemed notes. The redemption was funded with $70
million provided by the 364-Day Facility and $60 million provided from the
Revolving Credit Agreement. Due to the Change of Control put, only $1 million of
the Senior Notes remain outstanding and are due to a related party. 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. Fixed
8.75% interest on the Senior Notes is paid semiannually on April 15 and October
15.
The TVA Loan represents a $1.5 million note payable to the Tennessee
Valley Authority that amortizes over seven years and is secured by certain
equipment at the Knoxville, Tennessee mill.
The Capital Lease was used to purchase equipment at the Knoxville mill.
The maturities of long-term borrowings for the fiscal years subsequent
to March 31, 2000 are as follows:
FISCAL AMOUNT
------ ------
($ in thousands)
2000 $ 90,348
2001 349
2002 212
2003 220
2004 228
Thereafter 123,622
-------
$214,979
NOTE E -- INCOME TAXES
The provision for income taxes for each year ended March 31 is
comprised of the following amounts:
2000 1999 1998
---- ---- ----
($ in thousands)
Currently payable:
Federal $19,691 $17,589 $20,940
State 4,238 3,036 2,960
----- ----- -----
23,929 20,625 23,900
Deferred benefit:
Federal (1,344) (1,849) (1,700)
State (149) (151) (200)
----- ----- -----
(1,493) (2,000) (1,900)
------- ------- -------
$22,436 $18,625 $22,000
======== ======= =======
A reconciliation of the difference between the effective income tax
rate for each year ended March 31 and the statutory federal income tax rate
follows:
2000 1999 1998
---- ---- ----
($ in thousands)
Tax provision at statutory rates $18,118 $15,269 $18,299
State income taxes, net of federal
income tax effect 2,478 1,790 2,142
Goodwill amortization 1,437 1,446 1,445
Other items, net 403 120 114
------- ------- --------
$22,436 $18,625 $22,000
======= ======= ========
26
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the deferred tax assets and liabilities consisted of
the following at March 31:
2000 1999
---- ----
($ in thousands)
DEFERRED TAX ASSET
Allowance for doubtful accounts $ 591 $ 390
Worker's compensation accrual 853 979
Employee benefits and related accruals 3,705 3,074
Environmental remediation accrual -- 2,315
Federal net operating loss carryforward -- 551
Pension accrual 4,221 3,394
Post retirement benefits accrual 3,557 3,454
Property taxes 148 --
Investment writedown 367 --
Other 288 --
------- --------
13,730 14,157
------- --------
DEFERRED TAX LIABILITY
Inventories (413) --
Property, plant and equipment (52,926) (55,331)
Assets held for sale (2,182) (1,799)
Environmental remediation accrual (116) --
Property taxes -- (427)
-------- -------
(55,637) (57,557)
-------- ---------
NET DEFERRED TAX LIABILITY $(41,907) $(43,400)
========= =========
NOTE F -- BENEFIT PLANS
The Company maintains a defined benefit pension plan covering
substantially all employees. The benefits are based on years of service and
compensation during the period of employment. Annual contributions are made in
conformity with minimum funding requirements and maximum deductible limitations.
The Company currently provides specified health care benefits to
retired employees. Employees who retire after a certain age with specified years
of service become eligible for benefits under this unfunded plan. The Company
has the right to modify or terminate these benefits.
27
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the accumulated pension benefits and
postretirement medical benefit obligations included in the Company's
consolidated statements of financial position:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Medical
Fiscal 2000 Fiscal 1999 Fiscal 2000 Fiscal 1999
($ in thousands)
<S> <C> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 3,443 $ 2,985 $ 216 $ 228
Interest cost 7,477 6,910 519 553
Expected return on plan assets (8,890) (8,258) - -
Amortization of prior service cost (35) (35) (11) (11)
Recognized actuarial gain - - (19) (5)
------------- --------------- ----------------- ----------------
Net periodic benefit cost $ 1,995 $ 1,602 $ 705 $ 765
============= =============== ================= ================
Change in benefit obligations
Benefit obligation at beginning of year $109,224 $ 97,531 $ 8,297 $ 8,588
Service cost 3,443 2,985 216 228
Interest cost 7,477 6,910 519 553
Plan participants' contributions - - 393 406
Amendments - - - (165)
Actuarial (gain) loss (5,894) 6,510 (664) (127)
Benefits and administrative expenses paid (5,624) (4,712) (1,190) (1,186)
------------- --------------- ----------------- ----------------
Benefit obligation at end of year $108,626 $ 109,224 $ 7,571 $ 8,297
============= =============== ================= ================
Change in plan assets
Fair value of plan assets at beginning of year $99,638 $ 102,537 $ - $ -
Actual return on plan assets 10,694 1,813 - -
Employer contribution - - 797 779
Plan participants' contributions - - 393 406
Benefits and administrative expenses paid (5,625) (4,712) (1,190) (1,185)
------------- --------------- ----------------- ----------------
Fair value of plan assets at end of year $104,707 $ 99,638 $ - $ -
============= =============== ================= ================
Reconciliation of funded status - March 31
Funded status $(3,918) $(9,586) $(7,571) $(8,297)
Unrecognized prior service cost (284) (319) - -
Unrecognized actuarial (gain) loss (6,512) 1,186 (143) (154)
--------------- --------------- ----------------- ----------------
Net amount recognized $(10,714) $(8,719) $(7,714) $(8,451)
=============== =============== ================= ================
</TABLE>
The weighted average discount rates used in determining the actuarial
present value of the accumulated pension benefit obligations were 7.75% and
7.00%, for the years ended March 31, 2000 and 1999, 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, 2000 and
1999.
The weighted average discount rate used in determining the accrued post
retirement medical benefit obligation was 7.75% for fiscal 2000 and 7.00% for
fiscal 1999. The gross medical trend rate was assumed to be 9.27% in 1999 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 7.5% decreasing by .5% per
year to 5.5% in 2003 and beyond for post-65 retirees that retired before January
1, 1994. For retirees on or after January 1, 1994, the trend rate is the same
until the Company's expected costs are double the 1992 costs, and 0% thereafter.
At that point, the retirees will pay future increases in the medical trend. 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 $180 thousand and $22 thousand to the
accrued post retirement benefit obligation and service cost plus interest cost,
respectively, as of and for the year ended March 31, 2000.
28
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has an unfunded Supplemental Benefits Plan, which is a
nonqualified plan that provides a certain officer 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, 2000, 1999 and 1998
were approximately $781 thousand, $88 thousand and $107 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 $1.7 million, $1.5 million, and $1.3
million for the years ended March 31, 2000, 1999 and 1998, respectively.
NOTE G -- COMMON STOCK
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.
Concurrent with the Change of Control, all Class B common stock of the Company
automatically converted to Class A common stock.
The Company declared and paid $0.60 per share dividends to its
stockholders in March 1999 and March 1998, totaling $6.3 million and $6.1
million, respectively. No dividends were declared or paid in fiscal 2000.
In fiscal 2000, the Board of Directors approved a Stock Purchase/SAR
Plan (the SAR Plan) available to essentially all employees. The SAR Plan
authorizes 100,000 shares of common stock to be sold to employees during three
offering periods, July through September in each of 1999, 2002 and 2005.
Employees who purchased stock were awarded stock appreciation rights (SARs)
equal to four times the number of shares purchased. A total of 42,321 shares
were sold under the SAR Plan at a purchase price of $15.30 per share, with
33,776 of these shares outstanding as of March 31, 2000. SARs 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 169,284 SARs
were granted under the SAR Plan, with 135,104 of these rights outstanding as of
March 31, 2000. The SARs become exercisable at the rate of 25% annually from the
grant date and may be exercised for 10 years from the grant date.
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 1,047 of these shares outstanding as
of March 31, 2000. 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 4,788 of these options outstanding as of March 31, 2000. No
options remain available for future grant. The issued options became 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 SARs up to 438,852
shares. The Company has granted 261,800 incentive stock options and 52,100
shares of common stock under the Equity Ownership Plan through March 31, 2000,
with 176,191 incentive stock options and 40,335 shares of common stock
outstanding at March 31, 2000. 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.
29
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations.
No compensation expense has been recognized related to the issuance of common
stock or stock options. However, the Company may incur compensation expense in
the future related to its common stock and stock options depending on optionee
exercise and holding periods. Compensation expense related to SARs has been
recognized in the consolidated statements of income since the SARs are variable
plan awards. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which 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 123 been adopted.
For SFAS 123 purposes, the fair value of each option grant under the
Equity Ownership Plan and Purchase Plan has been estimated as of the date of the
grant using a minimum value calculation with the following weighted average
assumptions: risk-free interest rate of 6.0, 4.9 and 6.5 percent in fiscal 2000,
1999 and 1998, respectively; expected life of 7 years in fiscal 2000, 1999 and
1998; and dividend rate of three percent for fiscal 2000 and 1999 and zero
percent for fiscal 1998. Using these assumptions, the fair value of the stock
options granted in fiscal 2000, 1999 and 1998 is $131,658, $66,853, and
$311,915, respectively, which would be amortized as compensation expense over
the vesting period of the options.
Had compensation cost been determined consistent with SFAS 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:
2000 1999 1998
---- ---- ----
Net Income:
As reported $29,330 $25,000 $30,282
Pro forma 29,213 24,816 30,101
Earnings per common share:
Basic earnings per common share -
As reported $2.80 $2.37 $3.00
Pro forma 2.79 2.34 2.98
Earnings per common share:
Diluted earnings per common share and
common equivalent -
As reported $2.78 $2.34 $2.98
Pro forma 2.76 2.31 2.96
30
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize stock option activity for the years
ended March 31, 2000, 1999 and 1998:
Equity Ownership Plan
---------------------
<TABLE>
<CAPTION>
Number Weighted- Number Weighted- Number Weighted-
of Average of Average of Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
2000 2000 1999 1999 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year
172,700 $14.58 147,500 $12.99 78,300 $12.50
Granted 56,850 18.00 40,850 20.00 72,750 13.50
Exercised (45,981) 12.85 (1,898) 12.50 - -
Forfeited (7,378) 16.01 (13,752) 13.86 (3,550) 12.65
------- -------- -------
Outstanding, end of year 176,191 16.08 172,700 14.58 147,500 12.99
------- ------- -------
Options vested at year-end 44,370 $12.84 27,100 $12.50 4,000 $12.50
Weighted-average fair value of
options granted during the
year - $2.77 - $1.93 - $5.26
</TABLE>
Purchase Plan
-------------
<TABLE>
<CAPTION>
Number Weighted- Number Weighted- Number Weighted-
of Average of Average of Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
2000 2000 1999 1999 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year
167,241 $12.50 180,474 $12.50 194,778 $12.50
Granted - - - - - -
Exercised (158,769) 12.50 (3,883) 12.50 (460) 12.50
Forfeited (3,684) 12.50 (9,350) 12.50 (13,844) 12.50
------- ------- --------
Outstanding, end of year
4,788 $12.50 167,241 $12.50 180,474 $12.50
----- ------- -------
Options vested at year-end
4,788 $12.50 111,494 $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, 2000 is 7.81
years and 5.5 years, respectively.
NOTE H -- INCENTIVE COMPENSATION PLANS
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 2000, 1999 and 1998 plans were based on actual
return on capital employed as compared to target return on capital employed. The
award was $4.4 million for fiscal 2000, $3.6 million for fiscal 1999, and $4.0
million for fiscal 1998, which amounts were included in salaries, wages and
employee benefits.
31
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 18, 1999, under the Equity Ownership Plan, the Company granted
500,000 SARs to key executives. As a result of the Change of Control, the SARs
became vested and were exercised, resulting in a non-recurring charge of $7.7
million which was recorded as Other Operating Expense in the quarter ended
September 30, 1999.
In fiscal 2000, the Board of Directors approved a long-term incentive
plan available to executive management (the "Stakeholder Plan") to ensure the
Company's senior management's interest is congruent with the Company's
shareholders. Awards are based on the Company's return on capital employed.
Earned awards are vested and paid out over a period of four years.
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 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 collection and disposal of EC dust
are being expensed as operating costs when incurred. 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 to
assist in making such determinations. Although the ultimate costs associated
with the remediation are not known precisely, the Company has estimated the
total remaining costs to be approximately $3.2 million with these costs recorded
as a liability as of March 31, 2000. Of this amount, the Company expects to pay
approximately $1.3 million within one year.
The Tampa mill site contained slag and soil that was contaminated with
EC dust and polychlorinated biphenyl ("PCBs") generated by past operations. The
volume and mass estimates of the contamination was 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
(EPA) during fiscal 1998 and the Company received a signed Consent Order in
fiscal 1998. The remediation work is nearing completion. The Company is
responsible for the total remediation costs and currently estimates the
remaining costs to be approximately $1.1 million for this site. The Company
expects cleanup at this site to be substantially completed during fiscal 2001.
The Sogreen site, a third party site, contained EC dust from the
Company that was shipped to the site for recycling. The Company has been named
as a potentially responsible party (PRP) for this site, and thus its estimated
share of the remediation costs was approximately 43% 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.
32
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Stoller site, a third party site, contained EC dust and other
wastes from other PRPs and EC dust from the Company that was sent for recycling.
The Company was named as a PRP for this site. Outside contractors measured the
remediation volumes and masses during the cleanup process. On-site treatment,
disposal and construction of a 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. The Settlement 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. In August 1999, the Federal Court ruled the
Administrative Record was not sufficient to make a ruling on the Settlement
Agreement. The Federal Court litigation is currently stayed. The State of South
Carolina and all interested PRPs are currently in mediation with a mediator
provided by the EPA with a goal of obtaining a global settlement of all
financial responsibilities of the site.
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 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. Considering 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 Jackson, Tennessee mill site
to utilize a technology developed to recycle the Company's EC dust, which is
regulated as a hazardous waste due to the presence of heavy metals. The facility
has a design capacity to recycle up to 30,000 tons of EC dust per year. The
Company's four steel mills currently generate approximately 25,000 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
is 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. 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 other operating expense in fiscal
1999. The net book value of the facility at March 31, 2000 is approximately
$13.5 million.
NOTE J -- COMMITMENTS
Operating Leases
The Company leases certain equipment and real property under
non-cancelable operating leases. Aggregate future minimum payments under these
leases are as follows:
FISCAL AMOUNT
------ ------
($ in thousands)
2001 $ 3,300
2002 2,957
2003 2,679
2004 2,123
2005 970
Thereafter 321
---------
$ 12,350
=========
33
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense was approximately $4.1 million, $4.1 million, and
$3.7 million, for the years ended March 31, 2000, 1999 and 1998, respectively.
Service Commitments
The Company has long-term contracts with several raw material
suppliers. The Company typically realizes lower costs and improved service from
these contracts. The Company believes these raw materials would be readily
available in the market without such contracts.
Litigation
The Company is defending various claims and legal actions that 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 initial
public offering 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.
NOTE L -- OTHER OPERATING EXPENSES
Other operating expenses for fiscal 2000 includes non-recurring gains
of $5.8 million from cash settlements from graphite electrode suppliers offset
by $8.3 million in charges relating to accelerated vesting in stock appreciation
rights and other charges relating to the Change of Control. Other operating
expenses for fiscal 1999 includes 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.
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.
34
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operational results and other financial data for the two manufacturing
segments for the years ended March 31, 2000, 1999 and 1998 are presented below
(in thousands):
<TABLE>
<CAPTION>
Steel
Year Ending March 31, 2000 Mill Operations Fabrication Total Segments
<S> <C> <C> <C>
Revenue from external customers $ 427,192 $ 279,582 $ 706,774
Intracompany revenues 178,364 -- 178,364
Depreciation and amortization expense 22,821 3,626 26,447
Segment profit 51,733 31,070 82,803
Segment assets 469,522 114,075 583,597
Additions to long-lived assets 38,754 3,019 41,773
Steel
Year Ending March 31, 1999 Mill Operations Fabrication Total Segments
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
Steel
Year Ending March 31, 1998 Mill Operations 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
</TABLE>
35
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliation of reportable segments to consolidated total
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999 Fiscal 1998
<S> <C> <C> <C>
Revenues
Total segments revenues $ 885,138 $ 830,139 $ 815,296
Elimination of intersegment revenues (178,364) (158,663) (150,730)
------------------- ------------------- -------------------
Consolidated revenues $ 706,774 $ 671,476 $ 664,566
=================== =================== ===================
Depreciation and amortization
Total segments depreciation and amortization $26,447 $25,340 $22,767
Corporate depreciation and amortization 2,359 2,616 2,513
------------------- ------------------- -------------------
Consolidated depreciation and amortization $28,806 $27,956 $25,280
=================== =================== ===================
Profit
Total segments profit $82,803 $67,173 $72,029
Other profit or loss 2,518 (37) -
Elimination of intersegment profits (3,306) (2,164) 202
Unallocated amounts:
Other corporate (expense) income (11,626) (1,720) 477
Unallocated interest expense (14,812) (16,229) (20,426)
Unallocated taxes (23,922) (19,950) (22,000)
Extraordinary items (2,325) (2,073) -
------------------- ------------------- -------------------
Consolidated profit $29,330 $25,000 $30,282
=================== =================== ===================
Assets
Total segments assets $ 583,597 $ 520,666 $ 536,910
Elimination of intersegment receivables (17,389) (214,418) (191,692)
Other unallocated assets 29,627 239,535 216,912
------------------- ------------------- -------------------
Consolidated assets $ 595,835 $ 545,783 $ 562,130
=================== =================== ===================
Expenditures for long-lived assets
Total segments expenditures $41,773 $25,077 $19,359
Corporate expenditures 556 506 1,748
------------------- ------------------- -------------------
Consolidated expenditures for
long-lived assets $42,329 $25,583 $21,107
=================== =================== ===================
</TABLE>
36
<PAGE>
AMERISTEEL CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N - QUARTERLY DATA
The following table sets forth certain unaudited quarterly financial data
for each of the last eight quarters. The information has been derived from
unaudited financial statements that, in the opinion of management, reflect all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of such quarterly financial information.
The operating results for any quarter are not necessarily indicative of the
results to be expected for any future period.
<TABLE>
<CAPTION>
June 30, September December March 31, June 30, September December March 31,
1998 30, 1998 31, 1998 1999 1999 30, 1999 31, 1999 2000
---- -------- -------- ---- ---- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............. $ 189,403 $ 176,061 $ 148,595 $ 157,417 $ 187,240 $ 182,930 $ 163,165 $ 173,439
Cost of sales....... 159,579 152,458 123,915 132,339 153,641 150,595 136,588 149,274
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 29,824 23,603 24,680 25,078 33,599 32,335 26,577 24,165
Selling, general,
and
administrative
expenses.......... 9,845 9,212 10,072 10,804 11,625 14,399 9,809 10,454
----- ----- ------ ------ ------ ------ ----- ------
Income from
operations........ 19,979 14,391 14,608 14,274 21,974 17,936 16,768 13,711
Interest and
deferred finance
expenses.......... 5,134 3,495 4,085 3,515 3,840 3,701 4,043 3,228
----- ----- ----- ----- ----- ----- ----- -----
Income before
income taxes
and
extraordinary
item.............. 14,845 10,896 10,523 10,759 18,134 14,235 12,725 10,483
Income taxes....... 6,193 4,652 4,508 4,597 7,687 6,102 5,496 4,637
----- ----- ----- ----- ----- ----- ----- -----
Income before
extraordinary
item 8,652 6,244 6,015 6,162 10,447 8,133 7,229 5,846
Extraordinary item (2,073) -- -- -- -- -- (2,325) --
------- -- -- -- -- -- ------- --
Net income (loss) $ 6,579 $6,244 $6,015 $6,162 $10,447 $8,133 $4,904 $5,846
======= ====== ====== ====== ======= ====== ====== ======
Income(loss)
before
extraordinary
item per share:
Diluted........... $0.81 $0.58 $0.56 $0.58 $ 0.98 $0.76 $0.68 $0.58
===== ===== ===== ===== ====== ===== ===== =====
Net income (loss)
per share:
Diluted............. $0.62 $0.58 $0.56 $0.58 $ 0.98 $0.76 $0.46 $0.58
===== ===== ===== ===== ====== ===== ===== =====
Weighted average
number of shares:
Diluted (000s).... 10,681 10,675 10,672 10,663 10,635 10,714 10,568 10,476
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
In order to maintain consistency and comparability between periods, certain
amounts have been reclassified from the previously reported financial statements
to conform to the financial statements of the current period.
37
<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,
2000 and 1999, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2000, in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen LLP
Tampa, Florida,
April 28, 2000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
38
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required with respect to Directors and Executive
Officers is to be included in the Information Statement that will be submitted
to shareholders prior to July 29, 2000, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required with respect to Executive Compensation is to
be included in the Information Statement, which will be submitted to
shareholders prior to July 29, 2000, 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 to be included in the Information Statement
which will be submitted to shareholders prior to July 29, 2000, 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 to be included in the Information Statement which will
be submitted to shareholders prior to July 29, 2000, and is incorporated herein
by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of AmeriSteel Corporation as of the
dates and for the periods indicated are filed as part of this report:
<TABLE>
<CAPTION>
<S> <C> <C>
Consolidated Statements of Financial Position March 31, 2000 and March 31, 1999
Consolidated Statements of Operations Years Ended March 31, 2000, March
31, 1999 and March 31, 1998
Consolidated Statements of Shareholder's Equity Years Ended March 31, 2000, March
31, 1999 and March 31, 1998
Consolidated Statements of Cash Flows Years Ended March 31, 2000, March
31, 1999 and March 31, 1998
Consolidated Report of Independent Certified Public Accountants - April 28, 2000
</TABLE>
(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.
39
<PAGE>
(b) Reports on Form 8-K.
During the quarter ended March 31, 2000 the Company filed a current
report on Form 8-K dated March 23, 2000 to report a Change in Fiscal Year.
(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 Statement No. 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))
10.4 -- $70,000,000 364 Day Credit Agreement dated October 20, 1999 by and
among the Company, Bank of America, N.A., SunTrust Bank Tampa Bay and
certain other lenders (incorporated by reference to Exhibit 10 to the
Company's Interim Report on Form 10-Q for the period ended September
30, 1999)
10.5 -- Amendment Agreement No. 1 to 364 Day Credit Agreement dated
October 20, 1999 by and among the Company, Bank of America, N.A.,
SunTrust Bank Tampa Bay and certain other lenders
10.6 -- AmeriSteel Stakeholder Plan
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule (for SEC use only)
40
<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.
<TABLE>
<CAPTION>
<S> <C> <C>
AMERISTEEL CORPORATION
By: /s/ Phillip E. Casey June 23, 2000
--------------------------------------------------------------
Phillip E. Casey, President and Chief Executive Officer
<CAPTION>
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> <C> <C>
/s/ Jorge Gerdau Johannpeter June 23, 2000 Chairman of the Board
-----------------------------------------------------------------
Jorge Gerdau Johannpeter Date
/s/ Phillip E. Casey June 23, 2000 President
----------------------------------------------------------------- Chief Executive Officer; Director
Phillip E. Casey Date
/s/ Frederico C. Gerdau Johannpeter June 23, 2000 Director
-----------------------------------------------------------------
Frederico C. Gerdau Johannpeter Date
/s/ Klaus Gerdau Johannpeter June 23, 2000 Director
-----------------------------------------------------------------
Klaus Gerdau Johannpeter Date
/s/ Andre Bier Johannpeter June 23, 2000 Director
-----------------------------------------------------------------
Andre Bier Johannpeter Date
/s/ Germano Gerdau Johannpeter June 23, 2000 Director
-----------------------------------------------------------------
Germano Gerdau Johannpeter Date
/s/ Carlos J. Petry June 23, 2000 Director
-----------------------------------------------------------------
Carlos J. Petry Date
/s/ Tom J. Landa June 23, 2000 Vice President; Chief Financial Officer and
----------------------------------------------------------------- Secretary (Principal Financial Officer and
Tom J. Landa Date Principal Accounting Officer); Director
/s/ J. Donald Haney June 23, 2000 Vice President; Director
-----------------------------------------------------------------
J. Donald Haney Date
/s/ Hideichiro Takashima June 23, 2000 Director
-----------------------------------------------------------------
Hideichiro Takashima Date
</TABLE>
41
<PAGE>
Exhibit Index
Exhibit
Number Description
------ -----------
10.5 -- Amendment Agreement No. 1 to 364 Day Credit Agreement dated
October 20, 1999 by and among the Company, Bank of America, N.A.,
SuntTrust Bank Tampa Bay and certain other lenders.
10.6 -- AmeriSteel Stakeholder Plan
23 -- Consent of Arthur Andersen LLP
27 -- Financial Data Schedule (for SEC use only)
