SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
From the transition period from to
Commission file number
BIRMINGHAM STEEL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3213634
- - ------------------------------- -----------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization Identification Number)
1000 Urban Center Drive, Suite 300
Birmingham, Alabama 35242
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(205) 970-1200
Securities Registered pursuant to Section 12 (b) of the
Act:
Name of Each Exchange
Title of Each Class on Which Registered
- - ------------------- ----------------------
Common Stock, par value New York Stock
$0.01 per share Exchange
Securities Registered pursuant to Section 12 (g) of the
Act:
NONE
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 (or for such shorter period that
the registrant was required to file such report), 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. ( )
As of August 22, 1995, 28,545,811 shares of Common
Stock of the registrant were outstanding. On such date
the aggregate market value of shares (based upon the
closing market price of the Company's Common Stock on
the New York Stock Exchange on August 22, 1995) held by
non-affiliates was $557,815,697. For purposes of this
calculation only directors, officers and holders of more
than 5% of the Company's Common Stock are deemed to be
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for
the 1995 Annual Meeting of Stockholders dated September
15, 1995 are incorporated herein by reference in
response to items 10 through 13 in Part III of this
report.
PART I
ITEM 1. BUSINESS
Birmingham Steel Corporation (the "Company") operates
four non-union mini-mills located across the United
States that produce primarily steel reinforcing bar
("rebar") and merchant products on a low-cost basis.
The Company also specializes in manufacturing high
quality steel rod and wire from semi-finished billets at
its American Steel and Wire ("ASW") subsidiary.
The Company, through its Rebar/Merchant Business,
produces carbon steel rebar products sold primarily to
independent fabricators for use in the construction
industry, and merchant products which include rounds,
flats, squares, strip, angles and channel which are sold
to fabricators, steel service centers and original
equipment manufacturers for use in general industrial
applications.
In November 1993, the Company acquired American Steel &
Wire Corporation ("ASW") as part of its strategy to
diversify the Company's product mix. ASW, the Company's
Rod and Wire Business, converts semi-finished steel
billets into high quality steel rod and subsequently
transforms a portion of its rod production into finished
wire products (approximately 7.0% in fiscal 1995). Steel
rod and wire products produced by ASW are sold primarily
to customers in the automotive, fastener, welding,
appliance and aerospace industries. ASW is also the
sole manufacturer of the ultra-high tensile strength
specialty wire utilized in the U.S. Government's TOW
anti-tank missile guidance system.
The Company's operating strategy with respect to its
Rebar/Merchant Business is (i) to improve its position
as a low-cost producer through continued operating cost
reductions, (ii) to optimize capacity utilization at
each of its facilities and (iii) to increase production
and sales of higher margin merchant products. The
Company estimates that its mini-mills have annual steel
melting capacity of approximately 2.5 million tons and
finished product rolling capacity of approximately 2.8
million tons (including high quality rod production).
In fiscal 1995, the Company achieved record steel
shipments of 2.375 million tons.
In fiscal 1995, the Company invested approximately $78
million in capital improvements in accordance with the
Company's long-standing program of modernizing and
upgrading its production facilities. Since July 1984,
the Company has invested approximately $405 million for
expansion and modernization projects designed to reduce
overall per ton manufacturing conversion costs, which
the Company defines as production costs excluding the
cost of scrap raw material. The Company's average
conversion cost per ton in fiscal 1995 was $119, down
from a high of $139 in fiscal 1990. The Company believes
its conversion costs may be reduced in the future as a
result of anticipated improvements in the performance of
some newer equipment and optimization of production
techniques. Because of its modern production
techniques, labor incentives and cost controls, the
Company believes that it is one of the most efficient
mini-mill producers of rebar and merchant steel products
in the United States.
At the onset of the economic recession in fiscal 1990,
the Company initiated a program for restructuring its
steel-making business and began rationalizing certain
unprofitable operations. In fiscal 1991, the Company
shut down mini-mill facilities in Emeryville, California
and Norfolk, Virginia. The production equipment from
these facilities has been employed elsewhere within the
Company, or sold as used equipment, primarily to buyers
located outside the United States. Despite these shut-
downs, the Company's total production capacity of its
rebar and merchant steel operations has expanded as a
result of strategic acquisitions and equipment
enhancements at its other facilities. Furthermore,
since 1990, the Company has increased its market share
in the rebar and merchant steel markets and lowered its
unit production costs.
In November 1993, the Company acquired ASW as part of
its strategy to diversify the Company's product mix.
With the acquisition of ASW and its experienced
management group, the Company gained immediate entry
into the markets for high quality steel products -
markets which are very difficult to penetrate as a
result of customers' stringent product quality
requirements. The Company believes that ASW is the
largest producer of high quality rod and wire products
in North America. Sales of high quality rod and wire
products provide substantially higher margins than the
Company's rebar/merchant steel products. Furthermore,
the high quality rod and wire market historically has
been less subject to new competition because of the
significant capital requirements and the quality and
process control systems orientation necessary to produce
high quality rod and wire. ASW's quality orientation
has enabled it to attract customers in markets which
previously had been served by foreign suppliers or where
customers had been accepting lower quality products.
ASW currently purchases 100% of its high quality semi-
finished steel billet requirements from outside sources
and management believes that ASW is one of the largest
purchasers of billets in the world. In fiscal 1995, ASW
shipped approximately 632,000 tons of rod and wire
products, compared with 557,000 tons (including 5 months
pre-acquisition) last year, an increase of approximately
13% over the prior year period. The Company estimates
the current annual capacity of the ASW rod production
facilities to be approximately 650,000 tons.
The Company's operating strategy with respect to ASW is
to increase its market penetration and profitability by
(i) constructing additional production capacity and
increasing rod shipments by as much as 100%, (ii)
expanding the product range to include larger diameter
rod and (iii) reducing costs through improved sourcing
of high quality billets and through the construction and
operation of a high quality billet manufacturing
facility. The Company has begun construction of a $112
million state-of-the-art bar mill for ASW, scheduled to
begin operations in April 1996. Also, the Company
recently announced that Memphis, Tennessee will be the
site for its new high quality melting facility,
construction of which is anticipated for completion in
the fourth quarter of fiscal 1997.
With respect to its overall business strategy, the
Company continues to review opportunities for the
potential acquisition of steel producing assets, the
construction of new steel plants and the establishment
of a presence in the raw material markets.
Steel Manufacturing
The Company's mini-mill operations melt ferrous scrap to
produce a limited range of rebar and merchant steel
products. Operations commence with the melting of
ferrous scrap in an electric arc furnace. The molten
steel is then funneled through a continuous casting
device from which it emerges as continuous rectangular
strands of steel which are cut into predetermined
lengths. These semi-finished steel shapes are referred
to as billets. The billets are transferred to a rolling
mill where they are reheated, passed through a roughing
mill for size reduction, and then rolled into finished
reinforcing bars or other steel products. Products
emerge from the rolling mill onto a cooling bed where
they are cooled uniformly. Most merchant products then
pass through state-of-the-art straightening and stacking
equipment, with all products then passing through
automated bundling equipment prior to customer shipment.
The Company's mini-mills are located in Birmingham,
Alabama; Kankakee, Illinois; Jackson, Mississippi; and
Seattle, Washington. The Company operates its three
Port Everglades Steel Company ("PESCO") distribution
facilities in Florida and also warehouses finished steel
products at third-party distribution depots which are
used to service steel requirements for customers in
certain geographic regions. The Company ships finished
product from third-party depots located in Livermore and
Fontana, California and Baltimore, Maryland.
Steel can be produced at significantly lower costs by
mini-mills than by integrated steel operations, which
typically process iron ore and other raw materials in
blast furnaces to produce steel. Integrated steel mills
generally use costlier raw materials, consume more
energy, consist of older and less efficient facilities
which are more labor-intensive and employ a larger and
more highly paid labor force. In general, mini-mills
produce a limited line of rebar and merchant products
and service geographic markets. Because there are no
technological barriers to entry into the industry and a
new mini-mill can be constructed in approximately two
years, the domestic mini-mill steel industry currently
has excess production capacity. This over-capacity,
together with competition from foreign producers, has
resulted in competitive product pricing and cyclical
pressures on industry profit margins. In this
environment, efficient production and cost controls are
critical to the viability of domestic mini-mill steel
producers.
In contrast to the Company's mini-mill operations, the
recently acquired ASW subsidiary purchases high quality
carbon and alloy semi-finished steel billets from
outside sources and converts the billets into a variety
of high quality rod and wire products. Purchased
billets are inspected for surface defects and, when
necessary, conditioned before transfer into the rod
mill. Upon entering the rod mill, the billets pass
through a computer controlled multi-zone recuperative
reheat furnace, where a closely controlled heating
process imparts a more uniform grain structure to the
steel. The heated billets are then fed into the rolling
line, where they pass through roughing, intermediate and
no-twist finishing stands during the rod production
process. After rolling, the rod is coiled and control
cooled. Once the cooling process is complete, the
coiled rod passes through inspection stations for
metallurgical, surface and diameter checks. Approved
coils are compacted and banded and then either shipped
to customers or transferred to ASW's wire mill for
conversion into wire.
Although ASW has production capabilities to produce rod
and wire of virtually all qualities, it has chosen to
concentrate on a select number of high quality/high-
margin products which include cold heading, cold
finishing, cold rolling, welding and high carbon steel
grades. ASW's operating strategy is to focus on the
U.S. high quality rod and wire markets, which demand
exacting metallurgical and size tolerance specifications
and defect-free surface qualities. In fiscal 1995,
approximately 7.0% of finished rod products were
transferred to the wire production facility and
converted into smaller-diameter wire through a cold-
drawing process. Finished steel rod products are also
transferred to the wire mill solely for surface or
thermal treatment applications and then shipped to rod
customers. The Company operates rod mills in Cleveland,
Ohio and Joliet, Illinois. The Company's steel wire
production facility is located adjacent to the rod mill
in Cleveland. The ASW TOW wire production facility,
located in Cleveland, purchases specialty steel rod from
a third party. The steel rod is then extensively
treated and converted in a multiple drawing process into
wire used in the TOW anti-tank missile guidance system.
Sales of high quality rod and wire products provide
substantially higher margins than the Company's rebar
and merchant steel products. Furthermore, the high
quality rod and wire markets have historically been less
subject to new competition than markets for lower
quality products because of the significant capital
requirements and quality systems orientation necessary
to produce high quality rod and wire.
Raw Materials and Energy Costs
The principal raw material used in the Company's mini-
mills is ferrous scrap generally derived from
automobile, industrial and railroad scrap. The market
for scrap steel is highly competitive and its price
volatility is influenced by periodic shortages, freight
costs, speculation by scrap brokers and other conditions
largely beyond the control of the Company. The Company
purchases its outside scrap requirements from a number
of dealers and is not dependent on any single supplier.
In fiscal 1995, scrap costs represented approximately
48% of the Company's total manufacturing costs at its
mini-mills.
Within the commodity product ranges dominated by the
mini-mill industry, fluctuations in scrap market
conditions have an industry-wide impact on manufacturing
costs and selling prices of finished goods. During
periods of scrap price escalation, the mini-mill
industry seeks to maintain profit margins and the
Company has generally been able to pass along increased
raw material costs to customers. However, temporary
reductions in profit margin spreads frequently occur due
to a timing lag between the escalation of scrap prices
and the effective market acceptance of higher selling
prices for finished steel products. Following this
delay in margin recovery, steel industry profitability
has historically escalated during periods of inflated
scrap market pricing. However, there can be no
assurance that competitive conditions will permit the
Company to pass on scrap cost increases in the future.
The principal raw material for the Company's ASW
operations is high quality steel billets. Because of
the metallurgical characteristics demanded in ASW's
final products, ASW obtains its billets only from those
suppliers whose billets can meet the required
metallurgical specifications of its customers. ASW
manufactures its products from approximately 120 generic
grades of billets. To obtain high quality billets
needed to provide the sophisticated products that ASW
manufactures, a team approach among the suppliers, ASW
and customers is required. Typically, the approval
process for a particular billet supplier requires six to
twelve months. ASW currently purchases from six
approved billet suppliers.
During fiscal 1995, ASW acquired approximately 40% of
its billets from USS/KOBE Steel Company ("USS/KOBE"),
located in Lorain, Ohio. ASW has a supply agreement
with Broken Hill Proprietary Company, Limited, located
in Australia, which expires on May 31, 1997 and an
agreement with QIT-Fer et Titane Inc., located in
Montreal, Canada, which expires June 30, 1997. ASW is
currently involved in discussions with current and
potential billet suppliers regarding its future billet
requirements, which are expected to be substantially
higher than historical levels due to the new bar mill
expansion. Management believes that its current
agreements and its relationships with these and other
suppliers ensure a supply of steel billets sufficient to
meet its anticipated needs. The Company has recently
announced its plans to construct a high quality steel-
making facility capable of producing approximately 1.0
million tons per year of billets which meet ASW's
quality requirements in Memphis, Tennessee.
The Company's mini-mill operations consume large amounts
of energy in the form of electricity and natural gas.
The Company purchases its electrical energy from
regulated utilities under interruptible service
contracts which provide for economical electricity
rates. These high volume industrial discount rates are
provided in return for the utility's right to
periodically interrupt service during peak demand
periods. These interruptions are generally limited to
several hours and have occurred no more than ten days
per year. Since deregulation of the natural gas
industry, natural gas requirements generally have been
provided through negotiated contract purchases of well-
head gas with supplemental transportation through local
pipeline distribution networks.
The principal sources of energy for the Company's ASW
operations are electricity and natural gas. ASW has
supply contracts for electricity and natural gas and
believes that adequate supplies of both sources of
energy are readily available.
Production Capacity
Mini-Mill Operations. The table below indicates the
percentage of capacity at which the Company's
rebar/merchant mini-mills operated during the fiscal
year ended June 30, 1995. The capacities presented are
management's estimates and are based on a normal 168
hour weekly work schedule, an average product mix and
include the effects of existing melting or rolling
capacity limitations within each operation. Production
capacities listed below are estimated year-end capacity
levels which in several instances increased
substantially during the year due to equipment upgrades
and modification. Therefore, capacity utilization
percentages may not reflect actual capacity utilized
during the year.
<TABLE>
<CAPTION>
FY1995
Annual Melting Capacity Annual FY1995 Capacity
Melting Pro- Utilization Rolling Rolling Utilization
Capacity duction Percentage Capacity Production Percentage
(ln thousands of tons) (in thousands of tons)
<S> <C> <C> <C> <C> <C> <C>
Kankakee 750 657 87.6 600 557 92.8
Birmingham 500 377 75.4 500 368 73.6
Jackson 500 354 70.8 400 310 77.5
Seattle 750 487 64.9 600 471 78.5
----- ----- ---- ----- ----- ----
2,500 1,875 75.0 2,100 1,706 81.2
===== ===== ==== ===== ===== ====
</TABLE>
The Company produces rebar and merchant products at all
four of its operating mini-mills. The conversion from
production of rebar to merchant products at these four
facilities is part of the routine operations of these
plants, and no major impediments exist which would
preclude changing between product mixes. The Company
has installed automated in-line straightening, stacking
and bundling equipment at its Jackson, Kankakee and 115
Seattle mills which allows for efficient handling of
merchant products.
Rod and Wire Operations. The table below indicates the
capacity at which ASW's rod and wire production
facilities operated during the fiscal year ended June
30, 1995. The capacities presented are management's
estimates and are based on ASW's anticipated staffing
levels and an average product mix.
Annual Fiscal Capacity
Production 1995 Utilization
Capacity Production Percentage
(in thousands of tons)
Cuyahoga rod 460 448 97.4
Joliet rod 190 181 95.3
--- --- ----
Total rod 650 629 96.8
=== === ====
Cuyahoga wire 80 47 58.8
=== === ====
Rebar/Merchant Mini-Mill Production Facilities
The Kankakee Facility
The Kankakee facility is located approximately 50 miles
south of downtown Chicago and is currently the Company's
most modern mini-mill. Since its acquisition in 1984,
a comprehensive modernization program costing more than
$70 million has provided a new melt shop, continuous
caster, modern in-line rolling mill and in-line
straightening, stacking and bundling equipment to
accelerate the merchant steel marketing program. In
January 1993, the Company completed the upgrade of the
facility's existing reheat furnace, increasing its
capacity from 70 tons-per-hour to 100 tons-per-hour.
Kankakee enjoys a favorable geographical proximity to
the primary rust-belt markets for merchant products.
This freight cost advantage and modernized equipment
capability at Kankakee are competitive advantages in the
Company's strategy to expand market share in the
merchant product sector.
The Company has more than tripled the facility's
original melting and rolling capacities to 750,000 tons
and 600,000 tons per year, respectively. Additionally,
the Company developed an environmentally superior
process for scrap handling and storage. These
improvements completed an extensive modernization
program at the Kankakee facility and concluded the total
renovation of all major aspects of this operation.
The Kankakee plant is one of the most modern and
operationally efficient mini-mills in the United States.
The mill achieved its conversion cost goal of $100 per
ton in May of 1992. Since that time, the mill has
recorded conversion costs below the $100 per ton mark on
several occasions, with fiscal 1995 averaging $105.
Producing merchant products and rebar, in fiscal 1995
the facility shipped 597,000 tons of steel and produced
2,222 tons per worker-year.
The Birmingham Facility
The Birmingham facility was the first mini-mill built in
the United States and was in need of major renovations
when acquired in August 1984. Since the acquisition,
the facility has undergone a $37 million transformation,
outfitting the mill with a new electric arc furnace and
sequence casting system in the melt shop, new reheat
furnace, finishing stands, cooling bed and product shear
in the rolling mill and a new finished goods storage
area. The November 1992 installation of an in-line
rolling mill, utilizing equipment transferred from the
idled mill in Norfolk, Virginia, has transformed the
1950s vintage rolling operation into a modern, efficient
mill capable of matching the aggressive manufacturing
conversion cost levels achieved at Kankakee.
At fiscal year-end 1995, the mill's annual melting and
finished rolling capacities were 500,000 tons and
500,000 tons, respectively. Cost improvements are
continually being realized at the Birmingham facility as
a result of further capital improvements. In August
1994, the mill began operating a modern finished goods
bundling and transfer system, which automated a
previously time-consuming, manual process. During
fiscal 1995, the mill installed a new 120 ton-per-hour
reheat furnace as well as minor refinements to the melt
shop which evenly matched the mill's total melting and
rolling capacity at 500,000 annual tons.
The Birmingham facility produces primarily rebar,
merchant rounds, flats and squares. In fiscal year
1995, the Birmingham facility direct shipped 357,000
tons of steel product and provided inventory for 4,000
tons of steel shipped from the Company's Baltimore
depot. The Birmingham mill produced steel at 1,753 tons
per worker-year in fiscal 1995.
The Jackson Facility
The acquisition of the Jackson facility in 1985 provided
the Company with an efficient, modern mini-mill
operation, utilizing in-line rolling mill equipment.
Jackson's efficient operations provided substantial cash
flow, assisting the Company's growth strategy with
financial resources for selected acquisitions and
modernization projects.
When acquired, the Jackson mill's annual melting and
rolling capacities were 210,000 tons and 300,000 tons,
respectively. Although minor improvements raised the
annual melting capacity to 220,000 tons, excess rolling
mill capacity necessitated the purchase of semi-finished
billets from other Company mills or outside sources. To
alleviate the need to purchase billets and significantly
reduce the melt shop's conversion costs, construction of
a new melt shop was started in fiscal 1992 and was
completed in March 1993. This $22 million project
increased the mill's melting capacity to 400,000 tons
and eliminated the need for outside billet purchases,
resulting in significant annual cost savings.
To complement Jackson's modern rolling mill, the Company
installed a new reheat furnace, additional finishing
stands and automated in-line straightening and stacking
equipment (to enhance automated bundling equipment
already in place) during 1993 and 1994. The
improvements have elevated finished rolling capacity for
the mill to 400,000 tons annually.
The Jackson mill produces rebar, merchant rounds,
squares, flats, strip and angles. In fiscal 1995,
Jackson shipped 302,000 tons of steel product and
produced 1,442 tons per worker-year.
The Seattle Facility
The Seattle facility was originally purchased in 1986,
providing the Company's entrance into the West Coast
steel market. At the time of acquisition, Seattle's
melting (Kent, Washington) and rolling facilities
(Ballard, Washington) were nearly 35 miles apart. The
May 1991 acquisition of the former Seattle Steel, Inc.
assets, allowed the Company to consolidate the majority
of operations to the new West Seattle site and double
the mill's former capacity. This increased capacity and
its low cost hydroelectric power source also facilitated
the acceleration of the shut-down of operations in
Emeryville, California without abandonment of the
Company's customer base in the California and Arizona
markets.
Situated adjacent to the Port of Seattle, the West
Seattle operation is the Company's largest mini-mill.
Melting capacity at Seattle recently increased to
approximately 750,000 tons upon installation of a new
furnace in July 1995 which replaced the mill's two
older, less productive furnaces. The facility produces
a variety of products including rebar, merchant rounds,
angles, channels, squares, flats and strip. The
facility also supplies the steel for the Company's
western distribution depots.
Soon after the acquisition of the West Seattle
operations, the Company began a modernization program
which included the installation of a new baghouse, new
ladle turret and billet runout table. Construction of
the facility's new rolling mill was completed in June
1993. This $50 million rolling mill consists of state-
of-the art equipment which replaced two older, less
efficient mills which were operating in Ballard and West
Seattle. The new mill generated an approximate 15%
increase in finished rolling capacity and a significant
reduction in the facility's total workforce. The new
rolling mill includes automated in-line straightening,
stacking and bundling equipment designed to facilitate
Seattle's rapid expansion in merchant product
production. The new additions increased Seattle's
finished rolling capacity to approximately 600,000 tons
per year.
In fiscal 1995, the Seattle facility direct shipped
416,000 tons of steel, and provided inventory for 54,000
tons of shipments through the West Coast depot
locations. The Seattle mill produced steel at 1,452
tons per worker-year in fiscal 1995.
PESCO Facilities
In December 1994, the Company acquired substantially all
of the assets of Port Everglades Steel Corporation
("PESCO"), a Florida based steel distributor which
operates three facilities in Florida. PESCO obtains the
majority of its steel requirements from the Company's
Birmingham and Jackson mini-mills. The Company
estimates that PESCO will ship approximately 80,000 tons
of steel per year to its customers.
Rod and Wire Production Facilities
In addition to the facilities discussed below, the
Company is initiating plans to expand ASW's high quality
steel production capabilities. The Company has begun to
construct a new $112 million state-of-the-art bar mill,
which will increase capacity, accommodate a larger
diameter product range, produce a heavier weight coil
and increase the Company's market within its existing
customer base. The Company has also announced the site
to construct a $175 million high quality steel-making
facility capable of producing billets which meet ASW's
quality requirements.
Cuyahoga Works. The ASW Cuyahoga Works, located near
Cleveland, includes a rod mill and a wire mill. These
assets were purchased from United States Steel
Corporation (now "USX Corporation") in 1986 upon the
formation of ASW. The Cuyahoga rod mill consists of a
two strand, 25-stand rolling mill with single-line pre-
finishers and no-twist finishing. The mill utilizes a
Stelmor controlled slow cooling conveyor system, where
precise cooling practices provide a metallurgical
structure normally imparted only through additional and
more costly thermal treatment. Management believes that
this capability provides the Company with an important
competitive advantage in producing certain of its
quality rods.
The Cuyahoga Works rolling mill is able to produce 3,000
pound rod coils in sizes ranging from 7/32" through
9/16" diameter at speeds of up to approximately 14,000
feet per minute. In fiscal 1995, the Cuyahoga rod mill
shipped 456,000 tons of finished steel rod.
The Company is considering several capital equipment
upgrades at the Cuyahoga rod mill, including the
installation of a new reheat furnace which will allow
for consumption of larger size billets. The Company also
plans other equipment upgrades designed to improve the
quality of the finished products. Management estimates
that up to $60 million in new capital improvements would
be required for these upgrades.
The wire mill, located adjacent to the rod mill at the
Cuyahoga Works, serves two functions. Some finished rod
is transferred from the ASW rod mills and either
converted into high quality wire for sale to customers
or processed and shipped to rod customers.
The ability to offer high quality processing of rod to
ASW customers' specifications is a service that
distinguishes ASW from a number of its competitors.
Such processing includes surface treatment (cleaning and
coating), thermal treatment (annealing) and wire
drawing. Wire is produced in the wire mill through a
cold drawing process which involves reducing the
diameter of the steel rod by pulling the rod through
dies. Rod to be drawn into wire may be surface or
thermal treated before or after drawing. Depending upon
the processing required, many wire orders require up to
three weeks to complete, while the typical rod coil is
manufactured in several hours.
In fiscal 1995, the Cuyahoga wire mill shipped
approximately 47,000 tons of wire and approximately
42,000 tons of processed rod. Cold heading and wool-
quality wire manufactured by ASW is used by its
customers to produce such products as industrial
fasteners and brake pad linings, respectively.
Joliet Works. The rod mill at the Joliet Works is
dedicated to a more limited product mix of higher -
quality steel rod than is produced at the Cuyahoga
Works. The Joliet mill consists of a 19-stand mill and
includes a three-zone, top-fired walking beam furnace
and no-twist finishing equipment. The Joliet mill uses
4" billets to produce a full range of carbon and alloy
steel rods including free-machining and boron grades in
cold heading and cold finishing qualities. The mill
produces 2,100 pound rod coils in sizes ranging from
23/64" through 15/16" diameter. In fiscal 1995, the
Joliet mill shipped 176,000 tons of finished rod and a
limited amount of coiled rebar.
As part of the Company's current capital modernization
plans, the Joliet operation is scheduled to convert to
100% rebar production (both coiled and straight rebar)
during the fiscal 1997-1998 timeframe. When the
operation is converted, the mill will be capable of
producing approximately 250,000 tons of rebar annually.
TOW Wire Production. ASW operates a facility in
Cleveland which produces ultra-high tensile strength
specialty wire for use in the U.S. Government's anti-
tank missile guidance systems. ASW is the only producer
of TOW missile wire. The manufacture of TOW wire is a
highly specialized process. The principal raw material
is specialty steel rod which is purchased from an
outside supplier. The rod is subjected to a series of
surface and thermal treatments and drawing operations
which take approximately five weeks to complete and
which reduce the original .197" diameter rod to .0049"
diameter wire. The wire must pass seven U.S.
Government-mandated final inspection tests, including a
test assuring tensile strength of 500,000 pounds per
square inch. Upon completing successful inspection, the
wire is packaged and shipped to one customer which is
the exclusive producer of the TOW missile.
Products and Markets
Rebar/Merchant Steel Products
Of the 1,743,000 tons of rebar/merchant steel products
shipped from the Company's various locations in fiscal
1995, approximately 62% was rebar and approximately 31%
was merchant products. Approximately 7% of the
Company's shipments consisted of semi-finished billet
sales.
From its seven locations (including distribution
depots), the Company has freight-competitive access to
most major rebar and merchant markets. The Company's
multiple locations have also enhanced flexibility and
reliability in meeting the demands of large nationwide
rebar fabricators and steel service centers.
The following table presents, for the periods indicated,
the percentage of the Company's net sales dollars
generated by the Rebar/Merchant Business product class:
Fiscal
-------------
1993 1994 1995
---- ---- ----
Rebar products 60% 57% 51%
Merchant products 19 23 36
Mine roof support
products (1) 15 14 9
Semi-finished
steel billets 6 6 4
---- ---- ----
100% 100% 100%
==== ==== ====
(1) Roof support system products consisted of
modified rebar and merchant steel products. The
Company's Mine Roof Support Products Business was
sold in March 1995 (see Item 7 "Management's
Discussion and Analysis of Financial Condition
and Results of Operations").
Rebar Products. The Company produces rebar products at
all four of its mini-mills. Rebar is generally sold to
fabricators and manufacturers who cut, bend, shape and
fabricate the steel to meet engineering, architectural
or end product specifications. Rebar is used primarily
for strengthening concrete in highway construction,
building construction and other construction
applications. Unlike certain other manufacturers of
rebar the Company does not engage in the rebar
fabrication business, which might put the Company into
direct competition with its major rebar customers. The
Company instead focuses its marketing efforts on
independent rebar fabricators and steel service centers.
Rebar is a commodity steel product, making price the
primary competitive factor. As a result, freight costs
limit rebar competition from non-regional producers, and
rebar deliveries are generally concentrated within a 700
mile radius of the mill. Except in unusual
circumstances, the customer's delivery expense is
limited to freight from the nearest mini-mill and any
incremental freight charges from a more remote source
must be absorbed by the supplier.
Rebar is consumed in a wide variety of end uses, divided
into roughly equal portions between private sector
applications and public works projects. Private sector
applications include commercial and industrial
buildings, construction of apartments and hotels,
utility construction, agricultural uses and various
maintenance and repair applications. Public works
projects include construction of highways and streets,
public buildings, water treatment facilities and other
projects. Although demand has demonstrated a recent
resurgence, the prevailing level of commercial
construction declined substantially in recent years due
to the absence of real estate development financing, the
surplus of office space and the effects of a protracted
economic decline. Also, public expenditures on
infrastructure projects were expected to increase with
funding from the Surface Transportation Act of 1991,
though continued debate in the U.S. Senate and House of
Representatives on the issue of releasing funds has
diminished the prospects for a significant increase in
public works expenditures.
The following data, reported by the Concrete Reinforcing
Steel Institute (a rebar fabricators' trade
association), depict apparent rebar consumption in the
United States from 1980 through 1994. The table also
includes rebar shipments by the Company and its
approximate market share percentage for the periods
indicated.
Rebar Company Approximate
Consumption Shipments Market
Calendar Year (in tons) (in tons) Share
- - ------------- ----------- -------- -----------
1980 4,638,000 * * %
1981 4,287,000 * *
1982 4,007,000 * *
1983 4,330,000 * *
1984 4,916,000 * *
1985 4,775,000 * *
1986 4,787,000 * *
1987 5,301,000 * *
1988 5,416,000 808,000 14.9
1989 5,213,000 972,000 18.6
1990 5,386,000 972,000 18.0
1991 4,779,000 945,000 19.8
1992 4,764,000 1,060,000 22.3
1993 5,051,000 1,181,000 23.4
1994(est) 5,409,000 1,188,000 22.0
* Prior to the formation of the Company or otherwise not
available from the Company's records.
The Company's rebar operations are subject to a period
of moderately reduced sales in November and December,
when severe weather and the holiday season impact the
construction market demand for rebar.
Merchant Products. The Company produces merchant
products at all four of its mini-mills. Merchant
products consist of rounds, squares, flats, strip,
angles and channel. Merchant products are generally
sold to fabricators, steel service centers, and
manufacturers who cut, bend, shape and fabricate the
steel to meet engineering or end product specifications.
Merchant products are used to manufacture a wide variety
of products, including gratings, steel floor and roof
joists, safety walkways, ornamental furniture, stair
railings and farm equipment.
Merchant products typically require more specialized
processing and handling, including straightening,
stacking and specialized bundling. Because of the
greater variety of shapes and sizes, merchant products
are typically produced in shorter production runs,
necessitating more frequent changeovers in rolling mill
equipment. Merchant products command higher prices and
produce higher profit margins than rebar products.
The Company has installed modern straightening, stacking
and bundling equipment at its mills in Kankakee, Jackson
and Seattle and automated bundling equipment in
Birmingham, which has helped strengthen its
competitiveness in merchant markets in the South,
Midwest and West Coast. The renovation of the Seattle
rolling mill included state-of-the-art equipment to
produce and handle merchant products, which management
believes will further increase the Company's access to
West Coast markets on a competitive basis.
The following data reported by the American Iron and
Steel Institute depict apparent consumption of merchant
products in the United States from 1980 through 1994.
The table also includes merchant product shipments by
the Company and its approximate market share percentage
for the periods indicated.
Merchant
Product Company Approximate
Consumption Shipments Market
Calendar Year (in tons) (in tons) Share
- - ------------- ----------- -------- -----------
1980 7,313,000 * * %
1981 8,898,000 * *
1982 6,141,000 * *
1983 6,633,000 * *
1984 8,085,000 * *
1985 7,743,000 * *
1986 7,256,000 * *
1987 7,911,000 * *
1988 8,546,000 264,000 3.1
1989 8,398,000 272,000 3.2
1990 8,379,000 306,000 3.7
1991 7,045,000 287,000 4.1
1992 7,504,000 330,000 4.4
1993 8,445,000 395,000 4.6
1994(est) 9,400,000 484,000 5.1
*Prior to the formation of the Company or otherwise not
available from the Company's records.
Rod and Wire Products
The Company's Rod and Wire Business (ASW) markets high-
quality steel rod and wire to customers in the
automotive, agricultural, industrial fastener, welding,
appliance and aerospace industries. Approximately 54%
of ASW's shipments are cold heating quality steel rod.
Cold finish bar product and welding wire products each
represent approximately 15% of ASW's shipments. The
remaining approximately 16% of its shipments include
other wire and quality rod products. Approximately 70%
of ASW's sales are to customers serving the original
equipment and after market segments of the automotive
industry. No single customer accounted for more than
10% of ASW's net sales during fiscal 1995.
The following table presents, for the periods indicated,
the percentage of ASW's net sales dollars by principal
product categories:
Fiscal
--------------------
1993 1994 1995
---- ---- ----
Steel rod 86.4% 87.4% 89.2%
Wire 11.9 11.4 10.0
Tow wire 1.7 1.2 0.8
---- ---- ----
100% 100% 100%
==== ==== ====
Currently, ASW produces steel rods in sizes ranging from
7/32" to 15/16" in diameter and in a wide variety of
alloy and carbon grades, though upon completion of ASW's
new bar mill in April 1996, bar and rod sizes up to 1
5/8" in diameter are expected to be available. ASW's
wire mill produces wool wire and cold heading quality
products in a variety of carbon and alloy grades in
sizes from .120" through .820" in diameter.
End-uses of ASW's rod products include the manufacture
of electric motor shafts, engine bolts, lock hasps,
phillips head screws, pocket wrenches, seat belt bolts,
springs, cable wire, chain, tire bead and welding wire.
Steel wire produced by ASW is used by customers to
produce steel wool pads, brake pads, golf spikes and
fasteners such as bolts, rivets, screws, studs and nuts.
ASW's TOW wire products are used exclusively in the
defense industry to produce guidance systems for the TOW
anti-tank missile.
Because of the nature of the end-uses, ASW's products
must meet exacting metallurgical and size tolerance
specifications and defect-free surface characteristics.
ASW's marketing and sales activities emphasize its
ability to meet or exceed customers' requirements for
high quality steel rod and wire manufactured to close
tolerances and exacting surface characteristics.
ASW's pricing policy is a combination of market driven
and cost driven pricing depending on the market served
and supply and demand dynamics. Typically, market
pricing prevails for most customers that rely on market
competition to determine price. The major exception to
this has been automotive related model year pricing
which fixes a twelve month price (generally beginning
August 1). This allows suppliers to deal with automotive
industry requirements for twelve months fixed pricing.
The following data, reported by the WEFA Group and based
on data from the American Iron and Steel Institute,
depict apparent consumption of carbon and alloy rod and
wire products in the United States from 1980 through
1994 (in tons).
Total
Calendar Rod Wire Rod & Wire
Year Consumption Consumption Consumption
- - ---------- ----------- ----------- -----------
1980 3,300,000 2,400,000 5,700,000
1981 3,800,000 2,500,000 6,300,000
1982 3,300,000 1,900,000 5,200,000
1983 4,000,000 2,200,000 6,200,000
1984 4,700,000 2,400,000 7,100,000
1985 4,400,000 2,200,000 6,600,000
1986 4,800,000 2,100,000 6,900,000
1987 5,300,000 2,100,000 7,400,000
1988 5,500,000 1,600,000 7,100,000
1989 5,200,000 1,500,000 6,700,000
1990 5,200,000 1,300,000 6,500,000
1991 5,000,000 1,200,000 6,200,000
1992 5,400,000 1,300,000 6,700,000
1993 6,100,000 1,200,000 7,300,000
1994 6,400,000 1,200,000 7,600,000
Management estimates that the high quality segment of
the rod and wire market represents approximately 48% of
rod market demand in the U.S. ASW's strategy has been to
serve this approximately 3.5 million ton per year high
quality segment, which has been largely neglected by the
major integrated steel producers because of its
relatively small size in comparison with the demand for
flat rolled steel products. In addition, mini-mills
have generally been unable to provide the quality
required by the consumers of high quality rod and wire.
In calendar 1994, ASW shipped approximately 579,000 tons
of rod and wire to trade customers, which represented
approximately 16% of the estimated high quality rod and
wire products consumed in the U.S. during that year.
Management estimates that ASW's shipments presently
account for approximately 8% of the U.S. consumption of
all carbon and alloy wire products.
ASW has adopted a Total Quality System ("TQS") designed
to achieve complete customer satisfaction. TQS
establishes performance standards intended to ensure
that ASW uses customer value teams and involves
individuals from every functional area of ASW who
identify and seek to satisfy customers' needs through
frequent customer contact. ASW's experienced sales
force and skilled technical engineers regularly identify
customer requirements, assist in developing product
specifications, coordinate delivery schedules and
provide responsive ongoing customer support.
Steel Rod Products. The following is a summary of the
principal rod product qualities manufactured by ASW.
Cold heading quality (CHQ) - ASW produces CHQ steel rod
in a wide range of carbon and alloy grades. CHQ is
specified for the manufacture of wire used for parts
requiring severe deformation or upsetting. Examples of
such parts include seat belt bolts, lug nuts, engine
bolts and lock nuts used in automotive applications as
well as slotted and phillips head screws for the
appliance industry. CHQ products account for
approximately 54% of ASW's annual shipments.
Cold finish quality (CFQ) - ASW's CFQ steel rod is
intended for the manufacture of cold drawn bars and is
generally produced with additives such as lead or
selenium to enhance machinability. CFQ is specified for
the manufacture of parts such as shock absorber rods,
electric motor shafts, bearings, socket wrenches, screw
driver shafts and drill bits.
Cold rolling quality (CRQ) - ASW produces CRQ steel rod
in a wide range of carbon and alloy grades. CRQ is
specified for the manufacture of wire used for a variety
of shaped wires including square, oval, half-round and
half-oval. Intricately shaped parts, such as the center
support section for steering wheels and the regulator
spring used to lower and raise automobile power windows,
are typical examples of products incorporating wire made
from CRQ.
Welding quality (WQ) - ASW's WQ steel rod is produced in
a wide variety of specialized carbon and alloy
chemistries in order to match the characteristics of the
materials being joined. WQ is intended for the
production of wire for gas, electric arc, submerged arc
and inert gas welding applications.
High carbon quality (HCQ) - HCQ steel rod is produced in
a variety of carbon and alloy grades. HCQ is specified
for the manufacture of wire used for parts requiring
high-tensile strength or resiliency. Typical examples of
such parts are overhead garage door springs, lock
washers, upholstery springs, tire bead and wire rope.
Wire Products. ASW produces cold heading quality wire
in a full range of carbon and a variety of alloy grades
in sizes ranging from .120" to .820" in diameter.
Direct-drawn wire is supplied to customers desiring wire
with the physical properties of rod except for the
surface treatment and close diameter tolerance. Cold
heading wire is primarily supplied to fastener
manufacturers.
ASW produces wool quality wire utilizing special wire
drawing practices which ensure a consistent, high
quality product. Customers shave ASW's wire to
manufacture steel wool. The steel wool is then used to
produce items such as soap pads, furniture finishing
pads and steel fibers for automotive brake linings,
which are currently being used to replace asbestos brake
linings. Management estimates that the newer
application of steel wool for brake linings, brought
about by new regulatory measures, has increased the
demand market for wool quality wire to an estimated
36,000 tons per year.
TOW Wire. TOW wire is an ultra-high tensile strength
product utilized in the TOW anti-tank missile system, a
defense weapon which has been in use since 1967. ASW is
currently the only supplier of TOW wire, which is
extremely ductile, measures .0049" in diameter and has
a tensile strength of 500,000 pounds per square inch.
Each TOW missile carries two wire bobbins, each
containing nearly three miles of wire.
Competition
Price sensitivity in markets for the Company's products
is driven by competitive factors and the cost of steel
production. The geographic marketing areas for the
Company's products are similar.
Rebar and Merchant Steel Products. Because rebar and
merchant products are commodity products, the major
factors governing the sale of rebar and merchant
products are manufacturing cost, competitive pricing,
inventory availability, facility location and service.
The Company competes in the rebar and merchant product
markets primarily with numerous regional domestic mini-
mill companies.
Rod and Wire Products. ASW's major competitors are
divisions of domestic and foreign integrated steel
companies and domestic mini-mill companies. ASW
competes primarily in the high quality end of the rod
and wire markets and believes this specialization gives
it a distinct advantage over many of its domestic
competitors.
Although price is an important competitive factor in
ASW's business, particularly during recessionary times,
ASW believes that its sales are principally dependent
upon product quality, on-time delivery and customer
service. ASW's marketing and sales activities emphasize
its ability to meet or exceed customers' requirements
for high quality steel rod and wire manufactured to
close tolerances and exacting surface characteristics.
These markets constitute a relatively small percentage
of total domestic steel consumption, and therefore some
domestic integrated mills have exited this business or
given it a low priority. Additionally, mini-mills are
generally unable to produce steel of sufficient quality
and metallurgical characteristics to produce rod and
wire comparable in quality to that manufactured by ASW.
Foreign Competition. In recent years, a declining U.S.
dollar, increased efficiency in the U.S. steel industry
and voluntary restraint agreements with foreign steel
producers have improved the competitive position of U.S.
steel producers. Prior to that time, a strong U.S.
dollar and foreign government subsidies resulted in the
import of substantial quantities of steel into the
United States at competitive prices. Foreign steel is a
competitive factor on a sporadic basis in California,
Texas, Florida and the northeastern United States, where
the market for rebar is adequate to support investments
in warehousing and service facilities. Federal
legislation currently prohibits the use of foreign steel
in federally funded highway construction. However, it
is anticipated that the recent enactment of the North
American Free Trade Agreement will result in the use of
Canadian and Mexican steel in federally funded highway
construction projects.
Based on data provided by the American Iron and Steel
Institute, management believes that foreign integrated
steel producers currently account for approximately 25%
of sales in the U.S. rod and wire markets. The Company
believes that a significant portion of U.S. imports in
the high quality rod and wire markets come from Japan.
Changes in currency exchange rates can impact the
competitive position of foreign integrated steel
producers. While the Company believes that foreign
competition does not currently have a material adverse
effect upon the Company's operations, there can be no
assurance that such competition will not have a material
adverse effect in the future.
Employees
Rebar/Merchant Mini-Mill Facilities. As of June 30,
1995, the Company employed 1,081 people at its mini-mill
operations. The Company estimates that approximately
30% of its current employee compensation at its mini-
mills is earned on an incentive basis linked to
production. The percentage of incentive pay varies from
mill to mill based upon operating efficiencies. During
fiscal 1995, hourly employee costs at these facilities
were approximately $28 per hour, including overtime and
fringe benefits, which was competitive with other mini-
mills. The Company's mini-mill facilities are not
unionized. The Company has never experienced a strike
or other work stoppage at its steel mills and management
believes that employee relations are currently good.
Rod and Wire Production Facilities. As of June 30,
1995, the Company's ASW subsidiary employed 329 persons
at its Cuyahoga and Joliet rod mills and 99 people at
the Cuyahoga wire mill. The 91 production and
maintenance employees at the Joliet Works have been
represented by United Steelworkers of America since
1986, and are parties to a collective bargaining
contract which expires in June 2000. Former bargaining
unit employees at the Joliet facility are eligible to
receive pension and health care benefits from USX.
During fiscal 1995, hourly employee costs at these
facilities were approximately $22 per hour, including
overtime and fringe benefits. ASW considers its labor
relations with its employees to be good. As of June 30,
1995, 19 people were employed at the ASW TOW wire
production facility.
Corporate and Administrative Personnel. As of June 30,
1995, 67 people were employed at the Company's corporate
office headquarters located in Birmingham and 85 people
were employed at ASW's administrative office in
Cleveland.
Environmental and Regulatory Matters
The Company is subject to federal, state and local
environmental laws and regulations concerning, among
other matters, waste water effluent, air emissions and
furnace dust disposal. As these regulations increase in
complexity and scope, environmental considerations will
play an increasingly important role in planning, daily
operations and expenses.
The Company operates engineering/environmental services
departments and has environmental coordinators at its
facilities to maintain compliance with applicable laws
and regulations. These personnel are responsible for
identifying and, if necessary, recording any potential
environmental liabilities. The Company believes it is
currently in compliance with all known material and
applicable environmental regulations, other than as
discussed below. Changes in federal or state
regulations or a discovery of unknown conditions could
require additional substantial expenditures by the
Company.
Mini-Mill Operations. The Company's mini-mills are
classified as generating hazardous waste because they
produce and collect certain types of dust containing
lead and cadmium. The Company currently collects and
disposes of such wastes at approved recycling sites
through contracts with approved waste recycling firms.
The Company is planning to construct a new hazardous
waste disposal plant (in the fiscal 1996-1997 timeframe)
at one of its mini-mills that will process the Company's
hazardous waste dust into marketable materials.
In August 1987, the Virginia Department of Waste
Management advised the Company of a hazardous waste
condition relating to the disposal of hazardous furnace
dust at the Company's idled Norfolk facility by the
former owners during 1983 and 1984. Based upon the
Company's prior experience in correcting similar
environmental conditions, it does not expect the costs
of corrective action with respect to the hazardous waste
condition will exceed the reserves established in
previous years.
By letter dated October 20, 1992, the Department of
Toxic Substances Control of the Environmental Protection
Agency of the State of California ("DTSC ") submitted to
Barbary Coast Steel Corporation ("BCSC"), a wholly owned
subsidiary of the Company, for its review and comment a
proposed Consent Order relating to BCSC's idled steel
facility at Emeryville, California. BCSC and DTSC
executed the terms of a Consent Order on March 22, 1993
and, pursuant to the Consent Order, BCSC has completed
an environmental assessment of the site and has nearly
completed the remediation of the property. DTSC has
approved the work plan. The Company believes that, in
connection with the January 1991 closure of the
Emeryville mill, it made adequate provisions in its
financial statements for the cost of remediating the
site.
Substantially all capital expenditures, both expansions
and refurbishment, in connection with mini-mill
facilities routinely include elements relating to
environmental control. Additionally, the Company is
proactively re-designing its scrap yards in anticipation
of future environmental standards which may be invoked.
In Kankakee, for example, the scrap yard has been built
to help prevent contaminants in the scrap from escaping
in the storm water runoff. The Company has begun
similar environmentally secure designs at its other
scrap yards at Jackson, Mississippi and West Seattle,
Washington.
Rod and Wire Operations. At its Joliet and Cuyahoga
facilities, ASW has developed systems to ensure
compliance with water discharge permits and timely
filing of monthly operating reports. ASW has succeeded
in substantially reducing wastewater discharged into the
waters of the United States in the last three years.
ASW has applications pending for, and has received, the
appropriate permits for all relevant air pollution
sources at all of its facilities. ASW does not expect
the Clean Air Act regulations to materially affect its
operations beyond more stringent permitting and sampling
requirements. ASW manages its hazardous wastes by
contracting with reputable transport and disposal
companies to properly treat, dispose of, and, wherever
possible, recycle hazardous wastes generated from ASW's
operations.
All three of ASW's facilities were acquired pursuant to
an Asset Sales Agreement dated May 19, 1986 (the
"Agreement''), by and between ASW and USX Corporation
(formerly United States Steel Corporation) ("USX").
Pursuant to the Agreement, ASW is indemnified by USX for
Certain claims, if any, which may be asserted against
ASW under the Resource Conservation and Recovery Act Of
1976, as amended, 42 U.S.C. Subsection 6901, et seq.,
and the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended,42
U.S.C. Sub-section 9601, et. seg., or which may be
asserted under similar federal or state statutes or
regulations, which arise out of USX's actions on or
prior to June 30, 1986, the date on which ASW acquired
these facilities. To date, no such claims have been
asserted against ASW. Any potential environmental
liabilities identified by ASW to date have not
materially affected, and, based on current information,
are not expected to materially affect, its operations
and/or may be subject to indemnification by USX as
described above.
Pursuant to General Instruction G(3) to Form 10-K,
information regarding the executive officers of the
Company called for by Item 401(b) of Regulation S-K is
hereby included in Part I of this report.
The following table sets forth the name of each
executive officer of the Company, the offices held, and
the ages (as of August 1995) of such officers.
Name Age Office Held
- - --------------------- ---- -------------------
James A. Todd, Jr. 67 Chairman of the Board and
Chief Executive Officer
Paul H. Ekberg 58 Vice Chairman -
Chief Operating Officer
Thomas N. Tyrrell 50 Vice Chairman- Chief
Administrative Officer
John M. Casey 47 Executive Vice President-
Chief Financial Officer
William R. Lucas 39 Executive Vice President
and General Counsel
James A. Todd, Jr. was elected Chairman of the Board and
Chief Executive Officer in July 1991. Mr. Todd served
as the Company's President and Chief Executive Officer
from August 1984 to July 1991. From 1977 to 1983, he
was President of United Affiliates Corporation, a
subsidiary of The United Company. From May 1980 to
August 1984, he was Chairman of the Board and Chief
Executive Officer of Birmingham Bolt Company. Mr. Todd
is also a director of Cyprus Amax Minerals Company.
Paul H. Ekberg has been Vice Chairman of the Board since
July 1994 and was President of the Company from July
1991 to July 1994. Mr. Ekberg joined the Company in
July 1991 as President and Chief Operating Officer. He
was elected to the Company's Board of Directors in July
1992. Prior to joining the Company, Mr. Ekberg served
as President and Chief Executive Officer of Shane Steel
Processing and IMT (which are members of the Sudbury
Inc. Group) from 1987 to 1991 and served as President
and Chief Executive Officer of Production Experts from
1986 to 1987.
Thomas N. Tyrrell has been Vice Chairman of the Board
since July 1994, and Chief Executive Officer of American
Steel & Wire Corporation, a company which manufacturers
high quality rod and wire and was acquired in November
1993 by the Company, since 1986. He served as President
and Chief Executive Officer of American Steel & Wire
Corporation from 1986 to July 1994.
John M. Casey was appointed Executive Vice
President/Chief Financial Officer in October 1994.
Prior to joining the Company, Mr. Casey served as
Executive Vice President and Chief Financial Officer of
Safeskin Corporation and as Treasurer of Spiegel, Inc.
Willian R. Lucas, Jr. joined the Company in July 1995 as
Executive Vice President and General Counsel. Prior to
joining the Company, Mr. Lucas was a founding partner of
the Birmingham, Alabama based law firm Lightfoot,
Franklin, White & Lucas, where he most recently served
as managing partner.
ITEM 2. PROPERTIES
The following table lists the Company's real property
and production facilities.
SQUARE OWNED OR
LOCATION FOOTAGE LEASED
- - ----------- ------- --------
Corporate Headquarters:
Birmingham, Alabama 32,851 Leased
Steel Mini-Mills:
Birmingham, Alabama 153,295 Owned (1)
Jackson, Mississippi 206,150 Owned (1)
Kankakee, Illinois 330,000 Owned
Ballard, Washington 318,000 Owned (2)
Seattle, Washington 792,000 Owned (3)
West Seattle, Washington 798,000 Owned
Emeryville, California 1,000 Owned (4)
Norfolk, Virginia 160,000 Owned (5)
American Steel & Wire:
Cuyahoga Heights, Ohio 1,760,853 Owned
Joliet, Illinois 528,506 Owned
Cleveland, Ohio (TOW) 41,266 Owned
PESCO Facility:
Ft. Lauderdale, FL 175,000 Leased
(1) Portions of equipment that were financed by
industrial revenue bonds and the land upon which such
equipment is located are leased pursuant to the terms of
such bonds.
(2) The Company is currently undertaking efforts to
sell the Ballard real property.
(3) This property is a terminal port facility acquired
from the Port of Seattle in exchange for the Company's
Kent, Washington property and other considerations.
(4) The Company closed this operation in January 1991.
The Company is currently undertaking efforts to sell the
real property.
(5) The Company closed this operation in May 1991. The
Company is currently undertaking efforts to sell the
real property.
Legal Proceedings
The Company is involved in litigation relating to claims
arising out of its operations in the normal course of
business. Such claims against the Company are generally
covered by insurance. It is the opinion of management
that any uninsured or unindemnified liability resulting
from existing litigation would not have a material
adverse effect on the Company's business, its financial
position, liquidity or results of operations. There can
be no assurance that insurance, including product
liability insurance, will be available in the future at
reasonable rates.
On March 26, 1993, an action entitled IMACC Corporation
v. Warburton. et al. was filed in the U.S. District
Court for the Northern District of California, Case No.
C93-1114-VRW against Barbary Coast Steel Corporation
("BCSC"), a wholly owned subsidiary of the Company. This
lawsuit was brought by IMACC Corporation ("IMACC"), the
parent of Myers Container Corporation, the lessee of
property immediately adjacent to the Company's Barbary
Coast property in Emeryville, California. IMACC has sued
BCSC, Judson Steel Corporation (from whom BCSC purchased
the property) and several of the individual owners of
the property leased by IMACC, under the Comprehensive
Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), 42 U.5.C. SS 9601 -9675 and various
state law causes of action, alleging that the Defendants
contributed to environmental contamination on the IMACC
property. IMACC subsequently amended its complaint
several times, including the addition of a citizens'
suit claim under RCRA, 42 U.S.C. SS 6972.
BCSC has interposed numerous affirmative defenses to
IMACC's claims, and additionally has counterclaimed
against IMACC alleging that IMACC has contaminated the
BCSC property, and cross-claimed against Judson Steel
Corporation and its corporate parent, alleging that they
must indemnify BCSC for any monies due to IMACC. Other
parties in the case have brought additional
counterclaims and cross-claims against each other, BCSC,
and third parties, including Kaiser Steel Resources. The
parties have exchanged voluminous documents and lists of
potential witnesses pursuant to the Court's Case
Management Program.
IMACC has alleged current and prospective damages,
excluding attorneys' fees, of between $1,000,000 and
$4,700,000. BCSC and several co-defendants successfully
moved for dismissal of IMACC's RCRA claims, effectively
eliminating liability for IMACC's attorneys fees.
Preliminary results of soil and water testing near the
IMACC-BCSC boundary indicate that contaminants found on
the IMACC site cannot be attributed to operations
conducted on the BCSC site. All discovery except expert
witness depositions must be completed by May 1, 1996.
The Company believes that there is little, if any,
factual basis for IMACC's claims; the Company further
believes that most, if not all, of any liability imposed
upon it may be recovered from other parties to the
litigation through its claims of indemnity. Trial is
presently set for October 7, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, par value $.01 per share
(the "Common Stock"), is traded on the New York Stock
Exchange under the symbol BIR.
The table below sets forth for the two fiscal years
ended June 30, 1995 and 1994, the high and low prices of
the Company's Common Stock based upon the high and low
sales prices of the Common Stock as reported on the New
York Stock Exchange Composite Tape.
High Low
------ ------
Fiscal Year Ended June 30, 1995
First Quarter $28.75 $23.75
Second Quarter 27.13 19.13
Third Quarter 22.00 17.75
Fourth Quarter 21.13 17.88
Fiscal Year Ended June 30, 1994
First Quarter $26.50 $20.75
Second Quarter 27.75 22.00
Third Quarter 32.63 25.00
Fourth Quarter 32.13 25.75
The last sale price of the Common Stock as reported on
the New York Stock Exchange on August 22, 1995 was
$20.25, As of August 22, 1995, there were 1,650 holders
of record of the Common Stock. The Company's registrar
and transfer agent is First Union National Bank of North
Carolina.
The ability of the Company to pay dividends in the
future will be dependent upon general business
conditions, earnings, capital requirements, funds
legally available for such dividends, contractual
provisions of debt agreements and other relevant factors
(see "Selected Financial Data" for information
concerning dividends paid by the Company during the past
five fiscal years).
<TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<CAPTION>
For the Years Ended June 30,
-------------------------------------------------
1995 1994(1) 1993 1992 1991
--------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $885,553 $702,893 $442,326 $417,655 $407,666
Cost of sales:
Other than depreciation
and amortization 723,558 599,154 374,846 341,826 347,491
Depreciation and
amortization 32,310 27,671 18,036 16,804 14,449
-------- -------- -------- -------- --------
Gross profit 129,685 76,068 49,444 59,025 45,726
Provision for loss on
disposition of property,
plant and equipment and
suspended operations 1,337 - 2,272 - 15,678(2)
Selling, general and
administrative 43,149 33,847 24,008 21,861 22,427
Interest 8,889 11,061 3,084(3) 9,154 7,343
-------- -------- ------- ------- -------
76,310 31,160 20,080 28,010 278
Other income, net 9,443 4,689 1,222 2,402 1,111
-------- -------- ------- ------- ------
Income before income taxes
and cumulative effect of
a change in accounting
principle 85,753 35,849 21,302 30,412 1,389
Provision for income taxes 35,104 14,603 8,517 11,605 1,123
-------- ------- ------- ------- ------
Income before cumulative
effect of a change in
accounting principle 50,649 21,246 12,785 18,807 266
Cumulative effect, as of
July 1, 1993, of a change
in the method of accounting
for income taxes - 380 - - -
-------- ------- ------- ------- -------
Net income $ 50,649 $21,626 $12,785 $18,807 $ 266
======== ======= ======= ======= =======
Earnings per share:
Income before cumulative
effect of a change in
accounting principle $ 1.74 $ 0.86 $ 0.60 $ 1.05 $ 0.02
Cumulative effect, as of
July 1, 1993, of a change
in the method of accounting
for income taxes - 0.02 - - -
-------- ------- ------- ------- -------
Net income $ 1.74 $ 0.88 $ 0.60 $ 1.05 $ 0.02
======== ======= ======= ======= =======
Dividends declared per share $ 0.40 $ 0.40 $ 0.37 $ 0.33 $ 0.33
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $206,901 $213,075 $ 33,131 $ 74,428 $ 35,543
Total assets 756,804 689,878 456,042 388,028 346,020
Long-term debt less
current portion 142,500 142,500 90,095 93,728 98,363
Stockholders' equity 459,719 439,049 223,421 214,481 134,779
<FN>
<F1>
(1) Includes the results of operations of American Steel and Wire Corporation
beginning December 1, 1993.
<F2>
(2) Amounts are related to the suspension of steel and scrap operations at
Emeryville, California; Kent, Washington; Norfolk, Virginia; and Prichard,
Alabama.
<F3>
(3) During fiscal 1993, the Company incurred $8,682,000 of interest and
capitalized $5,598,000 of interest related to assets under construction.
</FN>
</TABLE>
<TABLE>
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands, except per share data)
<CAPTION>
1995 Quarters
-------------------------------------------------
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $220,601 $203,238 $236,900 $224,814
Gross profit $ 32,294 $ 31,975 $ 34,509 $ 30,907
Net income $ 12,205 $ 12,369 $ 13,264 $ 12,811
Weighted average shares
outstanding 29,404 29,450 29,283 28,506
Earnings per share $ 0.42 $ 0.42 $ 0.45 $ 0.45
Cash dividends declared
per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Price range of common stock
High $ 28.75 $ 27.13 $ 22.00 $ 21.13
Low $ 23.75 $ 19.13 $ 17.75 $ 17.88
1994 Quarters
-------------------------------------------------
First Second(1) Third Fourth
-------- -------- -------- --------
Net sales $127,630 $146,802 $204,192 $224,269
Gross profit $ 12,219 $ 15,105 $ 21,201 $ 27,543
Net income $ 3,686 $ 3,764 $ 5,118 $ 9,058
Weighted average shares
outstanding 21,410 22,296 25,399 29,342
Earnings per share $ 0.17 $ 0.17 $ 0.20 $ 0.31
Cash dividends declared
per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Price range of common stock
High $ 26.50 $ 27.75 $ 32.63 $ 32.13
Low $ 20.75 $ 22.00 $ 25.00 $ 25.75
<FN>
<F1>
(1) Includes the results of operations of American Steel and Wire Corporation
beginning December 1, 1993.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In fiscal 1995, Birmingham Steel Corporation experienced
a 134 percent increase in net income over the prior
year, primarily as the result of the full year inclusion
of financial results of American Steel & Wire
Corporation (ASW), higher average steel selling prices
and increased steel shipment volumes, partially offset
by elevated scrap raw material costs.
The following table sets forth, for the years indicated,
selected items in the consolidated statements of income
as a percentage of net sales and the amount of steel
shipments in tons.
For the Years Ended June 30,
----------------------------
1995 1994 1993
----------------------------
Net sales 100% 100% 100%
Cost of sales:
Other than depreciation and
amortization 81.7 85.2 84.7
Depreciation and amortization 3.6 3.9 4.1
Provision for loss on disposition
of property, plant and equipment 0.2 - 0.5
Selling,general & administrative 4.9 4.8 5.4
Interest 1.0 1.6 0.7
Other income, net (1.1) (0.7) (0.2)
Provision for income taxes 4.0 2.1 1.9
----------------------------
Net income 5.7% 3.1% 2.9%
----------------------------
Steel shipments (000s tons) 2,375 2,130 1,616
RESULTS OF OPERATIONS
Net Sales
Fiscal 1995 compared to fiscal 1994
Net sales in fiscal 1995 were $885,553,000, a 26 percent
increase from $702,893,000 reported in fiscal 1994.
This increase in net sales was essentially due to a 12
percent increase in fiscal 1995 steel shipments and a
substantial rise in average selling prices. During
fiscal 1995, total steel shipments included 632,000 tons
of high quality steel products from ASW, an increase of
13 percent from the similar twelve-month period last
year (including 5 months pre-acquisition). ASW's rising
shipment levels were attributed to strong automotive
market demand.
For fiscal 1995, the average selling price in the
Company's rebar/merchant business was $311 per ton,
compared with $277 per ton in the prior year. The
Company's average high quality rod selling price was
$473 per ton, compared with $468 last year (including 5
months pre-acquisition). The Company's average selling
price for all products was $373 per ton, up
substantially from $330 reported for fiscal 1994.
The overall rise in steel selling prices during the year
occurred as the result of favorable conditions in both
the construction and automotive related markets.
Selling prices in the Company's rebar/merchant business
experienced some weakness late in the fiscal year, but
are anticipated to strengthen during fiscal 1996.
Continued strength in demand for the Company's rod &
wire products is expected in fiscal 1996. Increased
steel shipment levels are also anticipated, as the
Company continues to expand marketing efforts in the
merchant steel and automotive-related markets.
In mid-March, the Company completed the sale of its Mine
Roof Support Business to Excel Mining Systems, Inc.,
headquartered in Cadiz, Ohio. The Company's overall
sales volume is not expected to decline as a result of
this sale, as the Company remains a primary steel
supplier to Excel. The sale of the Mine Roof Support
Business resulted in a net gain to the Company of
approximately $.05 per share.
Fiscal 1994 compared to fiscal 1993
From fiscal 1993 to fiscal 1994, net sales increased 59
percent. This rise in net sales was essentially due to
the November 1993 acquisition of ASW, a 32 percent rise
in fiscal 1994 steel shipments (including ASW) and a 10
percent rise in average rebar and merchant steel selling
prices. This rise in selling prices was essentially due
to strong market demand coupled with rising scrap raw
material costs which led to numerous industry-wide price
increases.
Cost of Sales
Fiscal 1995 compared to fiscal 1994
As a percent of sales, cost of sales (other than
depreciation and amortization) decreased to 81.7 percent
in fiscal 1995 from 85.2 percent in the prior year.
This favorable decline was primarily attributable to the
rise in steel selling prices mentioned previously and
the absence of acquisition costs which negatively
impacted ASW's cost of sales percentage in the prior
year. Partially offsetting these factors was a modest
rise in steel conversion costs at the Company's mini-
mills and increased scrap raw material costs.
At the Company's mini-mill facilities, the cost to
convert scrap into finished steel products rose modestly
in fiscal 1995 to approximately $119 per ton, compared
with $116 for fiscal 1994. During fiscal 1995, the
Company experienced transformer failures at its
Birmingham (March) and Seattle (June) mini-mills,
negatively impacting conversion costs at each facility.
At the Seattle mill, the unexpected production down time
was effectively used to accelerate the previously
planned start-up of the mill's new electric arc furnace.
The new Seattle furnace began operations during the
first week of July with production levels which exceeded
expectations. Despite these disruptions, the Company's
rebar/merchant mini-mills set new melt shop and rolling
mill production records during fiscal 1995 of 1,875,000
tons and 1,706,000 tons, respectively.
At the Company's rebar/merchant mini-mills, scrap raw
material costs rose substantially during the first half
of the fiscal year before stabilizing toward the fiscal
year-end. The Company's scrap costs averaged $136 per
ton for the year, a 7 percent increase from $127 per ton
in fiscal 1994. Scrap costs may continue to increase in
fiscal 1996, as scrap market prices began a rising trend
in late July 1995.
Manufacturing operations at the Company's rod and wire
facilities experienced favorable productivity gains over
the prior year, as record rolling mill production of
629,000 tons outpaced the prior year (which included 5
months pre-acquisition) by 12 percent. Conversion costs
at ASW improved 5 percent over the prior year, despite
an equipment outage in April which necessitated 7 lost
production days at the Cuyahoga rod mill.
High quality billet raw material costs at the Company's
rod and wire operations averaged approximately $325 per
ton in fiscal 1995, approximately 2 percent higher than
the prior year period (including 5 months pre-
acquisition). The Company continues to seek reductions
in its billet costs by diversifying its billet sourcing
vendors and through the construction of a 1.5 million
ton capacity, high quality billet manufacturing facility
in Memphis, Tennessee (see "Capital Expenditures").
Depreciation and amortization expense increased in
fiscal 1995 to $32,310,000 from $27,671,000 reported
last year. This substantial increase was primarily due
to the full year depreciation of ASW's assets and
recognition of depreciation on fixed assets purchased
during fiscal 1995 and fiscal 1994.
Fiscal 1994 compared to fiscal 1993
Cost of sales (other than depreciation and amortization)
as a percentage of net sales, increased from fiscal 1993
to fiscal 1994 essentially due to an overall decline in
average steel selling prices, a sharp rise in scrap
costs and reduced capacity utilization in the Company's
mine roof support operations.
Depreciation and amortization expense increased 53
percent from fiscal 1993 to fiscal 1994 primarily due to
the recognition of depreciation on the assets of ASW
(acquired in November 1993) and a full year's
depreciation on fixed assets purchased during fiscal
1994 and fiscal 1993.
Selling, General and Administrative Expenses (SG&A)
Fiscal 1995 compared to fiscal 1994
SG&A increased 27 percent in fiscal 1995 to $43,149,000
from $33,847,000 reported in fiscal 1994. The rise in
SG&A expenses was primarily due to the full year
inclusion of ASW's SG&A expenses. As a percentage of
net sales, fiscal 1995 SG&A were 4.9 percent, compared
with 4.8 percent last year.
Fiscal 1994 compared to fiscal 1993
SG&A increased 41 percent in fiscal 1994 to $33,847,000
from $24,008,000 reported in fiscal 1993. The
substantial rise in SG&A expenses was primarily due to
the inclusion of ASW's SG&A expenses incurred since the
November 1993 acquisition. As a percentage of net
sales, fiscal 1994 SG&A were 4.8 percent, compared with
5.4 percent in fiscal 1993.
Interest Expense
Fiscal 1995 compared to fiscal 1994
Interest expense decreased significantly in fiscal 1995
to $8,889,000 from $11,061,000 reported in fiscal 1994,
primarily reflecting a 34 percent decline in the
Company's average outstanding debt since last year. The
Company capitalized approximately $2.1 million in
interest related to construction projects during fiscal
1995, compared with $2.9 million in the prior year.
Fiscal 1994 compared to fiscal 1993
Interest expense increased significantly in fiscal 1994
compared with fiscal 1993 levels. The rise in interest
expense was primarily attributed to a 58 percent
increase in average outstanding Company debt, reflecting
the Company's funding of a $130 million long-term
private debt placement.
Income Tax
The Company's effective income tax rates in fiscal 1995
and 1994 were 40.9 percent and 40.7 percent,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided by operating activities in fiscal 1995
was $72.8 million, compared with $25.3 million reported
in fiscal 1994. This substantial increase in operating
cash flow was primarily the result of a substantial rise
in net income, an increase in accounts payable and a
decrease in accounts receivable, partially offset by a
rise in steel inventory levels. The increase in
accounts payable has resulted from elevated purchasing
levels of raw materials to facilitate increased Company-
wide production levels. The rise in inventory resulted
primarily from increased raw material inventories
referred to previously, reduced fourth quarter shipments
of merchant products resulting from inventory reductions
implemented by steel service centers, the acquisition of
Port Everglades Steel (PESCO) in late December and the
inclusion of billet inventories at ASW previously held
on consignment.
Investing Activities
Net cash flow used in investing activities was $74.0
million, compared with $40.3 million in fiscal 1994. In
fiscal 1995, the Company invested approximately $78
million to finance recently completed or current
projects encompassed in its Capital Development Plan
(see "Capital Expenditures" below).
During the second quarter, the Company acquired PESCO,
a steel distribution company located in Ft. Lauderdale,
Florida for approximately $11.4 million. Also in the
second quarter, the Company sold its Mine Roof Support
Business to Excel Mining Company for $17.3 million in
cash plus other consideration, resulting in a pre-tax
gain of approximately $2.2 million.
Late in fiscal 1995, the Company entered into an
agreement to exchange its idled Kent, Washington
facility (and other property currently in use) with the
Port of Seattle for a terminal facility owned by the
Port which will be utilized by the Company's Seattle
operations. The Company also entered into an agreement
to sell its idled facility in Ballard, Washington.
Capital Expenditures
The Company invested approximately $78 million in
capital modernization projects during fiscal 1995
primarily related to the Company's Capital Development
Plan (Plan). Earlier in the year, the Company formally
announced its 5-year, $680 million Plan to outline the
next phase of the Company's growth strategy. Included
as a part of this Plan is ASW's new $112 million bar and
rod mill. This state-of-the-art facility, which is
scheduled to begin start-up operations in April 1996,
will effectively double ASW's productive and shipment
capacity to approximately 1.1 million tons of high
quality steel products. Also outlined as a primary
element of its Plan is the construction of a 1.5 million
ton capacity high quality melt shop ($175 million)
capable of producing billets to satisfy a substantial
portion of ASW's raw material requirements. The Company
recently announced its intention to build this new
melting facility in Memphis, Tennessee, with a tentative
start-up date in the third quarter of fiscal 1997.
Also included as part of the Plan is a baghouse dust
recycling project ($16 million), a new merchant rolling
mill at Kankakee ($85 million), a new melt shop furnace
at Seattle ($20 million) and upgrades to several of the
Company's existing facilities (approximately $125
million). As the first step in completing the Plan, the
Company commissioned the new Seattle arc furnace on July
5, 1995 with excellent results which exceeded production
expectations.
Funding for the above mentioned projects is expected to
be derived from available cash reserves, net cash flow
and/or negotiated short-term or long-term financing
arrangements.
Financing Activities
Net cash used in financing activities was $23.5 million
in fiscal 1995, compared with cash provided by financing
activities of $43.7 million last year. During fiscal
1995, the Company purchased approximately 1.1 million
shares ($22 million) of it Common Stock in the open
market pursuant to Board authorization.
Working Capital
Working capital in fiscal 1995 was $206.9 million,
compared with $213.1 million in fiscal 1994.
Outlook
From a long-term prospective, the Company's broad access
to capital markets and internal cash flows are expected
to be sufficient to provide the capital resources
necessary to support increased operating needs and to
finance continued growth.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The Company is subject to federal, state and local
environmental laws and regulations concerning, among
other matters, waste water effluents, air emissions and
furnace dust disposal. Company management is highly
conscious of these regulations, and supports an ongoing
capital investment program to maintain the Company's
strict adherence to required standards.
In August 1987, the Virginia Department of Waste
Management advised the Company of a hazardous waste
condition relating to the disposal of hazardous furnace
dust at the Company's idled Norfolk facility by the
former owners during 1983 and 1984. Based upon the
Company's prior experience in correcting similar
environmental conditions, it does not expect the costs
of corrective action with respect to the hazardous waste
condition will exceed the reserves established in
previous years.
By letter dated October 20, 1992, the Department of
Toxic Substances Control of the Environmental Protection
Agency of the State of California ("DTSC ") submitted to
Barbary Coast Steel Corporation ("BCSC"), a wholly owned
subsidiary of the Company, for its review and comment a
proposed Consent Order relating to BCSC's idled steel
facility at Emeryville, California. BCSC and DTSC
executed the terms of a Consent Order on March 22, 1993
and, pursuant to the Consent Order, BCSC has completed
an environmental assessment of the site and has nearly
completed the remediation of the property. DTSC has
approved the work plan. The Company believes that, in
connection with the January 1991 closure of the
Emeryville mill, it made adequate provisions in its
financial statements for the cost of remediating the
site.
As part of its ongoing compliance and monitoring
programs, the Company is voluntarily developing work
plans for environmental conditions involving certain of
its operating facilities and other properties which are
held for sale. Based upon the Company's study of the
known conditions and its prior experience in
investigating and correcting environmental conditions,
the Company estimates that the potential cost of these
site restoration and remediation efforts may range from
$3,050,000 to $4,650,000. Approximately $1,418,000 of
these costs is recorded in accrued liabilities at June
30, 1995. The remaining costs principally consist of
site restoration and environmental exit costs to ready
the idle facilities for sale (see Note 12 to
Consolidated Financial Statements), and have been
considered in determining whether the carrying amounts
of the properties exceed their net realizable values.
These expenditures are expected to be made in the next
one to two years, if the necessary regulatory agency
approvals of the Company's work plans are obtained.
Though the Company believes it has adequately provided
for the costs of all known environmental conditions, the
applicable regulatory authorities could insist upon
different and possibly more costly remediative measures
than those believed by the Company to be adequate and in
accordance with existing law. Otherwise the Company
believes that it is currently in compliance with all
known material and applicable environmental regulations.
IMPACT OF INFLATION
The Company has not experienced any material adverse
effects on operations in recent years because of
inflation, though margins can be affected by
inflationary conditions. The Company's primary cost
components are ferrous scrap, high quality semi-finished
steel billets, energy and labor, all of which are
susceptible to domestic inflationary pressures.
Finished product prices, however, are influenced by
nationwide construction activity, automotive production
and manufacturing capacity within the steel industry.
While the Company has generally been successful in
passing on cost increases through price adjustments, the
effect of steel imports, severe market price competition
and under-utilized industry capacity has in the past,
and could in the future, limit the Company's ability to
adjust pricing.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<CAPTION>
ASSETS June 30,
-----------------------------------
1995 1994
--------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,311 $ 28,916
Accounts receivable, net of
allowance for doubtful accounts
of $1,368 at June 30, 1995;
$1,737 at June 30, 1994 110,883 108,834
Inventories 173,053 132,459
Prepaid expenses 1,154 1,208
Other 13,595 4,385
------- --------
Total current assets 302,996 275,802
Property, plant and equipment
(including property and equipment,
net, held for disposition of
$27,655 and $27,590 at June 30,
1995 and June 30, 1994,
respectively):
Land and buildings 117,835 109,490
Machinery and equipment 350,275 328,537
Construction in progress 53,932 35,235
------- -------
522,042 473,262
Less accumulated depreciation (110,385) (98,402)
-------- -------
Net property, plant and equipment 411,657 374,860
Excess of cost over net
assets acquired 32,338 32,408
Other assets 9,813 6,808
------- -------
Total assets $756,804 $689,878
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8,020 $ -
Accounts payable 63,082 36,438
Accrued operating expenses 4,137 3,857
Accrued payroll expenses 8,791 7,210
Income taxes payable 583 3,493
Other accrued liabilities 11,482 11,729
-------- --------
Total current liabilities 96,095 62,727
Deferred income taxes 53,265 41,086
Deferred compensation 5,225 4,516
Long-term debt less current portion 142,500 142,500
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, par value $.01;
authorized 5,000,000 shares - -
Common stock, par value $.01;
authorized 75,000,000 shares;
29,594,286 and 29,389,174 shares
issued at June 30, 1995 and June 30,
1994, respectively 296 294
Additional paid-in capital 330,490 327,285
Treasury stock, 1,098,356 shares
at June 30, 1995, at cost (21,909) -
Unearned compensation (2,537) (2,947)
Retained earnings 153,379 114,417
-------- --------
Total stockholders' equity 459,719 439,049
-------- --------
Total liabilities and stockholders'
equity $756,804 $689,878
======== ========
See accompanying notes
</TABLE>
<TABLE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
For the Years Ended June 30,
-------------------------------------------
1995 1994 1993
--------- ----------- -------
<S> <C> <C> <C>
Net sales $885,553 $702,893 $442,326
Cost of sales:
Other than depreciation
and amortization 723,558 599,154 374,846
Depreciation and amortization 32,310 27,671 18,036
-------- -------- --------
Gross profit 129,685 76,068 49,444
Provision for loss on disposition
of property, plant and
equipment 1,337 - 2,272
Selling, general and
administrative 43,149 33,847 24,008
Interest 8,889 11,061 3,084
-------- -------- --------
76,310 31,160 20,080
Other income, net 9,443 4,689 1,222
Income before income taxes and
cumulative effect of a change
in accounting principle 85,753 35,849 21,302
Provision for income taxes 35,104 14,603 8,517
-------- -------- --------
Income before cumulative
effect of a change in 50,649 21,246 12,785
accounting principle
Cumulative effect, as of July 1,
1993, of a change in the method
of accounting for income taxes - 380 -
-------- -------- --------
Net income $ 50,649 $ 21,626 $ 12,785
======== ======== ========
Weighted average shares
outstanding 29,162 24,595 21,325
======== ======== ========
Earnings per share:
Income before cumulative effect
of a change in accounting
principle $ 1.74 $ 0.86 $ 0.60
Cumulative effect, as of
July 1, 1993 of a change
in the method of accounting
for income taxes - 0.02 -
-------- -------- --------
Net income $ 1.74 $ 0.88 $ 0.60
======== ======== ========
See accompanying notes
</TABLE>
<TABLE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
For the Years Ended June 30,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,649 $ 21,626 $ 12,785
Adjustments to reconcile net
income to net cash provided
by operating activities:
Cumulative effect of change in
accounting principal - (380) -
Depreciation and amortization 32,310 27,671 18,036
Provision for doubtful accounts
receivable 540 1,107 1,075
Deferred income taxes 10,537 2,810 1,185
Provision for loss on disposition
of property, plant and equipment 1,337 - 2,272
Other 4,204 4,082 2,224
Changes in operating assets and
liabilities, net of effects
from business acquisitions:
Accounts receivable 4,400 (17,964) (4,702)
Inventories (47,808) (15,132) (13,687)
Prepaid expenses 47 1,981 (15)
Other current assets (7,546) (2,045) (563)
Accounts payable 23,836 (538) (6,145)
Income taxes payable (2,910) 3,493 -
Other accrued liabilities 2,533 (2,184) (1,772)
Deferred compensation 709 787 868
-------- ------- -------
Net cash provided by operating
activities 72,838 25,314 11,561
======== ======= ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (76,193) (40,438) (73,747)
Payments for business acquisitions,
net of cash acquired (11,374) (5,391) -
Net proceeds from sale of mine
roof business unit 15,542 - -
Proceeds from disposal of property,
plant and equipment 615 8,399 1,601
Additions to other non-current
assets (2,935) (3,300) (2,793)
Reductions in other non-current
assets 394 405 4,559
-------- -------- --------
Net cash used in investing
activities (73,951) (40,325) (70,380)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings
and repayments 8,020 (73,332) 68,695
Net repayments of commercial
paper - - (246)
Proceeds from issuance of
long-term debt - 130,000 -
Payments of long-term debt - (158,316) (4,462)
Proceeds from issuance of common
stock 2,150 154,111 -
Issuance of stock from treasury - 1,107 2,452
Purchase of treasury stock (21,974) (348) -
Cash dividends paid (11,688) (9,565) (7,819)
-------- -------- --------
Net cash provided by (used in)
financing activities (23,492) 43,657 58,620
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents (24,605) 28,646 (199)
Cash and cash equivalents at:
Beginning of year 28,916 270 469
-------- -------- --------
End of year $ 4,311 $ 28,916 $ 270
======== ======== ========
Supplemental cash flow disclosures:
Cash paid during the year for:
Interest (net of amounts
capitalized) $ 8,611 $ 11,715 $ 2,818
Income taxes 31,646 6,853 11,434
See accompanying notes
</TABLE>
<TABLE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
<CAPTION>
For the Years Ended June 30, 1995, 1994 and 1993
-------------------------------------------------------------------
Common Treasury
Stock Addi- Stock
------------- tional -------- Unearned Total
Paid-in Compensa- Retained Stockholders'
Shares Amount Capital Shares Amount tion Earnings Equity
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
at
June 30,
1992 15,074,824 $151 $130,798 941,277 $(11,400) $(2,529) $97,461 $214,481
Issuance
of
shares:
Three-
for-
two
stock
split,
in
the
form
of a 50%
stock
dividend 7,102,788 71 - - - - (71) -
Options
exer-
cised - - 384 (158,146) 2,068 - - 2,452
Manage-
ment
incen-
tive
plan - - 55 (1,500) 8 (63) - -
Other - - 101 (8,000) 103 - - 204
Tax
benefit
from
exer-
cise
of
stock
options - - 543 - - - - 543
Reduction
of
unearned
compen-
sation - - - - - 775 - 775
Net income - - - - - - 12,785 12,785
Cash
dividends
declared,
$.37 per
share - - - - - - (7,819) (7,819)
---------- --- ------- --------- ------ ------ ------- -------
Balances
at
June 30,
1993 22,177,612 222 131,881 773,631 (9,221) (1,817) 102,356 223,421
Issuance
of
shares:
Public
offering
of common
shares 5,750,000 57 153,152 - - - - 153,209
Acquisi-
tion of
American
Steel &
Wire
Corp
(Note 2) 1,273,804 13 37,764 (725,553) 8,858 - - 46,435
Options
exer-
cised 125,758 1 1,444 (49,633) 806 - - 2,251
Manage-
ment
incen-
tive
plan 62,000 1 2,097 970 (60) (2,038) - -
Other - - 168 (13,500) 165 - - 333
Tax
benefit
from
exercise
of stock
options - - 779 - - - - 779
Purchase
of
treasury
stock - - - 14,085 (348) - - (348)
Reduction
of
unearned
compensa-
tion - - - - - 908 - 908
Net income - - - - - - 21,626 21,626
Cash
dividends
declared,
$.40 per
share - - - - - - (9,565) (9,565)
---------- --- ------- -------- ----- -------- -------- --------
Balances
at
June 30,
1994 29,389,174 294 327,285 - - (2,947) 114,417 439,049
Issuance
of
shares:
Options
exer-
cised 165,112 2 2,146 - - - - 2,148
Manage-
ment
incen-
tive
plan 26,500 - 701 - - (778) - (77)
Stock
Accumu-
lation
Plan - - - 3,044 65 (14) - 51
Other 13,500 - 363 - - - - 363
Tax benefit
from
exercise
of stock
options - - (5) - - - - (5)
Purchase
of
treasury
stock - - -(1,101,400) (21,974) - - (21,974)
Reduction
of
unearned
compensa-
tion - - - - - 1,202 - 1,202
Net income - - - - - - 50,649 50,649
Cash
dividends
declared,
$.40 per
share - - - - - - (11,687) (11,687)
---------- --- ------- --------- ------ ------- -------- --------
Balances
at
June 30,
1995 29,594,286 296 330,490 (1,098,356)(21,909) (2,537) 153,379 459,719
========== ==== ======= ========= ====== ===== ======= =======
See accompanying notes.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, 1994 AND 1993
1. Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the
accounts of Birmingham Steel Corporation (the Company)
and its subsidiaries, all of which are wholly owned.
All significant intercompany accounts and transactions
have been eliminated. The Company operates in one
industry segment, production of steel and steel
products.
Cash equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be
cash equivalents. The carrying amounts reported in the
accompanying consolidated balance sheets for cash and
cash equivalents approximate their fair values.
Inventories
Inventories are stated at the lower of cost or market
value. The cost of steel inventories is determined
using the first-in, first-out method, whereas bolt
inventory costs were determined using the last-in,
first-out method.
Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation is provided using the straight-line method
for financial reporting purposes and accelerated methods
for income tax purposes. Estimated useful lives range
from ten to thirty years for buildings and from five to
twenty years for machinery and equipment.
Excess of cost over net assets acquired
The excess of cost over net assets acquired (goodwill)
is amortized on a straight-line basis over periods not
exceeding twenty years. Accumulated amortization was
approximately $3,999,000 and $2,182,000 at June 30, 1995
and 1994, respectively. The carrying value of goodwill
will be reviewed if circumstances suggest that it has
been impaired. If this review indicates that goodwill
will not be recoverable, based on the estimated
undiscounted cash flows over the remaining amortization
period, the Company's carrying value of the goodwill
will be reduced by the estimated shortfall of cash
flows.
Other assets
Customer supply contracts and debt issuance costs,
included in other assets, are amortized over the life of
the contracts and debt instruments. Accumulated
amortization was approximately $2,119,000 and $1,298,000
at June 30, 1995 and 1994, respectively. Other non-
current assets are stated at the lower of cost or their
estimated net realizable values.
Income taxes
Deferred income taxes are provided for temporary
differences between taxable income and financial
reporting income. The Company adopted the liability
method of accounting for income taxes prescribed in FASB
Statement No. 109 as of July 1, 1993 and reported a
benefit of $380,000 ($.02 per share) in the first
quarter of fiscal 1994 to reflect the cumulative effect
of adoption.
Earnings per share
Earnings per share are computed using the weighted
average number of outstanding common shares and dilutive
equivalents (if any).
On February 23, 1994, the Company issued 5,750,000
additional shares of common stock in a public offering.
The proceeds from the offering were used, in part, to
retire $75,000,000 of Senior Promissory Notes. On a
supplemental basis, assuming the public offering had
occurred on July 1, 1992, and the proceeds had been used
to retire the notes at that time, net income per share
would have been approximately $.92 and $.61 for the
years ended June 30, 1994 and 1993, respectively. Pro
forma supplementary earnings per share, assuming that
both the acquisition of American Steel & Wire
Corporation (ASW) and the stock offering had occurred on
July 1, 1992 (See Note 2), would have been $.95 and
$.68, respectively, for such periods.
Credit risk
The Company extends credit, primarily on the basis of
30-day terms, to various companies in a variety of
industrial market sectors. The Company does not believe
it has a significant concentration of credit risk in any
one geographic area or market segment.
The Company performs periodic credit evaluations of its
customers and generally does not require collateral.
Historically, credit losses have not been significant.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board
issued Statement No. 121 that requires impairment losses
to be recorded on long-lived assets used in operations,
including goodwill, when impairment indicators are
present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be
disposed of in future periods. The Company will adopt
Statement No. 121 in the first quarter of fiscal 1997
and, based on current circumstances, does not believe
the effect of adoption will be material.
Reclassifications
Certain amounts for prior years have been restated to
conform to the fiscal 1995 presentation.
2. Business Acquisitions
On December 31, 1994, the Company purchased Port
Everglades Steel Corporation (PESCO), a steel
distribution company headquartered in Fort Lauderdale,
Florida for $11,400,000 in cash and assumption of
liabilities of $3,100,000. The purchase price has been
allocated to the assets and liabilities of PESCO based
upon their estimated fair values. Proforma results for
prior year and current year would not be materially
different from the amounts reported in the Company's
consolidated income statements if the acquisition had
occurred as of the beginning of either period.
On November 23, 1993, the Company acquired all of the
outstanding capital stock of American Steel and Wire
Corporation (ASW), a manufacturer of high quality steel
rod and wire headquartered in Cuyahoga Heights, Ohio for
a total purchase price of $55,720,000. The purchase
price consisted of 1,999,357 shares of its common stock,
valued at $46,435,000; approximately $5,214,000 paid to
the stockholders of ASW; cash payments of $3,028,000 to
redeem stock warrants and acquisition costs of
$1,043,000. The results of operations for the twelve
months ended June 30, 1995 include the operations of
ASW. Assuming the acquisition had occurred at the
beginning of fiscal 1994, pro forma net sales for the
twelve months ended June 30, 1994 would have been
$810,360,000. Pro forma net income and earnings per
share would have been $23,198,000 and $.91,
respectively.
3. Business Disposition
On March 12, 1995 the Company sold its mine roof bolt
business unit for $17,300,000 in cash, less costs
approximating $1,758,000, and a note receivable with a
fair value of $4,200,000 and recognized a pretax gain,
included in other income, of $2,200,000. In connection
with the sale, the Company entered into a five-year
supply agreement to provide purchaser the majority of
its steel requirements.
4. Inventories
Inventories were valued as summarized in the following
table (in thousands):
June 30,
--------------------
1995 1994
---------- --------
At lower of cost (first-in,
first-out) or market:
Raw materials and mill supplies $ 45,074 $ 51,233
Work-in-progress 51,516 37,298
Finished goods 76,463 44,327
-------- --------
173,053 132,858
Allowance to adjust bolt
inventories to cost on
last-in, first-out
method (approximately 8%
of total inventory
at June 30, 1994) 0 (399)
-------- --------
$173,053 $132,459
======== ========
5. Property, Plant and Equipment
Capital expenditures totaled $77,670,000, $41,617,000
and $75,997,000 in fiscal 1995, 1994 and 1993,
respectively, excluding amounts relating to business
acquisitions. At June 30, 1995, the estimated costs to
complete authorized projects under construction amounted
to $70,000,000.
The Company capitalized interest of $2,076,000,
$2,940,000 and $5,598,000 in fiscal 1995, 1994 and 1993,
respectively, related to qualifying assets under
construction. Total interest incurred, including
amounts capitalized during these same periods, was
$10,965,000, $14,001,000 and $8,682,000, respectively.
The aggregate carrying values of the idle facilities
held for sale amounted to $27,655,000 and $27,590,000 at
June 30, 1995 and 1994, respectively. The facilities
are valued at the lower of their historical cost or
their estimated net realizable values, after providing
for estimated site restoration and other costs of
disposal (see Note 12).
6. Short-Term Borrowing Arrangements
Under line of credit arrangements for short-term
borrowings with four banks, the Company may borrow up to
$185,000,000 with interest at market rates mutually
agreed upon by the Company and the banks. One of these
lines of credit supports a bankers' acceptance and
commercial paper program. Approximately $176,980,000
was available under these facilities at June 30, 1995.
The following information relates to the Company's
borrowings, excluding commercial paper, under short-term
credit facilities during the years ended June 30, 1995,
1994 and 1993 (in thousands):
For the Years Ended June 30,
-----------------------------
1995 1994 1993
-------- ------- -------
Maximum amount outstanding $18,230 $161,825 $66,674
Average amount outstanding $ 506 $ 64,657 $24,604
Weighted average interest
rate 6.6% 3.5% 3.6%
7. Long-Term Debt
Long-term debt consists of the following (in thousands):
June 30
----------------------
1995 1994
---------- ----------
Capital lease obligations,
interest rates principally
ranging from 44% to 54% of
bank prime, payable in
1999 and 2001 $ 12,500 $ 12,500
Senior unsecured notes,
$130,000 face amount,
interest at 7.28%, payable
2001 through December 2005 130,000 130,000
-------- --------
$142,500 $142,500
======== ========
The aggregate fair value of the Company's long-term debt
obligations approximates their carrying value at June
30, 1995. The fair value of the Company's long-term,
non-traded fixed-rate debt of $130,000,000 is estimated
using discounted cash flow analyses, based on the
Company's incremental borrowing rates for similar types
of borrowings.
Future maturities of long-term debt are as follows (in
thousands):
Capital Other
Fiscal Lease Long-term
Year Obligations Debt Total
- - ------------- ----------- ---------- -------
1996 $ 661 $ - $ 661
1997 659 - 659
1998 659 - 659
1999 659 - 659
2000 10,408 - 10,408
Thereafter 2,728 130,000 132,728
------- -------- -------
15,774 130,000 145,774
Less amount repre-
senting interest (3,274) - (3,274)
------- -------- --------
$12,500 $130,000 $142,500
Property, plant and equipment with a net book value of
$4,894,000 is pledged as collateral on the capital lease
obligations. The long-term debt obligations contain
restrictive covenants, including debt restrictions and
requirements to maintain working capital and debt to
equity ratios.
8. Commitments
The Company leases office space and certain production
equipment under operating lease agreements. The
following is a schedule by year of future minimum rental
payments, net of minimum rentals on subleases, required
under operating leases that have initial lease terms in
excess of one year as of June 30, 1995 (in thousands):
Fiscal
Year
- - --------
1996 $ 789
1997 638
1998 538
1999 479
2000 441
Thereafter 1,668
------
$4,553
======
Rental expense under operating lease agreements was
$1,281,000, $1,178,000 and $816,000 in fiscal 1995, 1994
and 1993, respectively.
In April, 1995, the Company entered into a ten-year
agreement with Electronic Data Systems Corporation
(EDS), an information management and consulting firm.
Under the agreement, EDS will provide information system
management, systems development and consulting services
to the Company. Future minimum payments for systems
management services are $6,300,000 per year.
9. Income Taxes
The provisions for income taxes in 1993 was determined
under APB Opinion No. 11 using the deferral method. The
fiscal 1995 and 1994 provisions for income taxes reflect
the adoption of the liability method prescribed by FASB
Statement No. 109.
Deferred income taxes reflect the tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's deferred tax
liabilities and assets are as follows (in thousands):
June 30,
--------------------
1995 1994
------- ---------
Deferred tax liabilities:
Tax in excess of
book depreciation $58,399 $51,680
Inventories 193 2,510
------- -------
Total deferred tax liabilities 58,592 54,190
Deferred tax assets:
NOL carryforward 2,700 3,383
AMT credit carryforwards 319 5,320
Deferred compensation 2,043 1,730
Worker's compensation 1,242 901
Other accrued liabilities 1,361 2,466
------- -------
Total deferred tax assets 7,665 13,800
------- -------
Net deferred tax liabilities $50,927 $40,390
======= =======
Deferred tax assets and liabilities are classified as
follows in the accompanying consolidated balance sheet
(in thousands):
Included in other current assets $(2,338) $ (696)
Non-current deferred tax liability 53,265 41,086
------- -------
$50,927 $40,390
======= =======
At June 30, 1995, the Company has net operating loss
carryforwards for federal income tax purposes of
$6,700,000 that expire in years 2005 through 2006.
Those carryforwards were acquired in connection with the
Company's acquisition of ASW.
The provisions for income taxes consisted of the
following (in thousands):
For the Years Ended June 30,
----------------------------
1995 1994 1993
------- -------- --------
Current:
Federal $19,674 $ 8,594 $ 5,808
State 4,893 3,199 1,524
------- ------- -------
24,567 11,793 7,332
Deferred:
Federal 9,001 2,984 1,054
State 1,536 (174) 131
------- ------- -------
10,537 2,810 1,185
------- ------- -------
$35,104 $14,603 $ 8,517
======= ======= =======
The provisions for income taxes differ from the
statutory tax amounts as follows (in thousands):
For the Years Ended June 30,
----------------------------
1995 1994 1993
------- -------- --------
Tax at maximum enacted
statutory rates during
the year $30,014 $12,547 $ 7,243
State income taxes-net 4,179 1,966 1,092
Effect of 1% federal
tax rate increase on
deferred taxes - 600 -
Other 911 (510) 182
------- ------- -------
$35,104 $14,603 $ 8,517
======= ======= =======
Deferred income taxes were recorded for timing
differences related to the following (in thousands):
For the Year
Ended June 30,
1993
----
Inventories $ (582)
Depreciation and
amortization 2,207
Accrued liabilities
and other (440)
------
$1,185
======
10. Stock Option Plans
In 1986, the Company established the Birmingham Steel
Corporation 1986 Stock Option Plan whereby key employees
may be granted options to purchase up to 900,000 shares
of the Company's common stock at a price not less than
100% to 110% of the fair market value of the common
stock on the date of grant. At June 30, 1995, a total
of 303,924 shares were reserved for issuance under the
plan, and 124,749 shares were available for future
grants. The options are exercisable in three annual
installments commencing no earlier than the first
anniversary of the date of grant of such options.
On July 18, 1989, the Company granted 338,528 options,
exercisable at $14.08 per share, to all non-union
employees who had not been previously granted options
under the stock option plan for key employees. These
non-union employees were granted 300,383 additional
stock options, exercisable at $16.92, on August 17,
1992.
A summary of activity relating to stock options is as
follows:
Price Range Number of
Per Share Stock Options
----------- -------------
Outstanding,
June 30, 1992 6.89- 14.75 666,422
Granted 16.92 300,383
Exercised 6.89- 16.92 (190,318)
Cancelled 6.89- 16.92 ( 18,433)
Outstanding, --------
June 30, 1993 6.89- 16.92 758,054
Granted 31.88 2,500
Exercised 6.89- 16.92 (177,466)
Cancelled 14.08- 16.92 (9,763)
Outstanding, --------
June 30, 1994 6.89- 31.88 573,325
Granted -
Exercised 6.89- 16.92 (134,732)
Cancelled 14.18- 16.92 (3,323)
--------
Outstanding,
June 30, 1995 6.89- 31.88 435,270
========
Exercisable,
June 30, 1995 6.89- 31.88 371,247
========
The Birmingham Steel Corporation 1990 Management
Incentive Plan provides for awards of incentive and non-
qualified stock options, stock appreciation rights,
common stock of the Company and cash for certain
performance achievements. The Company has granted
210,500 shares of restricted stock under the plan to
date. The shares vest in annual installments over three
to four years from the dates of the grants. As of June
30, 1995, 159,125 shares were vested and 635,250 shares
were available for grant under the plan.
In April 1995, as part of the 1990 Management Incentive
Plan, the Company established the Birmingham Steel
Corporation Stock Accumulation Plan. The Plan provides
for the payment of restricted stock, vesting in three
years, to participants in lieu of a portion of their
cash compensation. The Company has reserved 350,000
shares of the 900,000 shares of common stock issuable
under the 1990 Management Incentive Plan for restricted
stock grants under the Stock Accumulation Plan. As of
June 30, 1995, 3,044 shares had been issued under the
Plan.
11. Deferred Compensation and Employee Benefits
The Company recognized expenses of approximately
$3,064,000, $2,571,000, and $2,304,000 in fiscal 1995,
1994 and 1993, respectively, in connection with a
defined contribution plan to which non-union employees
contribute and the Company makes discretionary and
matching contributions based on employee compensation.
Certain officers and key employees are participants in
a deferred compensation plan ("Management Security
Plan") providing fixed benefits payable in equal monthly
installments upon retirement or death. The Company
enters into separate deferred compensation agreements
with each covered employee. The Company recognizes
compensation costs pursuant to each individual agreement
over the projected service life of each employee as
deferred compensation, following the vesting provisions
of each individual agreement. The Company has purchased
life insurance on the covered employees to fund its
obligations under the Management Security Plan.
Other than the plans referred to above, the Company
provides no postretirement or postemployment benefits to
its employees that would be subject to the provisions of
FASB Statement No. 106 or No. 112.
12. Contingencies
Environmental
The Company is subject to federal, state and local
environmental laws and regulations concerning, among
other matters, waste water effluents, air emissions and
furnace dust disposal.
In August 1987, the Virginia Department of Waste
Management advised the Company of a hazardous waste
condition relating to the disposal of hazardous furnace
dust at the Company's idled Norfolk facility by the
former owners during 1983 and 1984. Based upon the
Company's prior experience in correcting similar
environmental conditions, it does not expect the costs
of corrective action with respect to the hazardous waste
condition will exceed the reserves established in
previous years.
By letter dated October 20, 1992, the Department of
Toxic Substances Control of the Environmental Protection
Agency of the State of California ("DTSC ") submitted to
Barbary Coast Steel Corporation ("BCSC"), a wholly owned
subsidiary of the Company, for its review and comment a
proposed Consent Order relating to BCSC's idled steel
facility at Emeryville, California. BCSC and DTSC
executed the terms of a Consent Order on March 22, 1993
and, pursuant to the Consent Order, BCSC has completed
an environmental assessment of the site and has nearly
completed the remediation of the property. DTSC has
approved the work plan. The Company believes that, in
connection with the January 1991 closure of the
Emeryville mill, it made adequate provisions in its
financial statements for the cost of remediating the
site.
As part of its ongoing environmental compliance and
monitoring programs, the Company is voluntarily
developing work plans for environmental conditions
involving certain of its operating facilities and other
properties which are held for sale. Based upon the
Company's study of the known conditions and its prior
experience in investigating and correcting environmental
conditions, the Company estimates that the potential
costs of these site restoration and remediation efforts
may range from $3,050,000 to $4,650,000. Approximately
$1,418,000 of these costs is recorded in accrued
liabilities at June 30, 1995. The remaining costs
principally consist of site restoration and
environmental exit costs to ready the idle facilities
for sale, and have been considered in determining
whether the carrying amounts of the properties exceed
their net realizable values. These expenditures are
expected to be made in the next one to two years, if the
necessary regulatory agency approvals of the Company's
work plans are obtained. Though the Company believes it
has adequately provided for the cost of all known
environmental conditions, the applicable regulatory
agencies could insist upon different and more costly
remediative measures than those the Company believes are
adequate or required by existing law. Otherwise, the
Company believes that it is currently in compliance with
all known material and applicable environmental
regulations.
Legal Proceedings
The Company is involved in litigation relating to claims
arising out of its operations in the normal course of
business. Such claims are generally covered by various
forms of insurance. In the opinion of management, any
uninsured or unindemnified liability resulting from
existing litigation would not have a material effect on
the Company's business, its financial position,
liquidity or results of operations.
13. Disposition of Idle Facilities
In Fiscal 1995, the Company entered into an agreement to
sell its idle facility in Ballard, Washington. The
Company also has signed a contract with the Port of
Seattle to exchange the idle Kent, Washington facility
and other property presently in use at the Seattle,
Washington steel-making facility for property owned by
the Port which will be used in the Company's Seattle
operations. The book value of these idle facilities at
June 30, 1995 is $14,700,000.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Birmingham Steel Corporation
We have audited the accompanying consolidated balance
sheets of Birmingham Steel Corporation as of June 30,
1995 and 1994, and the related consolidated statements
of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended
June 30, 1995. Our audits also included the financial
statement schedule listed in the index at Item 14(a)2.
These financial statements and schedule are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material
respects, the consolidated financial position of
Birmingham Steel Corporation at June 30, 1995 and 1994,
and the consolidated results of its operations and its
cash flows for each of the three years in the period
ended June 30, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when
considered in relation to the basic financial statements
taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Note 1 to the financial statements, in
1994 the Company changed its method of accounting for
income taxes.
Ernst & Young LLP
-----------------
/s/Ernst & Young LLP
Birmingham, Alabama
August 4, 1995
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information contained on pages 4 and 5 of Birmingham
Steel Corporation's Proxy Statement dated September 15,
1995, with respect to directors and executive officers
of the Company, is incorporated herein by reference in
response to this item.
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 6, 7 and 8 of
Birmingham Steel Corporation's Proxy Statement dated
September 15, 1995, with respect to directors and
executive officers of the Company, is incorporated
herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information contained on page 2 of Birmingham
Steel's Proxy Statement dated September 15, 1995, with
respect to directors and executive officers of the
Company is incorporated herein by reference in response
to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
ITEM 14 (a) 1. INDEX TO CONSOLIDATED STATEMENTS COVERED
BY REPORT OF INDEPENDENT AUDITORS
The consolidated financial statements of Birmingham
Steel Corporation are included in Item 8:
Consolidated Balance Sheets-June 30, 1995 and 1994
Consolidated Statements of Income-Years ended June 30,
1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders
Equity-Years ended June 30, 1995, 1994 and 1993
Consolidated Statements of Cash Flows-Years ended June
30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements-June 30, 1995
Report to Independent Auditors-June 30, 1995
ITEM 14 (a) 2. INDEX TO CONSOLIDATED FINANCIAL
STATEMENT SCHEDULES
The following consolidated financial statement schedules
are filed as a separate section of this report.
Form 10-K
Schedules Description
- - ----------- -------------------------------------
VIII - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted
because they are not required or are not applicable, or
the required information is shown in the Consolidated
Financial Statements or notes thereto. Columns omitted
from schedules filed have been omitted because the
information is not applicable.
ITEM 14 (a) 3. EXHIBITS
The exhibits listed on the Exhibit Index below are
filed or incorporated by reference as part of this
report and such Exhibit Index is hereby incorporated
herein by reference.
Exhibit Description of Exhibits
3.1 Restated Certificate of Incorporation of the
Registrant (incorporated by reference from Form 8-A,
Exhibit 2.2, filed November 16, 1986)
3.2.1 By-Laws of the Registrant (incorporated by
reference from Form 10-K for the fiscal year ended June
30, 1986, Exhibit 3.2)
3.2.2 Secretary's certification and Amendment to By-
Laws of Registrant dated August 17, 1990 (incorporated
by reference from Form 10-K for the fiscal year ended
June 30, 1990, Exhibit 3.2.1)
3.2.3 Amendment to By-Laws of the Registrant dated June
27, 1991. (Incorporated by reference from Form 10-K for
the fiscal year ended June 30, 1991, Exhibit 3.2.3)
4.1 Birmingham Steel Corporation $130,000,000 Senior
Note Purchase Agreement dated December 15, 1993 between
the Registrant and the following group of investors:
The Equitable Life Assurance Society of the U.S., The
Guardian Life Insurance Company of America, Principal
Mutual Life Insurance Company, The Travelers Indemnity
Company, Jefferson-Pilot Life Insurance Company, Phoenix
Home Life Mutual Life Insurance Company, American United
Life Insurance Company, Canada Life Assurance Company,
Canada Life Assurance Company of America, Canada Life
Assurance Company of New York, Ameritas Life Insurance
Corporation, Berkshire Life Insurance Company, Provident
Mutual Life Insurance Company-CALIC, Provident Mutual
Life Insurance Company of Philadelphia (incorporated by
reference from Form 10-Q for quarter ended December 31,
1993, Exhibit 4.1).
10.1 1986 Stock Option Plan of Registrant, as amended
(incorporated by reference from Registration
Statement on Form S-8 (No. 33-16648), filed August 20,
1987)
10.2 Amended and Restated Management Security Plan,
effective January 1, 1994 (incorporated by reference
from Form 10-K for year ended June 30, 1994, Exhibit
10.2).
10.3 Steel Billet Sale and Purchase Master Agreement
between American Steel & Wire Corporation and QIT-Fer et
Titane, Inc. dated July 1, 1994*
10.4 Billet Supply Agreement between American Steel &
Wire Corporation and The Broken Hill Proprietary Company
Ltd. and BHP Trading Inc.*
10.5.1 Supply Agreement, dated as of August 2, 1985,
among MC Acquisition Corp., Birmingham Bolt Company,
Inc., Magna Corporation, Contractors Material Co., Inc.,
and Hackney Steel Co., Inc. (incorporated by reference
from Registration Statement No. 33-945, Exhibit 10.6.3,
filed November 20, 1985)
10.5.2 Amendment, dated July 29, 1987, to Supply
Agreement dated August 2, 1985 among BSC Steel, Inc.
(formerly MC Acquisition Corp.), Birmingham Bolt
Company, Inc., Magna Corporation, Contractors Material
Co., Inc. and Hackney Steel Co., Inc. (incorporated by
reference from Registration No. 33-22975, Exhibit
10.8.2, filed July 7, 1988)
10.6 1989 Non-Union Employees' Stock Option Plan of
the Registrant (incorporated by reference from a
Registration Statement on Form S-8, Registration No. 33-
30848, filed August 31, 1989, Exhibit 4.1)
10.7 Restated Non-Union Employees' 401(k) Plan restated
as of January 1, 1990 (incorporated by reference from
Post-Effective Amendment No. 1 to Form S-8, Registration
No. 33-23563, filed July 12, 1990, Exhibit 4.1)
10.8 Special Severance Benefits Plan of the Registrant
(incorporated by reference from the Annual Report on
Form 10-K for the Year ended June 30, 1989, Exhibit
10.12)
10.9 Agreement for Information Technology Services
between the Registrant and Electronic Data Systems
Corporation*
10.10 Lease Agreement, as amended, dated July 13, 1993
between Torchmark Development Corporation and Birmingham
Steel Corporation (incorporated by reference from Annual
Report on Form 10-K for year ended June 30, 1994,
Exhibit 10.11)
10.10.1 Amendment to Lease Agreement, as amended, dated
July 13, 1993 between Torchmark Development Corporation
and Birmingham Steel Corporation (incorporated by
reference from Annual Report on Form 10-K for year ended
June 30, 1994, Exhibit 10.11.1)
10.11 1990 Management Incentive Plan of the Registrant
(incorporated by reference from a Registration Statement
on Form S-8, Registration No. 33-41595, filed July 5,
1991, Exhibit 4.1)
10.12 1992 Non-Union Employees' Stock Option Plan of
the Registrant (incorporated by reference from a
Registration Statement on Form S-8, Registration No. 33-
51080, filed August 21, 1992, Exhibit 4.1)
22.1 Subsidiaries of the Registrant*
23.1 Consent of Independent Auditors*
* Being filed herewith
ITEM 14 (b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth
quarter ended June 30, 1995.
ITEM 14 (c). EXHIBITS
The response to this portion of item 14 is submitted as
a separate section of this report.
ITEM 14 (d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
BIRMINGHAM STEEL CORPORATION
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Additions
Balance -------------------
at Provision Less Balance
Beginning for Accounts at End
of Acquisi- Doubtful Written of
Year tion Accounts Off Year
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended June 30, 1995 $1,737 $136 $ 558 $1,063 $1,368
Year ended June 30, 1994 1,134 932 1,107 1,436 1,737
Year ended June 30, 1993 1,512 - 1,044 1,422 1,134
SIGNATURES
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.
BIRMINGHAM STEEL CORPORATION
James A. Todd, Jr. 09/29/95
----------------------------
James A. Todd, Jr. Date
Chairman of the Board
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.
</TABLE>
<TABLE>
<S> <C> <C> <C>
E. Mandell de Windt 09/29/95 James A. Todd, Jr. 09/29/95
- - ------------------- -------- ------------------ --------
E. Mandell de Windt Date James A. Todd, Jr. Date
Chairman-Executive Committee Chairman of the Board,
Chief Executive
Officer, Director
Paul H. Ekberg 09/29/95 Thomas N. Tyrrell 09/29/95
- - -------------- -------- ----------------- --------
Paul H. Ekberg Date Thomas N. Tyrrell Date
Vice Chairman, Vice Chairman,
Director Director
Harry Holiday, Jr. 09/29/95 C. Stephen Clegg 09/29/95
- - ------------------ -------- ----------------- --------
Harry Holiday, Jr. Date C. Stephen Clegg Date
Director Director
George A. Stinson 09/29/95 E. Bradley Jones 09/29/95
- - ----------------- -------- ---------------- --------
George A. Stinson Date E. Bradley Jones Date
Director Director
Reginald H. Jones 09/29/95 T. Evans Wyckoff 09/29/95
- - ----------------- -------- ------------------- --------
Reginald H. Jones Date T. Evans Wyckoff Date
Director Director
William J. Cabaniss, Jr. 9/29/95 Robert E. Powell 09/29/95
- - ----------------------- -------- ------------------ --------
William J. Cabaniss, Jr. Date Robert E. Powell Date
Director Vice President-
Controller
John M. Casey 9/29/95
- - --------------------- -------
John M. Casey Date
Executive Vice President
& Chief Financial
Officer
</TABLE>
INDEX OF EXHIBITS INCLUDED
IN FORM 10-K
EXHIBIT TITLE
10.3 Steel Billet Sale and Purchase Master
Agreement between American Steel & Wire
Corporation and QIT-Fer et Titane, Inc.
dated July 1, 1994
10.4 Billet Supply Agreement between American
Steel & Wire Corporation and The Broken
Hill Proprietary Company Ltd. and BHP
Trading Inc.
10.9 Agreement for Information Technology
Services between the Registrant and
Electronic Data Systems Corporation
22.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
EXHIBIT 10.3 Steel Billet Sale and Purchase Master
Agreement between American Steel & Wire Corporation and
QIT-FER et Titane, Inc.
STEEL BILLET SALE AND PURCHASE MASTER AGREEMENT
BY AND BETWEEN QIT AND AS&W
THIS STEEL BILLET SALE AND PURCHASE MASTER AGREEMENT
("Agreement") was made by and between American Steel and
Wire Corporation of 4300 East 49th Street, Cuyahoga Heights,
Ohio 44125, U.S.A. ("AS&W") and QIT-Fer et Titane Inc. of
770 Sherbrooke Street West, Suite 1800, Montreal, Quebec H3A
1G1, Canada ("QIT").
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, QIT
and AS&W intending to be bound hereby agree as follows:
1. Sale and Purchase
QIT shall sell to AS&W, and AS&W shall buy from QIT,
Steel Billets under the terms and conditions set forth in
this Agreement which includes, and hereby incorporates by
reference, the terms and conditions contained in the:
1.1 "Steel Billet Contract Heads of Agreement"
attached hereto as Schedule 1.
1.2 "Specifications and Billet Selling Prices for
First Contract Year" attached hereto as Schedule
2.
1.3 "Initial Wire Rod Selling Prices" attached
hereto as Schedule 3.
1.4 "Steel Scrap Price" attached hereto as Schedule
4.
1.5 "Other Terms and Conditions" attached hereto as
Schedule 5.
Schedule 6, which is attached but not included or
incorporated in this Agreement, contains mere guidelines and
is not binding on either AS&W or QIT. Schedule 6 does not
contain any terms or conditions that in any way obligate
either AS&W or QIT.
2. Priority
As used herein, "priority" means that the terms and
conditions of a document govern and control the terms and
conditions of another document in the event of a conflict
between the terms or conditions of those documents. Each of
the following lower numbered documents shall have priority
over any higher numbered document as follows--in order of
priority:
2.1 This Agreement;
2.2 Schedule 1;
2.3 Schedule 2;
2.4 Schedule 3;
2.5 Schedule 4;
2.6 Schedule 5;
2.7 For administrative purposes, AS&W and QIT intend
to exchange purchase orders, acknowledgments,
invoices and similar documents ("Administrative
Documents") as a result of this Agreement. The
Administrative Documents do not and shall not
modify, amend, supplement or explain this
Agreement (including its Schedules), or be
interpreted as doing so, but the Administrative
Documents shall follow Schedule 5 in priority if
they are so interpreted.
2.8 Schedule 6 does not and shall not modify, amend,
supplement or explain this Agreement (including
its other Schedules), or be interpreted as doing
so, but Schedule 6 shall follow the
Administrative Documents in priority if it is so
interpreted.
This Agreement's or a Schedule's reference to or
incorporation of certain Schedules' terms and conditions, or
of the provisions of a Schedule, shall not change their
foregoing priority. For example, the reference in paragraph
20 of this Agreement to terms and conditions of Schedule 5
shall not change their foregoing priority (2.6) to the
priority that this Agreement has (2.1).
3. Term
The term of this Agreement shall be July 1, 1994, up
through and including June 30, 1997, and any renewal period,
as provided in Schedule 1, Articles 1 and 2.
4. Quantity
The quantity sold and purchased under this Agreement,
and the timing thereof, shall be as provided in Schedule 1,
Articles 3 and 4.
5. Price
The price for Steel Billets sold and purchased under
this Agreement, from June 1, 1994, and thereafter, shall be
as provided in Schedule 1, Article 5, and Schedules 2, 3 and
4; except that:
5.1 If QIT and AS&W fail to agree on a price for
alloy steels or for Changed Specifications after
negotiation as provided in Schedule 1, Article 5
(III) and (V), respectively, QIT shall have no
duty to sell and AS&W shall have no duty to buy
any alloy steels or any Steel Billets with
Changed Specifications but this Agreement shall
not be terminated solely for such failure to
agree or lack of duty in reference to alloy
steels or Steel Billets with Changed
Specifications; and
5.2 If the American Metal Market Weekly Shredded
Scrap Composite Price index provided for in
Schedule 4 ceases to be published, QIT and AS&W
shall endeavour to agree on a substitute index
but, if they fail to agree or such substitute
index does not exist, this Agreement may be
terminated as provided in subparagraph 12.1.
6. Ordering Procedure and Delivery
Ordering Procedure and Delivery shall be as provided
in Articles 6 and 7 respectively of Schedule 1.
7. Payment and Interest
The Terms of AS&W's payments to QIT shall be as
provided in Schedule 1, Articles 8 and 5 (I). Interest
shall automatically accrue every day on AS&W's overdue
amounts. The daily interest rate shall be 1/365 multiplied
by the sum of three percent (3%) and the prime rate in the
Wall Street Journal's Money Rates (i.e., the base rate on
corporate loans posted by at least seventy-five percent
(75%) of the nation's thirty (30) largest banks) that is
published on the payment due date with respect to each order
involved or, if none is published on such due date, on the
first date after such due date that such prime rate is
published. QIT shall have the discretion to waive, in part
or in whole, AS&W's duty to pay such interest. Unless so
waived, AS&W shall pay such interest to QIT monthly.
AS&W shall have no right to offset, deduct or hold
back any amount (whether for asserted non-conformity, non-
performance, breach, additional cost of replacements, or any
other asserted reason or damage) against any part of the
price, payment or interest due to QIT with respect to any
order of Steel Billets.
8. Quality Assurance
Quality assurance shall be as provided in Schedule 1,
Article 9.
9. Confidentiality and Audit
There shall be confidentiality as provided in Schedule
1, Article 10, and either party may request an independent
Auditor subjected to such confidentiality to review any or
all required price calculations as provided in Schedule 1,
Article 12.
10. Force Majeure
The terms and conditions of force majeure shall be as
provided in Schedule 1, Article 11.
11. Specifications
"Steel Billets", as used in this Agreement, means
steel continuously cast in square cross-sections nominally
of 130 mm x 130 mm and in nominal length of 10.2 meters, or
in square cross-sections nominally of 160 mm x 160 mm and in
nominal length 10.2 meters, or such other physical
specifications as may be agreed by the parties in an
amendment to this Agreement. Only one cross-section size
shall be required to be produced at any one time, except
during a period of transition from one cross-section to
another according to mutually agreeable terms, or as
provided in Schedule 1, Article 3 (VI).
Steel Billets sold and purchased under this Agreement
shall be produced by QIT pursuant to such other
Specifications as provided in Schedule 2.
12. Termination
AS&W may terminate this Agreement if any of the events
specified in subparagraph 12.1 occur or if any of the events
specified in subparagraphs 12.2 to 12.10, inclusive, occur
with respect to QIT at any time, and QIT may terminate this
Agreement if any of the events specified in subparagraph
12.1 occur or if any of the events specified in
subparagraphs 12.2 to 12.10, inclusive, occur with respect
to AS&W at any time, upon, in all cases, written notice by
the terminating party to the other party, and without
prejudice to any of the other rights or remedies, if any, of
the terminating party:
12.1 The parties have failed to agree on a
substitute index or such an index does not
exist, as provided in subparagraph 5.2,
after receiving thirty (30) days' notice
thereof from the other party;
12.2 Except as provided in subparagraphs 19.2
and 19.4, a party breaches or fails to
perform any obligation or duty of such
party provided for in this Agreement and
fails to cure any such breach or failure
within thirty (30) days after receiving
notice thereof from the other party;
12.3 A party ceases or suspends its operations
other than as provided for in Schedule 1
and fails to resume such operations within
ten (10) days;
12.4 A party experiences financial or other
difficulties that give the other party
reasonable grounds for insecurity and
fails to provide adequate assurance of due
performance within thirty (30) days of
demand by such other party;
12.5 A party repudiates this Agreement and
fails to retract such repudiation
unconditionally and provide adequate
assurance of due performance within ten
(10) days thereafter;
12.6 A party becomes insolvent, evidenced by an
inability to pay its debts generally as
such debts become due or otherwise, or
makes an assignment for the benefit of
creditors;
12.7 A trustee, receiver or liquidator is
appointed for either party or for all or a
substantial part of its assets;
12.8 Bankruptcy, reorganization, insolvency or
similar proceedings are commenced by or
against a party under the laws of any
jurisdiction in which the party or a
substantial portion of its assets is
located and, in the case of any such
proceeding commenced against such party,
it consents to relief or fails to secure
the dismissal of such proceeding within
thirty (30) days after it is commenced;
12.9 The board of directors or other governing
body of a party resolves to liquidate,
dissolve, or wind up the affairs of such
party; and/or
12.10 All or a substantial part of the assets of
a party are subject to levy, execution,
seizure, sale or other judicial process
that is not dissolved, stayed, or
satisfied within ten (10) business days.
13. Assignment and Parties in Interest
This Agreement shall not be assigned or transferred in
whole or in part by either party without the prior written
consent of the other party, which consent shall not be
unreasonably withheld. Any assignment or transfer without
such consent shall be void. This Agreement shall be binding
upon the parties hereto and, provided such consent has been
given, upon their respective successors and/or assigns.
14. Governing Law
This Agreement, and the acts or omissions (whether
tortious or not) of any party arising from or relating to
this Agreement (or any part thereof), shall be governed,
interpreted, construed and enforced in accordance with the
substantive laws of the State of Ohio and shall be subject
to such laws. QIT and AS&W exclude from application the
United Nations Convention on Contracts for the International
Sale of Goods and the Hague Convention, and those
Conventions shall not apply.
15. Negotiation and Conciliation
15.1 Negotiation
If any party has any dispute, controversy, claim,
demand or difference arising from or relating in any way to
this Agreement (or any part thereof), or the acts or
omissions (whether tortious or not) of the other party
(including, without limitation, any asserted non-conformity,
non-performance, breach, invalidity, unenforceability or
termination under or of this Agreement or any part thereof)
("Dispute"), such party shall notify the other of such
Dispute and the parties shall use their best efforts to
negotiate in good faith and settle such Dispute. If, by
negotiation, the parties do not settle such Dispute within a
period of thirty (30) days from said notice, then such
Dispute shall be finally settled under the then prevailing
Rules of Conciliation and Arbitration of the International
Chamber of Commerce ("I.C.C.") in the manner provided in
this Agreement.
15.2 Conciliation
Any Dispute between the parties may be submitted to
conciliation under the then prevailing Rules of Optional
Conciliation of the I.C.C. If the parties do not agree to
submit such Dispute to conciliation within a period of
thirty (30) days from the notice of Dispute as provided in
subparagraph 15.1, either party may give notice to the other
party that the Dispute shall be arbitrated as provided in
paragraph 16 by filing a Request for Arbitration in
accordance with the then prevailing I.C.C. Rules of
Arbitration. The conciliation shall be held in Toronto,
Ontario, unless the parties agree otherwise, and shall be
conducted in the English language.
15.3 Exception
A claim or demand by QIT against AS&W for the price of
Steel Billets, for payment of overdue amounts or interest,
or for AS&W's breach of or failure to perform its duties
under paragraph 7 shall not be a Dispute subject to the
foregoing provisions on negotiation or conciliation.
16. Arbitration
16.1 Arbitrable Disputes
Upon the giving of notice of arbitration as provided
in subparagraph 15.2, any Dispute between the parties shall
be submitted to and finally settled by arbitration in
accordance with the then prevailing I.C.C. Rules of
Arbitration and the provisions of this Agreement.
16.2 Exception
A claim or demand by QIT against AS&W for the price of
Steel Billets, for payment of overdue amounts or interest,
or for AS&W's breach of or failure to perform its duties
under paragraph 7 shall not be a Dispute subject to the
provisions on arbitration.
16.3 Location and Language
The arbitration shall be held in Toronto, Ontario,
unless the parties agree otherwise, and shall be conducted
in the English language.
16.4 Selection of Arbitrator(s)
The arbitration shall be presided over by one or more
arbitrators. If the parties are unable to agree on a single
arbitrator within thirty (30) days of the date when the
Request for Arbitration is provided to the other party, then
each party shall appoint one arbitrator and the third
arbitrator, who shall serve as chairperson, shall be chosen
by the two arbitrators chosen by the parties within thirty
(30) days of their appointment, failing which, by the
International Court of Arbitration.
16.5 Governing Rules and Law
Any arbitrable Dispute shall be arbitrated under the
then prevailing I.C.C. Rules of Arbitration, the provisions
of this Agreement and the governing substantive laws of Ohio
as provided in paragraph 14. In granting a remedy or relief
in the decision and award, or in rendering the decision and
award, the arbitrator(s) shall apply such Rules, provisions
and laws.
16.6 Decision and Award
The decision and award of the arbitrator(s) shall be
binding upon the parties and final, and shall have the force
and effect of and be enforceable as a judgment. The
decision and award, and the judgment that it constitutes,
shall not be subject to vacation, setting aside,
modification or appeal.
16.7 New York Convention
The Convention on the Recognition and Enforcement of
Foreign Arbitral Awards is not excluded from application,
and shall apply as and to the extent provided herein.
16.8 Fees and Expenses
The fees and expenses of the arbitration and
arbitrator(s) shall be assessed by and in the discretion of
the arbitrator(s) against any party or parties. Each party
shall bear its own attorneys' fees, if any.
16.9 Submission to Jurisdiction and Forum
Each party submits to the arbitral jurisdiction and
forum as provided in paragraph 16.
17. Survival
Except for the duties of QIT to sell and AS&W to
purchase Steel Billets, the provisions of this Agreement
shall survive the termination of this Agreement.
18. Miscellaneous
18.1 Insurance and Indemnity
Neither party shall be required or obligated to:
indemnify the other party; or procure insurance at the
request of the other party.
18.2 Severability
If any provision in this Agreement shall be held
invalid, illegal or unenforceable under present or future
governing laws, the validity, legality and enforceability of
the remaining provisions shall not be affected or impaired
thereby, and in lieu of such invalid, illegal and/or
unenforceable provision, there shall be added automatically
as a part of this Agreement a provision as similar in terms
to such invalid, illegal and/or unenforceable provision as
may be possible which is valid, legal and enforceable.
18.3 Rights and Remedies
Except as otherwise provided in this Agreement, all
rights and remedies of a party under this Agreement or law
are separate and cumulative and the exercise of one shall
not in any way limit or prejudice the exercise of any other
such right or remedy.
18.4 Waiver
No waiver shall be deemed to have been made by any
party unless the same shall have been made in writing. Each
waiver, if any, shall be a waiver only with respect to the
specific instance involved and shall in no way impair the
rights or remedies of the waiving party or the obligations
or duties of the other party in any other respect at any
other time.
18.5 Notices
Any notice provided for in this Agreement shall be
given in writing even if also given orally. Any such notice
shall be deemed duly given if sent by confirmed telecopy or
facsimile addressed to the intended recipient (and copied
person) as set forth below:
If to QIT: IAN D. OLLIFF
Manager Steel Sales
1625, rte Marie-Victorin
Tracy, Quebec
Canada J3R 1M6
FAX: (514) 746-9433 or
(514) 746-1101
PHONE:(514) 746-3354
Copy to:
QIT'S GENERAL COUNSEL
770 Sherbrooke Street West
Suite 1800
Montreal, Quebec
Canada H3A 1G1
FAX: (514) 286-9336
PHONE:(514) 288-8400
If to AS&W: LAWRENCE C. WISE
General Manager Materials
4300 East 49th Street
Cuyahoga Heights, Ohio
United States 44125
FAX: (216) 429-7690 or
(216) 429-8824
PHONE:(216) 429-7655
Copy to:
THOMPSON, HINE & FLORY
1100 National City Bank Building
629 Euclid Avenue
Cleveland, Ohio 44114-3070
FAX: (216) 566-5583
PHONE:(216) 566-5500
Any party may give any such notice using any other
means (including, without limitation, personal delivery,
expedited courier, messenger service, telex, certified or
ordinary mail, or electronic mail), but no such notice shall
be deemed to have been duly given unless and until it
actually is received by the individual for whom it is
intended. Any party may change the intended recipient,
address or fax number to which any such notice is to be
given upon notice to the other party in the manner herein
set forth. Notice shall be deemed given as of the day and
time such notice is sent provided it actually is received by
the individual for whom it is intended.
19. WARRANTY DISCLAIMERS AND REMEDY LIMITATIONS
QIT warrants that the Steel Billets sold by QIT shall
conform, when delivered, to the Specifications under
paragraph 11.
19.1 THE WARRANTY EXPRESSED ABOVE IN THIS
PARAGRAPH IS THE SOLE AND EXCLUSIVE WARRANTY MADE BY QIT,
AND IS IN LIEU OF ALL OTHER WARRANTIES OF ANY KIND, WHETHER
IMPLIED OR EXPRESS, (INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE). THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE
DESCRIPTION ON THE FACE HEREOF. THERE ARE NO IMPLIED
WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE. EXCEPT FOR THE WARRANTY EXPRESSED ABOVE IN THIS
PARAGRAPH, QIT SELLS THE STEEL BILLETS "AS IS".
19.2 AS&W'S SOLE AND EXCLUSIVE REMEDY, AND THE
LIMIT OF QIT'S LIABILITY, SHALL BE:
19.2.1 IN THE EVENT OF A BREACH OF
WARRANTY, OR OF NON-CONFORMING STEEL BILLETS: A MONEY
ALLOWANCE OR PRICE ADJUSTMENT ACCEPTABLE TO THE PARTIES; OR
THE REMOVAL OR OTHER DISPOSAL OF SUCH STEEL BILLETS FROM
AS&W'S MILL, AND THE REPLACEMENT OF SUCH STEEL BILLETS WITH
CONFORMING STEEL BILLETS;
19.2.2 IN THE EVENT OF A FORESEEN INABILITY
TO MEET SUPPLY COMMITMENTS AS PROVIDED IN SCHEDULE 1,
ARTICLE 4 (II): THE ALTERNATIVE REPLACEMENT PROCEDURE AS
PROVIDED THEREIN; AND
19.2.3 IN ANY OTHER EVENT OF BREACH OR OF
FAILURE TO PERFORM UNDER THIS AGREEMENT BY QIT, THE RIGHT TO
TERMINATE THIS AGREEMENT AS PROVIDED IN SUBPARAGRAPH 12.2.
19.3 NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT TO THE CONTRARY, QIT SHALL NOT BE LIABLE TO
AS&W FOR ANY DAMAGES: WHETHER DIRECT OR INDIRECT; WHETHER
FOR INDEMNITY OR CONTRIBUTION; WHETHER INCIDENTAL OR
CONSEQUENTIAL (INCLUDING WITHOUT LIMITATION, LOST PROFITS,
LOSS OF USE, LOSS OF OR DAMAGE TO GOODWILL OR CREDIT,
INTEREST, LOSS OF OR DAMAGE TO REAL OR PERSONAL PROPERTY, OR
ECONOMIC LOSS OR DAMAGE); WHETHER SPECIAL, PENAL, PUNITIVE
OR EXEMPLARY; AND WHETHER BASED ON CONTRACT, TORT OR OTHER
CAUSE OF ACTION OR CLAIM. THIS SUBPARAGRAPH IS INDEPENDENT
OF AND NOT AFFECTED BY THE EXISTENCE OR NOT OF ANY REMEDY OR
OTHER LIMITATION OF REMEDY. THIS SUBPARAGRAPH IS NOT
INTENDED TO NEGATE SUBPARAGRAPHS 19.2.1 THROUGH 19.2.3.
19.4 AS&W SHALL GIVE QIT WRITTEN NOTICE OF THE
OCCURRENCE OF ANY OF THE EVENTS PROVIDED IN SUBPARAGRAPHS
19.2.1 THROUGH 19.2.3 WITHIN THIRTY (30) DAYS' OF AS&W'S
DISCOVERY OF ITS OCCURRENCE OR BE BARRED FROM THE REMEDY
PROVIDED THEREIN.
20. Other Terms and Conditions
Other terms and conditions shall be governed by QIT's
standard terms and conditions as provided in Schedule 5.
21. Modification
This Agreement (including Schedules 1 through 5) may
not and shall not be modified, amended or supplemented
except by a writing stating that it is intended as a
modification to this Agreement and signed by a duly
authorized representative of each party. No terms or
conditions, other than those stated in this Agreement
(including Schedules 1 through 5), shall be binding upon
either party unless so modified.
22. Final, Complete and Exclusive Agreement
The parties intend this Agreement (including Schedules
1 through 5) as, and it shall be their final, definite,
complete and exclusive agreement with respect to its subject
matter. There are no oral or written, express or implied
representations, affirmations, promises, commitments,
contracts, understandings or agreements other than as set
forth in this Agreement (including Schedules 1 through 5).
All proposals, negotiations, representations, affirmations,
promises, commitments, contracts, understandings or
agreements, if any, made at any time with reference hereto
are superseded by this Agreement and merged in the manner
set forth in this Agreement (including Schedules 1 through
5).
IN WITNESS WHEREOF, AS&W and QIT have jointly drafted, read,
understood and caused this Agreement to be executed by their
respective duly authorized representatives.
AMERICAN STEEL & WIRE CORPORATION
BY: WALTER ROBERTSON III
Name & Title: Walter Robertson III
President
QIT-FER ET TITANE INC.
BY: TERENCE F. BOWLES
Name & Title: Terence F. Bowles
Executive Vice President
EXHIBIT 10.4 Billet Supply Agreement between American
Steel & Wire Corporation and The Broken Hill Proprietary
Company Ltd. and BHP Trading Inc.
BILLET SUPPLY AGREEMENT
BETWEEN
AMERICAN STEEL AND WIRE CORPORATION
AND
THE BROKEN HILL PROPRIETARY COMPANY LTD
BHP TRADING INC
This steel supply agreement is made between
American Steel and Wire Corporation
4300 East 49th Street
Cuyahoga Heights
Ohio
United States of America 44125
and
The Broken Hill Proprietary Company Limited
ACN 004 028 077
140 William Street
Melbourne
Australia 3000
and its subsidiary,
BHP Trading Inc.
5800 S Eastern Ave
5th Floor
Commerce
California 90040-09990
United States of America
AS&W is desirous of obtaining a reliable and continuing
source of supply of steel billets to be used at AS&W's
Cuyahoga Works and Joliet Works.
BHP desires to supply to AS&W and AS&W desires to purchase
from BHP steel billets that can be reasonably produced at
Newcastle, according to AS&W's grade specifications at the
quantities as provided within this agreement.
PART 1 DOCUMENT CONTROL
1.1 CONTENTS
Part 1 DOCUMENT CONTROL
1.1 CONTENTS
1.2 CONTROLLED DISTRIBUTION LIST
1.3 TERM AND TERMINATION
1.4 AMENDMENT PROCEDURE
1.5 INCORPORATION BY REFERENCE
1.6 ASSIGNMENT
1.7 WAIVER
1.8 APPLICABLE LAW
1.9 TITLES
1.10 DEFINITIONS
1.11 AUTHORISATION/PAGE ISSUE
STATUS
1.12 AMENDMENT REGISTER
Part 2 SUPPLY SPECIFICATIONS
2.1 GRADE SPECIFICATIONS
2.2 PHYSICAL SPECIFICATIONS
2.3 AMENDMENT PROCEDURES
Part 3 QUALITY SYSTEM REQUIREMENTS
Part 4 SYSTEM OPERATION
4.1 NON-CONFORMING PRODUCT
4.2 CORRECTIVE ACTION
4.3 COMPLAINTS
4.4 PERFORMANCE FEEDBACK
4.5 REVIEW
Part 5 COMMERCIAL ARRANGEMENTS
5.1 QUANTITY OF STEEL BILLETS TO
BE SOLD/PURCHASED
5.2 DELIVERY
5.3 ORDERS AND SHIPMENTS
5.4 PRICE
5.5 CREDIT TERMS
5.6 FORCE MAJEURE/ALLOCATION OF
PRODUCTION
1.2 CONTROLLED DISTRIBUTION LIST
Copy No Copy Holder
- - ------- -----------
1 Vice President Finance - American Steel and Wire
2 Vice President Materials - American Steel and
Wire
3 Marketing Manager International - BHP-Rod & Bar
Products Division
4 Vice President Steel Division, BHP Trading Inc -
Los Angeles
1.3 TERM AND TERMINATION
This Agreement shall be effective on the date
entered into and shall remain in full force and
effect for a period of three (3) contract years
commencing on 1st June 1994 and continuing until
31st May 1997 unless this Agreement is sooner
terminated or further extended as provided
hereunder.
1.4 AMENDMENT PROCEDURE
No terms of conditions, other than those stated
herein, and no agreement or understanding, oral
or written, in any way purporting to modify
these terms or conditions, shall be binding upon
either party unless the amendment is made by
altering, adding to or deleting, the relevant
pages in this document and such changes are
recorded and authorised by each party. It will
be the responsibility of each copyholder to
replace amended pages and record the amendment
in the Amendment Register. Document control
will be managed by Export Market Manager, BHP-
RBPD.
1.5 INCORPORATION BY REFERENCE
Any clause required to be included in an
agreement of this type by any applicable law or
administrative regulation having the effect of
law shall be deemed to be incorporated herein.
1.6 ASSIGNMENT
This Agreement may not be assigned in whole or
in part by either party without the prior
written consent of the other, which consent
shall not be unreasonably refused.
1.7 WAIVER
Waiver by either party of any breach of any of
the provisions hereof shall not be construed as
a waiver of any other breach.
1.8 APPLICABLE LAW
This Agreement shall be construed in accordance
with, and all disputes hereunder shall be
governed by the laws of the State of Ohio, USA.
1.9 TITLES
The titles of the paragraphs in this Agreement
are for the convenience of reference only and
are not to be considered in construing this
Agreement.
1.10 DEFINITIONS
BHP - The Broken Hill Proprietary Company
Limited
AS&W - American Steel and Wire Corporation
Newcastle Works - BHP's Steelworks located at
Newcastle, Australia
Cuyahoga Works - AS&W's Steelworks located at
Cuyahoga Heights, Cleveland, Ohio
Joliet Works - AS&W's Steelworks located at
Joliet, Illinois
ID - BHP's International Division
RBPD - BHP's Rod and Bar Products Division
Ton - A US short ton = 2000 lbs = 0.907 Metric
Tonnes
FOB Buyer Facility - Free in Store (FIS)
Heat lot order quantity = 210 ton (190 MT)
BHPTI = BHP Trading Inc
1.11 PAGE ISSUE STATUS/AUTHORISATION
1.11.1 PAGE ISSUE STATUS
Part Pages Issue Date
---- ----- ----- -----------
Preamble 1 1 5 March '94
1 6 1 5 March '94
2 1 1 5 March '94
3 1 1 5 March '94
4 2 1 5 March '94
5 5 1 5 March '94
1.11.2 AUTHORISATION
In witness whereof, the parties hereto have
caused this Agreement to be executed by their
respectively authorised representatives
effective on the day and year written above.
R. W. Kirkby Thomas N. Tyrrell
------------------------ -----------------------
R. W. Kirkby Thomas N. Tyrrell
Group General Manager President
BHP Rod and Bar Products American Steel and Wire
Division Corporation
Frank Brown
------------------------
Frank Brown
BHP Trading Inc.
1.12 AMENDMENT REGISTER
Part # Page # New Issue # Date Amendment Nature Initials
- - ------ ------ ----------- ---- ---------------- --------
PART 2 TECHNICAL SUPPLY SPECIFICATION
2.1 GRADE SPECIFICATIONS
AS&W's grade specifications or types of steel
billets that BHP agrees to sell and AS&W agrees
to buy during the term of this Agreement shall
be set forth in a side letter agreement and
subsequent amendments.
2.2 PHYSICAL SPECIFICATIONS
Billets are supplied to the requirements of
AS&W's physical specifications as follows:
Date
Specifi- of
cation Description Issue
-------- ----------- -------
CUY-1 Requirement for Cuyahoga 19 Jun 91
JOL-1 Requirement for Joliet 2 Apr 91
MPL-1 Marking and packing 31 Jan 91
instructions
2.3 AMENDMENT PROCEDURE
Amendments to the specifications shall be
subject to enquiry and agreement will be
evidenced by BHP returning AS&W's Supplier
Acceptance Form, Form No PURC 112.
PART 3 QUALITY SYSTEM REQUIREMENTS
3.1 The quality of the steel billets supplied to
AS&W is the responsibility of BHP. BHP agrees
to work with AS&W in maintaining formal quality
systems to meet AS&W's specification
requirements.
3.2 BHP must be able to demonstrate the existence of
a formal quality system meeting the requirements
of Australian Standard 3902/ISO 9002.
3.3 Processes must be shown to be capable of meeting
specified requirements and show evidence of
statistical control.
3.4 BHP will provide data on major changes involving
practices or SOPs which may affect AS&W's
operations.
3.5 Evidence that steel billets meet the specified
requirements shall be available if required, to
AS&W. Such evidence would be:
(a) Test results
(b) Inspection results
(c) Quality records
(d) Standard operating procedures
(e) Quality management system reports
(f) QA audit (system and product) reports
PART 4 SYSTEM OPERATION
4.1 NON-CONFORMING PRODUCT
Product not conforming to specified requirements
must not be delivered to AS&W unless:
(a) This is part of an agreed corrective
action specified in an appropriate QA
document, and/or
(b) Has been referred to and accepted by the
nominated representative of AS&W on the
AS&W Heat Referral Form.
4.2 CORRECTIVE ACTION
When a non-conformance occurs, an appropriate
corrective action must be responded to within
the period set out in the Supplier Service
Specification for a particular quality event in
order to prevent a recurrence of the non-
conformance.
A record of all non-conformances and corrective
actions taken will be maintained by AS&W.
4.3 COMPLAINTS
When a non-conformance is identified with
billets supplied by BHP then a Non-conforming
Product Report is initiated by AS&W and sent to
the Technical Service Manager, RBPD, who will
register it and co-ordinate the identification
of corrective actions required. A copy of the
completed Corrective Action Report will be
returned to the sender.
4.4 PERFORMANCE FEEDBACK
AS&W will collect data on Key Performance
Indicators (KPIs) covering agreed aspects of the
supply specifications. The KPI data shall be
provided to BHP-RBPD on a monthly basis.
4.5 REVIEW
Meetings will be held between BHP and AS&W at
intervals of about three months.
These meetings will review the operation of the
supply agreement, set and review KPIs based on
supply specification and assess the
effectiveness of actions taken to address non-
conforming product and complaints.
PART 5 COMMERCIAL ARRANGEMENTS
5.1 QUANTITY OF STEEL BILLETS TO BE SOLD/PURCHASED
5.1.1 For the first year during the term of this
agreement, BHP agrees to sell to AS&W and AS&W
agrees to purchase from BHP upon BHP's standard
conditions of sale, a minimum of 80,000 metric
tonnes per year of AS&W's requirements for steel
billets at its Cuyahoga and Joliet Works.
Annual tonnages for subsequent years will be
subject to negotiation during February/March of
each year. The aim is to supply the annual
tonnage in approximately equal quarterly
quantities. Reasonable efforts will be made to
ship quarterly quantities in approximately equal
vessel cargo lots.
5.1.2 The annual quantities may be divided or
allocated between AS&W's respective Works in
such amounts as AS&W designates in its
individual orders issued pursuant to Paragraph
5.3.
5.1.3 Additional tonnages of billets may become
available during the course of each year.
During the first year of this agreement, this
additional quantity could be as high as 20,000
metric tonnes. These additional tonnages of
billets may become available either at the
normal time of quarterly negotiation or during
the course of each calendar quarter.
5.2 DELIVERY
Delivery of such Steel Billets will be made by
BHP to AS&W, FOB buyer's facility, at Cuyahoga
Heights Ohio or Joliet Illinois, unless
otherwise specifically agreed by the parties.
5.3 ORDERS AND SHIPMENTS
5.3.1 At least ninety (90) days prior to the required
date of despatch, AS&W will notify BHPTI of the
grade, quality, size, etc, of such Steel Billets
as required that AS&W desires to purchase from
BHP during each calendar quarter for delivery to
Cuyahoga and/or Joilet Works. Each such notice
shall be acknowledged and negotiated, and
agreement evidenced by BHPTI's standard order
acknowledgement form and AS&W's purchase order,
which said forms shall set forth the precise
quantity of each grade, quality and size of the
Steel Billets that BHP will furnish to AS&W for
that quarter (and scheduled shipping dates), and
shall also bear the current BHPTI standard terms
and conditions of sale together with any special
conditions which may apply from time to time by
agreement between the parties.
5.3.2 AS&W's minimum quarterly orders for the purchase
of individual grades of steel billets shall be
in four (4) heat sequences, unless otherwise
specifically agreed by the parties, as evidenced
by the return of AS&W's Supplier Acceptance
Form, Form No PURC 112.
5.3.3 Each delivery of Steel Billets shall be deemed
to be sold under separate contracts of sale and
no default by BHP of or with respect to any
delivery or instalment shall entitle AS&W to
treat this Agreement as breached or repudiated
in regard to any balance or instalment with
respect to which there is no default or breach,
provided however, that either party shall have
the right to treat this Agreement as breached or
repudiated in the event of material breach by
the other of its obligations hereunder, which
breach remains uncured for a period of sixty
(60) days after written notice of such breach is
provided by one party to the other.
5.3.4 Amendment to orders by AS&W shall be accepted by
RBPD providing the billets have not been
produced and sufficient notice is given to allow
alteration of RBPD's steelmaking production
schedules. Acceptance of amendments shall be
evidenced by BHPTI's standard order
acknowledgement form.
5.4 PRICE
5.4.1 Prior to the placement of orders for each three
(3) month period prices will be renegotiated and
adjusted for such competitive allowance with
respect to individual product grades and agreed
to by AS&W and BHPTI (subject to the conditions
provided in this Agreement) one (1) month in
advance of the commencement of each three (3)
month period.
5.4.2 In the event BHPTI and AS&W are unable to reach
agreement (due to any reason/s whatsoever) on
the price of steel billets, then AS&W shall have
the right to purchase those affected Steel
Billet products or items for which the parties
are unable to reach agreement on price from
other sources for the three (3) month period
involved without further obligation of either
party to the other with respect to such items
during such period. Such affected Steel Billet
products or items shall be subject to
renegotiation and supply upon the conditions
hereof commencing with the next succeeding three
(3) month period of this Agreement.
5.4.3 Deleted
5.4.4 Deleted
5.5 CREDIT TERMS
5.5.1 Credit terms shall be as agreed to by AS&W and
BHP Trading Inc, and set forth in a side letter
agreement, and subsequent amendments.
5.6 FORCE MAJEURE/ALLOCATION OF PRODUCTION
5.6.1 In the event the Newcastle Plant's performance
hereunder is delayed or made impossible or
commercially impracticable due to fire,
explosion, strike or other difference with
workers, shortage of utility, facility, material
or labour, delay in transportation, breakdown or
accident, compliance with or other action taken
to carry out the intent or purpose of any law or
regulation, or any other cause beyond BHP's
reasonable control, BHP shall have such
additional time within which to perform this
Agreement as may be reasonably necessary under
the circumstances and shall have the right to
apportion its production among its customers and
its own use in such manner as it may consider to
be equitable. In the event of force majeure at
BHP Newcastle Works, AS&W shall be permitted, by
mutual agreement, to cancel any unfulfilled
order items that BHP is unable to supply during
the force majeure period and purchase those
items elsewhere. AS&W shall be permitted to
continue purchases of such affected items until
the force majeure is resolved and for such
reasonable period thereafter as may be necessary
for AS&W to adjust downward its purchases from
temporary sources before resuming its full
purchase obligation hereunder; provided,
however, that if the probable longevity of any
such force majeure occurrence can be determined
by mutual agreement, AS&W agrees to purchase
from temporary sources only the amount of
affected steel billet products needed for that
period. A force majeure will apply when both
parties mutually agree that an interruption of
billet supply has or will occur.
5.6.2 The term of this Agreement shall be extended for
a period equivalent to any force majeure which
results in AS&W's cancellation of unfulfilled
orders, and purchase of affected items elsewhere
upon the conditions as herein above provided.
EXHIBIT 10.9 Agreement for Information Technology
Services between the Registrant and Electronic Data Systems
Corporation
AGREEMENT
FOR
INFORMATION TECHNOLOGY SERVICES
between
BIRMINGHAM STEEL CORPORATION
and
ELECTRONIC DATA SYSTEMS CORPORATION
AGREEMENT
FOR
INFORMATION TECHNOLOGY SERVICES
THIS AGREEMENT, dated as of March 29, 1995 (the
"Agreement Date") is by and between Birmingham Steel
Corporation, a Delaware corporation ("BIR"), and Electronic
Data Systems Corporation, a Texas corporation ("EDS").
ARTICLE I. AGREEMENT, TERM AND DEFINITIONS
1.1 Agreement. During the Term, as defined herein, EDS
will supply to BIR, and BIR will purchase from EDS,
all information technology requirements of BIR in the
continental United States, all upon and subject to the
terms and conditions specified in this Agreement. The
parties acknowledge and agree that EDS is the
exclusive provider of information technology services
for BIR during the Term. Initially, EDS will provide
those Services, as defined herein, described as
Ongoing Services and Project BIR MRP (the "Initial
Services") in the statements of work, attached hereto
as Schedules 1.1(a) and 1.1(b), respectively, and made
a part hereof, in the continental United States only.
However, as BIR needs or desires information
technology services other than the Initial Services,
BIR shall request those services from EDS, and EDS and
BIR shall negotiate in good faith with regard to the
provision of such other services. Such services other
than the Initial Services and Project BIR MRP will be
referred to herein as the "Future Requirements." In
the event the parties cannot agree on the price for
any of the Future Requirements, EDS shall perform such
Future Requirements on a "time and materials" basis at
its then current standard rates which are published
annually with the appropriate discounts as reflected
in Schedule 1.1(c). Once the parties have agreed as to
the material terms and conditions of such Future
Requirements, a statement of work will be developed
for each set of Future Requirements and this Agreement
will be amended as appropriate to include the
statement of work for such Future Requirements.
1.2 Term of Agreement. The initial term of this Agreement
will begin on April 1, 1995 (the "Effective Date"),
and will end on the tenth anniversary of the Effective
Date, subject to extensions of this Agreement pursuant
to the terms and conditions of Section 8.1. The
initial term of this Agreement and the extensions
pursuant to Section 8.1, if any, will be referred to
herein as the "Term." The date on which this
Agreement expires due to passage of time is referred
to in this Agreement as the "Expiration Date". This
Agreement may be terminated prior to the Expiration
Date in accordance with the terms and conditions of
Article IX.
1.3 Defined Terms. As used in this Agreement, the
following terms have the meanings set forth below.
(a) Access. The term "Access" means the enjoyment
of physical and legal use and operation of
Software or equipment and hardware in order for
EDS to provide the Services.
(b) Acquisitions. The term "Acquisitions" means the
purchase and/or assumption of operations of any
production facility or entity that produces
steel other than those owned or operated by BIR
as of the Effective Date.
(c) EDS Software. The term "EDS Software" means any
Software which is owned by EDS (and not
proprietary to any other party) and operated by
EDS in connection with the performance of the
Services.
(d) EDS-Vendor Software. The term "EDS-Vendor
Software" means any Software which is licensed
to EDS and operated by EDS in connection with
the performance of the Services.
(e) BIR MRP Project. The term "BIR MRP Project"
means
the project undertaken by EDS for the benefit of
BIR and which is more particularly described in
Schedule 1.1(b).
(f) BIR-Software. The term "BIR-Software" means any
Software which is owned by BIR (and not
proprietary to any other party) and which is to
be operated by or on behalf of BIR. BIR-
Software is identified on Schedule 1.3(f).
(g) BIR-Vendor Software. The term "BIR-Vendor
Software" means any Software which is
proprietary to any other party other than BIR or
EDS and which is identified on Schedule 1.3(g).
(h) Ongoing Services. The term "Ongoing Services"
means those information technology services
provided by EDS to BIR for the ongoing operation
charges reflected in Schedule 7.1(a) and more
particularly described in the appropriate
section of Schedule 1.1(a).
(j) Project. The term "Project" means any
particular planned undertaking or task by EDS
that has been requested by BIR pursuant to the
terms and conditions of this Agreement as a
Future Requirement.
(k) Service Categories. The term "Service
Categories" means Acquisitions, Ongoing Services
and Projects.
(l) Services. The term "Services" means the
information technology services provided by EDS
pursuant to this Agreement, which will include
the Initial Services and Future Requirements.
(m) Software. The term "Software" means computer
programs together with input and output formats,
program listings, narrative descriptions,
operating instructions and supporting
documentation, and shall include the tangible
media upon which such programs and documentation
are recorded. Except as otherwise provided in
this Agreement, Software includes any
enhancements, translations, modifications,
updates, new releases and other changes.
Other capitalized terms used in this Agreement are
defined herein from time to time.
ARTICLE II. INFORMATION TECHNOLOGY SERVICES
TO BE PERFORMED BY EDS
2.1 EDS Personnel and Management.
(a) EDS Relationship Executive. During the Term and
any renewals of this Agreement, EDS will provide
an EDS Relationship Executive (the "EDS
Relationship Executive") who will be dedicated
full-time to the provision of the Services under
this Agreement, will maintain his office in
BIR's corporate facility and will spend a
majority of his time in the BIR facilities in
which the Services will be provided. The EDS
Relationship Executive will have overall
responsibility for managing and coordinating the
delivery of the Services and will coordinate and
consult with the BIR Relationship Executive (as
defined in Section 3.1(a)). The EDS
Relationship Executive will meet regularly with
the BIR Relationship Executive as well as other
BIR designated personnel in order to review the
information technology priorities established by
BIR and the status of EDS' performance under
this Agreement. The EDS Relationship Executive
will provide reports to BIR Relationship
Executive. Subject to emergency situations and
assuming the particular individual does not
leave EDS, the EDS Relationship Executive must
remain in that capacity for a minimum period of
six (6) months after the BIR MRP Project is
complete. In the event BIR is dissatisfied with
the EDS Relationship Executive for any reason,
BIR will give written notice of such
dissatisfaction and the reasons for such
dissatisfaction. EDS will have thirty (30) days
from the receipt of such notice in which to
remedy such problem to the satisfaction of BIR.
In the event BIR remains dissatisfied (in BIR's
sole discretion) with the EDS Relationship
Executive after such thirty (30) day period, EDS
will promptly replace that EDS Relationship
Executive.
(b) Transition of Personnel. On or prior to the
Effective Date, with the express exceptions
mentioned below, EDS will offer employment,
effective as of the start of business on the
Effective Date, to the data processing employees
of BIR identified in Schedule 2.1(b) (the
"Transitioned Employees") in accordance with
EDS' normal employment policies. To the extent
EDS exercises such options and such employees
accept EDS' employment offer, either or both of
such employees will be a portion of the
Transitioned Employees. It is the intent of EDS
to keep the Transitioned Employees as employees
of EDS for a minimum period of one (1) year from
the time of the transition, subject, however, to
work performance issues. EDS will be able to
take appropriate actions, as it deems reasonable
within its sole discretion, to correct any work
performance issues, which actions may include,
without limitation, termination of such
employee. In preparation for the transition of
employment, EDS and BIR will take the necessary
measures so that the representatives of the
affected personnel departments of the parties
will meet and work together to accomplish a
smooth and orderly transition for such
employees.
(c) Financial Responsibility for EDS Personnel. EDS
will pay for all personnel expenses, including
wages of its employees performing the Services.
2.2 EDS Information Technology Services. In accordance
with the provisions of this Agreement, EDS will
provide to BIR the Initial Services.
2.3 Future Requirements. Upon the reasonable written
request of BIR in accordance with Section 2.5, EDS
will provide BIR such Future Requirements as BIR and
EDS agree on terms mutually agreed upon by EDS and BIR
in writing. Any Future Requirements will be performed
pursuant to documentation which references and
incorporates this Agreement and the terms and
conditions of this Agreement and which will be an
amendment to this Agreement.
2.4 Service Level Agreements. For the Initial Services
and in any statements of work for any Future
Requirements, the parties will enter into service
level agreements ("SLA's") which will set forth the
respective levels of service to be provided and the
parties' obligations with respect to achieving such
service levels. Each SLA will specify the time period
for measuring compliance with such service levels and
the method for measuring and reporting such
compliance. With respect to the Ongoing Services, EDS
will perform such services at the levels currently
provided by BIR, and, within ninety (90) days from the
Effective Date of this Agreement, the parties will
mutually determine the new service levels for the
performance of the Ongoing Services.
2.5 CSR Process. A customer service request will be
prepared in the form of Schedule 2.5 (the "CSR") and
in accordance with the process described in Schedule
2.5 for all Services (excluding the Initial Services)
performed under this Agreement.
ARTICLE III. BIR OBLIGATIONS
3.1 BIR Personnel and Management.
(a) BIR Representative. During the Term and any
renewal of this Agreement, BIR will maintain a
designated representative (the "BIR Relationship
Executive") who will initially be the Vice
Chairman/Chief Administrative Officer of BIR and
who will act as the primary point of contact for
EDS in dealing with BIR with respect to each
party's obligations under this Agreement. After
the period of one (1) year, the Vice
Chairman/Chief Administrative Officer of BIR may
delegate his role as the BIR Relationship
Executive to another individual; provided,
however, that the individual must be a senior
officer in a cross-functional management
position.
(b) Transitioned Employees. BIR will cooperate with
EDS in the performance by EDS of its obligations
to offer employment to and hire the Transitioned
Employees. BIR has not and will not make any
representation, promise or other communication,
whether written or oral, to the Transitioned
Employees regarding employment with EDS or the
employment benefits, plans or practices of EDS
without obtaining the prior written consent of
EDS. For the first thirty (30) days of the
Term, should EDS request that BIR continue to
make payments to such employees after they are
hired by EDS, BIR will do so as an
administrative convenience until such personnel
can be integrated into the EDS payroll system.
In such event, BIR will be acting solely as an
accommodation to EDS, and EDS will reimburse BIR
for all wages paid and employer's contributions
made by BIR in connection therewith.
3.2 BIR Operational Obligations. During the Term of this
Agreement, BIR will perform the support services and
discharge the obligations described in the applicable
portions of Schedule 1.1(a) at BIR's cost.
3.3 BIR Financial Obligations. During the Term, BIR will
perform and discharge the financial obligations
described in Schedule 3.3 at BIR's cost. One of the
financial obligations of BIR designated on Schedule
3.3 is the start-up costs for items which are
necessary for the provision of the Services by EDS.
BIR shall pay such start-up costs in twelve (12) equal
monthly installments. With regard to any Future
Requirements, the parties will mutually agree as to
the payment of any other costs and expenses related to
any items which are to be provided thereunder and for
which the financial responsibility has not been
expressly assumed by either party under this
Agreement.
3.4 Supplies. For BIR data centers and divisional
information technology resource facilities, EDS will
provide all data processing supplies and forms
utilized at such locations and by the EDS employees
performing the Services, including labels, magnetic
tapes, printer ribbons, microfilm/fiche supplies and
computer paper. For any other locations or user
organizations, BIR will provide such supplies and
items.
3.5 Facilities. BIR will provide EDS, at BIR's
facilities, office space, parking, office furnishings,
janitorial service, telephone service (including long
distance service), utilities (including air
conditioning), office-related equipment and supplies,
such as duplicating equipment and facsimile machines,
and security as EDS reasonably requires to provide the
Services under this Agreement. BIR will provide EDS
with Access to its facilities as is necessary for EDS
to provide the Services under this Agreement.
3.6 Cooperation and Information. BIR will cooperate with
EDS in providing the Services through making available
to EDS such information as EDS reasonably requests.
ARTICLE IV. EQUIPMENT AND RELATED AGREEMENTS
4.1 BIR-Owned Equipment. During the Term, in order for
EDS to provide the Initial Services, BIR will, at its
sole cost and expense, furnish EDS with Access to the
equipment owned by BIR that is either listed on the
attached Schedule 4.1 or which is purchased by BIR
subsequent to the Agreement Date for information
technology purposes (and which is added to Schedule
4.1 by BIR) (collectively, the "BIR-Owned Equipment").
As Future Requirements are added to the Services
performed by EDS pursuant to this Agreement, Schedule
4.1 will be updated accordingly. The BIR-Owned
Equipment will remain the property of BIR. BIR will
pay all costs and expenses with respect to the BIR-
Owned Equipment, including, without limitation,
depreciation, maintenance, insurance and taxes.
4.2 Leased Equipment. During the Term, in order for EDS
to provide the Initial Services, BIR will, with the
assistance of EDS, furnish EDS with Access to the
equipment leased by BIR that is listed on the attached
Schedule 4.2 (the "Leased Equipment"). As Future
Requirements are added to the Services performed by
EDS pursuant to this Agreement, Schedule 4.2 will be
updated accordingly. BIR will pay the costs with
respect to the Leased Equipment, including, without
limitation, all lease payments, insurance, maintenance
and taxes, and will also pay all costs necessary to
obtain Access for EDS to the Leased Equipment. BIR
hereby appoints EDS as its sole agent for all matters
pertaining to the Leased Equipment and will promptly
notify all appropriate third parties of such
appointment. Only upon the request of EDS from time
to time, and with the approval of BIR, BIR will, to
the extent permitted by such lease agreements,
terminate or assign to EDS any such lease agreements
or purchase any such Leased Equipment and will
immediately resell it to EDS for the same purchase
price paid by BIR.
4.3 Third Party Approvals. BIR will, with the assistance
of EDS, take all actions necessary to obtain any
consents, approvals, or authorizations from third
parties necessary for EDS to lawfully Access, use and
operate (at or from any location where the Services
are to be provided) the BIR-Owned Equipment, Leased
Equipment, the BIR-Vendor Software and any third party
services for which EDS may have any managerial or
other responsibility. With regard to any Future
Requirements, the payment of any costs and expenses
incurred will be negotiated by the parties in good
faith. BIR hereby appoints EDS as its sole agent for
all matters pertaining to the BIR-Owned Equipment, the
Leased Equipment, the BIR-Vendor Software and such
third party services, and will promptly notify all
appropriate third parties of such appointment.
4.4 Further Assurances. BIR and EDS agree to execute and
deliver such other instruments and documents as either
party reasonably requests to evidence or effect the
transactions contemplated by this Article.
4.5 Transitioned Employees Use of Personal Computers. BIR
will retain ownership, but will allow the Transitioned
Employees Access to the personal computers (the
"PC's") used by them as of the Effective Date of this
Agreement and which are listed on Schedule 4.5.
However, EDS will manage the leases (if applicable)
and maintenance of the PC's. For any new personal
computers needed subsequent to the Effective Date of
this Agreement for the Services provided by EDS, EDS
will acquire or lease such personal computers and
maintain same.
4.6 Other Equipment. As to any equipment other than the
PC's, BIR will retain ownership of any BIR-Owned
Equipment, but EDS will manage and maintain same. If
any new equipment is needed subsequent to the
Effective Date of this Agreement for the Services
provided by EDS, EDS will acquire or lease such
equipment and maintain same.
4.7 Assignment of Maintenance Agreements. BIR will assign
to EDS its interests in the maintenance agreements for
BIR-Owned Equipment, the Leased Equipment and the BIR-
Software, as such maintenance agreements are specified
in Schedule 4.7.
4.8 Assignment of Services Agreements. BIR will assign to
EDS its interests in the service agreements for BIR-
Owned Equipment, the Leased Equipment and the BIR-
Software, which are specified in Schedule 4.8 to this
Agreement.
ARTICLE V. SOFTWARE
5.1 BIR-Software. The BIR-Software will remain BIR's
property and EDS will have no ownership interests or
other rights in the BIR-Software, except as provided
in this Section 5.1. BIR grants to EDS the right to
Access the BIR-Software, without charge to EDS, to
provide the Services. The BIR-Software will be made
available to EDS in such form and on such media as EDS
may reasonably request, together with existing
documentation and other materials.
5.2 BIR-Vendor Software. On or before the date EDS will
begin to access such Software, BIR will, with the
assistance of EDS, obtain all consents necessary to
permit EDS to Access or operate the BIR-Vendor
Software and will pay the costs and expenses
associated therewith. BIR will provide written
evidence of such consents to EDS upon EDS' request.
The BIR-Vendor Software will be made available to EDS
in such form and on such media as EDS may reasonably
requests, together with appropriate documentation and
other materials. During the Term of this Agreement
and any renewals, BIR will pay all required license,
installation, maintenance and upgrade fees with
respect to the BIR-Vendor Software. Nothing
contained in this Agreement will require either party
to violate the proprietary rights of any third party
in any Software.
5.3 EDS Software. The EDS Software will remain EDS'
property and BIR will have no rights or interests
therein except that EDS shall grant to BIR a
perpetual, nontransferable, royalty-free, nonexclusive
license to use, after the Expiration Date, any
application software programs (including then existing
documentation) of any EDS Software then being used by
EDS in rendering services to BIR (the "Licensed
Programs"), for BIR's internal use only for running
its business as then being run. In the event BIR
desires maintenance services for the Licensed
Programs, BIR and EDS will enter into an appropriate
maintenance agreement providing for the payment of a
reasonable maintenance fee which shall not exceed then
current prevailing market rates.
5.4 EDS-Vendor Software. EDS will obtain all consents
necessary to permit EDS to Access or operate the EDS-
Vendor Software and will pay all costs and expenses
associated therewith. During the Term and any
renewals of this Agreement, EDS will pay all required
license, installation, maintenance and upgrade fees
with respect to the EDS-Vendor Software.
5.5 EDS Development Tools. Subject to any licenses or any
other rights of use extended to BIR by this Agreement,
EDS retains all right, title and interest in and to
any and all Software, software development tools, know
how, methodologies, processes, technologies or
algorithms used in providing the Services which are
based upon trade secrets or proprietary information of
EDS or otherwise owned or licensed by EDS.
ARTICLE VI. CONFIDENTIALITY, SECURITY AND AUDIT RIGHTS
6.1 BIR's Data. Information relating to BIR or its
customers contained in BIR's data files ("BIR's Data")
is the exclusive property of BIR. EDS is authorized
to have Access to and make use of BIR's Data as
appropriate for the performance by EDS of its
obligations under this Agreement. Upon the
termination or expiration of this Agreement, EDS will
return to BIR all of BIR's Data in EDS' then existing
machine-readable format and media. EDS will not use
BIR's Data for any purpose other than providing the
Services.
6.2 Confidentiality. Except as otherwise provided in this
Agreement, EDS and BIR each agree that all information
communicated to it by the other or the other's
affiliates, whether before or after the Effective
Date, including, without limitation, BIR-Software, EDS
Software, trade secrets, proprietary process and the
terms and conditions of this Agreement, will be
received in strict confidence, will be used only for
purposes of this Agreement, and will not be disclosed
by the recipient party, its agents, subcontractors or
employees without the prior written consent of the
other party. Each party agrees to use the same means
it uses to protect its own confidential information,
but in any event not less than reasonable means, to
prevent the disclosure of such information to outside
parties. However, neither party shall be prevented
from disclosing information which belongs to such
party or is (a) already known by the recipient party
without an obligation of confidentiality other than
pursuant to this Agreement; (b) publicly known or
becomes publicly known through no unauthorized act of
the recipient party; (c) rightfully received from a
third party; (d) independently developed without use
of the other party's confidential information; (e)
disclosed without similar restrictions to a third
party by the party owning the confidential
information; (f) approved by the other party for
disclosure; or (g) required to be disclosed pursuant
to a requirement of a governmental agency, law or any
subpoena in any then pending case or binding
arbitration or mediation proceedings if the disclosing
party provides the other party with written notice of
this requirement as far in advance of the required
disclosure as is reasonably possible. The provisions
of this Section 6.2 will survive the expiration or
termination of this Agreement for any reason.
6.3 Security. EDS will comply with the written security
procedures (or such other security procedures made
known to EDS) that are in effect at the BIR facilities
on the Effective Date. BIR will provide all necessary
security personnel and related equipment at the BIR
facilities. Except as provided in Sections 6.1 and
6.4, without the prior written consent of EDS, no
employee, agent, contractor or invitee of BIR will
operate or assist in operating equipment or Software
to be used by EDS under this Agreement or enter any
location of any such equipment or Software. Promptly
after the Effective Date of this Agreement, EDS will
be responsible for changing or modifying any passwords
on any BIR systems to be used to provide any Services
so as to prevent unauthorized employees of BIR from
obtaining Access to such systems.
6.4 Audit Rights. EDS will provide auditors and
inspectors that BIR designates in writing with
reasonable access to any EDS facilities from which any
of the Services may be provided for the limited
purpose of performing audits or inspections of BIR's
business. EDS will provide reasonable assistance of a
routine nature to such auditors and inspectors, and
EDS will provide additional assistance as a Future
Requirement. EDS will not be required to provide such
auditors and inspectors access to data of EDS
customers (other than BIR) or proprietary data of EDS.
ARTICLE VII. PAYMENTS TO EDS
7.1 Charges for Services.
(a) Ongoing Operations Charge. In consideration for
the performance by EDS of the Ongoing Services, for
each month following the Effective Date, BIR will pay
EDS the monthly ongoing operations charge set forth in
Schedule 7.1(a) (the "Ongoing Operations Charge").
EDS will invoice each Ongoing Operations Charge on the
fifth (5th) business day of the month immediately
following the month in which the Ongoing Services were
provided, and such Ongoing Operations Charge will be
due and payable fifteen (15) days after the date of
the invoice. EDS will deliver each invoice for an
Ongoing Operations Charge on the date of the invoice.
The Ongoing Operations Charge to BIR will be based on
the number of tons of steel shipped by BIR in the
month that is the subject of the invoice in accordance
with the attached Schedule 7.1(a).
During the Term, BIR will, on an annual basis prior to
the commencement of each BIR fiscal year, make
available to EDS its business forecast of tonnage
shipment levels to third parties for such upcoming
fiscal year. The business forecast should reflect the
seasonal variations in tonnage to be shipped by BIR
for the upcoming fiscal year. The parties agree that
the forecast tonnage for the upcoming fiscal year will
dictate the price per ton from Schedule 7.1(a) that
will be charged by EDS and will be paid by BIR for the
upcoming fiscal year subject to the adjustments as
described hereinbelow. At the end of the first six
(6) month period of each fiscal year during the Term,
the parties will mutually determine if the actual
amount of tonnage shipped by BIR is the same or
materially different from the forecast submitted by
BIR. In the event the actual amount of tonnage
shipped by BIR is materially different from that
reflected in the forecast submitted by BIR and such
actual amount causes BIR to materially modify its
tonnage forecast for the fiscal year, the parties
agree that the differences in the charges that would
result from the actual amount of tonnage shipped by
BIR, if any, will be reflected on the invoices
submitted monthly by EDS during the following six (6)
month period, with each monthly adjustment amount
(whether a credit or an additional charge) being one
sixth (1/6th) of the total adjustment. The parties
also agree that, after nine (9) months of each fiscal
year, the parties will again mutually determine if the
rate of charges is consistent with actual tonnage
shipped, as previously adjusted after the six month
review specified above, and if not, such additional
adjustment (together with the prior adjustment) that
must be made will be accomplished by reflecting the
amount of the credit or additional charge in the
monthly invoices for the Ongoing Operations Charge for
the remaining three (3) months of the fiscal year. At
the end of each of BIR's fiscal years during the Term,
EDS will issue a separate invoice for any and all
outstanding or additional adjustments required as a
result of differences in the tonnage forecast and
actual amounts shipped to third parties.
In no event will the monthly Ongoing Operations Charge
be less than the amount which would be charged on a
price per ton basis for 200,000 tons (2,400,000 tons
annually) as a minimum level of tons shipped to any
third parties. If the minimum tonnage charge is
imposed, the price per ton shall be $2.64 per ton
shipped. However, if, at the end of any year, BIR's
minimum annual commitment of 2,400,000 tons is met,
but during the year EDS' minimum charge for any month
was charged, then EDS will rebate the difference
between the amount charged for the year and the amount
which would have been charged on a straight tonnage
basis for the entire year without regard to the
minimum.
(b) Project Charges. For any Projects on which EDS
will render Services as a Future Requirement, EDS will
charge a specific Project charge (each a "Project
Charge") for such services rendered. Unless otherwise
mutually agreed, the parties will follow the process
described in this Section 7.1(b) for any Projects and
the manner in which payments will be made for such
Projects.
For any specific Project, the parties will mutually
develop the Project plan, estimated total price,
estimated requirements of the Project, completion date
and the amounts of any risks or rewards to be paid
between the parties. After the Project specifics have
been mutually determined, the Project plan will be
broken into several different modules, the number and
time for performance of which will be dependent on the
type and nature of the Project. At the commencement
of each module of a Project, the parties will mutually
determine the estimated price of the module (which
shall be a portion of the total estimated Project
price), specific milestones, requirements,
deliverables and time for performance of that module.
Unless the parties agree otherwise, EDS will submit
monthly invoices and will be paid for its work on each
module of the Project on a "time and materials" basis
at EDS' then current standard rates which are
published annually with the appropriate discounts as
reflected in Schedule 1.1(c) subject to any
withholding to which the parties may agree; provided,
however, that in the event EDS billings exceed the
estimated module price, EDS will continue to perform
the module until completion, but BIR will only be
obligated for the payment of eighty percent (80%) of
the EDS billings in excess of the estimated module
price.
In the Event that the partes can not agree upon the
estimated total price for either a Project or a module
of a Project, then BIR shall have the right to require
EDS to perform the Project or the module on a "time
and materials" basis at EDS' then current standard
rates which are published annually discounted by one
hundred twenty percent (120%) of the discounts
reflected in Schedule 1.1(c).
Milestones will be easily identifiable portions of the
work within the modules. Multiple milestones may be
performed simultaneously. Each milestone will have
certain mutually agreed fixed requirements and fixed
deliverables. Fixed requirements will be mutually
agreed detailed listings of services to be performed,
functional areas affected by the Project, systems
being impacted by the Project and the systems
functionality being assessed by the Project. Fixed
deliverables will be mutually agreed detailed listings
which will include items such as hardware, software,
training, plans and reports. If fixed deliverables
change during any module, the parties will negotiate
in good faith to make appropriate adjustments in the
time and price for such module. In the event the
parties cannot agree on the price for such
modifications, the module will be performed on a "time
and materials" basis as described above.
At the completion of each module of a Project, the
parties will jointly review the remainder of the total
Project price and the next module price for its
reasonableness, taking into consideration the
completed module or modules and the particular Project
at that time to determine if the scope, time, next
module price or estimated price need to be adjusted.
BIR can cancel the balance of a particular Project at
any time upon written notice to EDS, but BIR will
remain liable for the entire price allocated to any
particular module that is then under way, and EDS will
remain obligated to complete such module. In the
event BIR does cancel a Project and BIR desires to
resume the work on such Project at a later date, BIR
and EDS will negotiate in good faith with regard to
appropriate adjustments, if any, of the price and time
for the completion of such Project.
(c) Out-of-Pocket Expenses. EDS will pay any
reasonable travel related costs and expenses necessary
for EDS to provide the Initial Services. As to any
other out-of-pocket expenses which would be incurred
by EDS in providing any Future Requirements, unless
otherwise agreed by the parties, BIR will incur such
expenses and pay for same directly or reimburse EDS
for such costs and expenses.
(d) Adjustment for Acquisitions or Start-Up of Newly
Constructed or Acquired Facilities. EDS, as a part of
its Ongoing Services, will participate in the due
diligence conducted by BIR related to any proposed
Acquisition by BIR. Based on such due diligence, EDS
will propose any additional one-time costs or charges
that will be necessary to implement the Ongoing
Services or processes then being furnished by EDS to
BIR to the newly acquired entity. EDS will continue
to provide the Ongoing Services at the Ongoing
Operations Charge if (i) BIR acquires an entity in the
"long products" market, (ii) the business and business
activities conducted by such entity are the same or
reasonably similar to those conducted by BIR, and
(iii) the Services then being provided by EDS to BIR
will be similar to those needed or required by the
acquired entity such that the common system that will
be initially developed and implemented for BIR can
also service the acquired entity. If the newly
acquired entity meets the above criteria, the Ongoing
Operations Charge will reflect the increased number of
tons from the effective date of the acquisition. If,
however, the newly acquired entity does not meet the
above criteria, EDS and BIR will negotiate in good
faith to make any adjustments to the charges of EDS
under this Agreement.
7.2 Annual Adjustment Increase. EDS will be entitled to
receive an additional payment from BIR for annual
merit increases if such increases are awarded to BIR
employees. At the end of each BIR fiscal year during
the Term, BIR will determine the percentage merit
increase, if any, which its salaried, exempt and non-
exempt employees will receive. If BIR awards such a
merit increase, EDS will be entitled to an additional
payment in the next fiscal year and all subsequent
fiscal years during the Term. The amount of such
payment shall be an amount equal to the sum of the
products of the salary of each full-time EDS employee
located at BIR facilities multiplied by the percentage
merit increase awarded to that EDS employee's BIR
functional equivalent employee (or by zero if the BIR
functional equivalent received no increases). EDS
shall invoice BIR for one-twelfth of such amount on a
monthly basis in the following BIR fiscal year and
each subsequent fiscal year during the Term. The
amount that EDS is entitled to receive in any fiscal
year under this Section 7.2 shall include all amounts
to which EDS became entitled under this Section 7.2
for annual employee merit increases in any and all
prior years.
7.3 Time of Payment. Any sum due EDS hereunder for which
a time for payment is not otherwise specified will be
due and payable fifteen (15) days after receipt by BIR
of an invoice from EDS. Any sum due EDS hereunder
that is not paid after written notice of nonpayment
and a ten (10) day cure period shall thereafter bear
interest until paid at the lesser of (a) the prime
rate established from time to time by Event, New York
N.A. plus two percent (2%) per annum, or (b) the
maximum rate of interest allowed by applicable law.
7.4 Taxes. There will be added to any charges for
Services hereunder, and BIR shall pay to the
appropriate taxing authority or to EDS, amounts equal
to any taxes or assessments, however designated or
levied, based upon such charges, or upon this
Agreement or the Software, Services or items provided
hereunder by EDS, or their use, including state and
local sales, use, privilege, value added or excise
taxes based on gross revenue, and any taxes or amounts
in lieu thereof paid or payable by EDS in respect of
the foregoing, exclusive, however, of franchise taxes
and taxes based on income of EDS. In the event that
during the Term or any renewal of this Agreement, any
such taxes or assessments are enacted which were not
in effect as of the Effective Date, BIR and EDS will
negotiate in good faith as to the manner in which such
taxes will be paid.
7.5 Verification of Costs. The terms set forth in this
Agreement are based upon information furnished by both
parties. Each party believes that such information is
accurate and complete. However, if, during the first
six (6) months of this Agreement, either party should
discover that any such information should prove to be
inaccurate or incomplete in any material respect, that
party shall give written notice to the other party and
both parties will negotiate in good faith to make
appropriate adjustments to the provisions hereof,
including, without limitation, the charges for
Services provided by EDS.
7.6 Supporting Documentation. EDS will provide BIR, with
each invoice, such reasonable documentation to support
the Project Charges as the parties shall mutually
agree. Within the first thirty (30) days of the Term
of this Agreement, BIR and EDS will mutually agree as
to the types of appropriate documentation to be
provided with invoices which support EDS' Project
Charges and expenses thereunder. BIR shall also have
the right to audit the standard rates with the
discounts and the underlying time sheets and materials
documentation for the "time and materials" billings
submitted by EDS.
ARTICLE VIII. PERFORMANCE REVIEW, DISPUTE RESOLUTION
AND ARBITRATION
8.1 Annual Performance Review. At least annually, EDS and
BIR will meet to review the performance of their
obligations under this Agreement. It is the intent of
the parties that such meetings will be scheduled
approximately thirty (30) days before the anniversary
dates of the Effective Date. As a part of such
review, EDS will provide BIR with a customer
satisfaction survey and EDS will conduct interviews
with BIR management personnel. EDS and BIR will meet
to review the results of each quality review and
measure continuous service improvement. In addition,
plans for future information technology activities and
work schedules will be reviewed by the parties. In
connection with such annual review and on an annual
basis commencing on the first anniversary of the
Effective Date of this Agreement, either party may
suggest that certain material terms and conditions of
this Agreement (i.e. the scope of any Services then
being provided and the charges for such Services) be
modified. In the event the parties mutually agree to
modify such material terms and conditions, this
Agreement will be automatically extended for an
additional ten (10) year period from the anniversary
of the Effective Date of this Agreement on which
either party commenced discussions on modifying this
Agreement. In the event the parties do not mutually
agree on the proposed modifications with the resultant
ten (10) year extension, this Agreement shall remain
in force and effect in accordance with its unmodified
terms and conditions, but either party may commence
discussions on the same or other proposed material
modifications on the next annual performance review
and the process described above will be repeated.
8.2 Dispute Resolution. During the course of the long-
term relationship provided for in this Agreement,
disputes, controversies or claims (each being a
"Dispute") may arise between the parties. To minimize
the expense to and impact on each party of formally
resolving such Disputes, the EDS Relationship
Executive and the BIR Relationship Executive will meet
regularly to review the performance of each party of
its obligations under this Agreement and to resolve
any items that may lead to Disputes. If, however,
either party believes a Dispute may exist, that party
will submit in writing a statement of its position
specifying the relevant facts and contractual
provision and the other party will respond with a
written statement of its position within fifteen (15)
business days. Each party will then appoint a
representative whose task it will be to meet for the
purpose of resolving the Dispute and such
representative shall have full authority to settle
such Dispute. Such representatives will discuss the
Dispute and negotiate a resolution in good faith,
without the necessity of any formal proceeding
relating thereto. No formal proceedings for the
resolution of such Dispute may be commenced until
either or both of the appointed representatives
conclude in good faith that amicable resolution
through continued negotiation of the matter is not
likely. All written statements submitted hereunder
and discussions between the appointed representatives
shall be considered settlement negotiations and shall
not prejudice either party in subsequent arbitration,
mediation or other legal or equitable proceedings.
Except where clearly prevented by the area in Dispute,
both parties agree to continue performing their
respective obligations under this Agreement while the
Dispute is being resolved, unless and until such
obligations are terminated or expire in accordance
with the provisions hereof.
8.3 Arbitration.
(a) Procedures. Any Dispute arising out of or
related to this Agreement, or the creation,
validity, interpretation, breach or termination
of this Agreement, that the parties are unable
to resolve through informal discussions or
negotiations pursuant to Section 8.2, will be
submitted to binding arbitration using the
following procedure:
(i) The arbitration will be held in
Birmingham, Alabama, before a panel of
three arbitrators. Either party may
demand arbitration in writing, by
serving on the other party a statement
of the dispute, controversy or claim,
and the facts relating or giving rise
thereto, in reasonable detail, and the
name of the arbitrator selected by it.
(ii) Within 30 days after such demand, the
other party will name its arbitrator,
and the two arbitrators named by the
parties will, within 60 days after such
demand, select the third arbitrator.
(iii) The arbitration will be governed by the
Commercial Arbitration Rules of the
American Arbitration Association (the
"AAA"), except as expressly provided in
this Section 8.3. However, the
arbitration will be administered by any
organization mutually agreed upon by the
parties. If the parties are unable to
agree upon the organization to administer
the arbitration, it will be administered
by the AAA. The arbitrators may not amend
or disregard any provision of this Section
8.3.
(iv) The arbitrators will allow such
discovery as is appropriate to the
purposes of arbitration in accomplishing
fair, speedy and cost effective
resolution of disputes. The arbitrators
will reference the rules of evidence of
the Federal Rules of Civil Procedure
then in effect in setting the scope and
direction of such discovery. The
arbitrators will not be required to make
findings of fact or render opinions of
law.
(v) The decision of and award rendered by
the arbitrators will be final and
binding on the parties. Judgment on the
award may be entered in and enforced by
any court of competent jurisdiction.
Notwithstanding any provision in this
Agreement to the contrary, any decision
and award by the arbitrators must be
subject to the terms and conditions of
this Agreement, including, without
limitation, the terms and conditions of
Section 10.5.
(c) Enforcement. Other than those matters involving
injunctive relief as a remedy, or any action
necessary to enforce the award of the
arbitrators, the provisions of Sections 8.2
and/or 8.3 are a complete defense to any suit,
action or other proceeding instituted in any
court or before any administrative tribunal with
respect to any Dispute arising out of or related
to this Agreement or the creation, validity,
interpretation, breach or termination of this
Agreement. The provisions of this Section will
survive the expiration or termination of this
Agreement for any reason. Nothing in this
Section prevents the parties from exercising the
termination rights set forth in this Agreement.
(d) Services during Arbitration. Unless EDS is
bringing an action under this Section 8.3 for
nonpayment by BIR, EDS will continue to provide
the Services, and BIR shall continue to make
payments to EDS in accordance with this
Agreement during the arbitration proceedings
unless BIR is making payments into the escrow
account pursuant to Section 9.2.
ARTICLE IX. TERMINATION
9.1 Termination for Cause. If either party materially
defaults in the performance of any of its obligations
(except for a default by BIR in its obligation to pay
EDS) under this Agreement, which default shall not be
substantially cured within thirty (30) days after
written notice is given to the defaulting party
specifying the default, or, with respect to any
default which cannot reasonably be cured within thirty
(30) days, if the defaulting party fails to proceed
within thirty (30) days to commence curing said
default and thereafter to proceed with all due
diligence to substantially cure that default, then the
party not in default, by giving written notice to the
defaulting party, may terminate this Agreement as of a
date specified in the notice of termination.
9.2 Termination for Nonpayment. If BIR defaults in the
payment when due of any amount due to EDS and does not
cure such default within thirty (30) days after being
given written notice of such default, then EDS, by
giving written notice thereof to BIR, may terminate
this Agreement as of a date specified in such notice
of termination. Provided, however, if the nonpayment
is the result of a Dispute regarding EDS's performance
under this Agreement, BIR may pay amounts claimed to
be due into an escrow account maintained by a
disinterested third party, and in such event, BIR
shall not be in default under this Section 9.2.
9.3 Termination for Insolvency. Subject to the provisions
of Title 11, United States Code, if either party
becomes or is declared insolvent or bankrupt, is the
subject of any proceedings relating to its
liquidation, insolvency or for the appointment of a
receiver or similar officer for it, makes an
assignment for the benefit of all or substantially all
of its creditors, or enters into an agreement for the
composition, extension, or readjustment of all or
substantially all of its obligations, then the other
party, by giving written notice to such party, may
terminate this Agreement as of a date specified in
such notice of termination.
9.4 Termination for Significant Business Change. In the
event that BIR's business changes significantly as a
result of the acquisition of BIR by an unrelated third
party and such acquisition results in a long-term
change in BIR's strategy with respect to satisfying
its needs for information technology services, BIR may
terminate this Agreement on any anniversary date of
the Effective Date of this Agreement by notifying EDS
in writing of its intention to terminate this
Agreement at least six (6) months prior to the
termination date specified in such written notice
(provided, however, that in the event the next
anniversary date is less than six (6) months away when
BIR elects to terminate under this Section 9.4, the
termination will be effective twelve (12) months after
notice is given), as long as BIR is not then and does
not become in default under any of the terms of this
Agreement prior to the termination date specified;
provided, however, that BIR pay to EDS the applicable
termination fee set forth in Schedule 9.4 (the
"Termination Fee") on or before such specified
termination. The Termination Fee is not a penalty or
liquidated damage but is consideration for (i) EDS'
providing essential equipment to BIR; and (ii) the
accommodation of BIR's desire to terminate this
Agreement prior to the Expiration Date.
9.5 Termination for Convenience. In the event that BIR
desires to terminate this Agreement for its
convenience, then BIR may terminate this Agreement on
the fifth (5th) anniversary date or any subsequent
anniversary date of the Effective Date of this
Agreement by notifying EDS in writing of its intention
to terminate this Agreement at least twelve (12)
months prior to the termination date specified in such
written notice, as long as BIR is not then and does
not become in default under any of the terms of this
Agreement prior to the termination date specified;
provided, however, that BIR pay to EDS the applicable
termination fee set forth in Schedule 9.4 (the
"Termination Fee") on or before such specified
termination. The Termination Fee is not a penalty or
liquidated damage but is consideration for (i) EDS'
providing essential equipment to BIR; and (ii) the
accommodation of BIR's desire to terminate this
Agreement prior to the Expiration Date. The foregoing
notwithstanding, if the Term is extended pursuant to
Section 8.1, then the earliest date on which BIR may
terminate pursuant to this Section 9.5 shall be five
(5) years from the anniversary date on which either
party commenced discussions which resulted in the
extension.
9.6 Termination Transition.
(a) Services. In connection with the termination of
this Agreement at the Expiration Date or by BIR
pursuant to Sections 9.1, 9.4 or 9.5, EDS will
comply with BIR's reasonable directions to cause
the orderly transition and migration to BIR or a
third party company to whom BIR would be
transferring the Services from EDS of all
Services then being performed by EDS (the
"Termination Transition"). BIR, its employees,
and agents will cooperate in good faith with EDS
in connection with EDS' obligations under this
Section 9.6 and BIR will perform its obligations
under the Transition Plan (as defined in this
Section 9.6). EDS will perform the following
obligations (and such other obligations as may
be contained in the Transition Plan) at BIR's
additional expense unless otherwise stated below
or in the Transition Plan.
(i) EDS and BIR will work together to
develop a transition plan (the
"Transition Plan") setting forth the
respective tasks to be accomplished by
each party in connection with the
orderly transition and a schedule
pursuant to which the tasks are to be
completed.
(ii) EDS will, upon BIR's request, provide
BIR with reasonably detailed
specifications for hardware or other
equipment which BIR will require to
properly perform the services and
procedures previously performed by EDS.
(iii) BIR may, at its option, purchase from
EDS at its net book value, and may, at
its option, assume the leases for, any
hardware owned or leased by EDS and
which is dedicated to providing the
Services to BIR as of the Expiration
Date or the effective date of such
termination.
(iv) EDS will deliver to BIR and install on
BIR's hardware and equipment the
Licensed Programs.
(v) EDS will reasonably assist BIR, at BIR's
expense, in BIR's acquisition of any
necessary rights to access and use any
EDS-Vendor Software and documentation
then being used by EDS in connection
with the processing of BIR's information
pursuant to this Agreement.
(vi) EDS will deliver to BIR (a) copies of
existing documentation relating to any BIR
Software delivered or Licensed Program
licensed to BIR pursuant to paragraphs
(iv) and (v) of this Section 9.6, and (b)
such documentation for EDS-Vendor Software
used at the time of termination of this
Agreement by EDS to provide the Services
which is available to EDS and which EDS is
permitted to furnish to BIR.
(vii) EDS will provide appropriate training for
the BIR employees who will be assuming
responsibility for operation of the
Software following the Transition
Termination.
(b) Charges. For so long as this Agreement remains
in effect and during the Termination Transition,
BIR will pay EDS the charges set forth in this
Agreement. If the Termination Transition
provided by EDS under this Section 9.6 requires
EDS resources in excess of resources otherwise
provided by EDS under this Agreement, BIR will
pay EDS for such additional resources at EDS'
then current standard commercial rates at such
times as the parties agree. If the Termination
Transition provided by EDS prior to the
effective date of the termination under this
Section 9.6 does not require EDS resources
otherwise provided by EDS under this Agreement,
then there will be no additional cost to BIR for
such transition services.
ARTICLE X. WARRANTIES, INDEMNITIES AND LIABILITY
10.1 Warranty and Disclaimer.
(a) In all cases where EDS has not committed to a
specific performance standard in the specific
SLA for a set of Services, EDS will perform the
Services in a manner consistent with the
prevailing commercial standards then employed in
the industry.
(b) While EDS is primarily providing the Services to
BIR under the terms and conditions of this
Agreement, EDS may, from time to time, provide
certain hardware, Software and other items as an
incidental part of the Services. With the
exception of manufacturers' or licensors'
warranties which EDS is able to pass through for
BIR's benefit, such hardware, Software and other
items are provided on an "AS IS" basis without
warranty.
(c) EXCEPT AS SPECIFICALLY STATED IN THIS AGREEMENT
OR IN ANY SLA, EDS MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY
MATTER, INCLUDING THE MERCHANTABILITY,
SUITABILITY, ORIGINALITY, FITNESS FOR A
PARTICULAR USE OR PURPOSE, OR RESULTS TO BE
DERIVED FROM THE SERVICES OR PORTIONS THEREOF OR
THE USE OF ANY HARDWARE, SOFTWARE OR OTHER ITEMS
PROVIDED UNDER THIS AGREEMENT.
10.2 Cross Indemnification. EDS and BIR each agree to
indemnify, defend and hold harmless the other from any
and all damages, liabilities, costs and expenses,
including reasonable attorneys' fees and expenses,
arising out of, under or in connection with any claim,
demand, charge, action, cause of action or other
proceeding:
(a) arising out of or resulting from (i) the death
of or bodily injury to any person, or (ii) the
damage to, or loss or destruction of, any
tangible property, to the extent caused by the
acts or omissions of the indemnitor;
(b) for rent or utilities at any location where the
indemnitor is financially responsible under this
Agreement for such rent or utilities; or
(c) resulting from an act or omission of the
indemnitor in its capacity as an employer of a
person and arising out of or relating to
(i) federal, state or other laws or regulations
for the protection of persons who are members of
a protected class or category of persons, (ii)
sexual discrimination or harassment, (iii) work
related injury or death, (iv) accrued employee
benefits not expressly assumed by the
indemnitee, and (v) any other aspect of the
employment relationship or its termination
(including claims for breach of an express or
implied contract of employment) and which, in
all such cases, arose when the person asserting
the claim, demand, charge, action, cause of
action or other proceeding was or purported to
be an employee of the indemnitor.
10.3 Intellectual Property Indemnification. EDS and BIR
each agree to defend the other against any action to
the extent that such action is based on a claim that
Software or confidential information provided by the
indemnitor, or any part thereof, (i) infringes a
copyright perfected under United States statute,
(ii) infringes a patent granted under United States
law, or (iii) constitutes an unlawful disclosure, use
or misappropriation of another party's trade secret.
The indemnitor will bear the expense of such defense
and pay any damages and attorneys' fees which are
attributable to such claim finally awarded by a court
of competent jurisdiction. Neither EDS nor BIR shall
be liable to the other for claims of indirect or
contributory infringement. If the Software or
confidential information becomes the subject of a
claim under this Section 10.3, or in the indemnitor's
opinion is likely to become the subject of such a
claim, then the indemnitor may, at its option, (i)
replace or modify the Software or confidential
information to make it non-infringing or cure any
claimed misuse of another's trade secret, or
(ii) procure for the indemnitee the right to continue
using the Software or confidential information
pursuant to this Agreement, or (iii) replace the
Software with reasonably equivalent Software which is
noninfringing or which is free of claimed misuse of
another's trade secret. Any costs associated with
implementing any of the above alternatives shall be
borne by the indemnitor.
10.4 Indemnification Procedures.
(a) Notice and Control. The indemnification
obligations set forth in this Article shall not
apply unless the party claiming indemnification:
(i) Notifies the other as soon as is
reasonably possible after it becomes
aware that a claim may be asserted in
respect of which the indemnity may apply
and of which the notifying party has
knowledge, in order to allow the
indemnitor the opportunity to
investigate and defend the matter;
provided that the failure to so notify
shall only relieve the indemnitor of its
obligations under this Article if and to
the extent that the indemnitor is
prejudiced thereby; and
(ii) Gives the other party full opportunity
to control the response thereto and the
defense thereof, including, without
limitation, any agreement relating to
the settlement thereof; provided that,
the indemnitee will have the right to
participate in any legal proceeding to
contest and defend a claim for
indemnification involving a third party
and to be represented by legal counsel
of its choosing, all at the indemnitee's
cost and expense.
(b) Settlement. The indemnitor shall not be
responsible for any settlement or compromise
made without its consent. The indemnitee agrees
to cooperate in good faith with the indemnitor
at the request and expense of the indemnitor.
10.5 Limitation of Liability.
(a) Except for BIR's obligations to make payments to
EDS for Services performed under this Agreement,
in the event either party shall be liable to the
other for any matter arising out of, under, or
in connection with this Agreement, whether based
on an action or claim in contract, equity,
negligence, intended conduct, tort or otherwise,
the amount of damages recoverable against the
liable party for all events, acts or omissions
shall not exceed in the aggregate the total
amount of the charges paid by BIR to EDS under
this Agreement (excluding payments for taxes or
costs and expenses) during the five (5) month
period immediately preceding the date that the
first such claim or action arose.
(b) In no event will the measure of damages payable
by either party to the other include, nor will
either party be liable for, any amounts for loss
of income, profit (except to the extent any
payments due EDS contain profits) or savings or
indirect, incidental, consequential or punitive
damages of any party, including third parties.
(c) The provisions of this Section will survive the
expiration or termination of this Agreement for
any reason.
10.6 Contractual Statute of Limitations. No claim and
demand for arbitration or cause of action which arose
out of an event or events which occurred more than two
years prior to the filing of a demand for arbitration
or suit alleging a claim or cause of action may be
asserted by either party against the other party.
10.7 Acknowledgement. EDS and BIR each acknowledge that
the limitations and exclusions contained in this
Article have been the subject of active and complete
negotiation between the parties and represent the
parties' agreement based upon the level of risk to EDS
and BIR associated with their respective obligations
under this Agreement and the payments to be made to
EDS under this Agreement.
ARTICLE XI. MISCELLANEOUS
11.1 Right of EDS to Engage in Other Activities. Nothing
in this Agreement will impair EDS' right to acquire,
license, market, distribute, develop for itself or
others or have others develop for EDS similar
technology performing the same or similar functions as
the technology and the Services contemplated by this
Agreement.
11.2 Binding Nature and Assignment. This Agreement shall
be binding on the parties hereto and their respective
successors and assigns. Neither party may, nor shall
have the power to, assign this Agreement without the
prior written consent of the other party, which
consent shall not be unreasonably withheld.
Notwithstanding the foregoing, EDS will have the right
to subcontract portions of the Services normally
subcontracted by EDS; provided, however, that no such
subcontract will relieve EDS of any of its obligations
hereunder and EDS shall perform the majority of the
Services required hereunder with its own employees.
Any purported assignment not made in accordance with
this Section 11.2 shall be null and void.
11.3 Notices. Wherever under this Agreement one party is
required or permitted to give written notice to the
other, such notice shall be deemed given the third day
after its mailing by one party, postage prepaid, to
the other party addressed as follows:
In the case of EDS:
Electronic Data Systems Corporation
5400 Legacy Drive
H3-5C-45
Plano, Texas 75024-3105
Attention: Vice President Process Industry
Division
with a copy to:
Electronic Data Systems Corporation
5400 Legacy Drive
H3-3A-05
Plano, Texas 75024-3105
Attention: General Counsel
In case of BIR:
Birmingham Steel Corporation
1000 Urban Center Parkway
Suite 300
Birmingham, Alabama 35242-2516
Attn: Mr. Thomas N. Tyrrell, Vice Chairman and
Chief Administrative Officer
with a copy to:
William R. Lucas, Jr.
Lightfoot, Franklin, White & Lucas
300 Financial Center
Birmingham, Al 35203-2706
Any writing which may be mailed pursuant to the
foregoing may also be delivered by hand and shall be
effective when received by the addressee. Either
party may from time to time specify as its address for
purposes of this Agreement any other address upon
giving ten days prior written notice thereof to the
other party.
11.4 Counterparts. This Agreement may be executed in
several counterparts, all of which taken together
shall constitute one single agreement between the
parties hereto.
11.5 Headings. The Article and Section headings and the
table of contents used herein are for reference and
convenience only and shall not enter into the
interpretation hereof.
11.6 Relationship of Parties. EDS, in furnishing the
Services to BIR hereunder, is acting only as an
independent contractor and under no circumstances will
EDS be deemed to be in any relationship with BIR
carrying with it fiduciary or trust responsibilities,
whether through partnership or otherwise. EDS does
not undertake by this Agreement or otherwise to
perform any obligation of BIR, whether regulatory or
contractual, or to assume any responsibility for BIR's
business or operations. EDS has the sole right and
obligation to supervise, manage, contract, direct,
procure, perform or cause to be performed, all work to
be performed by EDS hereunder unless otherwise
provided herein.
11.7 Hiring of Employees. During the Term or any renewals
of this Agreement and for a period of twelve (12)
months thereafter, neither party will solicit,
directly or indirectly, for employment or employ any
employee of the other without the prior written
consent of the other.
11.8 Approvals and Similar Actions. Where agreement,
approval, acceptance, consent or similar action by
either party is required by any provision of this
Agreement, such action shall not be unreasonably
delayed or withheld.
11.9 Force Majeure. Each party shall be excused from
performance hereunder (other than performance of
obligations to make payment) for any period and to the
extent that it is prevented from performing pursuant
hereto, in whole or in part, as a result of delays
caused by the other or third parties or an act of God,
war, civil disturbance, court order, labor dispute, or
other cause beyond its reasonable control, including
failures or fluctuations in electrical power, heat,
light, air conditioning or telecommunications
equipment, and such nonperformance shall not be a
default hereunder or a ground for termination hereof.
11.10 Severability. If any term or provision (other than a
term or provision relating to any payment obligation)
of this Agreement or the application thereof to any
person or circumstances shall, to any extent, be held
invalid or unenforceable, the remainder of this
Agreement or the application of such term or provision
to persons or circumstances other than those as to
which it is invalid or unenforceable shall not be
affected thereby, and each term and provision of this
Agreement shall be valid and enforceable to the extent
permitted by law.
11.11 Waiver. No delay or omission by either party hereto
to exercise any right or power hereunder shall impair
such right or power or be construed to be a waiver
thereof. A waiver by either of the parties hereto of
any of the covenants to be performed by the other or
any breach thereof shall not be construed to be a
waiver of any succeeding breach thereof or of any
other covenant herein contained. All remedies
provided for in this Agreement shall be cumulative and
in addition to and not in lieu of any other remedies
available to either party at law, in equity or
otherwise.
11.12 Attorneys' Fees. If any legal action or other
proceeding is brought for the enforcement of an award
under Section 8.3, the prevailing party shall be
entitled to recover reasonable attorneys' fees and
expenses and other costs incurred in that action or
proceeding, in addition to any other relief to which
it may be entitled.
11.13 Media Releases. All media releases, public
announcements and public disclosures by BIR or EDS
relating to this Agreement or its subject matter,
including, without limitation, promotional or
marketing material (but not including any announcement
intended solely for internal distribution at BIR or
EDS, as the case may be, or any disclosure required by
legal, accounting or regulatory requirements beyond
the reasonable control of BIR or EDS, as the case may
be) shall be coordinated with and approved by BIR and
EDS prior to the release thereof.
11.14 No Third Party Beneficiary. Nothing in this Agreement
may be relied upon or shall benefit any party other
than the parties hereto.
11.15 Entire Agreement. This Agreement, including any
Schedules or Exhibits referred to herein and attached
hereto, each of which is incorporated in this
Agreement for all purposes, constitutes the entire
agreement between the parties with respect to the
subject matter of this Agreement and there are no
representations, understandings or agreements relating
to this Agreement which are not fully expressed
herein. No amendment, modification, waiver or
discharge hereof shall be valid unless in writing and
signed by an authorized representative of the party
against which such amendment, modification, waiver or
discharge is sought to be enforced.
11.16 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State
of Alabama, without giving effect to principles of
conflict of laws.
IN WITNESS WHEREOF, EDS and BIR have each caused this
Agreement to be signed and delivered by its duly authorized
officer, all as of the Agreement Date.
ELECTRONIC DATA SYSTEMS BIRMINGHAM STEEL
CORPORATION CORPORATION
By: Robert Merry By: Thomas N. Tyrrell
--------------------- -----------------
Name: Robert Merry Name: Thomas N. Tyrrell
--------------------- -----------------
Title:Strategic Business Title:Vice Chairman &
Unit President Chief Administrative
Officer
EXHIBIT 22.1
BIRMINGHAM STEEL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF JUNE 30, 1995
American Steel & Wire Corporation, a Delaware corporation
Norfolk Steel Corporation, a Virginia corporation
Barbary Coast Steel Corporation, a Delaware corporation
Palo Verde Steel Corporation, a Delaware corporation
Birmingham Steel Overseas, Ltd, a Barbados corporation
Port Everglades Steel Corporation, a Delaware corporation
Richmond Steel Recycling/Birmingham Corporation, a
Delaware corporation
EXHIBIT NO. 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference (i) in the
Registration Statement (Form S-8 No. 33-16648) pertaining to
the Birmingham Steel Corporation 1986 Stock Option Plan;
(ii) in the Registration Statement (Form S-8 No. 33-23563)
pertaining to the Birmingham Steel Corporation Non-Union
Employees' 401(k) Plan; (iii) in the Registration Statement
(Form S-8 No. 33-30848) pertaining to the Birmingham Steel
Corporation 1989 Non-Union Stock Option Plan; (iv) in the
Registration Statement (Form S-8 No. 33-41595) pertaining to
the Birmingham Steel Corporation 1990 Management Incentive
Plan; and (v) in the Registration Statement (Form S-8 No.
33-51080) pertaining to the Birmingham Steel Corporation
1992 Non-Union Employees' Stock Option Plans of our report
dated August 4, 1995 with respect to the consolidated
financial statements and schedule of Birmingham Steel
Corporation included in the Annual Report (Form 10-K) for
the year ended June 30, 1995.
Ernst & Young LLP
------------------
Ernst & Young LLP
Birmingham, Alabama
September 28, 1995
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the June 30, 1995 Consolidated Balance Sheets and Consolidated Statements
of Income of Birmingham Steel Corporation and is qualified in its entirety
by reference to such.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
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<RECEIVABLES> 110,883
<ALLOWANCES> 1,368
<INVENTORY> 173,053
<CURRENT-ASSETS> 302,996
<PP&E> 522,042
<DEPRECIATION> 110,385
<TOTAL-ASSETS> 756,804
<CURRENT-LIABILITIES> 96,095
<BONDS> 142,500
<COMMON> 296
0
0
<OTHER-SE> 459,423
<TOTAL-LIABILITY-AND-EQUITY> 756,804
<SALES> 885,553
<TOTAL-REVENUES> 885,553
<CGS> 755,868
<TOTAL-COSTS> 755,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,889
<INCOME-PRETAX> 85,753
<INCOME-TAX> 35,104
<INCOME-CONTINUING> 50,649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,649
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
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