SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Amendment No. 1 to Form 10-K filed September 20, 1996)
(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, 1996
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 35242-2516
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(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. (X)
<PAGE>
Item 1. of the Annual Report on Form 10-K filed on September 20, 1996 is hereby
amended to read as follows:
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 facilities, 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, bar and wire facilities located in Cleveland, Ohio, 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 1996). 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 facilities
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 1996, the Company achieved record steel shipments of 2.4 million tons.
In fiscal 1996, the Company invested approximately $172 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 $577 million for expansion and modernization
projects designed to reduce overall manufacturing costs. The Company defines
manufacturing costs as conversion costs per ton excluding the cost of scrap raw
material. The Company's average conversion cost per ton in fiscal 1996 was $122,
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 evaluating 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.
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. ASW achieved QS9000
registration in June 1996. QS9000 is a quality system requirement established by
Chrysler, Ford and General Motors and is based upon the internationally
recognized ISO9000 series of standards. The Company believes that ASW is one of
the largest producers of high quality rod and wire products in North America and
that compliance with QS9000 will strengthen the current inroads
it is building with both domestic and transplant auto producers. 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, approximately 700,000 tons for
the year ended June 30, 1996, from outside sources, which management believes
makes ASW one of the largest purchasers of billets in the world. In fiscal 1996,
ASW shipped approximately 532,000 tons of rod and wire products, compared with
632,000 tons last year. The Company estimates the current annual capacity of the
ASW rod production facilities to be approximately 550,000 tons. The Company
recently completed construction of a $115 million bar and rod mill at the
Cleveland facility which began production and shipment of product in June 1996.
Upon completion of the startup phase, this state-of-the-art facility will
approximately double the Cleveland facility's production capacity to
approximately 1.1 million tons annually.
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 recently awarded
contracts for construction of a high quality melting facility in Memphis,
Tennessee at an expected capital cost of $200 million. The Memphis facility is
scheduled for startup in the fourth calendar quarter of 1997. The facility is
expected to provide the rod and bar operations with 1 million tons of high
quality steel billets annually.
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
materials markets.
Steel Manufacturing
The Company's mini-mills are located in Birmingham, Alabama; Kankakee, Illinois;
Jackson, Mississippi; and Seattle, Washington. The Company operates its Port
Everglades Steel Company ("PESCO") steel distribution facilities in Florida and
Texas.
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 caster 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 for uniform packaging.
The Company also warehouses finished steel products at third-party distribution
depots located in Livermore and Fontana, California and Baltimore, Maryland.
These third-party distribution depots service steel requirements for customers
in certain geographic regions.
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 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 Company's rod, bar and
wire facility purchases high quality carbon and alloy semi-finished steel
billets from outside sources and converts the billets into a variety of high
quality rod, bar and wire products. Purchased billets are inspected for surface
defects and, when necessary, conditioned before transfer into the rod/bar mills.
Upon entering the rod/bar mills, the billets pass through a computer controlled
multi-zone recuperative reheat furnace, where a closely controlled heating
process imparts more uniform metallurgical characteristics 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/bar
production process. After rolling, the rod/bar is coiled and control cooled.
Once the cooling process is complete, the coiled rod/bar 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, bar and wire of
virtually all qualities, it has chosen to concentrate on a select number of high
quality products which include cold heading, cold finishing, cold rolling,
welding, bearing and specialty 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 1996, 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's rod and bar mills
are located 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.
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 1996, scrap costs represented approximately 56% 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 rod and bar 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 thirteen approved
billet suppliers.
During fiscal 1996, ASW acquired approximately 37% of its billets from Broken
Hill Proprietary Company, Limited (BHP) located in Australia and approximately
26% of its billets from QIT-Fer et Titane Inc. (QIT), located in Montreal,
Canada. ASW has a supply agreement with BHP which expires on May 31, 1997 and an
agreement with QIT which expires June 30, 1997. Under its supply agreement with
BHP, ASW agreed to purchase a minimum of 80,000 metric tons of steel billets
during the first year, with quantities during the remainder of the agreement to
be subject to negotiation. Under this agreement, ASW and BHP renegotiate the
price of billets in advance for each calendar quarter during the term of the
agreement. Under its supply agreement with QIT, there are established annual
minimum and maximum quantity requirements for the purchase and delivery of
billets, as well as a pricing formula based upon, among other things, the price
of carbon steel billets, wire rod and steel scrap. ASW is currently involved in
discussions with current and potential billet suppliers regarding its fiscal
1997 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. In
addition, the Company recently awarded the construction contracts for a high
quality melting facility in Memphis, Tennessee which is scheduled to supply
approximately 1 million tons annually of ASW's high quality billet requirements.
Startup of the facility is scheduled for the fourth calendar quarter of 1997.
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 rod and bar 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, 1996. 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.
Annual FY1996 Capacity Annual FY1996 Capacity
Melting Melting Utilization Rolling Rolling Utilization
Capacity Prodution Percentage Capacity Production Percentage
(ln thousands of tons) (in thousands of tons)
Kankakee 750 635 84.7 550 526 95.6
Birmingham 500 359 71.8 500 370 74.0
Jackson 450 294 65.3 400 283 70.8
Seattle 750 526 70.1 600 471 78.5
----- ----- ---- ----- ----- ----
2,450 1,814 74.0 2,050 1,650 80.5
===== ===== ==== ===== ===== ====
The Company has the capability to produce 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.
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, 1996. 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 1996 Utilization
Capacity Production Percentage
(in thousands of tons)
Cleveland rod 550 410 74.5
Joliet rod 190 161 84.7
--- --- ----
Total rod 740 571 77.2
=== === ====
Cleveland wire 60 39 65.0
=== === ====
Rebar/Merchant Mini-Mill Production Facilities
The Kankakee, Illinois Facility
The Kankakee facility is located approximately 50 miles south of Chicago. 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, upgraded reheat furnace and in-line straightening, stacking and
bundling equipment to accelerate the merchant steel marketing program.
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 550,000 tons per year, respectively.
Additionally, the Company developed an environmentally sound 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.
Management believes that the Kankakee facility is one of the most modern and
operationally efficient mini-mills in the United States. Producing merchant
products and rebar, in fiscal 1996 the facility shipped 617,000 tons of steel
and produced 2,046 tons per worker-year.
The Birmingham, Alabama 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 of 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, transformed the 1950s vintage rolling
operation into a modern, efficient mill.
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 tons annually.
The Birmingham facility produces primarily rebar. In fiscal year 1996, the
Birmingham facility direct shipped 368,000 tons of steel product and provided
inventory for 14,000 tons of steel shipped from the Company's Baltimore depot.
The Birmingham mill produced steel at 1,785 tons per worker-year in fiscal 1996.
The Jackson, Mississippi 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.
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
completed in March 1993. This $22 million project increased the mill's melting
capacity to 450,000 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 1996, Jackson shipped 296,000 tons of steel product and
produced 1,403 tons per worker-year.
The Seattle, Washington Facility
Situated adjacent to the Port of Seattle, the Seattle operation is the Company's
largest mini-mill. The facilities in Seattle were 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 approximately 25 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.
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 replacing 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
expansion in merchant product production. The new additions increased Seattle's
finished rolling capacity to approximately 600,000 tons per year.
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.
In fiscal 1996, the Seattle facility direct shipped 456,000 tons of steel, and
provided inventory for 102,000 tons of shipments through the West Coast depot
locations. The Seattle mill produced steel at 1,819 tons per worker-year in
fiscal 1996.
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 facilities in Florida and Texas. PESCO obtains the majority of its
steel requirements from the Company's Birmingham, Jackson and Kankakee
mini-mills. The Company estimates that PESCO will ship approximately 180,000
tons of steel per year to its customers.
Rod, Bar and Wire Production Facilities
The Cleveland, Ohio Facilities
The Cleveland facilities include a rod mill, a bar mill and a wire mill. The rod
mill and wire mill assets were purchased from United States Steel Corporation
(now "USX Corporation") in 1986 upon the formation of American Steel and Wire
Corporation. The Cleveland 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 rod mill is capable of producing rod coils in sizes ranging
from 7/32" to 15/16" in diameter. In fiscal 1996, the Cleveland rod mill shipped
396,000 tons of finished steel rod.
The recently constructed bar mill consists of a 28 stand horizontal/vertical
no-twist mill. The bar mill utilizes Stelmor cooling conveyors, laser sizing
gauges and two compactor/banders. The bar mill began production and shipment
operations in June 1996. Upon completion of the startup phase, the bar mill will
be capable of producing bar and rod products in sizes ranging from 45/64" to 1
9/16" in diameter in 4,300 pound and 5,700 pound coils.
The wire mill, located adjacent to the rod mill at the Cleveland facility,
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 wire mill also processes customer material.
The ability to offer high quality processing of rod to 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 that is 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 1996, the Cleveland wire mill shipped approximately 39,000 tons of
wire and approximately 38,000 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.
The Joliet, Illinois Facility
The rod mill located in Joliet, Illinois 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 1996, the Joliet mill
shipped 136,000 tons of finished rod.
As part of the Company's current mill modernization program, the Company is
currently phasing out production of high quality steel rod at the Joliet
facility and shifting that production to the new bar mill located in Cleveland.
The Company expects to convert the mill to 100% rebar and merchant (flats,
rounds and squares) coil and straight length products in the second quarter of
fiscal 1997. When the operation is fully converted, the rolling mill will be
capable of producing approximately 280,000 tons of rebar and merchant products
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 a single customer which is the
exclusive producer of the TOW missile for its only purchaser, the U. S.
Government.
Products and Markets
Rebar/Merchant Steel Products
Of the 1,870,000 tons of rebar/merchant steel products shipped from the
Company's various locations in fiscal 1996, approximately 66% was rebar and
approximately 26% was merchant products. Approximately 8% consisted of
semi-finished billet sales.
From its various rebar/merchant locations, 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 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 product class:
Fiscal
--------------
1994 1995 1996
---- ---- ----
Rebar products 57% 51% 64%
Merchant products 23 36 31
Mine roof support
products (1) 14 9 -
Semi-finished
steel billets 6 4 5
---- ---- ----
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 Note 3 to the Consolidated Financial Statements)
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 some 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 another 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.
The following data, reported by the American Iron and Steel Institute (a rebar
fabricators' trade association), depict apparent rebar consumption in the United
States from 1986 through 1995. 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
- ------------- ----------- -------- -----------
1986 4,787,000 259,000 5.4%
1987 5,301,000 558,000 10.5%
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 5,151,000 1,185,000 23.0%
1995 5,454,000 1,108,000 20.3%
The Company's rebar operations are subject to a period of moderately reduced
sales from November to February, when winter weather and the holiday season
impact the construction market demand for rebar.
Merchant Products. The Company has the capability to produce 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 following data reported by the American Iron and Steel Institute depict
apparent consumption of merchant products in the United States from 1986 through
1995. 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
- ------------- ----------- -------- -----------
1986 7,256,000 67,000 1.0%
1987 7,911,000 147,000 1.9%
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 10,113,000 484,000 4.8%
1995 10,618,000 524,000 4.9%
Rod, Bar and Wire Products
The Company's rod, bar and wire facilities (ASW) markets high-quality steel rod,
bar and wire to customers in the automotive, agricultural, industrial fastener,
welding, appliance and aerospace industries. In fiscal 1996, approximately 52%
of ASW's shipments are cold heading quality steel rod. Cold finish bar products
represented approximately 18%, welding wire products represented approximately
9% and specialty high carbon represented approximately 8% of ASW's shipments in
fiscal 1996. The approximate remaining 13% of its shipments in fiscal 1996
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.
The following table presents, for the periods indicated, the percentage of ASW's
net sales dollars by principal product categories:
Fiscal
--------------------
1994 1995 1996
---- ---- ----
Steel rod 87.4% 89.2% 89.5%
Wire 11.4 10.0 9.8
Tow wire 1.2 0.8 0.7
---- ---- ----
100% 100% 100%
==== ==== ====
The Cleveland rod mill currently produces steel rods in sizes ranging from 7/32"
to 15/16" in diameter and in a wide variety of alloy and carbon grades. The
recently constructed bar mill, which began production and shipments in June 1996
is capable of producing bar and rod sizes ranging from 45/64" to 1 9/16" in
diameter. 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, screws, pocket wrenches, seat belt bolts, springs,
cable wire, chain, bearings, 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 market driven 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 1986 through 1995 (in
tons).
Total
Calendar Rod Wire Rod & Wire
Year Consumption Consumption Consumption
- ---------- ----------- ----------- -----------
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
1995 6,500,000 1,100,000 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 3.6 million ton per year high quality segment,
which has historically been dominated by foreign suppliers. Generally,
mini-mills have historically focused on less demanding quality markets.
In calendar 1995, ASW shipped approximately 601,000 tons of rod and wire to
trade customers, which represented approximately 17% 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 rod and wire products.
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 accounted for approximately 52% of ASW's fiscal 1996
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.
Specialty high carbon quality (SHCQ) - SHCQ steel rod is produced in a variety
of carbon and alloy grades. SHCQ 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,
music spring wire, tire bead and wire rope.
Bearing quality - ASW produces bearing quality steel to serve a range of alloy
grades into ball, needle and roller type bearings.
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.
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,
differentiating itself from many of its 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 and internal 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, bar and wire comparable in quality to that manufactured by ASW.
Foreign Competition. In recent years, a declining U.S. dollar and increased
efficiency in the U.S. steel industry have improved the competitive position of
U.S. steel producers. Foreign steel is a competitive factor on a sporadic basis.
Federal legislation currently prohibits the use of foreign steel in federally
funded highway construction.
Based on data provided by the American Iron and Steel Institute, management
believes that foreign steel producers currently account for approximately 26% of
sales in the U.S. rod and wire markets. Changes in currency exchange rates can
impact the competitive position of foreign steel producers.
Employees
Rebar/Merchant Mini-Mill Facilities. At June 30, 1996, the Company employed 973
people at its mini-mill operations. The Company estimates that approximately 25%
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 1996, hourly employee
costs at these facilities were approximately $27 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. At June 30, 1996, the Company's ASW
subsidiary employed 398 persons at its Cleveland and Joliet rod mills, 90 people
at the Cleveland wire mill and 13 people at the ASW TOW wire production
facility. The production and maintenance employees at the Joliet facility have
been represented by United Steelworkers of America since 1986, and are parties
to a collective bargaining contract which expires in June 2000. During fiscal
1996, hourly employee costs at these facilities were approximately $22 per hour,
including overtime and fringe benefits. The Company considers its labor
relations with its employees to be good.
Sales and Administrative Personnel. At June 30, 1996, the Company employed 130
sales and administrative personnel, of which 73 were employed at the Company's
corporate office headquarters located in Birmingham.
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 the daily
management of environmental matters. 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.
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, the Company's management believes that the reserves
established with respect to the Company's cleanup obligations at its Norfolk
facility are adequate in view of the anticipated cost of the corrective action
required with respect to this condition.
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 closed steel facility at Emeryville, California. BCSC and DTSC executed
the terms of a Consent Order on March 22, 1993. Pursuant to that Consent Order,
BCSC has completed an environmental assessment of the site and, on June 10,
1996, received DTSC approval of its proposal for the remediation of the
property. BCSC is now actively remediating the property pursuant to the approved
remedial action plan. The Company believes that the fair market value of the
property is in excess of $13,000,000, based upon offers received by the Company
for the purchase of the property, which is in excess of the Company's carrying
cost of the property plus incurred and anticipated future costs of remediation.
Rod and Wire Operations. At its Cleveland 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.
The ASW 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.
<PAGE>
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
John M. Casey 1/15/97
- ----------------------------
John M. Casey Date
Executive Vice President-
Finance & Chief Financial
Officer
Robert E. Powell 1/15/97
- -----------------------------
Vice President & Controller
