UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File
No. 1-9820
BIRMINGHAM STEEL CORPORATION
DELAWARE 13-3213634
(State of Incorporation) (I.R.S. Employer Identification No.)
1000 Urban Center Parkway, Suite 300
Birmingham, Alabama 35242
(205) 970-1200
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 and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes x No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 29,717,130 Shares of Common
Stock, Par Value $.01 Outstanding at November 10, 1997.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
September 30, June 30,
1997 1997
(Unaudited) (Audited)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 802 $ 959
Accounts receivable, net of allowance for
doubtful accounts of $1,797 at September 30, 1997
and June 30, 1997 130,077 129,476
Inventories 197,360 208,595
Other 27,296 27,834
----------- -----------
Total current assets 355,535 366,864
Property, plant and equipment
(including property and equipment,
net, held for disposition of $19,752
and $19,568 at September 30, 1997
and June 30, 1997, respectively):
Land and buildings 199,790 199,363
Machinery and equipment 574,426 572,802
Construction in progress 215,598 162,957
----------- -----------
989,814 935,122
Less accumulated depreciation (184,440) (173,554)
----------- -----------
Net property, plant and equipment 805,374 761,568
Excess of cost over net assets acquired 49,098 50,089
Other assets 43,313 32,468
----------- -----------
Total assets $ 1,253,320 $ 1,210,989
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 10,000 $ -
Accounts payable 86,529 94,273
Accrued interest payable 7,313 2,068
Accrued operating expenses 9,093 7,503
Accrued payroll expenses 6,229 7,387
Income taxes payable 5,104 170
Other current liabilities 28,958 26,581
----------- -----------
Total current liabilities 153,226 137,982
Deferred income taxes 54,352 54,352
Deferred compensation 6,220 5,933
Long-term debt 548,606 526,056
Minority interest in subsidiary 14,597 15,118
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;
issued and outstanding: 29,744,550
at September 30, 1997 and 29,735,815
at June 30, 1997 297 297
Additional paid-in capital 331,304 331,139
Treasury stock, 42,508 and 55,342 shares at
September 30, 1997 and June 30, 1997,
respectively, at cost (775) (996)
Unearned compensation (1,316) (1,425)
Retained earnings 146,809 142,533
----------- -----------
Total stockholders' equity
476,319 471,548
----------- -----------
Total liabilities and stockholders' equity $ 1,253,320 $ 1,210,989
=========== ===========
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Three months ended September 30,
--------------------------------
1997 1996
--------- ----------
Net sales $287,547 $233,422
Cost of sales:
Other than depreciation and amortization 243,997 198,700
Depreciation and amortization 12,790 10,716
-------- --------
Gross profit 30,760 24,006
Pre-operating/start-up costs 2,502 1,422
Selling, general and administrative 11,020 8,450
Interest 6,069 3,988
-------- --------
11,169 10,146
Other income (expense), net 589 614
Minority interest in loss of subsidiary 521 -
-------- --------
Income before income taxes 12,279 10,760
Provision for income taxes 5,034 4,412
-------- --------
Net income $ 7,245 $ 6,348
======== ========
Weighted average shares outstanding 29,685 28,625
======== ========
Earnings per share $ 0.24 $ 0.22
======== ========
Dividends declared per share $ 0.10 $ 0.10
======== ========
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
September 30,
------------------------
1997 1996
(Unaudited) (Unaudited)
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,245 $ 6,348
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,790 10,716
Provision for doubtful accounts receivable - 15
Deferred income taxes - (331)
Minority interest in loss of subsidiary (521) -
Loss from equity investments 646 -
Other 230 559
Changes in operating assets and liabilities:
Accounts receivable (601) (2,169)
Inventories 11,235 5,307
Prepaid expenses (547) (353)
Other current assets 822 5,112
Accounts payable (7,432) (20,463)
Income taxes payable 4,934 -
Other accrued liabilities 8,515 5,425
Deferred compensation 287 (207)
--------- --------
Net cash provided by operating activities 37,603 9,959
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (55,739) (53,471)
Equity investment in Laclede Steel Company (14,953) -
Additions to other non-current assets (1,020) (526)
Reductions in other non-current assets 4,260 1,218
--------- --------
Net cash used in investing activities (67,452) (52,779)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings and repayments 10,000 46,120
Proceeds from issuance of long-term debt 447,858 -
Payments of long-term debt (425,308) -
Proceeds from issuance of common stock 111 296
Cash dividends paid (2,969) (2,862)
--------- --------
Net cash provided by financing activities 29,692 43,554
--------- --------
Net increase (decrease) in cash and cash equivalents (157) 734
Cash and cash equivalents at:
Beginning of period 959 6,663
--------- --------
End of period $ 802 $ 7,397
========= ========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 1,087 $ 1,223
Income taxes 38 1
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
1. Description of the Business and Significant Accounting Policies
Description of the Business
Birmingham Steel Corporation (the Company) operates steel mini-mills in the
United States producing steel reinforcing bar, merchant products and high
quality bar, rod and wire. The Company operates in one industry segment and
sells to third parties primarily in the construction and automotive industries
throughout the United States and Canada.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included.
All such adjustments are of a normal recurring nature only. All significant
intercompany accounts and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market value. The cost of
inventories is determined using the first-in, first-out method.
Earnings per share
Earnings per share are computed using the weighted average number of outstanding
common shares and dilutive equivalents (if any).
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of primary earnings per share and fully diluted earnings per share
is not expected to be material.
<PAGE>
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Business Acquisitions and Joint Ventures
On September 24, 1997, Midwest Holdings Inc., a wholly owned subsidiary of the
Company, purchased LCL Holdings II, LLC (LCL), a subsidiary of IVACO, Inc. for a
purchase price of approximately $14,953,000. LCL owns 25.4 percent of the
outstanding common shares and 44.0 percent of the outstanding non-voting
convertible preferred shares of Laclede Steel Company stock which is accounted
for using the equity method.
On November 15, 1996, the Company entered into a Contribution Agreement with
Atlantic Steel Industries, Inc. (Atlantic) and IVACO, Inc., the parent of
Atlantic, pursuant to which the Company and Atlantic formed Birmingham
Southeast, LLC (Birmingham Southeast), a limited liability company owned 85
percent by Birmingham East Coast Holdings, a wholly owned subsidiary of the
Company, and 15 percent by a subsidiary of IVACO, Inc. On December 2, 1996,
pursuant to the Contribution Agreement the Company contributed the assets of its
Jackson, Mississippi facility to Birmingham Southeast which had no impact on the
accompanying consolidated financial statements. Birmingham Southeast then
purchased the operating assets of Atlantic located in Cartersville, Georgia for
$43,309,000 in cash and assumed liabilities approximating $44,257,000. The
purchase price has been allocated to the assets and liabilities of the Company
as follows (in thousands):
Current assets $ 31,667
Property, plant and equipment 63,400
Other non-current
assets, primarily goodwill 9,964
--------
Total assets acquired 105,031
Fair value of liabilities assumed (44,257)
Minority interest (17,465)
--------
Total purchase price $ 43,309
========
The non-cash financing and investing activities related to the purchase of the
Cartersville, Georgia assets have been excluded from the statement of cash
flows. Pro forma results for fiscal 1997 would not be materially different from
the amounts reported in the Company's consolidated statements of operations if
the acquisition had occurred as of the beginning of the period.
<PAGE>
On September 18, 1996, the Company entered into an agreement with Raw Materials
Development Co., Ltd., an affiliate of Mitsui & Co., Ltd. forming Pacific Coast
Recycling, LLC (Pacific Coast), a 50/50 joint venture established to operate in
southern California as a collector, processor and seller of scrap. The Company
made equity investments in Pacific Coast of approximately $7,500,000 on December
27, 1996 and $1,750,000 on January 23, 1997. Pacific Coast is accounted for
using the equity method. On December 27, 1996, Pacific Coast purchased certain
assets from the estate of Hiuka America Corporation and its affiliates with a
minimum annual scrap processing capacity of approximately 600,000 tons. Pacific
Coast is utilizing the facility at the Port of Long Beach to export scrap. At
September 30, 1997, the Company had current and non-current loans outstanding to
Pacific Coast in the amount of $6,400,000 and $10,000,000 respectively.
On August 30, 1996, the Company entered into an Equity Contribution Agreement
with American Iron Reduction, L.L.C. (AIR), a 50 percent owned subsidiary of the
Company, for the purpose of constructing a direct reduced iron (DRI) facility in
Louisiana. Under the Equity Contribution Agreement, the Company is required to
make an equity contribution to AIR of not less than $20,000,000 and not more
than $27,500,000 upon completion of the DRI facility, which is expected to be
completed in the first quarter of calendar year 1998. The Company also entered
into a DRI Purchase Agreement with AIR on August 30, 1996, whereby the Company
will purchase a minimum of 600,000 metric tons of DRI annually. The DRI
purchased will be utilized primarily at the Memphis melt shop as a substitute
for premium, low-residual scrap.
3. Inventories
Inventories were valued as summarized in the following table (in thousands):
September 30, June 30,
1997 1997
------------- -----------
At lower of cost
(first-in, first-out)
or market:
Raw materials and mill supplies $ 49,851 $ 51,832
Work-in-progress 71,211 71,693
Finished goods 76,298 85,070
-------- --------
$197,360 $208,595
======== ========
4. Borrowing Arrangements
The Company has a five year, unsecured revolving credit agreement whereby the
Company may borrow up to $300,000,000 with interest at market rates mutually
agreed upon by the Company and the lender or at other contractual borrowing
rates. Approximately $84,894,000 was available under this credit facility at
September 30, 1997.
<PAGE>
Under three line of credit arrangements for short-term borrowings, the Company
may borrow up to $50,000,000 with interest at market rates mutually agreed upon
by the Company and the lender. At September 30, 1997, $40,000,000 was available
under these credit facilities.
5. 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 management and disposal.
The Company has been advised by the Virginia Department of Waste Management of
certain conditions involving the disposal of hazardous materials at the
Company's Norfolk, Virginia property which existed prior to the Company's
acquisition of the facility. The site has been accepted into Virginia's
Voluntary Remediation Program. This program allows regulatory closure upon
certification by the Virginia Department of Environmental Quality of the site
remediation. The Company was also notified by the Department of Toxic Substances
Control (DTSC) of the Environmental Protection Agency of the State of California
of certain environmental conditions regarding its property in Emeryville,
California. The Company has performed environmental assessments of these sites
and developed work plans for remediation of the properties for approval by the
applicable regulatory agencies. The remediation plan for the Emeryville site was
approved by DTSC, and the Company recently received letters from DTSC confirming
that the site has been remediated in accordance with the approved remedial
implementation plan. The Company has also received an approved remedial
completion report.
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 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 $2,400,000 to $4,200,000. Approximately $2,062,000 of
these costs is recorded in accrued liabilities at September 30, 1997. 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 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. Additionally, if
other environmental conditions requiring remediation are discovered, site
restoration costs could exceed the Company's estimates. Except as stated above,
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.
6. Pre-Operating/Start-up Costs
Pre-operating/start-up costs consist of non-capitalized costs incurred prior to
a facility reaching commercial production levels.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements contained in this report that are not purely historical or which
might be considered an opinion or projection concerning the Company or its
business, whether express or implied, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include the Company's expectations, hopes, anticipations, intentions,
plans and strategies regarding the future. Forward-looking statements include,
but are not limited to: expectations about environmental remediation costs,
assessments of expected impact of litigation and adequacy of insurance coverage
for litigation, expectations regarding the costs of new projects, expectations
regarding future earnings, expectations concerning the anticipated performance
of new ventures, and expectations regarding the date when facilities under
construction will be operational and the future performance and capabilities of
those facilities. Moreover, when making forward-looking statements, management
must make certain assumptions that are based on management's collective opinion
concerning future events, and blend these assumptions with information available
to management when such assumptions are made. Whether these assumptions are
valid will depend not only on management's skill, but also on a variety of
volatile and highly unpredictable risk factors. Some, but not all, of these risk
factors are described below under the heading "Risk Factors That May Affect
Future Operating Results". The Company's actual results could differ materially
from those described or implied by any forward-looking statements herein. Any
forward-looking statements contained in this document speak only as of the date
hereof, and the Company disclaims any intent or obligation to update such
forward-looking statements. Comparisons of results for current and prior periods
are not necessarily indicative of future performance, and should not be relied
on for any purpose other than as historical data.
In the first quarter of fiscal 1998, the Company reported net income of
$7,245,000, up 14.1 percent from $6,348,000 reported in the first quarter of
fiscal 1997. Earnings per share for the quarter were $.24, compared with $.22
reported in the prior year period. First quarter earnings reflected a $2.5
million pretax charge for pre-operating expenses primarily related to the new
melt shop currently under construction in Memphis, Tennessee. Prior year first
quarter earnings reflected a $1.4 million pretax charge for expenses associated
with the start-up of the new bar mill in Cleveland, Ohio and pre-operating
charges related to the Memphis melt shop. First quarter steel shipments were
837,000 tons, compared with 669,000 tons shipped a year ago. Net sales for the
first quarter were $287,547,000, compared with $233,422,000 in the same period
last year.
Net Sales
Net sales in the first quarter of fiscal 1998 increased 23.2 percent to
$287,547,000, compared with $233,422,000 in the prior year period. The Company
achieved record steel shipments of 837,000 tons, up 25.1 percent compared with
669,000 tons in the same period a year ago.
Selling prices for the first quarter of fiscal 1998 were slightly improved over
the same period a year ago. For the first quarter of fiscal 1998, selling prices
averaged $304 per ton for rebar, $340 per ton for merchant products and $455 per
ton for rod and bar products (SBQ). For the same period last year, selling
prices averaged $300 per ton for rebar, $339 per ton for merchant products and
$453 per ton for SBQ.
Cost of Sales
As a percentage of net sales, cost of sales (other than depreciation and
amortization) declined slightly to 84.9 percent from 85.1 percent in the first
quarter last year.
Scrap cost was $131 per ton in the first quarter of fiscal 1998, down $3 per ton
from $134 in the first quarter of fiscal 1997. The cost of purchased billets at
the Company's rod and bar facilities was $352 per ton, down $5 per ton from $357
per ton in the prior year period.
Conversion costs at the Company's rebar/merchant facilities was $123 per ton in
the first quarter of fiscal 1998, an increase of $9 per ton compared with $114
per ton in the first quarter of fiscal 1997. The increase in conversion costs is
due to the production of billets with higher quality specifications at the
Cartersville, Georgia facility of Birmingham Southeast, LLC, an affiliate of the
Company, which was acquired in December 1996 and a shift in production mix at
the Company's mini-mills. In the first quarter of fiscal 1998, the Company's
rebar/merchant facilities produced approximately 61 percent rebar and 39 percent
merchant products compared to 73 percent rebar and 27 percent merchant products
for the same period a year ago. SBQ conversion costs were $66 per ton, down $11
per ton from $77 per ton in the first quarter of last year. SBQ conversion costs
in the prior year period reflected increased costs during the start-up phase of
the bar mill which began operations in July 1996.
Depreciation and amortization expense increased to $12,790,000 in the current
year first quarter from $10,716,000 in the first quarter of fiscal 1997,
primarily due to the recognition of depreciation on fixed asset additions during
fiscal 1997 and in the first quarter of fiscal 1998.
Pre-operating/Start-up Costs
Pre-operating/start-up costs amounted to $2,502,000 in the first quarter of
fiscal 1998, compared with $1,422,000 in the prior year first quarter. The
current quarter charges consist of pre-operating costs primarily related to the
Memphis, Tennessee melt shop currently under construction. The prior year
charges consist primarily of pre-operating costs at the Memphis melt shop and
start-up costs associated with the bar mill in Cleveland, Ohio.
Selling, General and Administrative Expenses (SG&A)
SG&A increased to $11,020,000 in the first quarter of fiscal 1998 from
$8,450,000 in the first quarter of fiscal 1997. The change is primarily
attributable to increased salaries and benefits at the Cartersville, Georgia
facility of Birmingham Southeast, LLC, a Company affiliate, which was acquired
in December 1996 and at the Company's corporate offices to support increased
sales volumes. As a percent of net sales, first quarter SG&A expenses were 3.8
percent, compared with 3.6 percent last year.
Interest Expense
Interest expense increased to $6,069,000 in the first quarter of fiscal 1998
from $3,988,000 in the prior year first quarter. The increase is primarily due
to borrowings on the Company's long-term credit facility completed in March,
1997 and the $26 million industrial revenue bond completed in October, 1996. The
increase in interest was partially offset by a decline in borrowings on the
Company's short-term credit lines in the current quarter compared with the prior
year period, and by capitalized interest related to construction projects
amounting to approximately $2.7 million in the first quarter of fiscal 1998.
Capitalized interest in the same period of fiscal 1997 was $1.8 million.
Income Taxes
Effective income tax rates for the first quarters of fiscal 1998 and fiscal 1997
were 41.0%.
Liquidity and Capital Resources
Operating Activities
In the first quarter of fiscal 1998, net cash provided by operating activities
was $37.6 million, compared with $10.0 million reported in the first quarter of
last year. The favorable increase in cash flow was due to increased net income,
increased depreciation and amortization and changes in operating assets and
liabilities, primarily inventories, other current assets, accounts payable and
income taxes payable.
Investing Activities
Net cash used in investing activities during the first quarter was $67.5
million, compared with $52.8 million last year. On September 26, 1997, Midwest
Holdings Inc., a wholly owned subsidiary of the Company, purchased 24.9% of the
outstanding common shares and 44.0% of the outstanding non-voting convertible
preferred shares of Laclede Steel Company (Laclede), for a purchase price of
approximately $15 million. The equity investment in Laclede, a manufacturer of
carbon and alloy steel products including pipe, hot rolled and wire products and
welded chain, provides the Company with an opportunity to participate in new
product markets. The investment in Laclede will be accounted for on the equity
method with the Company recording its share of earnings or loss beginning in the
second quarter of fiscal 1998.
On August 30, 1996, the Company entered into an Equity Contribution Agreement
with American Iron Reduction, L.L.C. (AIR), a 50 percent owned subsidiary of the
Company, for the purpose of constructing a direct reduced iron (DRI) facility in
Louisiana. Pursuant to the Equity Contribution Agreement, the Company is
required to make an equity contribution to AIR of not less than $20,000,000 and
not more than $27,500,000 upon completion of the facility, which is expected to
occur in the third quarter of fiscal 1998. The Company also entered into a DRI
Purchase Agreement with AIR on August 30, 1996, whereby the Company will
purchase a minimum of 600,000 metric tons of DRI annually once the facility
becomes operational. The DRI purchased by the Company will be utilized primarily
as feedstock at the new Memphis melt shop.
Financing Activities
Net cash provided by financing activities was $29.7 million in the first
quarter, compared with $43.6 million in the first quarter of the prior year. The
decline is attributable to decreased borrowings on the Company's short-term
lines of credit during the first quarter of fiscal 1998 compared with the first
quarter of the prior year, partially offset by net borrowings of approximately
$23 million on the Company's long-term credit facility completed in March, 1997.
Working Capital
Working capital at the end of the first quarter decreased to $202.3 million,
compared with $228.9 million at the end of fiscal 1997. The decrease in working
capital was essentially due to a decline in inventories and increased borrowings
on the Company's short-term lines of credit partially offset by a reduction in
accounts payable.
Other Comments
On October 1, 1997, subsequent to the end of the first quarter, the Company
completed the sale of its property located in Emeryville, California for a sale
price of $13.6 million and recognized a pre-tax gain of approximately $2.1
million.
On October 14, 1997, the Company declared a regular quarterly cash dividend of
$.10 (ten cents) per share which was paid November 4, 1997 to shareholders of
record on October 24, 1997.
On October 15, 1997, subsequent to the end of the first quarter, the Company
sold its idle rolling mill in Cartersville, Georgia, acquired in December 1996,
for $1.6 million and recognized a pre-tax gain of approximately $1.2 million.
On November 10, 1997, subsequent to the end of the first quarter, the Company
entered into a 15 year operating lease agreement and received $75 million in
cash for equipment located at the Company's Memphis melt shop which was
previously reflected in construction in progress.
The Company is scheduled to begin implementation of a new business information
system, which is year 2000 compliant, in the third quarter of fiscal 1998. The
new business information system is expected to be fully implemented by the end
of fiscal 1999. The Company is evaluating its other systems on an on-going basis
for year 2000 issues. While total costs of the conversion process have not yet
been determined, the Company does not currently expect those costs to be
significant.
Risk Factors That May Affect Operating Results
The Company's actual results could differ materially from those described or
implied in any forward-looking statements contained in this document. Among the
factors that could cause actual results to differ materially are the factors
detailed below. In addition, readers should consider the risk factors described
from time to time in other Company reports filed with the Securities and
Exchange Commission.
The Company is in the steel industry, an industry that is vulnerable to
unpredictable economic cycles. A downturn in the economy or in the Company's
markets could have an adverse effect on the Company's performance.
The Company has attempted to spread its sales across the reinforcing bar,
merchant product and special bar quality markets to reduce the Company's
vulnerability to an economic downturn in any one product market. The Company's
performance, however, can still be materially affected by changes in demand for
any one of its product lines and by changes in the economic condition of the
construction industry, manufacturing industry or automobile industry.
The cost of scrap is the largest element in the cost of the Company's finished
rebar and merchant products. The Company purchases most of its scrap on a
short-term basis. Changes in the price of scrap, therefore, can significantly
affect the Company's profitability. Changes in other raw material prices can
also influence the Company's profitability.
Prices for some of the Company's products are positively affected by the
influence of trade sanctions imposed on the Company's foreign competitors.
Changes in these sanctions or their enforcement could adversely affect the
Company's results.
Energy costs are also a significant factor influencing the Company's results.
Current reforms in the electric utility industry at the state and federal level
are expected to lower energy costs in the long run. However, numerous utilities
and political groups are fighting these reforms and states are approaching the
reforms in different fashions. The possibility exists, therefore, that the
Company could be exposed to energy costs which are less favorable than those
available to its competitors. Such a situation could materially affect the
Company's performance.
Until completion of the Memphis melt shop, currently under construction, the
Company's SBQ division will purchase substantially all of its steel billets from
third parties. The cost of these steel billets is the largest element in the
cost of the SBQ division's finished products. Thus, the performance of this
division, and in turn, the performance of the Company, can be materially
affected by changes in the price of the steel billets it buys from third
parties.
Delays or cost overruns associated with the new Memphis melt shop or the DRI
project in Louisiana could materially adversely affect the Company's future
results. While both projects are currently on schedule, these projects, like
other construction projects, can be affected or delayed by factors such as
unusual weather, late equipment deliveries, unforeseen conditions and untimely
performance by contractors.
The Company is constantly engaged in the process of evaluating new opportunities
to strengthen its long-term business and financial prospects. From time to time,
this process may lead the Company to make strategic investments, such as
acquisitions and joint ventures, which have the potential to improve the
Company's position in the markets in which it currently competes, as well as new
markets it may choose to enter. In connection with these investments, the
Company may incur, either directly or indirectly, start-up expenses, losses and
other charges that may have a material affect on the Company's financial
performance. Further, there can be no assurance that these strategic investments
will in fact be profitable, and the Company could incur significant losses as a
result of one or more of these investments.
The Company believes its labor relations are generally good. The Company's work
force is substantially non-union and the Company has never suffered a strike or
other labor related work stoppage. If this situation changes, however, the
Company's performance could suffer material adverse effects.
The Company operates in an industry subject to numerous environmental
regulations. Changes in environmental regulations or in the interpretation or
manner of enforcement of environmental regulations could materially affect the
Company's performance. Further, the Company is planning and performing certain
environmental remediations. Unforeseen costs or undiscovered conditions
requiring unplanned expenditures in connection with such remediations could
materially affect the Company's results.
The Company's economic performance, like most manufacturing companies, is
vulnerable to a catastrophe that disables one or more of its manufacturing
facilities and to major equipment failure. Depending upon the nature of the
catastrophe or equipment failure, available insurance may or may not cover a
loss resulting from such a catastrophe or equipment failure and the loss
resulting from such a catastrophe or equipment failure could materially affect
the Company's earnings.
The Company anticipates that it will continue to borrow funds in the future.
Increases in interest rates or changes in the Company's ability to borrow funds
could materially affect the Company's performance.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business. Some of these claims against the
Company are covered by insurance, although the insurance policies do include
deductible amounts. 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 or financial position. There
can be no assurance that insurance, including product liability insurance, will
be available in the future at reasonable rates.
Item 6. Exhibits and Reports on Form 8-K
No exhibits are required to be filed with this report.
During the quarter ended September 30, 1997, no reports on Form 8-K were
required to be filed.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1997 Consolidated Balance Sheets and Consolidated Statements of
Operations of Birmingham Steel Corporation and is qualified in its entirety by
reference to such.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-END> Sep-30-1997
<CASH> 802
<SECURITIES> 0
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<ALLOWANCES> 1,797
<INVENTORY> 197,360
<CURRENT-ASSETS> 355,535
<PP&E> 989,814
<DEPRECIATION> 184,440
<TOTAL-ASSETS> 1,253,320
<CURRENT-LIABILITIES> 153,226
<BONDS> 53,500
0
0
<COMMON> 297
<OTHER-SE> 476,022
<TOTAL-LIABILITY-AND-EQUITY> 1,253,320
<SALES> 287,547
<TOTAL-REVENUES> 287,547
<CGS> 256,787
<TOTAL-COSTS> 256,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,502
<INTEREST-EXPENSE> 6,069
<INCOME-PRETAX> 12,279
<INCOME-TAX> 5,034
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<NET-INCOME> 7,245
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
