(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the fiscal year ended June 30, 1997
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
---------------------------------------- ----------
(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)
As of September 18, 1997, 29,694,718 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 September 18, 1997) held by non-affiliates was
$446,599,879. 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.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated September 12, 1997
for the 1997 Annual Meeting of Stockholders 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 in the mini-mill sector of
the steel industry and conducts operations at facilities located across the
United States. The Company melts ferrous scrap to produce semi-finished steel
billets at facilities located in Birmingham, Alabama; Kankakee, Illinois; and
Seattle, Washington. Steel billets are also converted to reinforcing bar and/or
merchant products (rounds, flats, squares, strip, angles and channels) at these
facilities. The Company also produces rebar and merchant products at a rolling
facility located in Joliet, Illinois. Special bar quality (SBQ) steel rod and
bar products are produced at the Company's facilities located in Cleveland,
Ohio.
The Company has regional warehouse and distribution facilities which sell
finished products manufactured by its other operations. The Company, through its
wholly owned subsidiary, Birmingham East Coast Holdings, also owns an 85%
interest in Birmingham Southeast, LLC (Birmingham Southeast), a joint venture
with a subsidiary of IVACO, Inc. Birmingham Southeast operates a melt shop in
Cartersville, Georgia and a melt shop and rolling mill in Jackson, Mississippi.
Carbon steel rebar products produced by the Company are sold primarily to
independent fabricators for use in the construction industry, and merchant
products which are sold to fabricators, steel service centers and original
equipment manufacturers for use in general industrial applications. The
Company's facilities in Cleveland convert semi-finished steel billets into high
quality bar and rod. The Cleveland facilities currently purchase most of its
billets from third parties; however, effective with commencement of operations
of the Company's new melt shop in Memphis (expected in the fourth calendar
quarter of 1997), substantially all of Cleveland's billet requirements will be
supplied by the Memphis facility. A portion of the bar and rod produced in
Cleveland is further processed into wire products. Bar and rod products
manufactured by the Company are sold primarily to customers in the automotive,
fastener, welding, appliance and aerospace industries. Pursuant to an agreement
with Hughes Missile Systems, Inc., the Company is also the sole manufacturer of
ultra-high tensile strength specialty wire utilized in the U.S. Government's TOW
anti-tank missile guidance system. Unless renewed, this contract will expire on
December 31, 1999.
The Company also owns equity interests in scrap collection and processing
operations. Through its Birmingham Recycling Investment Company wholly-owned
subsidiary, the Company is 50% owner of Richmond Steel Recycling, Inc., a scrap
operation located in Vancouver, British Columbia. The remaining 50% interest in
Richmond Steel Recycling, Inc., is owned by SIMSMETAL, Canada, Ltd. The Company
also owns a 50% interest in Pacific Coast Recycling, Inc., which has scrap
operations in southern California. The remaining 50% interest in Pacific Coast
Recycling, Inc. is held by a subsidiary of Mitsui & Co., USA.
In December 1996, the Company contributed the assets of its Jackson, Mississippi
facility to Birmingham Southeast LLC (Birmingham Southeast), a joint venture
company owned 85% by Birmingham East Coast Holdings, a wholly owned subsidiary
of the Company, and 15% by a subsidiary of IVACO, Inc. Birmingham Southeast then
purchased certain steel making assets located in Cartersville, Georgia from
Atlantic Steel Industries, Inc. (Atlantic), a subsidiary of IVACO, Inc.
Birmingham Southeast has entered into a tolling agreement with Atlantic pursuant
to which Atlantic converts billets produced by Birmingham Southeast into
merchant product for a tolling fee. Birmingham Southeast also entered into a
take or pay agreement to supply billets to Atlantic. Under the terms of the take
or pay agreement, Atlantic is obligated to purchase a minimum of 250,000 tons of
billets annually. The tolling and take or pay agreements expire January 1, 1999.
The Company has an agreement with Birmingham Southeast to provide certain
management and administrative services.
The Company currently has two major capital projects underway. In the fourth
calendar quarter of 1997, the Company expects to begin start-up operations of a
new $210 million high quality melt shop in Memphis, Tennessee. The Memphis melt
shop will provide feedstock primarily to the Company's rolling mills in
Cleveland, Ohio. In the first quarter of calendar 1998, start-up operations are
expected to begin at American Iron Reduction, Inc., (AIR) a joint venture formed
for the purpose of producing direct reduced iron (DRI) in Convent, Louisiana.
The Company and GS Industries, Inc. each own a 50% interest in AIR. The
Company's portion of the joint venture's DRI production will be used primarily
as a feedstock for the Memphis melt shop.
The Company's operating strategy is to (i) improve its position as a low-cost
producer through continued operating cost reductions; (ii) optimize capacity
utilization at each of its facilities; (iii) increase production and sales of
higher margin products; and (iv) expand operations through the acquisition of
steel producing assets and related operations and construction of new steel
facilities.
Steel Manufacturing
The Company operates mini-mills (electric arc furnace melt shops and finished
product rolling mills) in Birmingham, Alabama; Kankakee, Illinois; and Seattle,
Washington. The Company operates high quality steel bar, rod and wire production
facilities in Cleveland, Ohio. The Company also operates a rolling mill in
Joliet, Illinois, and has warehouse and distribution facilities in Fontana and
Livermore, California; Baltimore, Maryland; Dallas, Texas; and Ft. Lauderdale,
Florida. The Company, through its wholly owned subsidiary, Birmingham East Coast
Holdings, owns 85% of Birmingham Southeast which operates a melt shop in
Cartersville, Georgia and a melt shop and rolling mill in Jackson, Mississippi.
Birmingham Southeast also sells finished product via a program with a third
party which converts billets produced at Cartersville into finished product.
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
(i) use more costly raw materials; (ii)consume more energy; (iii) consist of
older and less efficient facilities which are more labor-intensive; and (iv)
employ a larger labor force than the mini-mill industry. In general, mini-mills
service geographic markets and produce a limited line of rebar and merchant
products. 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.
The Company's mini-mills 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's SBQ operations currently purchase high quality carbon and alloy
semi-finished billets from third parties which are then converted into a variety
of high quality bar, rod and wire products. Purchased billets are inspected for
surface defects and, when necessary, conditioned before transfer into the rod
and bar mills. Upon entering the rolling 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. After
rolling, the rod and bar is coiled and control cooled. Once the cooling process
is complete, the coiled rod and 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 the Company's wire
operation for conversion into wire.
The Company's high quality production facilities have the capabilities to
produce virtually all qualities of rod, bar and wire. However, the Company has
chosen to concentrate on a select number of high quality products which include
cold heading, cold finishing, cold rolling, welding, bearing, industrial and
specialty high carbon steel grades. The Company's strategy has been to focus on
the U.S. high quality bar, rod and wire markets, which demand exacting
metallurgical and size tolerance specifications and defect-free surface
qualities. In fiscal 1997, approximately 4% of bar and rod production at
Cleveland was transferred to the wire production facility and converted into
smaller-diameter wire through a cold-drawing process. Finished steel bar and rod
are also transferred to the wire mill solely for surface or thermal treatment
applications and then shipped to rod customers. The Company also operates a
facility in Cleveland which purchases specialty steel rod from a third party.
The specialty steel rod is 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 1997, scrap costs represented approximately 53% 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 because of 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
the finished product, the Company obtains its billets only from those suppliers
whose billets can meet the required metallurgical specifications of its
customers. The Company manufactures its high quality bar and rod from
approximately 120 generic grades of billets. To obtain high quality billets
needed to provide the sophisticated products that the Company requires, a team
approach among the suppliers, customers and the Company is required. Typically,
the approval process for a particular billet supplier requires six to twelve
months. The Company currently purchases billets from eight approved billet
suppliers. The Company also produces certain grades of high quality rod and bar
from billets produced at the Birmingham Southeast, LLC melt shop in
Cartersville, Georgia.
During fiscal 1997, the Company acquired approximately 39% of its high quality
billets from Broken Hill Proprietary Company, Limited located in Australia, and
29% of its billet requirements from QIT-Fer et Titane (QIT). The Company has a
supply agreement with QIT, located in Montreal, Canada, which expires in 1998.
The Company is currently involved in discussions with current billet suppliers
regarding its fiscal 1998 billet requirements, which are expected to be reduced
from the level of previous years because of the start-up of the Memphis melt
shop in the second quarter of fiscal 1998. Once operational, the Memphis melt
shop is expected to supply up to one million tons of high quality billets
annually to the Cleveland, Ohio operation.
The Company's operations consume large amounts of energy in the form of
electricity and natural gas. The Company purchases its electrical energy from
regulated utilities pursuant to 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. In the past, these interruptions have ordinarily
been 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.
Production Capacity
The table below indicates the percentage of capacity at which the Company's
manufacturing facilities operated during the fiscal year ended June 30, 1997.
The capacities presented are management's estimates and are based upon 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 FY1997 Capacity Annual FY1997 Capacity
Melting Melting Utilization Rolling Rolling Utilization
Capacity Production Percentage Capacity Production Percentage
-------- ---------- ---------- -------- ---------- ----------
Birmingham 500 475 95.0% 500 469 93.8%
Kankakee 750 672 89.6% 550 547 99.5%
Joliet - - - 280 90 32.1%
Seattle 750 544 72.5% 600 531 88.5%
Jackson 450 289 64.2% 400 252 63.0%
Cartersville 1,000 243 24.3% 225 102 45.3%(1)
Cleveland - - - 1,100 648 58.9%
Cleveland Wire - - - 60 26 43.3%
----- ----- ---- ----- ----- -----
3,450 2,223 64.4% 3,715 2,665 71.7%
===== ===== ==== ===== ===== =====
(1) Cartersville rolling production via tolling agreement with a third party.
The Company has the capability to produce both rebar and merchant products at
its Kankakee, Birmingham, Seattle and Joliet facilities and at the Birmingham
Southeast facility in Jackson. The conversion from production of rebar to
merchant products is a routine facet of operations between the Company's
facilities, and no major impediments exist which would preclude changing between
product mixes.
Production Facilities
Kankakee, Illinois
The Kankakee, Illinois facility is located approximately 50 miles south of
Chicago. Since its acquisition in 1984, the Company has renovated the operation
and installed a new melt shop, continuous caster, rolling mill, reheat furnace
and in-line straightening, stacking and bundling equipment. Kankakee enjoys a
favorable geographical proximity to key Midwest markets for merchant products.
This freight cost advantage and Kankakee's state-of-the-art equipment
capabilities are competitive advantages in the Company's strategy to expand
market share of merchant products. In fiscal 1997, Kankakee shipped 587,000 tons
of steel products and produced 2,202 tons per worker-year.
Birmingham, Alabama
The Birmingham, Alabama facility was the first mini-mill built in the United
States and was in need of major renovations when acquired by the Company in
1984. Since acquisition of the Birmingham facility, the Company has installed a
new electric arc furnace and sequence casting system in the melt shop; and a new
reheat furnace, finishing stands, cooling bed and product shear in the rolling
mill as well as a new finished goods storage area. In 1992, the Company
transferred an in-line rolling mill from its idled facility in Norfolk, Virginia
to Birmingham. In 1994, the Company installed finished goods bundling and
transfer equipment at its Birmingham facility. The Birmingham facility produces
primarily rebar. In fiscal 1997, Birmingham shipped 465,000 tons of steel
product and produced 2,683 tons of steel per worker-year.
Seattle, Washington
The Seattle, Washington facility is located adjacent to the Port of Seattle and
is the Company's largest mini-mill. The Company began operating in Seattle in
1986 upon the acquisition of a local steel company, which provided an entry to
the West Coast steel markets. In 1991, the Company purchased the assets of
Seattle Steel, Inc., in west Seattle, and consolidated all of its steel
operations to the west Seattle site.
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. In 1993, the Company completed
construction of a new state-of-the-art in-line rolling mill which includes
automated in-line straightening, stacking and bundling equipment designed to
facilitate Seattle's expansion in merchant product production. The Seattle
operation produces a variety of products including rebar, merchant rounds,
angles, channels, squares, flats and strip. In fiscal 1997, the Seattle facility
shipped 532,000 tons and produced 2,291 tons of steel per worker-year.
Joliet, Illinois
The Joliet, Illinois facility was acquired with the Company's purchase of
American Steel & Wire Corporation in 1993. In fiscal 1996, concurrent with the
start-up of the new high quality bar mill in Cleveland (see "Cleveland, Ohio"
below), the Company transferred the operation of the Joliet facility from the
management in Cleveland, Ohio to the operational control of the Kankakee,
Illinois management group. The Company also invested approximately $30 million
to upgrade the rolling mill and enable Joliet to produce coiled and straight
length reinforcing bar, flats, rounds and squares. The Joliet operation consists
of a modernized 2-strand 19-stand Morgan mill, 3 zone top fired walking beam
furnace, no-twist finishing and a coil and cut length line. The Joliet operation
obtains its semi-finished steel billet requirements primarily from the Company's
Kankakee, Illinois facility. In fiscal 1997, the Joliet facility shipped 76,900
tons of finished product.
Cleveland, Ohio
The Company's Cleveland, Ohio facilities include a rod mill, a bar mill and a
wire mill. The rod and wire mill assets were acquired with the Company's
purchase of American Steel & Wire Corporation (ASW) in 1993. Prior to ASW, the
rod and wire mills were owned by United States Steel Corporation.
The Cleveland facility produces a variety of high quality steel rod, bar and
wire products. In fiscal 1996, the Cleveland operation achieved QS9000
registration. 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 compliance with QS9000 will
strengthen its ability to access new markets, including the domestic and
transplant automotive producers.
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 fiscal 1996, the Company completed construction of a new state-of-the-art bar
mill which expanded the product range and mix of the Cleveland operation. The
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 is capable of producing bar and rod products in
sizes ranging from 45/64" to 1 9/16" in diameter and in coils of 4,300 pounds
and 5,700 pounds.
The Cleveland wire mill is located adjacent to the rod mill and serves two
purposes. First, some finished rod is transferred from the rod (and bar) mills
and either converted into high quality wire for sale to customers or processed
and shipped to rod customers. The wire mill also processes materials for
customers. The ability to offer high quality processing of bar and rod to
customers' specifications is a service that distinguishes the Company 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 and bar 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/bar coil is manufactured in several
hours.
In fiscal 1997, the Cleveland facility shipped 608,000 tons of rod and bar
products. The Cleveland wire mill shipped 26,000 tons of wire and processed
53,400 tons of bar and rod.
The Cleveland operation also includes a facility which produces ultra-high
tensile strength specialty wire for use in the U.S. Government's anti-tank
missile guidance systems. The Cleveland plant 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.
Jackson, Mississippi
The Company originally acquired the Jackson facility in 1985. In December 1996,
upon formation of Birmingham Southeast, the Company contributed the assets of
its Jackson facility to the newly-formed limited liability company. Birmingham
Southeast also owns the facility in Cartersville, Georgia which was acquired in
conjunction with the acquisition of certain assets of Atlantic Steel
Corporation. The Company, through its Birmingham East Coast Holdings subsidiary,
owns 85% of Birmingham Southeast.
Since acquiring the Jackson operation, the Company has totally renovated the
facilities and equipment. The Jackson facility includes a melt shop which was
completed in 1993 and a modern in-line rolling mill. Installation of automated
in-line straightening and stacking equipment were completed in fiscal 1994. The
Jackson facility produces primary merchant products including rounds, squares,
flats, strip and angles. The Jackson facility also has the capability to produce
rebar. In fiscal 1997, Jackson shipped 238,000 tons and produced 1,385 tons of
steel per worker-year.
Cartersville, Georgia
Birmingham Southeast acquired the Cartersville, Georgia facility in December
1996. The facility has a melt shop with a 24 foot, 140 ton Demag AC electric arc
furnace and Demag 6 strand billet caster. Cartersville produces billets for
feedstock to the Cleveland operation and supplies billets to Atlantic pursuant
to a take or pay agreement. Atlantic also converts billets to finished product
at its bar mill for Birmingham Southeast under a tolling agreement. In fiscal
1997, Cartersville shipped 263,000 tons of billets and finished product.
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 and Kankakee mini-mills. The
Company estimates that PESCO will ship approximately 200,000 tons of steel per
year to its customers.
Products
Of the 2.8 millions tons of steel products shipped from the Company's operations
in fiscal 1997, 46% were reinforcing bars, 24% were merchant products, 24% were
high quality bars and rods and 6% were semi-finished steel billets. The
following presents, for the periods indicated, the percentage of the Company's
net sales dollars by product generated by the Company's facilities.
Fiscal Year
------------------------------------
1997 1996 1995
---- ----- -----
Rebar products 39% 43% 36%
Merchant products 25 21 21
Rod products 18 30 30
Bar products 12 - -
Wire products 2 3 4
Semi-finished billets 4 3 3
Mine roof support products (1) - - 6
---- ---- ----
100% 100% 100%
==== ==== ====
(1) Mine roof support products consist of fabricated rebar and merchant steel
products. The Company's mine roof bolt business unit was sold in March 1995 (see
Note 3 to the Consolidated Financial Statements).
Rebar Products. The Company has the capability to produce rebar at five
locations. 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 1996. 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%
1996 (est) 6,069,000 1,288,000 21.2%
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 merchants at five
locations. Merchant products consist of rounds, squares, flats, strip, angles
and channels. 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 to strengthen its competitiveness
in merchant markets.
The following data reported by the American Iron and Steel Institute depict
apparent consumption of merchant products in the United States from 1986 through
1996. 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%
1996 (est) 10,328,000 520,000 5.0%
SBQ bar, rod and wire products. The Company's bar, rod and wire facilities
market high-quality bar, rod and wire (SBQ products) to customers in the
automotive, agricultural, industrial fastener, welding, appliance and aerospace
industries. In fiscal 1997, approximately 58% of the Company's SBQ shipments
were cold heading quality steel. Cold finish steel products represented
approximately 21% of shipments. Welding wire products and specialty high carbon
products represented 6% and 7% of SBQ shipments, respectively. The remaining 8%
of SBQ shipments include other wire and high quality products. Approximately 70%
of the Company's SBQ shipments are to customers serving the original equipment
and after-market segments of the automotive industry.
The Company's bar mill in Cleveland is capable of producing bar and rod sizes
ranging from 45/64" to 1 9/16" in diameter. The Company's rod mill, also located
in Cleveland, produces steel rods in sizes ranging from 7/32" to 15/16" in
diameter. The Company's wire mill in Cleveland 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 the Company's rod and 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 the Company is used by customers to produce steel wool pads,
brake pads, golf spikes and fasteners such as bolts, rivets, screws studs and
nuts. The Company'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, the Company's SBQ products must meet
exacting metallurgical and size tolerance specifications and defect-free surface
characteristics. The Company'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.
The Company's pricing policy for SBQ products is market driven and dependent
upon the market served and the demand by customers. 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 upon 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 1996 (in
tons).
Rod Wire Total
Calendar 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
1996 6,680,000 1,100,000 7,780,000
Management estimates the high quality segment of the bar market to be
approximately 10,700,000 tons in calendar 1996. Management estimates that the
high quality segment of the rod and wire market represents approximately 48%
of the rod market demand in the U.S. The Company's strategy has been to serve
this approximately 3.7 million tons-per-year high quality rod and wire segment,
which has historically been dominated by foreign suppliers. Generally, domestic
mini-mills have historically focused on the less demanding quality markets.
Since the acquisition of the Cartersville melt shop, the Company has increased
its usage of industrial quality billets, and finished product shipments of
industrial quality rod and bar increased during fiscal 1997.
The following is a summary of the principal rod and bar product qualities
manufactured by the Company:
Cold heading quality (CHQ) - The Company produces CHQ steel rod, bar and wire 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 58% of the
Company's fiscal 1997 rod and bar shipments.
Cold finish quality (CFQ) - CFQ steel rod and bar is intended for the
manufacture of cold drawn bars and is often 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) - The Company produces CRQ steel rod and bar 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) - The Company's WQ rod and bar is produced in a wide
variety of specialized carbon and alloy chemistries in order to match the
characteristics of the material 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 and bar 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 of 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 - The Company produces bearing quality steel to serve a range of
ally grades into ball, needle and roller type bearings.
Wire Products - The Company produces cold heading quality wire and processed
rod and bar in a full range of carbon and a variety of alloy grades in sizes
ranging from .120" to .820" in diameter. This product is offered with specified
thermal treatments, coatings, and finishes. Cold heading wire is primarily
supplied to fastener manufacturers.
The Company produces wool quality wire utilizing special wire drawing practices
which ensure a consistent, high quality product. Customers shave the Company'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.
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.
The Company 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.
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 markets primarily with numerous
regional domestic mini-mill companies.
The Company's primary competitors in bar and rod products are divisions of
domestic and foreign integrated steel companies and domestic mini-mill
companies. The Company competes primarily in the high quality end of the rod,
bar and wire markets, differentiating itself from many of its competitors.
Although price is an important competitive factor in the Company's SBQ business,
particularly during recessionary times, the Company believes that its sales are
principally dependent upon product quality, on-time delivery and customer
service. The Company's SBQ marketing and sales activities emphasize its ability
to meet or exceed customers' requirements for high quality steel rod, bar 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 the Company.
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.
Employees
Production Facilities. At June 30, 1997 the Company employed 1,520 people at its
operations. The Company estimates that approximately 27% of its current employee
compensation in operations 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 1997, hourly employee costs at these facilities were
approximately $29 per hour, including overtime and fringe benefits, which was
competitive with other mini-mills. 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 1997, hourly employee costs at these facilities were
approximately $26 per hour, including overtime and fringe benefits. The
Company's other 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.
Sales and Administrative Personnel. At June 30, 1997, the Company employed 269
sales and administrative personnel, of which 95 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 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.
The Company's mini-mills are classified as hazardous waste generators because
they produce and collect certain types of dust containing lead and cadmium. The
Company currently collects and disposes of such wastes at approved landfill
recycling sites through contracts with approved waste disposal and recycling
firms.
In August 1987, the Virginia Department of Waste Management advised the Company
of deficiencies in the waste disposal practices employed by the former owners of
the Company's idled Norfolk facility. The site has been accepted into the
Virginia Voluntary Remediation Program. The program allows risk based closure
for this site. Management believes that the costs of remediation of this site
will not exceed established reserves.
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 has completed remediation of the property pursuant to the
approved remedial action plan and has received an approved remedial completion
report from DTSC.
The Cleveland 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. seq., 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.
Executive Officers of the Registrant
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 1997) of such officers.
Name Age Office Held
- -------------------- ---- ---------------------------------------------
Robert A. Garvey 59 Chairman of the Board and
Chief Executive Officer
Joseph Alvarado 44 Executive Vice President-
Commercial
William R. Lucas 41 Executive Vice President-
Administration and General
Counsel
Frederick J. Rocchio 50 Executive Vice President-
Development and Technology
Jack R. Wheeler 61 Vice President-Plant Operations
Robert A. Garvey was elected Chairman of the Board and Chief Executive Officer
in January 1996. Prior to joining the Company, Mr. Garvey served as President of
North Star Steel Company from 1984 to 1996.
Joseph Alvarado joined the Company in March 1997 and serves as Executive Vice
President-Commercial. Prior to joining the Company, Mr. Alvarado held a variety
of positions of increasing responsibility with Inland Steel Company. Most
recently, he served as President of Inland Steel Bar Company, a division of
Inland Steel Company.
William R. Lucas, Jr. joined the Company in July 1995 as Executive Vice
President-Administration 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 served as managing partner from
1990 to 1995.
Frederick J. Rocchio, Jr. joined the Company in October 1995 and serves as
Executive Vice President-Development and Technology. Prior to joining the
Company, Mr. Rocchio served as a Vice President of Inland Steel Company from
1988 to 1995.
Jack R. Wheeler joined the Company in November 1992 and serves as Vice
President-Plant Operations. Prior to joining the Company, Mr. Wheeler served as
Vice President and Works Manager at SMI Steel Inc.
from 1986 to 1992.
ITEM 2. PROPERTIES
The following table lists the Company's real property and production facilities.
Management believes that these facilities are adequate to meet the Company's
current and future commitments.
Building
Square Owned or
Location Acreage Footage Leased
- --------------------------- ---------- ---------- -------
Corporate Headquarters:
Birmingham, Alabama - 38,396 Leased
Operating Facilities:
Birmingham, Alabama 26 260,900 Owned (1)
Kankakee, Illinois 222 400,000 Owned
Seattle, Washington 69 736,000 Owned
Jackson, Mississippi 99 323,000 Owned (1)
Cartersville, Georgia 283 367,000 Owned
Cleveland, Ohio 216 2,041,600 Owned
Ft. Lauderdale, Florida - 29,500 Leased
Idle Facilities:
Ballard, Washington 20 301,000 Owned (2)
Emeryville, California 15 1,000 Owned (3)
Norfolk, Virginia 116 160,000 Owned (4)
(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 has entered into a signed agreement to sell the real property at
its idle facility in Ballard, Washington.
(3) The Company closed this operation in January 1991. The Company continues its
efforts to sell the real property.
(4) The Company closed this operation in May 1991. The Company continues its
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. Some of these claims against the
Company are covered by insurance, subject to the payment of deductible amounts
by the Company. 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 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, 1997 and
1996, 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, 1997
First Quarter $16.88 $14.88
Second Quarter 19.38 15.13
Third Quarter 22.00 14.75
Fourth Quarter 17.13 14.13
Fiscal Year Ended June 30, 1996
First Quarter $21.63 $16.50
Second Quarter 17.50 14.00
Third Quarter 18.00 14.63
Fourth Quarter 17.25 14.50
The last sale price of the Common Stock as reported on the New York Stock
Exchange on September 18, 1997 was $20.25. As of August 29, 1997, there were
1,584 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).
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
For the Years Ended June 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 978,948 $ 832,489 $ 885,553 $ 702,893 $ 442,326
Cost of sales:
Other than depreciation
and amortization 846,910 730,447 723,558 599,154 374,846
Depreciation and amortization 45,843 34,701 32,310 27,671 18,036
--------- --------- --------- --------- ---------
Gross profit 86,195 67,341 129,685 76,068 49,444
Provision for loss on mill modernization
program, pre-operating/start-up costs,
unusual items and suspended operations 10,633 23,907 1,337 - 2,272
Selling, general and administrative 36,670 37,731 43,149 33,847 24,008
Interest 20,195 12,036 8,889 11,061 3,084(1)
--------- --------- --------- --------- ---------
18,697 (6,333) 76,310 31,160 20,080
Other income, net 3,694 3,975 9,443 4,689 1,222
Minority interest in loss of subsidiary 2,347 - - - -
--------- --------- --------- --------- ---------
Income (loss) before income taxes and cumulative
effect of a change in accounting principle 24,738 (2,358) 85,753 35,849 21,302
Provision for (benefit from) income taxes 10,321 (181) 35,104 14,603 8,517
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect of a
change in accounting principle 14,417 (2,177) 50,649 21,246 12,785
Cumulative effect, as of July 1, 1993, of a
change in the method of accounting for
income taxes - - - 380 -
--------- --------- --------- --------- ---------
Net income (loss) $ 14,417 $ (2,177) $ 50,649 $ 21,626 $ 12,785
========= ========= ========= ========= =========
Earnings (loss) per share:
Income (loss) before cumulative effect of a
change in accounting principle $ 0.50 $ (0.08) $ 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 (loss) $ 0.50 $ (0.08) $ 1.74 $ 0.88 $ 0.60
========= ========= ========= ========= =========
Dividends declared per share $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.37
========= ========= ========= ========= =========
June 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ----------
BALANCE SHEET DATA:
Working capital $ 228,882 $ 211,595 $ 206,901 $ 213,075 $ 33,131
Total assets 1,210,989 927,987 756,804 689,878 456,042
Long-term debt less current portion 526,056 307,500 142,500 142,500 90,095
Stockholders' equity 471,548 448,191 459,719 439,049 223,421
<FN>
(1) 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>
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited; in thousands, except per share data)
1997 Quarters
-----------------------------------------
First Second Third Fourth
-------- -------- -------- --------
Net sales $233,422 $210,140 $257,858 $277,528
Gross profit $ 24,006 $ 20,348 $ 22,028 $ 19,813
Net income $ 6,348 $ 5,920 $ 594 $ 1,555
Weighted average shares
outstanding 28,625 28,653 29,423 29,677
Earnings per share $ 0.22 $ 0.21 $ 0.02 $ 0.05
Cash dividends declared
per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Price range of common stock
High $ 16.88 $ 19.38 $ 22.00 $ 17.13
Low $ 14.88 $ 15.13 $ 14.75 $ 14.13
1996 Quarters
-----------------------------------------
First Second Third Fourth
-------- -------- -------- --------
Net sales $207,252 $197,398 $197,057 $230,782
Gross profit $ 26,423 $ 16,190 $ 6,182 $ 18,546
Net income $ 8,178 $ 656 $(14,397) $ 3,386
Weighted average shares
outstanding 28,521 28,538 28,598 28,609
Earnings per share $ 0.29 $ 0.02 $ (0.50) $ 0.12
Cash dividends declared
per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Price range of common stock
High $ 21.63 $ 17.50 $ 18.00 $ 17.25
Low $ 16.50 $ 14.00 $ 14.63 $ 14.50
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
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". 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 fiscal 1997, Birmingham Steel Corporation reported earnings of $14,417,000,
or $.50 per share, up from a loss of $2,177,000, or ($.08) per share reported
for the prior fiscal year. The following table sets forth, for the years
indicated, selected items in the consolidated statements of operations as a
percentage of net sales and the amount of steel shipments in tons.
For the Years Ended June 30,
----------------------------
1997 1996 1995
------ ------ ------
Steel shipments (000's tons) 2,836 2,402 2,375
Net sales 100% 100% 100%
Cost of sales:
Other than depreciation and
amortization 86.5 87.7 81.7
Depreciation and amortization 4.7 4.2 3.6
Provision for loss on mill
modernization program,
pre-operating/start-up costs
and unusual items 1.1 2.9 0.2
Selling,general & administrative 3.7 4.5 4.9
Interest 2.0 1.5 1.0
Other income, net (0.4) (0.5) (1.1)
Minority interest in loss of
subsidiary (0.2) - -
Provision for income taxes 1.1 - 4.0
------ ------ ------
Net income (loss) 1.5% (0.3%) 5.7%
====== ====== ======
RESULTS OF OPERATIONS
Net Sales
Fiscal 1997 compared to fiscal 1996
Net sales in fiscal 1997 were $978,948,000, an increase of 17.6 percent from
$832,489,000 reported in fiscal 1996. The increase is primarily the result of
increased shipment volumes and a favorable shift in product mix.
For fiscal 1997, the selling price for rebar/merchant products averaged $308 per
ton compared with $300 per ton in fiscal 1996. The average selling price for the
Company's special bar quality (SBQ) products was $464 per ton in fiscal 1997
compared with $472 per ton in fiscal 1996. The Company's average selling price
for all products was $345 per ton, compared with $347 per ton reported for
fiscal 1996.
The Company achieved record steel shipments of 2,836,000 tons for fiscal 1997,
up 18.1 percent from 2,402,000 tons reported for fiscal 1996. A favorable shift
in product mix reflecting a 5.6 percent increase in rebar, a 42.1 percent
increase in merchant and a 24.6 percent increase in SBQ shipments occurred in
fiscal 1997. Merchant and SBQ products accounted for 48.0 percent of total
shipments for fiscal 1997 compared with 42.6 percent for the previous fiscal
year. Shipments of lower-margin semi-finished steel billets accounted for 5.6
percent of total shipments compared with 5.7 percent in fiscal 1996.
Fiscal 1996 compared to fiscal 1995
From fiscal 1995 to fiscal 1996, net sales declined 6.0 percent. The decline was
primarily the result of a decline in average steel selling prices and a shift in
product mix to lower margin products. The decline in average selling prices was
a result of overall market decline in construction products.
Cost of Sales
Fiscal 1997 compared to fiscal 1996
As a percent of net sales, cost of sales (other than depreciation and
amortization) declined to 86.5 percent in fiscal 1997 from 87.7 percent in the
prior year. The decline resulted from increased shipment volumes partially
offset by increased billet costs at the Company's SBQ facility in Cleveland,
Ohio and increased conversion costs.
At the Company's mini-mill facilities, the cost to convert scrap to finished
steel products rose to $126 per ton in fiscal 1997 compared with $122 per ton in
fiscal 1996. Conversion cost at the Company's SBQ facility averaged $69 per ton
in fiscal 1997 compared with $64 per ton in fiscal 1996. Scrap raw material
costs declined slightly throughout the year averaging $133 per ton for fiscal
1997, down $4 per ton compared with $137 per ton for the prior year.
High quality billet cost at the Company's SBQ facility rose to an average of
$359 per ton in fiscal 1997, up $14 per ton from $345 per ton in fiscal 1996. To
offset the cost of purchased billets at its SBQ facility, the Company is
currently constructing a high quality steel melting facility in Memphis,
Tennessee to supply approximately one million tons annually of the SBQ billet
requirements. The facility is scheduled for start-up in the fourth quarter of
calendar 1997 at an expected capital cost of approximately $210 million.
Depreciation and amortization expense increased in fiscal 1997 to $45,843,000
from $34,701,000 reported last year. This increase was primarily attributable to
the recognition of depreciation expense for the Cleveland, Ohio bar mill placed
into service in July, 1996 and the assets acquired in Cartersville, Georgia in
December, 1996 (see Note 2 to the Consolidated Financial Statements).
Fiscal 1996 compared to fiscal 1995
Cost of sales, (other than depreciation and amortization) as a percentage of net
sales, increased in fiscal 1996 compared with fiscal 1995 essentially due to a
decline in average steel selling prices, elevated cost of FIFO inventories
charged to cost of sales due to production curtailments in fiscal 1996 and
increased raw material billet costs at the Company's SBQ facility.
Depreciation and amortization expense increased 7.4 percent in fiscal 1996
compared with fiscal 1995 primarily due to the recognition of depreciation on
fixed assets purchased during fiscal 1996 and 1995 and amortization of goodwill
associated with the Company's purchase of certain assets of Western Steel
Limited and the stock of Richmond Steel Recycling Limited, a subsidiary of
Western Steel Limited in fiscal 1996.
Provision for Loss on Mill Modernization Program, Pre-operating/Start-up Costs
and Unusual Items
Fiscal 1997 compared to fiscal 1996
Provision for loss on mill modernization program, pre-operating/start-up costs
and unusual items amounted to $10,633,000 in fiscal 1997 compared with
$23,907,000 for fiscal 1996. The current year charges relate primarily to
pre-operating costs at the Company's Memphis, Tennessee melt shop currently
under construction and start-up costs associated with the Cleveland, Ohio bar
mill which began operations in July 1996, the Joliet rolling mill which began
operations in the third quarter of fiscal 1997 and the Cartersville, Georgia
facility acquired in December 1996.
The fiscal 1996 charges resulted from a write-off of equipment at the Company's
idled Ballard, Washington facility; start-up/pre-operating costs for the bar
mill in Cleveland, Ohio, the high quality melting facility in Memphis, Tennessee
and the melt shop in Seattle, Washington; the restructuring of the information
technology contract with Electronic Data Systems; charges related to
reorganization at both the corporate and plant levels and reserves for legal and
property cleanup issues at the Company's idled Emeryville, California, Norfolk,
Virginia and Prichard, Alabama facilities.
Fiscal 1996 compared to fiscal 1995
For fiscal 1996, the provision for loss on mill modernization program,
pre-operating/start-up costs and unusual items amounted to $23,907,000 compared
with $1,337,000 in fiscal 1995.
Selling, General and Administrative Expenses ("SG&A")
Fiscal 1997 compared to fiscal 1996
SG&A amounted to $36,670,000 in fiscal 1997, a decline of 2.8 percent from
$37,731,000 in fiscal 1996. The decline in SG&A is primarily due to decreased
costs in fiscal 1997 associated with the Company's information technology
contract with Electronic Data Systems (EDS). The EDS contract was renegotiated
in the fourth quarter of fiscal 1996 (see Note 8 to the Consolidated Financial
Statements). As a percentage of net sales, SG&A were 3.7 percent in fiscal 1997
compared with 4.5 percent in the prior year.
Fiscal 1996 compared to fiscal 1995
SG&A declined 12.6 percent in fiscal 1996 to $37,731,000 from $43,149,000
reported in fiscal 1995. The favorable decline is due to decreased costs
associated primarily with salaries and benefits, partially offset by additional
costs under the Company's information technology contract with EDS. As a
percentage of net sales, fiscal 1996 SG&A were 4.5 percent, compared with 4.9
percent for fiscal 1995.
Interest Expense
Fiscal 1997 compared to fiscal 1996
Interest expense increased to $20,195,000 in fiscal 1997 compared with
$12,036,000 in fiscal 1996. The increase in interest expense is primarily due to
increased borrowings on the Company's short-term credit lines during the year
and the recognition of interest on the new revolving credit facility completed
in March 1997, which replaced the previous short-term credit agreements, and the
$150,000,000 private debt placement closed in December 1995. The increase in
interest expense was partially offset by capitalized interest on construction
projects amounting to $8,848,000 in fiscal 1997 compared with $6,429,000 in
fiscal 1996.
Fiscal 1996 compared to fiscal 1995
Interest expense amounted to $12,036,000 in fiscal 1996 compared with $8,889,000
in fiscal 1995. The increase is primarily due to the December, 1995 funding of
the $150,000,000 private debt placement and increased debt levels on the
Company's short-term lines of credit during the first half of fiscal 1996.
Capitalized interest related to construction projects amounted to $6,429,000 in
fiscal 1996 compared with $2,076,000 in fiscal 1995.
Income Tax
The Company's effective income tax rate in fiscal 1997 was 41.7 percent compared
with 7.7 percent in fiscal 1996. The effective rate in fiscal 1996 reflected the
income tax benefit from the fiscal 1996 loss before taxes partially offset by
certain permanent differences relating primarily to goodwill amortization. The
Company's effective income tax rate in fiscal 1995 was 40.9 percent.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided by operating activities in fiscal 1997 was $28.6 million,
compared with $50.5 million in fiscal 1996. This decline in operating cash flow
is essentially the result of changes in operating assets, primarily accounts
receivable, inventories and accounts payable partially offset by increased net
income in fiscal 1997. The increases in accounts receivable, inventories and
accounts payable are primarily attributable to the operations of the Company's
Cartersville, Georgia facility since its acquisition in the second quarter of
fiscal 1997.
Investing Activities
Net cash flow used in investing activities was $260.7 million in fiscal 1997,
compared with $193.3 million in the prior year. Expenditures related to capital
projects increased 15 percent in fiscal 1997 primarily due to the construction
of the new melt shop in Memphis, Tennessee.
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 and Birmingham
Southeast purchased the assets of Atlantic located in Cartersville, Georgia for
$43.3 million in cash and assumed approximately $44.3 million in liabilities
(see Note 2 to the Consolidated Financial Statements).
In the current year, the Company made a $9.3 million investment in Pacific Coast
Recycling, LLC (Pacific Coast), a joint venture established to operate in
southern California as a collector, processor and seller of scrap owned 50
percent by the Company and 50 percent by Raw Materials Development Co., Ltd., an
affiliate of Mitsui & Co., Ltd. On December 27, 1996, Pacific Coast completed
the purchase of 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 (see Note 2 to the Consolidated Financial Statements).
In fiscal 1996, the Company acquired certain assets of Western Steel Limited and
in a related transaction, Birmingham Recycling Investment Company (BRIC), a
wholly-owned subsidiary of the Company, purchased the stock of Richmond Steel
Recycling Limited, a subsidiary of Western Steel Limited for a total purchase
price of approximately $16.9 million. On December 20, 1996, BRIC sold 50 percent
of the stock of Richmond Steel Recycling Limited to SIMSMETAL Canada, Ltd. and
recognized a pre-tax gain of approximately $1.7 million (see Note 2 to the
Consolidated Financial Statements).
Capital Expenditures
The Company invested approximately $197 million in capital projects during
fiscal 1997 primarily related to the Company's mill modernization program.
Included in the mill modernization program is the construction of a high quality
melting facility in Memphis, Tennessee at an expected capital cost of
approximately $210 million, to provide the majority of the billet needs for the
Company's SBQ facilities in Cleveland, Ohio. Start-up of the Memphis facility is
scheduled for the fourth calendar quarter of 1997. In the third quarter, the
Company began start-up operations of its recently upgraded rolling mill in
Joliet, Illinois.
Funding for the above mentioned projects will be derived from available cash
reserves, net operating cash flow and/or negotiated short-term or long-term
financing arrangements.
Financing Activities
Net cash provided by financing activities was $226.4 million in fiscal 1997
compared with $145.1 million in fiscal 1996. In fiscal 1997 the Company
completed a $26 million, 30 year tax-free bond financing at Memphis, the
proceeds of which will be used to finance certain portions of the Memphis melt
shop currently under construction. In March 1997, the Company entered into a
five year, $300 million unsecured revolving credit agreement which will be
utilized to fund the Company's working capital needs, capital expenditures and
for other general corporate purposes. Borrowings under the revolving credit
facility bear interest at market rates mutually agreed upon by the Company and
the lenders or at other contractual borrowing rates. In the third quarter, $176
million was drawn from the revolving credit facility to repay borrowings under
the Company's previous revolving credit arrangements.
On January 23, 1997, the Company issued 1,000,000 additional shares of common
stock from treasury in a public offering registered with the Securities and
Exchange Commission. The proceeds of $19,188,000 from the offering were used to
offset certain payments made by the Company in connection with its acquisition
of the assets of Atlantic Steel Industries, Inc. located in Cartersville,
Georgia (see Note 2 to the Consolidated Financial Statements).
In fiscal 1996, the Company completed a $15 million, 30 year tax-free bond
financing at its Cleveland, Ohio facility and issued $150 million senior debt
notes, using a portion of the proceeds to pay down the short-term lines of
credit.
Working Capital
Working capital in fiscal 1997 was $228.9 million, compared with $211.6 million
in fiscal 1996 and $206.9 million in fiscal 1995.
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.
Risk Factors That May Affect Future Operating Results
All forward-looking statements included in this document are based upon
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important to
note that the Company's actual results could differ materially from those
described or implied in such forward-looking statements. 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 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.
The Company currently is constructing a new Memphis melt shop to supply billets
to the Company's SBQ division and is participating in a joint venture to
construct a DRI facility in Louisiana. Delays or cost overruns in either of
these projects 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.
The Company believes its labor relations are generally good. Almost the entire
work force is 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.
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 management and 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.
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 $2,257,000 of
these costs is recorded in accrued liabilities at June 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.
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.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
June 30,
----------------------------
1997 1996
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 959 $ 6,663
Accounts receivable, net of allowance for
doubtful accounts of $1,797 at June 30, 1997;
$1,554 at June 30, 1996 129,476 111,565
Inventories 208,595 196,752
Other 27,834 13,013
----------- -----------
Total current assets 366,864 327,993
Property, plant and equipment
(including property and equipment,
net, held for disposition of $19,568
and $18,210 at June 30, 1997 and
June 30, 1996, respectively):
Land and buildings 199,363 123,465
Machinery and equipment 572,802 376,744
Construction in progress 162,957 178,011
----------- -----------
935,122 678,220
Less accumulated depreciation (173,554) (134,196)
----------- -----------
Net property, plant and
equipment 761,568 544,024
Excess of cost over net assets
acquired 50,089 46,077
Other assets 32,468 9,893
----------- -----------
Total assets $ 1,210,989 $ 927,987
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 94,273 $ 83,226
Accrued operating expenses 7,503 5,936
Accrued payroll expenses 7,387 6,888
Income taxes payable 170 369
Other accrued liabilities 28,649 19,979
----------- -----------
Total current liabilities 137,982 116,398
Deferred income taxes 54,352 50,292
Deferred compensation 5,933 5,606
Long-term debt less current portion 526,056 307,500
Minority interest in subsidiary 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: 29,735,815
at June 30, 1997 and 29,679,761
at June 30, 1996 297 297
Additional paid-in capital 331,139 331,430
Treasury stock, 55,342 and 1,070,727
shares at June 30, 1997 and
June 30, 1996, respectively, at cost (996) (21,148)
Unearned compensation (1,425) (2,165)
Retained earnings 142,533 139,777
----------- -----------
Total stockholders' equity
471,548 448,191
----------- -----------
Total liabilities and stockholders' equity $ 1,210,989 $ 927,987
=========== ===========
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended June 30,
------------------------------------
1997 1996 1995
---------- ---------- ----------
Net sales $ 978,948 $ 832,489 $ 885,553
Cost of sales:
Other than depreciation
and amortization 846,910 730,447 723,558
Depreciation and amortization 45,843 34,701 32,310
--------- --------- ---------
Gross profit 86,195 67,341 129,685
Provision for loss on mill modernization
program, pre-operating/startup costs
and unusual items 10,633 23,907 1,337
Selling, general and administrative 36,670 37,731 43,149
Interest 20,195 12,036 8,889
--------- --------- ---------
18,697 (6,333) 76,310
Other income, net 3,694 3,975 9,443
Minority interest in loss of subsidiary 2,347 - -
--------- --------- ---------
Income (loss) before income taxes 24,738 (2,358) 85,753
Provision for (benefit from) income taxes 10,321 (181) 35,104
--------- --------- ---------
Net income (loss) $ 14,417 $ (2,177) $ 50,649
========= ========= =========
Weighted average shares outstanding 29,091 28,566 29,162
========= ========= =========
Earnings (loss) per share:
Net income (loss) $ 0.50 $ (0.08) $ 1.74
========= ========= =========
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended June 30,
----------------------------------
1997 1996 1995
---------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,417 $ (2,177) $ 50,649
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 45,843 34,701 32,310
Provision for doubtful accounts
receivable 83 418 540
Deferred income taxes 4,343 (4,150) 10,537
Minority interest in loss of
subsidiary (2,347) - -
Gain on sale of 50% equity in
scrap subsidiary (1,746) - -
Loss from equity investments 1,566 - -
Write-down of equipment and
other assets - 13,269 1,337
Other 2,451 3,829 4,204
Changes in operating assets and
liabilities, net of effects
from business acquisitions:
Accounts receivable (19,400) 847 4,400
Inventories 15,366 (23,291) (47,808)
Prepaid expenses (197) (236) 47
Other current assets (13,691) 2,378 (7,546)
Accounts payable (4,375) 16,113 23,836
Income taxes payable (254) (213) (2,910)
Other accrued liabilities (13,779) 8,655 2,533
Deferred compensation 327 381 709
--------- --------- ---------
Net cash provided by operating
activities 28,607 50,524 72,838
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (196,980) (171,778) (76,193)
Payments for business acquisitions (43,309) (16,916) (11,374)
Proceeds from sale of 50% of scrap
subsidiary 5,372 - -
Investment in scrap subsidiaries (9,300) - -
Net proceeds from sale of mine roof
bolt business unit - - 15,542
Proceeds from disposal of property,
plant and equipment 195 219 615
Additions to other non-current assets (19,154) (5,489) (2,935)
Reductions in other non-current assets 2,472 672 394
--------- --------- ---------
Net cash used in investing activities (260,704) (193,292) (73,951)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings and repayments - (8,020) 8,020
Proceeds from issuance of long-term debt 797,785 165,000 -
Payments of long-term debt (579,229) - -
Proceeds from issuance of common stock 310 105 2,150
Issuance of stock from treasury 19,188 - -
Purchase of treasury stock - (540) (21,974)
Cash dividends paid (11,661) (11,425) (11,688)
--------- --------- ---------
Net cash provided by (used in)
financing activities 226,393 145,120 (23,492)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents (5,704) 2,352 (24,605)
Cash and cash equivalents at:
Beginning of period 6,663 4,311 28,916
--------- --------- ---------
End of period $ 959 $ 6,663 $ 4,311
========= ========= =========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 19,383 $ 11,500 $ 8,611
Income taxes 13,808 5,570 31,646
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
For the Years Ended June 30, 1997, 1996 and 1995
----------------------------------------------------------------------------------------------------
Common Stock Treasury Stock
--------------------- Additional -------------------- Total
Paid-in Unearned Retained Stockholders'
Shares Amount Capital Shares Amount Compensation Earnings Equity
---------- --------- --------- ---------- -------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1994 29,389,174 $ 294 $ 327,285 - $ - $ (2,947) $ 114,417 $ 439,049
Options exercised, net of
tax benefit 205,112 2 3,205 3,044 65 (792) - 2,480
Purchase of treasury stock - - - (1,101,400) (21,974) - - (21,974)
Reduction of unearned
compensation - - - - - 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
Options exercised, net of
tax benefit 85,475 1 940 60,929 1,301 (1,413) - 829
Purchase of treasury stock - - - (33,300) (540) - - (540)
Reduction of unearned
compensation - - - - - 1,785 - 1,785
Net loss - - - - - - (2,177) (2,177)
Cash dividends declared,
$.40 per share - - - - - - (11,425) (11,425)
----------- --------- --------- ----------- -------- ------------ --------- ----------
Balances at June 30, 1996 29,679,761 297 331,430 (1,070,727) (21,148) (2,165) 139,777 448,191
Options exercised, net of
tax benefit 56,054 - 359 15,385 314 (541) - 132
Public Offering - - (650) 1,000,000 19,838 - - 19,188
Reduction of unearned
compensation - - - - - 1,281 - 1,281
Net income - - - - - - 14,417 14,417
Cash dividends declared,
$.40 per share - - - - - - (11,661) (11,661)
----------- --------- --------- ----------- -------- ----------- --------- ----------
Balances at June 30, 1997 29,735,815 $ 297 $ 331,139 (55,342) $ (996) $ (1,425) $ 142,533 $ 471,548
=========== ========= ========= =========== ======== =========== ========= ==========
See accompanying notes.
</TABLE>
<PAGE>
BIRMINGHAM STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
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 significant intercompany accounts and transactions have been eliminated.
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
inventories is determined using the first-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-five 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 $10,377,000 and $6,663,000 at June 30, 1997 and
1996, respectively.
Long-lived assets
Effective in the first quarter of fiscal 1997, the Company adopted the
provisions of Financial Accounting Standards Board Statement No. 121 which
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 requires that long-lived
assets held for disposal be valued at the lower of carrying amount or fair value
less cost to sell. The adoption of Statement No. 121 had no material effect on
earnings or asset values.
Income taxes
Deferred income taxes are provided for temporary differences between taxable
income and financial reporting income.
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.
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.
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 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 & 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.
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
June 30, 1997, the Company had current and non-current loans outstanding to
Pacific Coast in the amount of $7,300,000 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.
On August 8, 1995, the Company purchased certain assets of Western Steel
Limited, a subsidiary of IPSCO Inc., located in Calgary, Alberta, Canada for a
purchase price of approximately $11,206,000. On December 13, 1995, Birmingham
Recycling Investment Company (BRIC), a wholly owned subsidiary of the Company,
completed a related transaction when it purchased the stock of Richmond Steel
Recycling Limited (RSR), a scrap processing facility and subsidiary of Western
Steel Limited, located in Richmond, British Columbia, Canada. On December 20,
1996, BRIC sold 50 percent of the stock of RSR to SIMSMETAL Canada, Ltd. and
recognized a pre-tax gain, included in other income, of approximately
$1,746,000. RSR is accounted for under the equity method. At June 30, 1997, the
Company had current loans outstanding to RSR in the amount of $1,738,000.
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. Pro forma results for fiscal 1995 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.
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 the purchaser the majority of its steel
requirements.
4. Inventories
Inventories were valued as summarized in the following table (in thousands):
Year Ended June 30,
----------------------
1997 1996
-------- --------
At lower of cost (first-in, first-out)
or market:
Raw materials and mill supplies $ 51,832 $ 37,871
Work-in-progress 71,693 95,423
Finished goods 85,070 63,458
-------- --------
$208,595 $196,752
======== ========
5. Property, Plant and Equipment
Capital expenditures totaled $196,980,000, $171,823,000 and $77,670,000 in
fiscal 1997, 1996 and 1995, respectively, excluding amounts relating to business
acquisitions. At June 30, 1997, the estimated costs to complete authorized
projects under construction amounted to $70,817,000.
The Company capitalized interest of $8,848,000, $6,429,000 and $2,076,000 in
fiscal 1997, 1996 and 1995, respectively, related to qualifying assets under
construction. Total interest incurred, including amounts capitalized during
these same periods, was $29,043,000, $18,465,000 and $10,965,000 respectively.
The aggregate carrying values of the idle facilities held for sale amounted to
$19,568,000 and $18,210,000 at June 30, 1997 and 1996, respectively. The
facilities are valued at the lower of their carrying value or their fair value
less cost to sell (primarily estimated site restoration and other costs of
disposal) (see Notes 12 and 13).
6. Short-Term Borrowing Arrangements
In March 1997, the Company entered into 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 lenders or at other
contractual borrowing rates. Aggregate proceeds of $175,874,000 from the new
long-term credit agreement were used to repay borrowings under the Company's
previous revolving short-term credit arrangements.
Under a line of credit arrangement for short-term borrowings, the Company may
borrow up to $15,000,000 with interest at market rates mutually agreed upon by
the Company and the lender. The full line of credit was available under this
facility at June 30, 1997.
The following information relates to the Company's borrowings under short-term
credit facilities during the years ended June 30, 1997, 1996 and 1995 (in
thousands):
For the Years Ended June 30,
----------------------------------
1997 1996 1995
--------- -------- --------
Maximum amount outstanding $180,374 $ 96,326 $ 18,230
Average amount outstanding $ 79,956 $ 45,490 $ 506
Weighted average interest rate 5.8% 6.3% 6.6%
7. Long-Term Debt
Long-term debt consists of the following (in thousands):
June 30,
-------------------
1997 1996
-------- --------
Senior unsecured notes,
$130,000 and $150,000
face amount, interest at
7.28% and 7.05% respectively,
payable 2001 through December 2005 $280,000 $280,000
$300,000 Revolving Line of Credit 192,556 -
Capital lease obligations,
interest rates principally ranging
from 43% to 45% of bank prime,
payable in 1999 and 2001 12,500 12,500
Industrial Revenue Bonds,
interest rates principally ranging
from 44% to 45% of bank prime,
payable in 2025 and 2026 41,000 15,000
-------- --------
$526,056 $307,500
======== ========
The aggregate fair value of the Company's long-term debt obligations
approximates their carrying value at June 30, 1997. The fair value of the
Company's senior secured notes is estimated using discounted cash flow analysis,
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
----------- --------- --------
1998 $ 539 $ - $ 539
1999 539 - 539
2000 10,325 - 10,325
2001 107 - 107
2002 2,554 218,556 221,110
Thereafter - 295,000 295,000
-------- -------- --------
14,064 513,556 527,620
Less amount representing
interest (1,564) - (1,564)
-------- -------- --------
$ 12,500 $513,556 $526,056
======== ======== ========
Property,plant and equipment with a net book value of $3,490,000 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 tangible net worth 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, 1997 (in
thousands):
Fiscal
Year
------
1998 $ 944
1999 592
2000 541
2001 425
2002 410
Thereafter 550
-------
$ 3,462
=======
Rental expense under operating lease agreements was $1,155,000, $1,082,000 and
$1,281,000 in fiscal 1997, 1996 and 1995, respectively.
In April 1995 the Company entered into a ten year contract with Electronic Data
Systems (EDS), an information management and consulting firm. In April 1996 the
contract with EDS was renegotiated. Under the existing ten year contract, EDS
will provide information systems development, technical support and consulting
services to the Company. Future minimum payments under the contract are
$2,600,000 per year.
9. Income Taxes
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,
--------------------
1997 1996
------- -------
Deferred tax liabilities:
Tax depreciation in excess of
book depreciation $69,623 $62,138
Deferred tax assets:
NOL carryforward 3,938 3,781
AMT credit carryforwards 7,204 6,333
Deferred compensation 2,255 2,154
Worker's compensation 1,873 1,708
Other accrued liabilities 2,453 605
------- -------
Total deferred tax assets 17,723 14,581
------- -------
Net deferred tax liabilities $51,900 $47,557
======= =======
Deferred tax assets and liabilities are classified as follows in the
accompanying consolidated balance sheets (in thousands):
June 30,
---------------------
1997 1996
------- --------
Included in other current assets $(2,452) $(2,735)
Non-current deferred tax liability 54,352 50,292
-------- --------
$51,900 $47,557
======== ========
At June 30, 1997, the Company has net operating loss carryforwards for federal
income tax purposes of $10,452,000 that expire in years 2005 through 2006.
The provisions for income taxes consisted of the following (in thousands):
For the Years Ended June 30,
--------------------------------
1997 1996 1995
------- ------- -------
Current:
Federal $ 5,774 $ 3,517 $19,674
State 34 506 4,893
Foreign 170 (54) -
------- ------- -------
5,978 3,969 24,567
Deferred:
Federal 2,525 (3,596) 9,001
State 1,818 (554) 1,536
------- ------- -------
4,343 (4,150) 10,537
------- ------- -------
$10,321 $ (181) $35,104
======= ======= =======
The provisions for income taxes differ from the statutory tax amounts as follows
(in thousands):
For the Years Ended June 30,
--------------------------------
1997 1996 1995
------- -------- -------
Tax at maximum enacted
statutory rates during
the year $ 8,411 $ (761) $30,014
State income taxes-net 1,204 (31) 4,179
Foreign 170 (54) -
Other 536 665 911
------- -------- -------
$10,321 $ (181) $35,104
======= ======== =======
10. Stock Compensation 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. The
options are exercisable in three annual installments commencing no earlier than
the first anniversary of the date of grant of such options.
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
options issued as part of the plan are exercisable in annual installments over
three to five years from the date of grant. The shares of restricted stock
issued vest in annual installments over three to four years from the dates of
the grant. No stock appreciation rights have been issued.
In August 1995, the Company established the Birmingham Steel Corporation 1995
Stock Accumulation Plan. The Plan provides for the purchase of restricted stock,
vesting in three years, to participants in lieu of a portion of their cash
compensation. The Company has reserved 500,000 shares of common stock for stock
grants under the Stock Accumulation Plan.
In June 1996, the Company established the 1996 Director Stock Option Plan to
provide stock based compensation to non-employee directors of the Company. The
Company has reserved 100,000 shares of common stock for issuance under the plan.
The options issued as part of this plan are exercisable one year from the date
of grant of the options.
The Birmingham Steel Corporation 1997 Management Incentive Plan, adopted by the
Board of Directors but not yet approved by the Stockholders, 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 reserved 900,000 shares of common stock for issuance under this plan. To
date, no stock-based compensation awards have been granted under this plan.
The Company records stock-based compensation under the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations. An alternative method of accounting exists
under FASB Statement No. 123, "Accounting for Stock-Based Compensation," which
requires the use of option valuation models; however, these models were not
developed for use in valuing employee stock compensation awards. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. The Company recognizes compensation expense on grants of
restricted stock and stock grants under the Stock Accumulation Plan based on the
fair market value of the stock on the date of grant amortized over the vesting
period. Total compensation expense recognized in the income statement for
stock-based employee compensation awards was $747,000 and $1,455,000 in 1997 and
1996, respectively.
Pro forma information for 1997 and 1996 regarding net income and earnings per
share is required by Statement 123, and has been determined as if the Company
had accounted for its employee stock compensation awards described above under
the fair value method of that Statement. The fair value for these awards was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for both 1997 and 1996: risk free
interest rate of 6.25%; dividend yield of 1.96%; volatility factor of the
expected market price of the Company's common stock of .75; and a weighted
average expected life of five years for incentive and non-qualified stock
options, four years for restricted stock awards and three years for stock
purchases under the Stock Accumulation Plan.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock compensation awards have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock compensation awards.
For purposes of pro forma disclosures, the estimated fair value of the stock
compensation awards is amortized to expense over the appropriate vesting period.
The effect on results of operations and earnings (loss) per share is not
expected to be indicative of the effects on the results of operations and
earnings per share in future years. The pro forma calculations include stock
compensation awards made in fiscal 1997 and 1996 only. The Company's pro forma
information follows (in thousands except for earnings per share information):
1997 1996
------- -------
Pro forma net income (loss) $13,375 $(2,372)
Pro forma earnings (loss) per share .46 (.08)
A summary of the Company's stock option activity, and related information for
the years ended June 30 is as follows:
1997 1996 1995
------------------ ------------------ ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------ ------------------ ----------------
Outstanding-beginning
of year 445,212 $15.42 435,270 $14.65 573,325 $14.09
Granted 543,000 16.70 100,000 17.13 - -
Exercised (35,054) 8.85 (73,635) 13.05 (134,732) 12.13
Canceled (101,282) 16.62 (16,423) 16.21 (3,323) 21.19
Outstanding-end
of year 851,876 16.35 445,212 15.42 435,270 14.65
Exercisable at end
of year 385,919 15.81 343,963 14.86 371,274 14.19
Weighted-average
fair value of options
granted during year $9.71 $9.94 -
Exercise prices for options outstanding as of June 30, 1997 ranged from $9.08 to
$31.88. The weighted average remaining contractual life of those options is
approximately 7 years. At June 30, 1997, a total of 234,749 shares were reserved
for issuance under the 1986 Stock Option Plan, and there were no additional
shares available for future grants from this plan. A total of 421,851 shares
were reserved for issuance from options granted under the 1990 Management
Incentive Plan. A total of 12,000 shares were reserved for issuance under the
Director Stock Option Plan.
The Company granted 24,500 and 64,000 shares in 1997 and 1996, respectively, of
restricted stock under the 1990 Management Incentive Plan. The weighted average
fair value of these awards was $16.41 in 1997 and $15.91 in 1996. At June 30,
1997, 251,000 of these shares were vested. An additional 151,899 shares were
available for future grant under the 1990 Management Incentive Plan.
The Company issued 25,989 and 63,283 shares in 1997 and 1996, respectively,
under the Stock Accumulation Plan. The weighted average fair value of these
awards was $9.17 in 1997 and $10.29 in 1996. At June 30, 1997, none of these
shares were vested and 420,642 shares were available for future grant.
11. Deferred Compensation and Employee Benefits
The Company recognized expenses of approximately $2,934,000, $2,844,000 and
$3,064,000 in fiscal 1997, 1996 and 1995, 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 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 $2,257,000 of
these costs is recorded in accrued liabilities at June 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.
13. Disposition of Idle Facilities
In fiscal 1995, the Company entered into an agreement to sell the real property
at its idle facility in Ballard, Washington. In December 1995 the Company
incurred a write-off of $2,055,000, which is included in the provision for loss
on mill modernization program, primarily related to the equipment at the Ballard
facility after termination of the sales contract on the equipment. In August
1995 the Company completed the exchange of the idle Kent, Washington facility
and other property at the Seattle, Washington steel-making facility with the
Port of Seattle for property owned by the Port which will be used in the
Company's Seattle operations. No gain or loss was recognized as a result of the
transaction.
14. Provision for Loss on Mill Modernization Program, Pre-Operating/
Start-up Costs and Unusual Items
The provision for loss on mill modernization program, pre-operating/start-up
costs and unusual items in the accompanying financial statements consists of the
following (in thousands):
Year Ended June 30,
-----------------------
1997 1996
------- -------
Pre-operating/start-up expenses $10,633 $ 8,409
Equipment write-downs - 6,580
Property cleanup reserves - 1,700
Restructuring of EDS contract - 4,522
Severance/reorganization costs - 1,064
Other - 1,632
------- -------
Total $10,633 $23,907
======= =======
Pre-operating/start-up costs consist of non-capitalized costs incurred prior to
a facility reaching commercial production levels.
<PAGE>
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, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended June 30, 1997. 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 and schedule 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 1997, 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,
presents fairly in all material respects the information set forth therein.
/s/Ernst & Young LLP
- ---------------------------
Ernst & Young LLP
Birmingham, Alabama
August 6, 1997
<PAGE>
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, 5 and 6 of Birmingham Steel Corporation's
Proxy Statement dated September 12, 1997, 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 through 13 of Birmingham Steel
Corporation's Proxy Statement dated September 12, 1997, 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 pages 1, 2 and 3 of Birmingham Steel Corporation's
Proxy Statement dated September 12, 1997, 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
The information contained on pages 13 and 14 of Birmingham Steel Corporation's
Proxy Statement dated September 12, 1997, with respect to certain relationships
and related transactions is incorporated herein by reference in response to this
item.
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 following consolidated financial statements of Birmingham Steel Corporation
are included in Item 8:
Consolidated Balance Sheets-June 30, 1997 and 1996
Consolidated Statements of Operations-Years ended June 30, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity-Years ended June 30,
1997, 1996 and 1995
Consolidated Statements of Cash Flows-Years ended June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements-June 30, 1997, 1996 and 1995
Report of Independent Auditors
ITEM 14 (a) 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules are included in item 14
(d) of this report.
Form 10-K
Schedules Description
- ----------- -------------------------------------
II 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.
<PAGE>
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).
4.2 Birmingham Steel Corporation $150,000,000 Senior Note Purchase
Agreement dated December 15, 1995 between the Registrant and
the following group of investors: Connecticut General Life
Insurance Company, Life Insurance Company of North America,
CIGNA Property and Casualty Insurance Company, Principal
Mutual Life Insurance Company, Nationwide Life Insurance
Company, Employers Life Insurance Company of Wausau, The
Northwestern Mutual Life Insurance Company, The Equitable Life
Assurance Society of the United States, Sun Life Assurance
Company of Canada (U.S.), Sun Life Assurance Company of
Canada, Sun Life Insurance and Annuity Company of New York,
The Minnesota Mutual Life Insurance Company, Mutual Trust Life
Insurance Company, The Reliable Life Insurance Company,
Federated Mutual Insurance Company, Federated Life Insurance
Company, Minnesota Fire and Casualty Company, National
Travelers Life Company, First National Life Insurance Company
of America, Guarantee Reserve Life Insurance Company, First
Colony Life Insurance Company, American United Life Insurance
Company, The State Life Insurance Company, Ameritas Life
Insurance Company (incorporated by reference from Form 10-Q
for quarter ended December 31, 1995, Exhibit 4.1).
4.3 Shareholder Rights Plan of Registrant (incorporated by
reference from Form 8-K filed January 23, 1996).
4.4 Reimbursement Agreement, dated as of October 1, 1996,
between Birmingham Steel Corporation and PNC Bank, Kentucky,
Inc. (incorporated by reference from Form 10-Q for quarter
ended December 31, 1996, 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 (incorporated by reference from Form
10-K for year ended June 30, 1995, Exhibit 10.3)
10.4 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 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)**
10.6 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)**
10.7 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)**
10.8 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, 1993, Exhibit 10.12)
10.8.1 Third Amendment to Lease Agreement, dated November 30, 1993,
between Torchmark Development Corporation and Birmingham Steel
Corporation *
10.8.2 Fourth Amendment to Lease Agreement, dated June 13, 1994,
between Torchmark Development Corporation and Birmingham Steel
Corporation *
10.8.3 Fifth Amendment to Lease Agreement, dated September 6, 1995,
between Torchmark Development Corporation and Birmingham Steel
Corporation *
10.8.4 Sixth Amendment to Lease Agreement, dated April 11, 1997,
between Torchmark Development Corporation and Birmingham Steel
Corporation *
10.8.5 Seventh Amendment to Lease Agreement, dated April 11, 1997,
between Torchmark Development Corporation and Birmingham Steel
Corporation *
10.9 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)**
10.10 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)**
10.11 Employment Agreement, dated January 5, 1996 between Registrant
and Robert A. Garvey (incorporated by reference from Form 10-Q
for quarter ended December 31, 1995 exhibit 10.1).
10.12 Stock Accumulation Plan of the Registrant (incorporated by
reference from a Registration Statement on Form S-8,
Registration No. 33-64069, filed November 8, 1995, Exhibit
4.1)**
10.13 Lease Agreement, dated January 7, 1997, between Torchmark
Development Corporation and Birmingham Southeast LLC *
10.14 Director Stock Option Plan of the Registrant (incorporated
by reference from Form 10-Q for quarter ended September 30,
1996, exhibit 10.1)**
10.15 Chief Executive Officer Incentive Compensation Plan of the
Registrant (incorporated by reference from Form 10-Q for
quarter ended September 30, 1996, exhibit 10.2)**
10.16 Equity Contribution Agreement among American Iron Reduction,
L.L.C., GS Technologies Operating Co., Inc., Birmingham Steel
Corporation and Nationsbank, N.A., dated August 30, 1996
(incorporated by reference from Form 10-Q for quarter ended
September 30, 1996, exhibit 10.3)
10.17 DRI Purchase Agreement between Birmingham Steel Corporation
and American Iron Reduction, L.L.C., dated as of August 30,
1996 (incorporated by reference from Form 10-Q for quarter
ended September 30, 1996, exhibit 10.4)
10.18 Operating Agreement between Birmingham Steel Corporation
and Raw Material Development Co., Ltd., dated as of
September 18, 1996 (incorporated by reference from Form 10-Q
for quarter ended September 30, 1996, exhibit 10.5)
10.19 Asset Purchase Agreement, dated as of October 31, 1996, among
Mitsui & Co., Ltd., R. Todd Neilson, as Chapter 11 Trustee for
the bankruptcy estate of Hiuka America Corporation, All-Ways
Recycling Company, B&D Auto & Truck Salvage, and Weiner Steel
Corporation (incorporated by reference from Form 10-Q for
quarter ended December 31, 1996, exhibit 10.1)
10.20 Contribution Agreement, dated as of November 15, 1996,
among IVACO, Inc., Atlantic Steel Industries, Inc.,
Birmingham Steel Corporation and Birmingham Southeast, LLC
(incorporated by reference from Current report on Form 8-K
filed December 12, 1996)
10.21 $300 million Credit Agreement, dated as of March 17, 1997 by
and among Birmingham Steel Corporation, as Borrower, the
financial institutions party hereto and their assignees under
section 12.5.(d), as Lenders, PNC Bank, National Association
and The Bank of Nova Scotia, as Co-agents and Nationsbank,
N.A. (South), as Agent and as Arranger (incorporated by
reference from Form 10-Q for quarter ended March 31, 1997,
exhibit 10.1)
22.1 Subsidiaries of the Registrant*
23.1 Consent of Independent Auditors*
27 Financial Data Schedule*
* Being filed herewith
**Denotes a management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report.
ITEM 14 (b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter ended June 30, 1997.
<PAGE>
ITEM 14 (c). EXHIBITS
Certain exhibits listed in response to Item 14(a)3 of this report are being
filed herewith.
Exhibit 10.8.1
Third Amendment to Lease Agreement
AMENDMENT TO OFFICE LEASE
THIS THIRD AMENDMENT TO OFFICE LEASE is made on or as of this 30th,day
of November, 1993, between TORCHMARK DEVELOPMENT CORPORATION (the "Landlord")
and BIRMINGHAM STEEL CORPORATION (the "Tenant").
W I T N E S S E T H:
WHEREAS, the Landlord and the Tenant have executed that certain Office
Lease dated April 8, 1993, as amended by the First Amendment to Office Lease
dated July 13, 1993 and the Second Amendment to Office Lease dated September
20, 1993 (the "Lease") covering a portion of the office space in The Urban
Center at Liberty Park Office Building Number One; and
WHEREAS, the Landlord and the Tenant desire to further amend the Lease,
and to the extent the provisions of this Amendment are inconsistent with the
Lease, the terms of this Amendment will control; and
WHEREAS, unless specifically defined herein, the capitalized terms used
in this First Amendment will have the meanings defined in the Lease.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Landlord and the Tenant agree as follows:
1.) The Final Working Drawings dated October 20, 1993 have been
approved by both the Landlord and the Tenant in satisfaction of the terms and
conditions set forth in Paragraph 4 of the Lease, as amended.
2.) The Landlord and the Tenant hereby approve the Construction Cost
of the Leasehold Improvements pursuant to the approved Final Working Drawings,
in satisfaction of the terms and conditions set forth in Paragraph 4 of the
Lease, as amended. Furthermore, the Landlord and the Tenant agree to execute
simultaneously herewith the Construction Agreement which sets forth the
specific terms of the agreement of the Landlord and the Tenant as to payment
of the Construction Cost.
3.) The Landlord and the Tenant agree that the schedule for
construction of the Leasehold Improvements will be as follows:
Commencement of Construction on: November 15, 1993
Substantial Completion
of Leasehold Improvements by: March 15, 1994
Furthermore, the Landlord and the Tenant confirm that irrespective of the status
of the Leasehold Improvements that a.) the Commencement Date of the Lease was
September 1, 1993 and b.) the payment of rent by the Tenant will begin as set
forth in Paragraph 3 of the Lease, subject to adjustment as applicable to any
delayed occupancy as set forth below.
4.) If Substantial completion of the Leasehold Improvements is
delayed by either party such that Substantial Completion does not occur on or
before March 15, 1994, then the provisions of Paragraph 2.2 will apply.
5.) The Landlord and the Tenant agree that the initial Leased
Premises is comprised of 26,333 square feet of Net Rentable Area, as a
clarification to Paragraph 1 of the Lease.
6.) Paragraph 27.31 on Page 20 of the Lease shall be amended to
read as follows:
Tenant's Share. A fraction computed by the Landlord having as
the numerator the Net Rentable Area contained within the
Leased Premises and as the denominator the Net Rentable Area
for office occupancy contained in the Building (i.e.
26,333/162,990). The Tenant's Share is agreed by the Landlord
and Tenant to be 16.16%.
7.) Except as expressly modified and amended by this instrument, all
other terms and conditions of the Lease remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed this
Amendment on or as of the date first above written.
ATTEST: TORCHMARK DEVELOPMENT CORP.
an Alabama corporation
/s/ Robert C. Mc Fea By: /s/ Mark D. Elgin
(SEAL) Assistant Secretary Name: Mark D. Elgin
Title: Executive Vice President
(the "Landlord")
BIRMINGHAM STEEL CORPORATION
ATTEST; a Delaware Corporation
/s/ Catherine W. Pecher By: /s/ Jim C. Nuckels
(SEAL)
Name: Catherine W. Pecher Name: Jim C. Nuckels
Secretary Title: Executive Vice President
Title: Corporate Secretary
(the "Tenant")
<PAGE>
Exhibit 10.8.2
Fourth Amendment to Lease Agreement
FOURTH AMENDMENT TO OFFICE LEASE
THIS FOURTH AMENDMENT TO OFFICE LEASE is made on or as of this Thirteenth day of
June, 1994, between TORCHMARK DEVELOPMENT CORPORATION (the "Landlord") and
BIRMINGHAM STEEL CORPORATION (the "Tenant").
W I T N E S S E T H:
WHEREAS, the Landlord and the Tenant have executed that certain Office
Lease (the "Lease") dated April 8, 1993, covering a portion of the office space
in The Urban Center at Liberty Park Office Building Number One Thousand, as
amended by the First Amendment to Office Lease dated July 13, 1993; the Second
Amendment to Office Lease dated September 20, 1993; and the Third Amendment to
Office Lease dated November 30, 1993.
WHEREAS, the Landlord and the Tenant desire to further amend the Lease,
and to the extent the provisions of this Amendment are inconsistent with the
Lease, the terms of this Amendment will control; and
WHEREAS, unless specifically defined herein, the capitalized terms used
in this Fourth Amendment will have the meanings defined in the Lease.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Landlord and the Tenant agree as follows:
1. The Tenant desires to expand into approximately 6,518 square feet of
Net Rentable Area located on the north half of the third (3rd) floor of the
Building (the "Expansion Space") as identified on Schedule A, attached hereto.
By execution of this Amendment, the Landlord and Tenant hereby agree that said
6,518 square feet shall be added to and shall hereafter comprise a part of the
Leased Premises and shall be subject to all of the terms and conditions of the
Lease, except as specified below:
A. Term. The Commencement Date for this Expansion Space shall
be June 27, 1994, and the Expiration Date shall be the Expiration Date
provided by the Lease.
B. Rent. The monthly Base Rent for the Expansion Space added by this
Fourth Amendment shall be as follows: a.) beginning on the Commencement
Date and continuing through the month of March, 1998 the sum of
$7,604.33 which amount shall be due and payable, along with the
adjustments set forth in Paragraphs 3.2, 3.3 and 3.4 of the Lease in
monthly installments payable in advance and without demand beginning on
the Commencement Date for the Expansion Space and continuing thereafter
on the first day of each subsequent month through March 31, 1998; and
b.) beginning on April 4, 1998 and continuing through the remainder of
the Primary Lease Term, an amount equal to the product of i) 6,518
(representing the number of square feet of Net Rentable Area contained
in the Expansion Space added by this Fourth Amendment) times ii) the
lesser of (a) $18.00 and (b) the Prevailing Market Rent, which amount
shall be due and payable along with the adjustments set forth in
Paragraphs 3.2, 3.3 and 3.4 of the Lease in monthly installments
payable in advance and without demand beginning on April 4, 1998 and
continuing thereafter on the first day of each month through the
remainder of the Lease Term.
C. Prevailing Market Rent. The Prevailing Market Rent is the base rent
rate charged per square foot of Net Rentable Area as Base Rent
prevailing at the time in arms-length office lease transactions in
comparable "Class A" office buildings in the "Over the Mountain" market
segment of suburban Birmingham, Alabama, taking into account all
relevant factors, including length of term, tenant creditworthiness,
size of the premises, extent of leasehold improvements, the basis for
tenant payment of taxes, operating expenses, electricity and parking,
leasehold improvement allowances, free rent periods and other factors
affecting rent in the market, all as determined in accordance with the
following provisions:
Determination of Prevailing Market Rent. On or before September 30,
1997, the Landlord shall notify Tenant in writing of its good faith
estimate of the Prevailing Market Rent at that time. If Tenant agrees
with Landlord's estimate of the Prevailing Market Rent, or if Landlord
and Tenant reach an agreement that a different figure more accurately
reflects the Prevailing Market Rent, they shall execute an agreement
specifying the Prevailing Market Rent on which they have so agreed, and
that figure shall be the "Prevailing Market Rent". If a written
agreement on the Prevailing Market Rent has not been so executed at
least thirty (30) days after the Landlord's notice, then Tenant may
require appraisals to determine the Appraised Rate (as hereafter
defined) by giving written notice to Landlord on or before such date.
Subsequent to its determination in the manner outlined below, if
required, the Appraised Rate will be the Prevailing Market Rent for the
purposes set forth in this Lease.
Appraisal. Within fifteen (15) days after Tenant notifies Landlord that
it is requiring appraisals, each party at its cost and by giving notice
to the other party, shall appoint an MAI-certified real estate
appraiser (or at Tenant's or Landlord's option, each party shall
appoint a licensed commercial real estate leasing broker) with at least
five (5) years' experience appraising (or in the case of a broker,
leasing) similar commercial properties in the "Over the Mountain"
market in Birmingham, Alabama, to appraise the Prevailing Market Rent
at that time. If either party fails to appoint an appraiser within the
allotted time, the single appraiser appointed by the other party shall
be the sole appraiser. If an appraiser is appointed by each party and
the appraisers so appointed are unable to agree upon the Prevailing
Market Rent within thirty (30) days after the appointment of the
second, the two appraisers shall appoint a third similarly qualified
appraiser within ten (10) days after the expiration of that thirty (30)
day period. The third appraiser shall be a person who has not
previously been employed by Tenant or Landlord in any capacity. The
third appraiser shall complete his appraisal within twenty (20) days
after appointment. The Prevailing Market Rent determined by a majority
of the three appraisers shall be the "Appraised Rate". If a majority
are unable to agree within the allotted time, the two appraisals of
Prevailing Market Rent that are nearest to one another in amount shall
be added together and divided by two (2), and the resulting quotient
shall be the Appraised Rate. Tenant shall pay the fees of the appraiser
it appoints, Landlord shall pay the fees of the appraiser it appoints,
and the fees of any third party appraiser shall be paid equally by
Landlord and Tenant.
D. Parking. So long as this Fourth Amendment is in full force and
effect and the Tenant is not in default hereunder, the Landlord will
provide two (2) covered parking spaces for the use by Tenant's
designated employees in common with other tenants of the Building in
the Building's restricted parking garage at Landlord's customary charge
of $30.00 per space per month during the Lease Term, and two (2)
covered parking spaces for the use of Tenant's designated employees in
common with other tenants of the Building in the Building's restricted
parking area covered by a carport structure at Landlord's customary
charge of $15.00 per space per month during the Lease Term. Tenant will
cooperate with Landlord in assigning and controlling these four (4)
spaces to facilitate the orderly functioning of the parking garage and
carport area as restricted parking facilities.
E. Extended Term. Provided this Lease is in effect on the Expiration
Date and an Event of Default by the Tenant is not continuing hereunder,
the Tenant is hereby granted the option to extend the Lease Term on the
Expansion Space under the same terms and conditions as set forth in the
Lease.
F . Tenant's Partial Termination Option. Provided an Event of Default
by the Tenant is not continuing hereunder, the Landlord grants to the
Tenant the option to terminate the Tenant's future obligations on the
Expansion Space added by this Fourth Amendment on April 4, 1998
provided that: (a) the Tenant gives written notice to Landlord of the
Tenant's election to exercise this option to terminate the Expansion
Space added by this Fourth Amendment no later than October 4, 1997; and
(b) the Tenant pays to the Landlord in cash an amount equal to
$22,263.50, representing a termination penalty. In the event the Tenant
exercises this termination option, Tenant shall continue to pay Rent in
addition to the termination penalty through April 4, 1998. Furthermore,
the Tenant shall pay to the Landlord the amount of $66,229.22 which
represents the unamortized balance of the Landlord's contribution to
the Construction Cost of the Leasehold Improvements (with such
amortization being based on a ten-year schedule). In the event the
Tenant exercises the Tenant's Termination Option pursuant to this
Paragraph F, the termination penalty and unamortized Leasehold
Improvement payment by Tenant to the Landlord will be due and payable
within thirty (30) days of the Tenant's written notice exercising their
termination rights. In the event this Tenant's Partial Termination
Option is not timely exercised by the Tenant by written notice to the
Landlord on or before October 4, 1997, then this Termination Option
will expire, the Tenant wi11 have no further termination rights
hereunder and the Fourth Amendment will remain in full force and
effect. The Tenant's exercise of the termination option rights provided
by the Paragraph F will only pertain to the Expansion Space added by
this Fourth Amendment, and regardless of the operation of this
provision of this Paragraph F the Primary Lease will remain in full
force and effect through the full Lease Term as set forth in the
original Lease.
2. Upon execution of this Amendment the Leased Premises will comprise
a total of 32,851 square feet of Net Rentable Area.
3. The definition of "Tenant's Share" set forth in Paragraph 27.31 is
hereby amended and agreed to be 32,851/162,998 or twenty and fifteen
one-hundredths percent (20.15%).
4. Expansion Option Rights. Provided on the date of exercise by the
Tenant of any Expansion Option pursuant to this Paragraph 4 that the Lease is
then in effect and an Event of Default by the Tenant is not continuing
thereunder, on or before March 31, 1995 the Tenant shall have the option to
lease 2,500 additional contiguous square feet of Net Rentable Area (the
"Expansion Option Space") on the north half of the 3rd floor of the Building (as
indicated on Schedule B attached hereto) upon delivery of written notice of
intent to rent the Expansion Space delivered to Landlord before November 30
1994. The Base Rent rate for such Expansion Option Space shall be the same Base
Rent schedule per square foot applicable at that time to the Tenant's initial
Leased Premises, and will commence on the date that is ten (10) days after the
date of Substantial Completion of any Leasehold Improvements to the Expansion
Option Space, but in any event rent will commence no later than one-hundred
twenty (120) days after the date the Tenant exercises these Expansion Rights
regardless of any pending alteration or construction of additional Leasehold
Improvements for such space other than as a result of delays in construction
caused by the Landlord, its agents, employees, contractors or subcontractors;
and the Leased Premises and the calculation of Net Rentable Area shall
thereafter be adjusted to include the Expansion Option Space. If the Tenant
exercises this Expansion Option, Landlord agrees to provide the Tenant with a
"finished ceiling" in the Expansion Option Space and to provide an allowance for
Leasehold Improvements to such Expansion Option Space of $12.00 per square foot
of Net Rentable Area contained within the Expansion Option Space. Any contractor
selected for the construction of such Leasehold Improvements to the Expansion
Option Space will be mutually acceptable to the Landlord and the Tenant and
except as specifically outlined in this Paragraph to the contrary, the Leasehold
Improvements will be constructed in accordance with the provisions of Paragraph
4 of the Lease. If this Expansion Option is not timely exercised on or before
November 30, 1994, the Expansion Option shall automatically expire and be of no
further force and effect. After the exercise of this option, the portion of the
Expansion Option Space which is the subject thereof will thereafter become a
portion of the Leased Premises and will be subject to all of the terms of this
Lease.
5. Except as expressly modified and amended by this instrument, all
other terms and conditions of the Lease remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed this
Amendment on or as of the date first above written.
ATTEST: TORCHMARK DEVELOPMENT CORPORATION
an Alabama corporation
By: /s/ Mark D Elgin
/s/ Jenel Sue Pace Name: Mark D. Elgin
(Seal) Assistant Secretary Title: Executive Vice President
(the "Landlord")
ATTEST: BIRMINGHAM STEEL CORPORATION
a Delaware corporation
/s/ Barbara C. Howell By: /s/ Jim C. Nuckels
Name: Barbara C. Howell Name: Jim C. Nuckels
Title: Assistant to Chairman Title: Executive Vice President
and CEO
(the "Tenant")
Attachments:
Schedule "A": Description of the Leased Premises
Schedule "B": Description of the Space subject to a further Expansion Option
<PAGE>
Exhibit 10.8.3
Fifth Amendment to Lease Agreement
FIFTH AMENDMENT TO OFFICE LEASE
THIS FIFTH AMENDMENT TO OFFICE LEASE is made on or as of this 6th day of
September, 1995, between TORCHMARK DEVELOPMENT CORPORATION (the "Landlord")
and BIRMINGHAM STEEL CORPORATION (the "Tenant").
W I T N E S S E T H:
WHEREAS, the Landlord and the Tenant have executed that certain Office
Lease (the "Lease") dated April 8, 1993, covering a portion of the office space
in The Urban Center at Liberty Park Office Building Number One Thousand, as
amended by the First Amendment to Office Lease dated July 13, 1993; the Second
Amendment to Office Lease dated September 20, 1993; the Third Amendment to
Office Lease dated November 30, 1993; and the Fourth Amendment to Office Lease
dated June 13, 1994.
WHEREAS, the Landlord and the Tenant desire to further amend the Lease,
and to the extent the provisions of this Amendment are inconsistent with the
Lease as amended, the terms of this Amendment will control; and
WHEREAS, unless specifically defined herein, the capitalized terms used
in this Fifth Amendment will have the meanings defined in the Lease.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Landlord and the Tenant agree as follows:
1. Subject to the full performance of the covenants of the Parties set
forth herein, effective December 31, 1995, Tenant agrees to terminate, and
Landlord agrees to accept the partial termination of the Leased Premises
described generally as the space occupied by the Tenant on the south half of the
second floor of the Building consisting of 5,780 square feet of Net Rentable
Area, as more specifically described on Schedule A, attached hereto. Tenant
agrees to surrender the possession of the subject area and the Leasehold
Improvements appurtenant thereto to Landlord in the condition which existed on
the Commencement Date of the Lease, ordinary wear and tear excepted.
2. Paragraph l.A on Page 1 of the Fourth Amendment to Office Lease
shall be amended to read as follows:
Term. The Commencement Date for this Phase I Expansion
Space shall be January 1, 1996, and the Expiration Date
shall be the Expiration Date provided by the Lease.
3. The Tenant desires to expand into approximately 2,500 square feet of
Net Rentable Area located on the north half of the third (3rd) floor of the
Building (the "Phase II Expansion Space") as identified on Schedule B, attached
hereto. By execution of this Fifth Amendment, the Landlord and Tenant hereby
agree that the Phase II Expansion Space shall be added to and shall hereafter
comprise a part of the Leased Premises and shall be subject to all of the terms
and conditions of the Lease, except as specified below:
A. Term. The Commencement Date for this Phase II Expansion Space
shall be January 1, 1996, and the Expiration Date shall be the
expiration date provided by the Lease.
B. Rent. The monthly Base Rent for the Phase II Expansion Space added
by this Fifth Amendment shall be as follows: a.) beginning on the
Commencement Date for the Phase II Expansion Space and continuing
through the month of March, 1998 the sum of $2,916.67 which amount,
along with the adjustments set forth in Paragraphs 3.2, 3.3 and 3.4 of
the Lease shall be payable in monthly installments payable in advance
and without demand on the first day of each such month; and b.)
beginning on April 4, 1998 and continuing through the remainder of the
Primary Lease term, a monthly amount equal to one-twelfth (1/12th) of
the product of i) 2,500 (representing the number of square feet of Net
Rentable Area contained in the Phase II Expansion Space added by this
Fifth Amendment) times ii) the lesser of (x) $18.00 and (y) the
Prevailing Market Rent, which amount shall be due and payable along
with the adjustments set forth in Paragraphs 3.2, 3.3 and 3.4 of the
Lease in monthly installments payable in advance and without demand
beginning on April 4, 1998 and continuing thereafter on the first day
of each month through the remainder of the Lease Term.
C. Prevailing Market Rent. The Prevailing Market Rent referenced in
Paragraph 3.B above is defined as the base rent rate charged per square
foot of Net Rentable Area as Base Rent as determined in the manner
provided by the Fourth Amendment to Office Lease.
D. Extended Term. Provided this Lease is in effect on the Expiration
Date and an Event of Default by the Tenant is not continuing hereunder,
the Tenant is hereby granted the option to extend the Lease Term on the
Expansion Space under the same terms and conditions as set forth in the
Lease.
4. Upon execution of this Amendment the Tenant's total Leased Premises
within the Building will comprise a total of 30,456 square feet of Net Rentable
Area, in the configuration set forth on Schedule "C" attached hereto.
5. The definition of "Tenant's Share" set forth in Paragraph 27.31 of
the Lease is hereby amended and agreed to be 30,456/162,998 or eighteen and
sixty-eight one-hundredths percent (18.68%).
6. Leasehold Improvements. The Tenant has caused to be prepared, at the
Tenant's expense, Final Working Drawings for modifications to the Leasehold
Improvements within the reconfigured Leased Premises by the architectural firm
of Williams Blackstock Architects, such plans dated September 22, 1995. The
Landlord and the Tenant hereby approve the Final Working Drawings. Within thirty
(30) days after mutual approval of the Final Working Drawings the Landlord will
bid the construction of the Leasehold Improvements based on the Final Working
Drawings among no less than three (3) contractors mutually acceptable to the
Landlord and the Tenant. The Landlord, in consultation with the Tenant, will
award the construction contract for the Leasehold Improvements to the approved
bidder providing the lowest and best bid for construction of the Leasehold
Improvements; and based upon the approved contractor's successful bid, the
Landlord will prepare and submit to the Tenant the Construction Agreement
setting forth the Construction Cost. In the event the Tenant desires to modify
the Final Working Drawings to reduce the Construction Cost, such modifications
will be made and resubmitted to the Landlord within ten (10) days after the
Tenant's receipt of the Construction Agreement and the Construction Cost.
Thereafter the Landlord will have fifteen (15) days within which to submit to
the Tenant a revised Construction Agreement and final Construction Cost. It is
expressly understood that the Leased Premises will be delivered to the Tenant in
its existing "As Is" condition. All Leasehold Improvements will be installed by
the Landlord at the Tenant's expense except that Landlord agrees to credit the
Tenant with an improvement allowance against the Construction Cost in an amount
equal to the sum of i) the cost of the HVAC work associated with that portion of
the Expansion Space previously occupied by Constar and Smith Barney, not to
exceed $12,000 plus ii) the amount of $15,000 (i.e. $6.00 per square foot of Net
Rentable Area contained in the Phase II Expansion Space)(the "Improvement
Allowance"), with the Construction Cost to be paid by the Tenant to be reduced
by that amount. Subsequent to the approval of the Final Working Drawings and the
execution of the Construction Agreement the Landlord will cause the approved
successful bidding contractor to construct the Leasehold Improvements in
substantial conformance with the approved Final Working Drawings. The Landlord
will have no obligation to commence construction of the Leasehold Improvements
until: (a) approved Final Working Drawings have been provided to the Landlord;
and (b) the Landlord and the Tenant have approved the Construction Cost and
executed the Construction Agreement. The amount equal to the remainder of the
Construction Cost less the Improvement Allowance, if any, will be paid by the
Tenant to the Landlord on the date of Substantial Completion of the Leasehold
Improvements. In the event the Tenant orders any change in or addition to the
work called for by the Final Working Drawings, all additional costs resulting
therefrom will be paid by the Tenant. Landlord will permit Tenant and its agents
and contractors to enter the Leased Premises prior to the date of Substantial
Completion of construction of the Leasehold Improvements by Landlord in order
that Tenant and its agents and contractors may perform finish work and such
other work and decorations in the Leased Premises as Tenant may desire, provided
that such work is in accordance with the Final Working Drawings or has otherwise
been approved by Landlord, such approval not to be unreasonably withheld or
delayed. Tenant shall use its best efforts to ensure that Tenant's agents and
contractors do not interfere with Landlord's agents, contractors and
subcontractors in performing such work.
7. Brokerage. The Landlord and the Tenant represent to each other that
neither party has engaged a broker to represent their respective interests in
the negotiation of this Fifth Amendment to Office Space and, consequently, that
no brokerage commission will be due as a result of the actions of either the
Landlord or the Tenant upon the execution of this Fifth Amendment.
8. Except as expressly modified and amended by this instrument, all
other terms and conditions of the Lease remain unchanged and in full force and
effect.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed this
Amendment on or as of the date first above written.
ATTEST: TORCHMARK DEVELOPMENT CORPORATION
an Alabama corporation
/s/ Robert C. Mc Fea By: /s/ Mark D. Elgin
(SEAL) Assistant Secretary Name: Mark D. Elgin
Title: Executive Vice President
(the "Landlord")
ATTEST: BIRMINGHAM STEEL CORPORATION
a Delaware corporation
/s/ Thomas N Fickling, Jr. By: /s/ Thomas N. Tyrrell
Name: Thomas N. Fickling, Jr. Name: Thomas N. Tyrrell
Title: Purchasing Manager Title: Vice Chairman, CAO
(the "Tenant")
Attachments:
Schedule "A": Description of the Partial Leased Premises to be Terminated
Schedule "B": Description of the Expansion Space
Schedule "C": Description of the Leased Premises (new configuration)
<PAGE>
Exhibit 10.8.4
Sixth Amendment to Lease Agreement
SIXTH AMENDMENT TO OFFICE LEASE
THIS SIXTH AMENDMENT TO OFFICE LEASE is made the 26th day of March,
1997, but effective as of April 11th, 1997, by and between TMK INCOME
PROPERTIES, L.P., a Delaware limited partnership, having an office at 1950
Stonegate Drive, Suite 300, Birmingham, Alabama 35242 (the "Landlord"), and
BIRMINGHAM STEEL CORPORATION, a Delaware corporation (the "Tenant").
W I T N E S S E T H:
WHEREAS, Torchmark Development Corporation, an Alabama corporation
("Torchmark"), and the Tenant executed that certain Office Lease (the "Lease")
dated April 8, 1993, covering a portion of the office space in The Urban Center
at Liberty Park Office Building Number One Thousand, as amended by the First
Amendment to Office Lease dated July 13, 1993; the Second Amendment to Office
Lease dated September 20, 1993; the Third Amendment to Office Lease dated
November 30, 1993; the Fourth Amendment to Office Lease dated June 13, 1994; and
the Fifth Amendment to Office Lease dated September 6, 1995;
WHEREAS, effective January 1, 1997, Torchmark transferred its interest
in the Building to the Landlord and, in accordance with Paragraph 22 of the
Lease, from and after January 1, 1997, Torchmark was released from its
obligations under the Lease and the Landlord, as transferee, assumed the
obligations of Torchmark under the Lease;
WHEREAS, the Landlord and the Tenant desire to further amend the Lease,
and to the extent the provisions of this Sixth Amendment are inconsistent with
the Lease as amended, the terms of this Sixth Amendment shall control; and
WHEREAS, unless specifically defined herein, the capitalized terms used
in this Sixth Amendment will have the meanings defined in the Lease,
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Landlord and the Tenant agree as follows:
1. The Tenant desires to expand into approximately 4,785 square feet of
Net Rentable Area located on the second (2nd) floor of the Building (the "Sixth
Amendment Expansion Space") as identified on Schedule A attached hereto;
provided, however, the square feet of Net Rentable Area within the Sixth
Amendment Expansion Space will be increased or decreased to reflect the actual
square footage of Net Rentable Area reflected on the Final Working Drawings and
documented by an amendment to this Sixth Amendment. By execution of this Sixth
Amendment, the Landlord and Tenant hereby agree that the Sixth Amendment
Expansion Space shall be added to and shall hereafter comprise a part of the
Leased Premises and shall be subject to all of the terms and conditions of the
Lease, except as specified below:
A. Term. The Commencement Date for the Sixth Amendment Expansion Space
shall be the date of Substantial Completion of Leasehold Improvements to the
Sixth Amendment Expansion Space pursuant to Paragraph 4 below, and the
Expiration Date shall be the Expiration Date provided in the Lease, unless
postponed, accelerated or extended as provided in Paragraphs 2.1 and 2.2 of the
Lease.
B. Rent. The monthly Base Rent for the Sixth Amendment Expansion Space
shall be as follows:
(1) Beginning on the Commencement Date for the Sixth Amendment
Expansion Space and continuing through October 31, 1998, a sum equal to
one-twelfth (1/12) of the product of (a) the Net Rentable Area in the Sixth
Amendment Expansion Space; times (b) the rate of Sixteen and No/100 Dollars
($16.00) per square foot of Net Rentable Area per year, which sum is presently
computed to equal Six Thousand Three Hundred Eighty and No/100 Dollars
($6,380.00) per month, payable in advance and without demand beginning on the
Commencement Date for the Sixth Amendment Expansion Space and continuing on the
first day of each month thereafter; and
(2) Beginning on November 1, 1998, and continuing through the
remainder of the Lease Term, a sum equal to one-twelfth (1/12) of the product of
(a) the Net Rentable Area in the Sixth Amendment Expansion Space; times (b) the
rate of Eighteen and 50/100 Dollars ($18.50) per square foot of Net Rentable
Area per year, which sum is presently computed to equal Seven Thousand Three
Hundred Seventy-Six and 88/100 Dollars ($7,376.88) per month, payable in advance
and without demand beginning on November 1, 1998, and continuing on the first
day of each month thereafter.
C. Extended Term. Provided the Lease is in effect on the Expiration
Date and an Event of Default by the Tenant is not continuing, the Tenant shall
be entitled to extend the Lease Term on the Sixth Amendment Expansion Space
under the same terms and conditions as are set forth in the Lease.
2. Leased Premises. The Leased Premises, including the Sixth Amendment
Expansion Space, consists of 35,241 square feet of Net Rentable Area, subject to
adjustment in accordance with the Final Working Drawings pertaining to such
Sixth Amendment Expansion Space, in the configuration set forth on Schedule "B"
attached hereto.
3. Tenant's Share. The definition of "Tenant's Share" set forth in the
Lease is presently calculated to be 35,241/162,998 (21.62%), such numerator
being subject to adjustment in accordance with the Final Working Drawings
pertaining to the Sixth Amendment Expansion Space.
4. Leasehold Improvements. The Landlord agrees to cause to be prepared
at the Tenant's expense Final Working Drawings for all Leasehold Improvements
and to provide the Final Working Drawings to Tenant for approval within thirty
(30) business days after complete execution and delivery of this Lease, during
which time Tenant agrees to cooperate in good faith with Landlord and Landlord's
architects and space planners in discussing Tenant's planned uses for the Leased
Premises, the configuration of offices and other areas within the Leased
Premises, and otherwise aiding in production of the Final Working Drawings.
Within ten (10) business days after Tenant's receipt of the Final Working
Drawings, Tenant shall: (a) approve them in writing; or (b) provide a written
request for specific changes. Landlord shall have ten (10) business days from
Landlord's receipt of Tenant's request for written changes in which to respond
with revised Final Working Drawings. The Landlord and Tenant agree to negotiate
and cooperate in good faith to mutually resolve any differences they may have
with respect to the production of the Final Working Drawings and with respect to
the proposed changes to the Final Working Drawings and to expeditiously
formulate revised Final Working Drawings acceptable to both Landlord and Tenant;
provided, however, that if Landlord and Tenant are unable to reach a final
agreement with respect to the Final Working Drawings by the date which is sixty
(60) business days subsequent to the date of complete execution and delivery of
this Sixth Amendment, then Landlord will have the option for a period of fifteen
(15) days following the expiration of such sixty (60) day period to terminate
this Sixth Amendment by written notice of cancellation to Tenant and on the
exercise of such option, neither the Landlord nor the Tenant will have any
further rights or obligations hereunder, except that Tenant will nevertheless be
responsible for all costs associated with the Final Working Drawings. If,
however, Landlord does not affirmatively exercise such option to cancel this
Sixth Amendment within such fifteen (15) day period, then this Lease will
continue in effect and the Landlord will have the final authority with respect
to the finalization of the Final Working Drawings.
Within ten (10) business days after the finalization of the Final
Working Drawings, the Landlord will obtain from two (2) general contractors
selected by Landlord, competitive bids for the construction of the Leasehold
Improvements in accordance with the Final Working Drawings and Landlord will
advise Tenant in writing of the results of all two (2) competitive bids as well
as the contractor and the competitive bid selected by Landlord to perform the
construction of the Leasehold Improvements. Within ten (10) business days after
Tenant's receipt of the two (2) competitive bids and the Landlord's selection of
the contractor and the proposed bid, Tenant shall: (a) approve the Landlord's
proposed contractor and the bid for such work in writing; or (b) provide a
written request for specific changes. Landlord shall have ten (10) business days
from its receipt of Tenant's request for written changes in which to select a
different contractor or obtain a revised bid. Landlord and Tenant agree to
negotiate and cooperate in good faith to mutually resolve any differences they
may have regarding a contractor or bid; provided, however, that if Landlord and
Tenant are unable to reach a final agreement with respect thereto by the date
which is one hundred ten (110) business days subsequent to the date of complete
execution and delivery of this Sixth Amendment, then Landlord and Tenant will
each respectively have the option for a period of fifteen (15) days following
the expiration of such one hundred ten (110) day period to terminate this Sixth
Amendment by written notice of cancellation to the other and on the exercise of
such option, neither Landlord nor Tenant will have any further rights or
obligations hereunder, except that Tenant will nevertheless be responsible for
all costs associated with the Final Working Drawings. If, however, Landlord or
Tenant does not affirmatively exercise such option to cancel this Sixth
Amendment within such fifteen (15) day period, then this Sixth Amendment will
continue in effect and the Landlord will have the final authority with respect
to the contractor and bid.
Within five (5) business days after mutual approval of the general
contractor and the bid for the construction of the Leasehold Improvements,
Landlord will prepare and submit to Tenant the Construction Agreement setting
forth the Construction Costs and providing for a payment of a supervision fee to
the Landlord in an amount which is equal to zero percent (0%) of the
Construction Costs. The Tenant agrees to execute and deliver the Construction
Agreement to Landlord within two (2) business days after receipt thereof by
Tenant.
It is expressly agreed that Tenant accepts the Sixth Amendment
Expansion Space in its "AS-IS" condition, subject only to the modifications
contained in the Final Working Drawings. All Leasehold Improvements installed in
accordance with the Final Working Drawings and the Construction Agreement will
be at the Tenant's expense, except that Landlord agrees to credit Tenant with an
allowance in an amount equal to the sum of (a) the product of Five and 50/100
Dollars ($5.50) times the number of square feet of Net Rentable Area in the
Sixth Amendment Expansion Space, as finally determined plus (b) the cost of
ceiling and HVAC work in the Sixth Amendment Expansion Space pursuant to the
Final Working Drawings in an amount not to exceed Eight Thousand Eight Hundred
Four and 40/100 Dollars ($8,804.40) for such ceiling and HVAC work (the "Tenant
Allowance"). The Tenant Allowance shall be utilized to fund the cost of the
Leasehold Improvements; provided, however, that any unused portion of the Tenant
Allowance may be applied against the first amounts of Base Rent due under the
terms of this Sixth Amendment. The Landlord will have no obligation to cause the
commencement of the construction of the Leasehold Improvements until: (c) Final
Working Drawings have been mutually approved by Landlord and Tenant; (d) the
general contractor and the general contractor's bid have been mutually approved
by Landlord and Tenant; and (e) the Landlord and Tenant have executed and
delivered the Construction Agreement. In the event the sum of (x) the
Construction Costs, and (y) the costs associated with Tenant's change in or
addition to the work called for by the Final Working Drawings, if any, exceeds
(z) the Tenant Allowance (such excess, if any, will be the "Tenant's
Construction Costs"), then Tenant will be responsible for payment of the
Tenant's Construction Costs. The Tenant shall pay to Landlord the Tenant's
Construction Costs in cash or certified funds on the date of Substantial
Completion of the Leasehold Improvements.
5. Brokerage. The Landlord and the Tenant represent to each other that
neither party has engaged a broker to represent their respective interests in
the negotiation of this Sixth Amendment and, consequently, that no brokerage
commission will be due as a result of the actions of either the Landlord or the
Tenant upon the execution of this Sixth Amendment.
6. Binding Effect. Except as modified by the terms of this Sixth
Amendment, the Lease shall remain in full force and effect.
TMK INCOME PROPERTIES, L. P.,
a Delaware limited partnership
By: Stonegate Realty Corporation,
a Delaware corporation,
as General Partner
By: /s/ Mark D. Elgin
Mark D. Elgin, President
(The "Landlord")
BIRMINGHAM STEEL CORPORATION,
a Delaware corporation
By:/s/Catherine W. Pecher
Name: Catherine W. Pecher
Title: Vice President & Corporate
Secretary
<PAGE>
Exhibit 10.8.5
Seventh Amendment to Lease Agreement
SEVENTH AMENDMENT TO OFFICE LEASE
THIS SEVENTH AMENDMENT TO OFFICE LEASE is made the 26th day of March,
1997, but effective as of April 11th, 1997, by and between TMK INCOME
PROPERTIES, L.P., a Delaware limited partnership, having an office at 1950
Stonegate Drive, Suite 300, Birmingham, Alabama 35242 (the "Landlord"), and
BIRMINGHAM STEEL CORPORATION, a Delaware corporation (the "Tenant").
W I T N E S S E T H:
WHEREAS, Torchmark Development Corporation, an Alabama corporation
("Torchmark"), and the Tenant executed that certain Office Lease (the "Lease")
dated April 8, 1993, covering a portion of the office space in The Urban Center
at Liberty Park Office Building Number One Thousand, as amended by the First
Amendment to Office Lease dated July 13, 1993; the Second Amendment to Office
Lease dated September 20, 1993; the Third Amendment to Office Lease dated
November 30, 1993; the Fourth Amendment to Office Lease dated June 13, 1994; the
Fifth Amendment to Office Lease dated September 6, 1995; the Sixth Amendment to
Office Lease of even date herewith;
WHEREAS, effective January 1, 1997, Torchmark transferred its interest
in the Building to the Landlord and, in accordance with Paragraph 22 of the
Lease, from and after January 1, 1997, Torchmark was released from its
obligations under the Lease and the Landlord, as transferee, assumed the
obligations of Torchmark under the Lease;
WHEREAS, the Landlord and the Tenant desire to further amend the Lease,
and to the extent the provisions of this Seventh Amendment are inconsistent with
the Lease as amended, the terms of this Seventh Amendment shall control; and
WHEREAS, unless specifically defined herein, the capitalized terms used
in this Seventh Amendment will have the meanings defined in the Lease,
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Landlord and the Tenant agree as follows:
1. The Tenant desires to expand into approximately 1,715 square feet of
Net Rentable Area located on the second (2nd) floor of the Building (the
"Seventh Amendment Expansion Space") as identified on Schedule A attached
hereto; provided, however, the square feet of Net Rentable Area within the
Seventh Amendment Expansion Space will be increased or decreased to reflect the
actual square footage of Net Rentable Area reflected on the Final Working
Drawings and documented by an amendment to this Seventh Amendment. By execution
of this Seventh Amendment, the Landlord and Tenant hereby agree that the Seventh
Amendment Expansion Space shall be added to and shall hereafter comprise a part
of the Leased Premises and shall be subject to all of the terms and conditions
of the Lease, except as specified below:
A. Term. The Commencement Date for the Seventh Amendment Expansion
Space shall be the date of Substantial Completion of Leasehold Improvements to
the Seventh Amendment Expansion Space pursuant to the terms of Paragraph 4 set
forth below, and the Expiration Date shall be the Expiration Date provided in
the Lease, unless postponed, accelerated or extended as provided in Paragraphs
2.1 and 2.2 of the Lease.
B. Rent. The monthly Base Rent for the Seventh Amendment Expansion
Space shall be as follows:
(1) Beginning on the Commencement Date for the Seventh
Amendment Expansion Space and continuing through October 31, 1998, a sum equal
to one-twelfth (1/12) of the product of (a) the Net Rentable Area in the Seventh
Amendment Expansion Space; times (b) the rate of Sixteen and No/100 Dollars
($16.00) per square foot of Net Rentable Area per year, which sum is presently
computed to equal Two Thousand Two Hundred Eighty-Six and 67/100 Dollars
($2,286.67) per month, payable in advance and without demand beginning on the
Commencement Date for the Seventh Amendment Expansion Space and continuing on
the first day of each month thereafter; and
(2) Beginning on November 1, 1998, and continuing through the
remainder of the Lease Term, a sum equal to one-twelfth (1/12) of the product of
(a) the Net Rentable Area in the Seventh Amendment Expansion Space; times (b)
the rate of Eighteen and 50/100 Dollars ($18.50) per square foot of Net Rentable
Area per year, which sum is presently computed to equal Two Thousand Six Hundred
Forty Three and 96/100 Dollars ($2,643.96) per month, payable in advance and
without demand beginning on November 1, 1998, and continuing on the first day of
each month thereafter.
C. Extended Term. Provided the Lease is in effect on the Expiration
Date and an Event of Default by the Tenant is not continuing, the Tenant shall
be entitled to extend the Lease Term on the Seventh Amendment Expansion Space
under the same terms and conditions as are set forth in the Lease.
2. Leased Premises. The Leased Premises, including the Seventh
Amendment Expansion Space, consists of 36,956 square feet of Net Rentable Area,
subject to adjustment in accordance with the Final Working Drawings pertaining
to such Seventh Amendment Expansion Space, in the configuration set forth on
Schedule "B" attached hereto.
3. Tenant's Share. The definition of "Tenant's Share" set forth in the
Lease is presently calculated to be 36,956/162,998 (22.67%), such numerator
being subject to adjustment in accordance with the Final Working Drawings
pertaining to the Seventh Amendment Expansion Space.
4. Leasehold Improvements. The Landlord agrees to cause to be prepared
at the Tenant's expense Final Working Drawings for all Leasehold Improvements
and to provide the Final Working Drawings to Tenant for approval within thirty
(30) business days after complete execution and delivery of this Lease, during
which time Tenant agrees to cooperate in good faith with Landlord and Landlord's
architects and space planners in discussing Tenant's planned uses for the Leased
Premises, the configuration of offices and other areas within the Leased
Premises, and otherwise aiding in production of the Final Working Drawings.
Within ten (10) business days after Tenant's receipt of the Final Working
Drawings, Tenant shall: (a) approve them in writing; or (b) provide a written
request for specific changes. Landlord shall have ten (10) business days from
Landlord's receipt of Tenant's request for written changes in which to respond
with revised Final Working Drawings. The Landlord and Tenant agree to negotiate
and cooperate in good faith to mutually resolve any differences they may have
with respect to the production of the Final Working Drawings and with respect to
the proposed changes to the Final Working Drawings and to expeditiously
formulate revised Final Working Drawings acceptable to both Landlord and Tenant;
provided, however, that if Landlord and Tenant are unable to reach a final
agreement with respect to the Final Working Drawings by the date which is sixty
(60) business days subsequent to the date of complete execution and delivery of
this Seventh Amendment, then Landlord will have the option for a period of
fifteen (15) days following the expiration of such sixty (60) day period to
terminate this Seventh Amendment by written notice of cancellation to Tenant and
on the exercise of such option, neither the Landlord nor the Tenant will have
any further rights or obligations hereunder, except that Tenant will
nevertheless be responsible for all costs associated with the Final Working
Drawings. If, however, Landlord does not affirmatively exercise such option to
cancel this Seventh Amendment within such fifteen (15) day period, then this
Lease will continue in effect and the Landlord will have the final authority
with respect to the finalization of the Final Working Drawings.
Within ten (10) business days after the finalization of the Final
Working Drawings, the Landlord will obtain from two (2) general contractors
selected by Landlord, competitive bids for the construction of the Leasehold
Improvements in accordance with the Final Working Drawings and Landlord will
advise Tenant in writing of the results of all two (2) competitive bids as well
as the contractor and the competitive bid selected by Landlord to perform the
construction of the Leasehold Improvements. Within ten (10) business days after
Tenant's receipt of the two (2) competitive bids and the Landlord's selection of
the contractor and the proposed bid, Tenant shall: (a) approve the Landlord's
proposed contractor and the bid for such work in writing; or (b) provide a
written request for specific changes. Landlord shall have ten (10) business days
from its receipt of Tenant's request for written changes in which to select a
different contractor or obtain a revised bid. Landlord and Tenant agree to
negotiate and cooperate in good faith to mutually resolve any differences they
may have regarding a contractor or bid; provided, however, that if Landlord and
Tenant are unable to reach a final agreement with respect thereto by the date
which is one hundred ten (110) business days subsequent to the date of complete
execution and delivery of this Seventh Amendment, then Landlord and Tenant will
each respectively have the option for a period of fifteen (15) days following
the expiration of such one hundred ten (110) day period to terminate this
Seventh Amendment by written notice of cancellation to the other and on the
exercise of such option, neither Landlord nor Tenant will have any further
rights or obligations hereunder, except that Tenant will nevertheless be
responsible for all costs associated with the Final Working Drawings. If,
however, Landlord or Tenant does not affirmatively exercise such option to
cancel this Seventh Amendment within such fifteen (15) day period, then this
Seventh Amendment will continue in effect and the Landlord will have the final
authority with respect to the contractor and bid.
Within five (5) business days after mutual approval of the general
contractor and the bid for the construction of the Leasehold Improvements,
Landlord will prepare and submit to Tenant the Construction Agreement setting
forth the Construction Costs and providing for a payment of a supervision fee to
the Landlord in an amount which is equal to zero percent (0%) of the
Construction Costs. The Tenant agrees to execute and deliver the Construction
Agreement to Landlord within two (2) business days after receipt thereof by
Tenant.
It is expressly agreed that Tenant accepts the Seventh Amendment
Expansion Space in its "AS-IS" condition, subject only to the modifications
contained in the Final Working Drawings. All Leasehold Improvements installed in
accordance with the Final Working Drawings and the Construction Agreement will
be at the Tenant's expense, except that Landlord agrees to credit Tenant with an
allowance in an amount equal to the sum of (a) the product of Five and 50/100
Dollars ($5.50) times the number of square feet of Net Rentable Area in the
Seventh Amendment Expansion Space, as finally determined plus (b) the cost of
ceiling and HVAC work in the Seventh Amendment Expansion Space pursuant to the
Final Working Drawings in an amount not to exceed Four Thousand Three Hundred
Twenty-Two and 50/100 Dollars ($4,322.50) for such ceiling and HVAC work (the
"Tenant Allowance"). The Tenant Allowance shall be utilized to fund the cost of
the Leasehold Improvements; provided, however, that any unused portion of the
Tenant Allowance be applied against the first amounts of Base Rent due under the
terms of this Seventh Amendment. The Landlord will have no obligation to cause
the commencement of the construction of the Leasehold Improvements until: (c)
Final Working Drawings have been mutually approved by Landlord and Tenant; (d)
the general contractor and the general contractor's bid have been mutually
approved by Landlord and Tenant; and (e) the Landlord and Tenant have executed
and delivered the Construction Agreement. In the event the sum of (x) the
Construction Costs; and (y) the costs associated with Tenant's change in or
addition to the work called for by the Final Working Drawings, if any, exceeds
(z) the Tenant Allowance (such excess, if any, will be the "Tenant's
Construction Costs"), then Tenant will be responsible for payment of the
Tenant's Construction Costs. The Tenant shall pay to Landlord the Tenant's
Construction Costs in cash or certified funds on the date of Substantial
Completion of the Leasehold Improvements.
5. Brokerage. The Landlord and the Tenant represent to each other that
neither party has engaged a broker to represent their respective interests in
the negotiation of this Seventh Amendment and, consequently, that no brokerage
commission will be due as a result of the actions of either the Landlord or the
Tenant upon the execution of this Seventh Amendment.
6. Binding Effect. Except as modified by the terms of this Seventh
Amendment, the Lease shall remain in full force and effect.
TMK INCOME PROPERTIES, L. P.,
a Delaware limited partnership
By: Stonegate Realty Corporation,
a Delaware corporation,
as General Partner
By:/s/ Mark D. Elgin
Mark D. Elgin, President
(The "Landlord")
BIRMINGHAM STEEL CORPORATION,
a Delaware corporation
By:/s/Catherine W. Pecher
Name: Catherine W. Pecher
Title: Vice President & Corporate
Secretary
<PAGE>
10.13
THE URBAN CENTER AT LIBERTY PARK
OFFICE LEASE
THIS AGREEMENT (the "Lease") is made January 7, 1997, between TORCHMARK
DEVELOPMENT CORPORATION, an Alabama corporation, having an office at Suite 300,
1950 Stonegate Drive, Vestavia Hills, Alabama 35242 (the "Landlord"), and
BIRMINGHAM SOUTHEAST, L.L.C., a limited liability company, having an office at
1000 Urban Center Drive, Suite 225, Vestavia Hills, Alabama 35242 (the
"Tenant"). The capitalized terms used in this Lease are defined at Paragraph 4
below.
W I T N E S S E T H:
1. Leased Premises. Landlord hereby leases the Leased Premises to
Tenant and Tenant hereby leases the same from Landlord. The Leased Premises will
be comprised of 3,155 square feet of Net Rentable Area located on the second
(2nd) floor of the Building, consisting of approximately 2,479 square feet of
Net Rentable Area of office space as more specifically described on Schedule "1"
attached hereto (the "Phase I Space"); and approximately 676 square feet of Net
Rentable Area of office and/or storage space as more specifically described on
Schedule "1" attached hereto (the "Phase II Space").
2. Term. The Lease Term shall have a Commencement Date of January 1,
1997, and an Expiration Date of October 31, 2003, unless postponed, accelerated,
extended, or earlier terminated as hereafter provided.
2.1 Early Occupancy. If Tenant occupies the Leased Premises
prior to the Commencement Date, Rent will commence on the date of such occupancy
and the Lease Term will be extended to include the period of such early
occupancy.
2.2 Late Occupancy. If for any reason construction of the
Building or the Leasehold Improvements has not reached Substantial Completion on
the Commencement Date, this Lease will nevertheless continue in effect. If the
failure to reach Substantial Completion arises from: (a) any delay in the
installation of the Leasehold Improvements caused by any change in or addition
to the work ordered by Tenant; (b) Tenant's nonpayment of the cost of installing
the Tenant Improvements; or (c) any other default, delay or omission by Tenant;
the payment of Rent will begin on the Commencement Date and the Lease Term will
not be modified. If the failure to reach Substantial Completion arises through
no fault of Tenant, Rent will abate and not commence until the date of
Substantial Completion and the Lease Term will be extended by the period of time
which elapses between the Commencement Date and the date of Substantial
Completion; provided, however, that such abatement and extension will be for a
period of no greater than one hundred eighty (180) days unless Landlord and
Tenant otherwise agree in writing. If through no fault of Tenant, Substantial
Completion is not reached within one hundred eighty (180) days after the
Commencement Date, this Lease shall be deemed terminated and neither party shall
have any obligation to the other party for any action taken prior to the
termination of this Lease. Any such abatement of Rent will constitute full
settlement of all claims which Tenant might otherwise have against Landlord by
reason of any delay in occupancy of the Leased Premises.
3. Rent. Tenant agrees to pay Rent in the name of "Torchmark
Development Corporation" for the benefit of Landlord to be delivered to
Torchmark Properties, Post Office Box 860256, Oklahoma City, Oklahoma
73185-0256. All Base Rent is payable in advance and without demand beginning on
the Commencement Date and continuing thereafter on the first day of each month.
3.1 Base Rent. During the Term of this Lease, Tenant shall pay
to Landlord, as Base Rent, the sum of Three Hundred Seventy-Three Thousand Eight
Hundred Sixty-Eight and 02/100 Dollars ($373,868.02), payable as follows:
(a) The monthly Base Rent for the Phase I Space shall be as follows:
(i) the sum of $3,098.75 per month, payable in advance and without demand
beginning on the Commencement Date and continuing thereafter on the first day of
each month through October 31, 1998; and (ii) the sum of $3,821.79 per month,
payable in advance and without demand beginning on November 1, 1998, and
continuing on the first day of each month throughout the remainder of the Lease
Term having an Expiration Date of October 31, 2003.
(b) The monthly Base Rent for the Phase II Space shall be as follows:
(i) the sum of $450.66 per month, payable in advance and without demand
beginning on the Commencement Date and continuing thereafter on the first day of
each month through December 31, 1997; (ii) the sum of $845.00 per month, payable
in advance and without demand beginning on January 1, 1998, and continuing
thereafter on the first day of each month through October 31, 1998; and (iii)
the sum of $1,042.17 per month, payable in advance and without demand beginning
on November 1, 1998, and continuing on the first day of each month throughout
the remainder of the Lease Term having an Expiration Date of October 31, 2003.
3.2 Operating Cost Increase. In the event the Estimated
Operating Cost for any calendar year during the Lease Term exceeds the Base
Operating Cost, Tenant agrees to pay to Landlord on the first day of the month
following receipt of a statement therefor and monthly thereafter an amount which
is equal to one-twelfth (1/12) of Tenant's Share of the excess amount, if any;
provided, however, that in no event will the Estimated Operating Cost or
Tenant's share of the Operating Cost in any calendar year exceed that of the
previous year by more than seven and one-half percent (7.5%).
3.3 Rent Adjustment. On or before March 15 of each year during
the Lease Term, Landlord agrees to provide to Tenant a statement of the Actual
Operating Cost incurred by Landlord during the preceding calendar year. In the
event the Estimated Operating Cost exceeds or is less than the Actual Operating
Cost for any calendar year ending during the Lease Term, the amount of Tenant's
Share of such excess or deficiency will be credited against or added to the
installments of Additional Rent to be paid by Tenant over the remaining months
of the calendar year in which the adjustment occurs; provided, however, for
purposes of calculating Tenant's Additional Rent obligations under this Lease,
in no event will the Actual Operating Cost in any calendar year exceed that of
the previous year by more than seven and one-half percent (7.5%). Any sums owed
by reason of such adjustment will not bear interest and will be payable only by
means of a reduction or increase in the amount of Additional Rent to accrue and
under no circumstances will Rent be reduced to an amount less than the Base
Rent.
3.4 Prorations. If the Commencement Date is a date other than
the first day of a month, or if the Expiration Date is a date other than the
last day of a month, the rental installment for the month in which such date
occurs will be prorated based on a thirty (30) day month. If any assessment for
Additional Rent is computed for a term beginning before the Commencement Date or
extending beyond the Expiration Date, the assessment will be prorated based on a
three hundred sixty (360) day year.
4. Definitions. The terms used in this Lease have the meanings
indicated:
4.1 Actual Operating Cost. Operating Cost in fact incurred
by Landlord in any given calendar year.
4.2 Additional Rent. The sums described at Paragraphs 3.2 and
3.3 of this Lease and any other amounts required to be paid by Tenant.
4.3 Base Operating Cost. The amount of $5.68 per square
foot of Net Rentable Area.
4.4 Base Rent. The sum described at Paragraph 3.1 of
this Lease.
4.5 Building. The structure owned by Landlord known as
Building 1000 located in The Urban Center at Liberty Park and the necessary
parking areas designated for the Building's use and a reasonable amount of
landscaped area around the Building.
4.6 Business Hours. The hours of operation for the Building
will be 8:00 a.m. until 5:00 p.m. every Monday through Friday and 8:00 a.m.
until 1:00 p.m. on Saturdays (federal holidays excepted).
4.7 Building Regulations. The rules and regulations adopted
and published from time to time by Landlord to promote the convenience, peace,
safety and welfare of the tenants of the Building and to govern the Building use
and the distribution of services which are applicable to all tenants of the
Building. The initial Building Regulations are set out at Schedule "3" attached
as a part hereof.
4.8 Commencement Date. The date on which the Lease Term
commences as specified at Paragraph 2 of this Lease.
4.9 Common Areas. Parts of the Building designated by Landlord
from time to time as intended for use by the public and other tenants of the
Building, in substantially the same configuration as existing on the
Commencement Date.
4.10 Construction Agreement. Pursuant to Paragraph 5 of this
Lease, the contract to be executed and delivered by the Landlord and the Tenant
calling for the construction of the Leasehold Improvements by the Landlord or
the Landlord's designees, in substantially the form of Schedule "5" attached
hereto.
4.11 Construction Cost. All costs incurred in constructing the
Leasehold Improvements, including, without limitation, contractors',
subcontractors', architects', engineers' and designers' fees and expenses.
4.12 Encumbrance(s). All mortgages, deeds of trust, security
agreements, collateral assignments, and other encumbrances and all ground
leases, master leases and other primary leases which might now or hereafter
affect Landlord's interest or any part in this Lease, the Building, the land on
which the Building stands and/or any other property associated therewith and all
advancements thereunder and all increases, renewals, modifications,
consolidations, replacements and extensions thereof.
4.13 Estimated Operating Cost. Operating Cost to be incurred
in any given calendar year as estimated in the good faith judgment of Landlord.
4.14 Expiration Date. The date when the Lease Term expires as
specified at Paragraph 2 of this Lease or such earlier date as might be
specified by Landlord in the exercise of Landlord's rights hereunder.
4.15 Final Working Drawings. The plans, specifications and
drawings for construction of the Leasehold Improvements to be prepared in a form
commonly used by Landlord for construction of the Leasehold Improvements in
compliance with all applicable laws and ordinances which will specifically
include, without limitation, the items described at Schedule "2" attached as a
part hereof.
4.16 Guarantor. Any person or other party executing a full or
partial guarantee of performance of any one or more of Tenant's obligations
under this Lease.
4.17 Hazardous Material. Any hazardous or toxic substance,
material or waste, including, but not limited to, those substances, materials
and wastes listed in the United States Department of Transportation Hazardous
Materials Table or by the Environmental Protection Agency as hazardous
substances and amendments thereto, or such substances, materials and wastes that
are or become regulated under any applicable local, state or federal law.
4.18 Holder. The mortgagee, beneficiary, secured party or
lessor under any Encumbrance and such party's successors and assigns.
4.19 Landlord. Torchmark Development Corporation, an Alabama
corporation, and its successors and assigns.
4.20 Lease Term. The period of time designated at Paragraph 2
of this Lease as the same might be modified from time to time by the written
agreement of Landlord and Tenant.
4.21 Leased Premises. The space in the Building described at
Schedule "1" attached as a part hereof, the Leasehold Improvements and the
nonexclusive right to use the Common Areas of the Building.
4.22 Leasehold Improvements. All improvements located within
the Leased Premises on the Commencement Date, the Tenant Improvements and all
subsequent alterations and additions thereto, all of which are a part of the
Building and the property of Landlord from the time of installation.
4.23 Net Rentable Area. The area included within the Leased
Premises as computed by Landlord on the following basis: (a) if the Leased
Premises consist of a full floor of the Building, the area will be one-hundred
eight percent (108%) of the square footage enclosed within a perimeter line
constituting the midpoint of the outer wall or the glass line of the Building,
after deducting space occupied by elevator shafts and other vertical
penetrations of the Leased Premises for the use of other tenants of the Building
but without deducting space occupied by columns or other intrusions into the
Leased Premises which constitute structural components of the Building; (b) if
the Leased Premises consist of less than a full floor of the Building, the area
will be one-hundred thirteen percent (113%) of the square footage enclosed
within a perimeter line constituting the midpoint of the outer wall or the glass
line of the Building and the midpoint of the common walls separating the Leased
Premises from the Common Areas or other tenants of the Building, after deducting
space occupied by elevator shafts and other vertical penetrations of the Leased
Premises for the use of other tenants of the Building but without deducting
space occupied by columns or other intrusions into the Leased Premises which
constitute structural components of the Building.
4.24 Operating Cost. All costs incurred or to be incurred by
Landlord for any given calendar year in connection with the management,
operation and maintenance of the Building and the Park, the land on which the
Building stands and any other plaza areas, parking areas or pedestrian and
vehicular rights-of-way associated therewith, the Common Areas, all other
improvements on the land and all appurtenances thereto, adjusted to reflect the
greater of actual or a minimum of ninety percent (90%) occupancy of the Building
and computed on an accrual basis. By way of illustration, but not limitation,
Operating Cost will include expenditures for: taxes, assessments and
governmental charges (including taxes on rents or services); utility charges;
sewerage charges; real and personal property ad valorem taxes, special
assessment or similar charges imposed by federal, state or local governments on
the Building and the land on which the Building stands; the Building's pro rata
share of the common area expenses of The Urban Center at Liberty Park Owners'
Association, Inc. and/or The Liberty Park Master Owners' Association, Inc.
relating to the operation, maintenance and repair of the parking areas,
pedestrian and vehicular rights of way, alleys, walls, plazas and concourses now
or hereafter located within The Urban Center at Liberty Park (the "Park")
including, but not limited to, expenditures for snow and ice removal,
landscaping, lighting and security services for the benefit of the Park;
cleaning (including supplies and janitorial services); pest control; licenses,
permits and inspection fees; insurance premiums; heating and cooling charges;
repairs; management expenses; equipment rental; ground rental; reasonable
reserves for repair and replacement; labor; supplies; and security charges. The
following will be excluded from Operating Cost: charges which are reimbursed to
Landlord; depreciation; debt service and interest; capital expenditures to the
extent paid from reserves previously accrued; costs of the Leasehold
Improvements; leasing commissions; and income, franchise and similar taxes which
are personal to Landlord.
4.25 Park. The commercial mixed-use development currently
known as The Urban Center at Liberty Park located in the City of Vestavia Hills,
Jefferson County, Alabama, within which the Building is located.
4.26 Rent. The sums to be paid by Tenant to Landlord as Base
Rent and Additional Rent pursuant to Paragraph 3 of this Lease and such other
amounts as required to be paid by Tenant to Landlord pursuant to the terms of
this Lease.
4.27 Substantial Completion. The completion of the
construction of the Building and the Leasehold Improvements to the extent that
the same can be occupied by Tenant.
4.28 Tenant. The party executing this Lease in such capacity
and such party's permitted successors and assigns.
4.29 Tenant Improvements. Any improvements existing or to be
installed in the Leased Premises at the expense of the Tenant.
4.30 Tenant's Share. A fraction computed by Landlord having as
the numerator the Net Rentable Area contained within the Leased Premises and as
the denominator the Net Rentable Area for office occupancy contained in the
Building. The Tenant's Share is agreed by Landlord and Tenant to be
3,155/162,990, or 1.94%.
5. Leasehold Improvements. The Landlord has caused to be prepared, at
Landlord's expense, Final Working Drawings for the construction of Leasehold
Improvements within the Leased Premises by the architectural firm of Williams
Blackstock Architects. Such Final Working Drawings which are dated December 3,
1996, have been mutually approved by Landlord and Tenant. Within ten (10)
business days after complete execution of this Lease, the Landlord will prepare
and submit to the Tenant the Construction Agreement setting forth the
Construction Costs and providing for payment of a supervision fee to the
Landlord in the amount which is equal to ten percent (10%) of the Construction
Costs. The Tenant agrees to execute and deliver the Construction Agreement to
Landlord within five (5) days after receipt of the same by Tenant. It is
expressly agreed that Tenant accepts the Leased Premises in its "AS-IS"
condition, subject only to the modifications contained in the Final Working
Drawings. All Leasehold Improvements to the Leased Premises will be installed at
the Tenant's expense except that Landlord agrees to credit the Tenant with an
allowance equal to the product of $5.00 times the number of square feet of Net
Rentable Area in the Leased Premises totaling 3,155, which product equals
$15,775.00 (the "Tenant Allowance"). The Tenant Allowance shall be utilized to
fund the cost of the Leasehold Improvements; provided, however, to the extent
the Tenant Allowance exceeds the cost of the Leasehold Improvements, such excess
may be utilized as a credit to offset Base Rent to be paid by Tenant to
Landlord. Any sums allowable as a credit to offset Base Rent will not bear
interest and will be payable only by means of a reduction of Base Rent first due
under this Lease until such credit is fully used. Subsequent to the execution of
the Construction Agreement, the Landlord will construct or cause to be
constructed the Leasehold Improvements for the Leased Premises. The Landlord
will have no obligation to commence construction of such Leasehold Improvements
until the Landlord and the Tenant have executed the Construction Agreement. The
Construction Costs and the supervision fee payable under the Construction
Agreement, less the Tenant Allowance utilized to fund the cost of such Leasehold
Improvements, will be paid by the Tenant to the Landlord on the date of
Substantial Completion of the Leasehold Improvements.
6. Tenant Deposit. Tenant agrees to deposit with Landlord
simultaneously with the execution of this Lease an amount equal to one (1)
month's Base Rent. Such deposit will be held by Landlord throughout the Lease
Term without liability for interest and as security for the performance by
Tenant of Tenant's obligations under this Lease, it being expressly understood
that the deposit will not be considered an advance payment of Rent or a measure
of Landlord's damages for any default by Tenant on termination of this Lease.
Landlord may commingle the deposit with Landlord's other funds and may, from
time to time, without prejudice to any other remedy, use the deposit to satisfy
any arrearages of Rent or any other obligation of Tenant hereunder. Following
any such application of the deposit, Tenant will pay Landlord on demand the
amount so applied and restore the deposit to its original amount. If Tenant is
not in default at the termination of this Lease, the balance of the deposit
remaining after any such application will be returned by Landlord to Tenant. If
Landlord transfers Landlord's interest in the Leased Premises during the Lease
Term, Landlord may assign the deposit to the transferee and thereafter the
transferor will have no further liability with respect to such deposit.
7. Payments. Tenant agrees to pay all Rent at the times and in the
manner herein provided. Time is of the essence in the performance of each of
Tenant's obligations hereunder. In the event any payment of Rent is not made
within five (5) days after its due date, then Late Charges will be assessed as
set forth in Paragraph 3.5 above. In the event any payment of Rent or any other
sums payable by Tenant under the terms of this Lease are not made within ten
(10) days after its due date, then in addition to Late Charges, such amount
shall bear interest daily until paid at the lesser of the rate of eighteen
percent (18%) per annum or the highest lawful per annum rate allowed under
applicable law.
8. Use. Tenant will not use or permit any portion of the Leased
Premises to be used for any purpose other than for office space. Tenant may not
use the Leased Premises for any purpose which is unlawful, disreputable,
adversely affects Landlord's leasing of the Building or increases the risk of
casualty or the rate of fire or casualty insurance covering the Building or its
contents. In the event that any act of Tenant results in any increase in the
cost of insurance covering the Building or its contents, Tenant agrees to pay to
Landlord the amount of such increased cost. Tenant will conduct Tenant's
business and will control Tenant's agents, employees, licensees and invitees in
such a manner as not to create any nuisance, interfere with, annoy or disturb
other tenants or Landlord. Tenant will maintain the Leased Premises in a clean
and healthful condition. Tenant, at Tenant's expense, shall itself comply and
shall cause Tenant's agents, employees, licensees and invitees to comply fully
with the Building Regulations and with all laws, rules, orders, ordinances,
directions, regulations and requirements of federal, state, county and municipal
authorities pertaining to Tenant's use of the Leased Premises and with all
recorded covenants, conditions and restrictions including, without limitation,
all applicable federal, state and local laws, regulations or ordinances
pertaining to air and water quality, hazardous materials, waste disposal, all
emissions and other environmental matters, all zoning and other land use matters
and with any direction of any public officer or officers, pursuant to law, which
shall impose any duty upon Landlord or Tenant with respect to the use or
occupancy of the Leased Premises.
9. Americans With Disabilities Act Requirements. Landlord is
responsible for and will maintain the Common Areas of the Building in compliance
with the public accommodations provisions of Title III of the Americans With
Disabilities Act of 1990, as amended (the "ADA"), and Landlord shall bear the
cost of any improvements, repairs, renovations or modifications that may from
time to time be required to the Common Areas to bring the Building into
compliance or maintain the Building's compliance with Title III of the ADA.
Tenant shall indemnify and hold Landlord harmless from and against any losses,
costs, damages or claims of whatever nature, arising out of or in connection
with the compliance requirements set forth in the ADA, as amended, relating to
the use and occupancy of the Leased Premises and/or alteration and/or renovation
of the Leasehold Improvements, including, but not limited to, any changes
necessitated because of the specific needs of Tenant's employees. The Landlord
shall indemnify and hold the Tenant harmless from and against any losses, costs,
damages or claims arising out of or in connnection with the compliance
requirements set forth in the ADA relating to the Building ( other than the
Leased Premises ) and the Common Areas.
10. Landlord's Services. So long as Tenant is not in default and
subject to the limitations prescribed by the Building Regulations set forth as
Schedule "3" hereto (as may be modified from time to time by Landlord), Landlord
agrees to furnish to Tenant during the Business Hours of the Building the
following services: (a) access to running water at the points of supply
generally provided in the Building; (b) heated and refrigerated air conditioning
at such times, temperatures and in such amounts as Landlord regularly provides
to tenants of the Building (specifically excluding, however, service, if
necessary, for the operation of Tenant's supplemental heating, ventilation and
air conditioning system for Tenant's computer room, if any, which is considered
excess service and will be provided at additional cost to Tenant as hereafter
provided); (c) elevator service in common with other tenants of the Building;
(d) access to electrical power as Landlord regularly provides to other tenants
of the Building during the Business Hours of the Building (specifically
excluding, however, electrical power, if necessary, for high electrical
consumption equipment such as is used in electronic data processing and computer
equipment, if any, which is considered excess service and will be provided at
additional cost to Tenant as hereafter provided); (e) janitorial services as
Landlord determines to be reasonably required; (f) ordinary maintenance services
as Landlord determines to be reasonably required to maintain the exterior and
mechanical systems of the Building and the Common Areas; and (g) electric
lighting for the Common Areas in the manner and to the extent deemed by Landlord
to be reasonably required. Landlord will promptly endeavor to repair any
malfunction of the Building, but the failure to any extent to furnish or any
stoppage or interruption of the foregoing services will not render Landlord
liable in any respect for damages to Tenant or any other person or be construed
as an eviction of Tenant or entitle Tenant to any abatement of Rent or relieve
Tenant from performing any obligation contained herein. To the extent Tenant
requests, uses or requires services in excess of the services regularly provided
by Landlord pursuant to the terms of this Lease, or requests, uses or requires
services at times other than when such services are regularly provided by
Landlord pursuant to the terms of this Lease, then Tenant agrees to pay to
Landlord such charges as Landlord might from time to time prescribe for such
additional services.
11. Quiet Enjoyment. Landlord agrees that if Tenant pays Rent herein
reserved and performs the obligations of Tenant hereunder, Tenant will
peacefully hold the Leased Premises throughout the Lease Term.
12. Insurance. Tenant will maintain at Tenant's expense throughout the
Lease Term a policy or policies of insurance insuring Tenant and Landlord
against: (a) loss or damage by fire, explosion or other casualty covering the
Leasehold Improvements and Tenant's property located in the Leased Premises for
the full replacement cost thereof; and (b) all liability for injury to or death
of any person occasioned by or arising out of or in connection with occupancy of
the Leased Premises, the limits of such policy or policies to be in an amount of
not less than $1,000,000.00 with respect to injuries to or death of any one
person and in an amount of not less than $3,000,000.00 with respect to any one
occurrence. Tenant will furnish evidence satisfactory to Landlord of the
maintenance of such insurance and will obtain a written obligation on the part
of each insurance company to notify Landlord at least ten (10) days prior to
cancellation of such insurance. Landlord will maintain, at Landlord's expense
through the Lease Term, a policy or policies of insurance insuring against: (a)
loss or damage by fire, explosion, or other casualty covering the Building and
the Common Areas for the full insurable value thereof; and (b) all liability for
injury to or death of any person occasioned by or arising out of or in
connection with the ownership, maintenance, management, leasing and operation of
the Building, the limits of such policy or policies to be in an amount of not
less than $1,000,000.00 with respect to injuries to or death of any one person
and in an amount of not less than $3,000,000.00 with respect to any one
occurrence.
13. Waiver of Certain Claims. Each of the parties hereto does hereby
release the other from all liability for damage due to any act or neglect of the
other (except as hereinafter provided) occasioned to property owned by said
parties which is or might be incident to or the result of any casualty for which
either of the parties is now carrying, is required by this Lease to carry or may
hereafter carry insurance; provided, however, the releases herein contained
shall not apply to any loss or damage occasioned by the deliberate, harmful act
of either of the parties hereto. The parties hereto further agree that any
insurance they obtain on their respective properties shall contain an
appropriate provision whereby the insurance company, or companies, consent to
the mutual release of liability contained in this paragraph and waive all right
of recovery by way of subrogation against Landlord or Tenant in connection with
any loss or damage covered by any such policies. Neither party shall be liable
to the other for any loss or damage caused by fire or any other risks enumerated
in its policies, provided such waiver was obtainable at the time of such loss or
damage. If such waiver can be obtained only at additional expense, the
obligation to obtain such waiver shall continue if the party desiring such
waiver, after notice, shall pay the amount of such additional expense. Upon
request by either party, Tenant or Landlord shall provide the other with proof
of insurance containing evidence of the insurer's acknowledgment of the
provisions of this Paragraph 13.
14. Acceptance. By taking possession of the Leased Premises, Tenant
will be deemed to have accepted the Leased Premises as suitable for the purposes
for which the same are leased, to have accepted the Building and to have waived
any defects therein, excepting latent defects; subject, however, to the
completion by Landlord within a reasonable time after occupancy of certain
cosmetic details to the Leasehold Improvements reflected on a written punchlist
submitted by Tenant to Landlord within ten (10) days after the date of
Substantial Completion.
15. Alterations, Repairs. Tenant will make no alterations or additions
to the Leased Premises without the prior written consent of Landlord. Tenant
will, at Tenant's expense, maintain the Leased Premises in sound condition and
good repair, and upon prior written approval of Landlord, will repair or replace
any damage done to the Building or the Leased Premises by Tenant or Tenant's
agents, employees, licensees or invitees. Tenant will not commit or allow any
waste or damage to be committed on any portion of the Leased Premises and on the
termination of this Lease, Tenant will deliver up the Leased Premises and the
Leasehold Improvements to Landlord in the condition which existed on the
Commencement Date, ordinary wear and tear and insured casualty loss excepted.
All repairs and permitted alterations or additions to the Leased Premises will
be performed by Landlord or persons designated by Landlord, at Tenant's expense.
16. Assignment, Subletting. Tenant will not assign or encumber this
Lease or any interest herein or sublet the Leased Premises in whole or in part
or suffer any other person to occupy the Leased Premises or any portion thereof
without the prior written consent of Landlord, and any such assignment,
encumbrance, subletting or occupancy without such consent will be void. If
Tenant desires Landlord to consent to a subleasing or assignment of all or part
of the Leased Premises then Tenant shall be required to submit such information
as Landlord shall require to evaluate the proposal and Tenant shall be
responsible for paying for the costs of Landlord's expenses in reviewing the
proposal and drafting the necessary documents, if any, including reasonable
attorney fees incurred by Landlord. Notwithstanding anything to the contrary in
the foregoing portions of this Paragraph, no consent or approval by the Landlord
shall be required to any assignment or subleasing of the Leased Premises, in
whole or in part, to any entity which is an "affiliate" of Tenant within the
meaning of the Securities Act of 1933, as amended, and applicable regulations
thereunder.
17. Condemnation. If the Leased Premises or the Building is taken or
condemned in whole or part for any public use or purpose by right of eminent
domain or is transferred by agreement in connection with or in lieu of or under
threat of condemnation, the Lease Term and the leasehold estate created hereby
will, at the option of Landlord, terminate as of the date title vests in the
condemnor or transferee. Landlord will receive the entire award from such taking
(or the entire compensation paid on account of any transfer by agreement).
Tenant will have no claim thereto and Tenant assigns any right it might have to
recover any money by the taking to Landlord.
18. Casualty. If the Leased Premises are damaged by fire or other
casualty and such damage cannot be repaired within one hundred eighty (180) days
(as estimated by Landlord as soon as reasonably practicable after the occurrence
of such damage), this Lease, at the option of Landlord, exercised by giving
written notice thereof to Tenant within ninety (90) days after the occurrence of
such damage, will terminate as of the date such notice is given. On such
termination Tenant will pay Rent and all other obligations of Tenant apportioned
to the date on which such damage occurred and will immediately surrender the
Leased Premises to Landlord. If the damage can be repaired within one hundred
eighty (180) days, or if the damage cannot be repaired within one hundred eighty
(180) days but Landlord does not exercise the option to terminate this Lease,
Landlord will make the necessary repairs to the Leasehold Improvements, at
Tenant's expense (to the extent not covered by the proceeds of insurance
required to be carried by the Tenant pursuant to the terms of this Lease), and
this Lease will continue in effect, but Rent will be equitably reduced or abated
(as determined in the good faith judgment of Landlord) until such repairs are
made, unless such damage is so slight that Tenant's occupancy of the Leased
Premises is not materially interrupted, in which case Rent will not be abated or
reduced. Repairs to the Building and the Common Areas will be made by Landlord
at Landlord's expense.
19. Entry. Landlord and Landlord's agents, employees and contractors
will have the right to enter the Leased Premises at all reasonable hours (or, in
any emergency, at any hour), to inspect, clean, repair or alter the Leased
Premises as Landlord may deem necessary and Tenant will not be entitled to any
abatement or reduction of Rent by reason thereby.
20. Holding Over. If Tenant continues to occupy the Leased Premises
after the Expiration Date or other termination of the Lease Term, such holding
over will, unless otherwise agreed by Landlord in writing, constitute a month to
month tenancy and Tenant shall pay an amount equal to twice the amount of Rent
payable during the last month prior to the termination of this Lease and be
subject to all of the other provisions set forth in this Lease.
21. Abandoned Property. Landlord may, at Landlord's option, take
possession of all personal property not removed by Tenant from the Leased
Premises if no employee of Tenant enters the Leased Premises for a period of
twenty (20) days or if Landlord receives notice or has a reasonable belief
Tenant has abandoned the Leased Premises. Landlord may remove and store such
property, at the expense of Tenant, without being liable to Tenant therefor.
Landlord will thereafter notify Tenant in writing of such event and if Tenant
fails to recover such property from Landlord within thirty (30) days after
delivery of such notice, Landlord may dispose of such property in any
commercially reasonable manner and apply any net proceeds, after deducting any
costs and fees incurred in securing, storing and selling such property, against
any Rent or other amounts due hereunder, or if no amounts are due Landlord
hereunder, then to Tenant.
22. Default. Tenant's failure to pay any Rent or other sums payable by
Tenant hereunder when such sums become due will be an event of default by Tenant
under this Lease when such sums remain unpaid for a period of ten (10) days
following the date due for payment of Rent. The following events will also be
deemed to be events of default by Tenant under this Lease if Tenant fails to
cure any of the following within fifteen (15) days after Landlord's provision of
written notice to Tenant of the existence of such an event of default:
(a) failure to comply with any term of this Lease or the Building
Regulations to be observed by Tenant other than non-payment of any Rent when
due;
(b) failure by Tenant to continue to occupy all of the Leased Premises
and to conduct and operate Tenant's business within the Leased Premises during
the Business Hours of the Building; or Tenant's abandonment of the Leased
Premises;
(c) the filing by or against Tenant or any Guarantor of any proceeding
under the federal bankruptcy act or any similar law;
(d) the adjudication of Tenant or any Guarantor as bankrupt or
insolvent in proceedings filed under the federal bankruptcy act or any similar
law;
(e) the making by Tenant or any Guarantor of a transfer in fraud of
creditors or an assignment for the benefit of creditors;
(f) the appointment of a receiver for Tenant or any Guarantor or for
any assets of Tenant;
(g) the insolvency of Tenant or any Guarantor, or Tenant's or
Guarantor's inability to pay its debts as they become due;
(h) discovery of any material misrepresentation or omission made with
respect to Tenant's disclosure of Tenant's financial condition as submitted by
Tenant to Landlord; or
(i) the occurrence of the fourth or more default by Tenant within any
12 month period during the Lease Term regardless of the fact that any earlier
defaults have been cured.
23. Remedies. On the occurrence of any event of default and after
providing notice and the opportunity to cure any such default as may be
required, Landlord has the option to do any one or more of the following without
any further notice or demand, in addition to and not in limitation of any other
remedy permitted by law, in equity, or by this Lease:
23.1 Termination. Landlord may terminate this Lease, in which
event Tenant will immediately surrender the Leased Premises to Landlord, but if
Tenant fails to do so, Landlord may without notice and without prejudice to any
other remedy Landlord might have, enter and take possession of the Leased
Premises and remove Tenant and Tenant's property therefrom without being liable
to prosecution or any claim for damages therefor.
23.2 Reletting. Landlord may enter and take possession of the
Leased Premises without terminating this Lease and without being liable to
prosecution or any claim for damages therefor, and Landlord may change the locks
on the doors to the Leased Premises to exclude Tenant therefrom and immediately
discontinue furnishing any utilities and other services Landlord has been
providing. Thereafter, Landlord may relet the Leased Premises as the agent of
Tenant and receive the rent therefor, in which event Tenant will pay to
Landlord, on demand, the cost of renovating, repairing and altering the Leased
Premises and any deficiency that might arise by reason of such reletting;
provided, however, that Landlord will have no duty to relet the Leased Premises
and the failure of Landlord to relet the Leased Premises will not release or
affect Tenant's liability for Rent or for damages. Any action committed by
Landlord pursuant to this paragraph shall in no way cause or result in any
abatement of Rent or any other charge payable by Tenant under this Lease.
23.3 Option to Perform. Landlord may perform or cause to be
performed, but is under no obligation to perform, the obligations of Tenant
under this Lease and may enter the Leased Premises to accomplish such purpose
without being liable to prosecution or any claim for damages therefor. Tenant
agrees to reimburse Landlord on demand for any expense or cost, including
reasonable attorneys' fees, which Landlord might or does incur in effecting
compliance with this Lease on behalf of Tenant. Except for gross negligence by
Landlord, Landlord shall not be liable or responsible for any loss,
inconvenience, annoyance or damage resulting to Tenant or anyone holding under
Tenant for any action taken by Landlord pursuant to this Paragraph 24.
23.4 Reservation of Rights. The rights granted to Landlord in
this Lease are cumulative of every other right or remedy which Landlord might
otherwise have at law or in equity and the exercise of one or more rights or
remedies will not prejudice the concurrent or subsequent exercise of other
rights or remedies.
24. Tenant Bankruptcy. In the event any act of bankruptcy (as set forth
in items (c), (d), (e), (f) or (g) of Paragraph 23) shall occur and this Lease
is not terminated pursuant to the provisions of Paragraph 24.2 above, the
parties agree:
24.1 Cutoff of Utilities. That if there shall be a default in
the payment of Base Rent or any Additional Rent, or a default in the observance
or performance of any other provision of this Lease binding on Tenant, Landlord
shall be entitled to immediately discontinue furnishing any utilities and other
services it has been providing to the Leased Premises, until such time as such
defaults have been fully cured and/or adequate protection of Landlord's
interests is made and assurances of future performance are made, it being agreed
that the foregoing action by Landlord shall in no way cause or result in any
abatement of Rent or any other charge payable by Tenant during the continuance
of the term of this Lease.
24.2 Assumption of Lease by Trustee. That if this Lease is
assumed by a trustee in bankruptcy, and assigned by the trustee to a third
party, then such party shall (a) execute and deliver to Landlord an agreement in
recordable form whereby such party confirms that it has assumed and agrees with
Landlord to discharge all obligations (including, without limitation, the
provisions of this Lease respecting the Permitted Use of the Leased Premises and
the manner of operation thereof) binding on Tenant under this Lease, (b)
represent and warrant in writing to Landlord that such party has a net worth and
operating experience at least comparable to that possessed by Tenant named
herein and/or Guarantor as of the execution of this Lease; (c) deposit with
Landlord a Security Deposit and advance rent equal to that initially deposited
by Tenant named herein; and (d) grant Landlord, to secure the performance of
such party's obligations under this Lease, a security interest in such party's
merchandise, inventory, personal property, fixtures, furnishings, and all
accounts receivable (and in the proceeds of all of the foregoing) with respect
to its operations in the Leased Premises; and in connection therewith, such
party shall execute such security agreements, financing statements and other
documents (the forms of which are to be designated by Landlord) as are necessary
to perfect such lien.
24.3 Assignment of Lease. Any person or entity to which this
Lease is assigned pursuant to any applicable provisions of the United States
Bankruptcy Code, shall be deemed without further act or deed to have assumed all
of the obligations arising under this Lease on and after the date of such
assignment. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other considerations
payable or otherwise to be delivered in connection with such assignment shall be
paid or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of Tenant
within the meaning of the Bankruptcy Code. Any and all monies or other
considerations constituting Landlord's property under the preceding sentence not
paid or delivered to Landlord shall be held in trust for the benefit of Landlord
and be promptly paid or delivered to Landlord.
24.4 Office Lease. This Lease shall be deemed a Lease of
"Nonresidential Real Property" within an "Office Building" for the purpose of
Section 365 of the Federal Bankruptcy Code.
25. Landlord Non-Waiver of Remedies. No action by Landlord during the
Lease Term will be deemed an acceptance of an attempted surrender of the Leased
Premises and no agreement to accept a surrender of the Leased Premises will be
valid unless made in writing and signed by Landlord. No re-entry or taking
possession of the Leased Premises by Landlord will be construed as an election
by Landlord to terminate this Lease, unless a written notice of termination is
given to Tenant. Notwithstanding any such reletting, re-entry or taking
possession, Landlord may at any time thereafter elect to terminate this Lease
for a previous default. Landlord's acceptance of Rent following the occurrence
of an event of default will not be construed as Landlord's waiver of such event
of default. No waiver by Landlord of any default by Tenant will be deemed to
constitute a waiver of any other or future default hereunder. Forbearance by
Landlord to enforce one or more of the remedies herein provided will not be
deemed to constitute a waiver of any default. The failure of Landlord to enforce
the Building Regulations against Tenant or any other tenant in the Building will
not be deemed a waiver thereof. No provision of this Lease will be deemed to
have been waived by Landlord unless such waiver is in writing signed by
Landlord.
26. Landlord's Transfer. In the event Landlord transfers Landlord's
interest in the Building, Landlord will thereby be released from any further
obligation hereunder and the transferee will thereafter be liable for the
performance of any obligations of Landlord hereunder and Tenant agrees to attorn
and look solely to the transferee for the performance of such obligations. The
agreement of Tenant to attorn to the transferee of Landlord will survive any
termination of rights of Landlord in the Building and Tenant agrees to execute
and deliver to the transferee or Landlord from time to time within ten (10) days
after written request therefor all instruments which might be required by
Landlord to confirm such attornment.
27. Subordination. This Lease and all rights of Tenant hereunder will,
at the option of Landlord, be subject and subordinate to all Encumbrances.
Tenant agrees to execute and deliver to Landlord from time to time within ten
(10) days after written request by Landlord all instruments which might be
required by Holder to confirm such subordination. Notwithstanding the foregoing
provisions, Tenant agrees that any Holder will have the right at any time to
subordinate any rights of such Holder to the rights of Tenant under this Lease
on such terms and subject to such conditions as such Holder deems appropriate in
such Holder's absolute discretion.
28. Certificates. Tenant agrees to execute and deliver from time to
time within ten (10) days after written request by Landlord a certificate, to
the extent true or except as otherwise set forth in the certificate, certifying
that: Tenant has entered into occupancy of the Leased Premises and is presently
open and conducting Tenant's business with the public in the Leased Premises;
the amount of Base Rent payable by Tenant under this Lease; this Lease is in
full force and effect and has not been assigned, modified, supplemented or
amended; neither Landlord nor Tenant is in default under this Lease; this Lease
represents the entire agreement between Landlord and Tenant pertaining to the
Leased Premises; the date on which the Lease Term expires as specified at
Paragraph 2 of this Lease; all conditions under this Lease to be performed by
Landlord have been satisfied; no Rent has been paid more than thirty (30) days
in advance of its due date; no defense or offset currently exists or is claimed
by Tenant against Landlord or against enforcement of this Lease by Landlord; the
amount of the security deposit paid by Tenant to Landlord pursuant to Paragraph
6 of this Lease; the address for notices to be sent to Tenant is as set forth in
such certificate or at the Leased Premises; Tenant will look only to Landlord
for return of any deposit hereunder; and such other certifications which might
reasonably be required by Landlord. The certificate will also contain an
agreement by Tenant with Holder that after the date of such certificate, Tenant
will not: pay any Rent more than thirty (30) days in advance of its due date;
surrender or consent to the modification, amendment or termination of this Lease
by Landlord; or seek to terminate this Lease by reason of any default by
Landlord until Tenant has given thirty (30) days prior written notice of such
default to Holder and such default shall not have been cured within a reasonable
time after giving such notice. Tenant will furnish to Landlord from time to time
when requested by Landlord a statement of the financial condition of Tenant
prepared by an independent, certified public accountant in form reasonably
satisfactory to Landlord.
29. Hazardous Materials. Tenant shall not cause or permit any Hazardous
Material to be brought upon, kept or used in or about the Leased Premises by
Tenant, its agents, employees, contractors or invitees without the prior written
consent of Landlord, which Landlord shall not unreasonably withhold as long as
Tenant demonstrates to Landlord's reasonable satisfaction that such Hazardous
Material is necessary or useful to Tenant's business and will be used, kept and
stored in a manner that complies with all laws regulating any such Hazardous
Material so brought upon or used or kept in or about the Leased Premises. If
Tenant breaches the obligations stated in the preceding sentence, or if the
presence of Hazardous Material on the Leased Premises caused or permitted by
Tenant results in contamination of the Leased Premises, or if contamination of
the Leased Premises by Hazardous Material otherwise occurs for which Tenant is
legally liable to Landlord for damage resulting therefrom, then Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses (including, without
limitation, diminution in value of the Leased Premises, damages for the loss or
restriction on use of rentable or usable space or of any amenity of the Leased
Premises, damages arising from any adverse impact on marketing of space, and
sums paid in settlement of claims, attorneys' fees, consultant fees and expert
fees) which arise during or after the lease term as a result of such
contamination. This indemnification of Landlord by Tenant includes, without
limitation, costs incurred in connection with any investigation of site
conditions or any clean-up, remedial, removal or restoration work required by
any federal, state or local governmental agency or political subdivision because
of Hazardous Material present in the soil or ground water on or under the Leased
Premises. Without limiting the foregoing, if the presence of any Hazardous
Material on the Leased Premises caused or permitted by Tenant results in any
contamination of the Leased Premises, Tenant shall promptly take all actions at
its sole expense as are necessary to return the Leased Premises to the condition
existing prior to the introduction of any such Hazardous Material to the Leased
Premises; provided, that Landlord's approval of such actions shall first be
obtained, which approval shall not be unreasonably withheld so long as such
actions would not potentially have any material adverse long-term or short-term
effect on the Leased Premises. The foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
29.1 Disclosure. Within thirty (30) days of receipt of written
request from Landlord, Tenant shall disclose to Landlord the names and amounts
of all Hazardous Materials, or any combination thereof, which were stored, used
or disposed of on the Leased Premises, or which Tenant intends to store, use or
dispose of on the Leased Premises.
29.2 Inspection. Landlord and its agents shall have the right,
but not the duty, to inspect the Leased Premises at any time to determine
whether Tenant is complying with the terms of this Lease. Notwithstanding any
other provision of this Lease, if Tenant is not in compliance, Landlord shall
have the right to immediately enter upon the Leased Premises to remedy any
contamination caused by Tenant's failure to comply. Tenant shall reimburse
Landlord for all costs and expenses incurred by Landlord in connection with any
investigation of site conditions or any action to remedy any contamination.
Additionally, Tenant shall reimburse Landlord for any clean-up, remedial,
removal or restoration work required by any federal, state or local governmental
agency or political subdivision and pay any other amounts provided in this
Paragraph 30. Landlord shall use its best efforts to minimize interference with
Tenant's business, but shall not be liable for any interference caused thereby.
29.3 Default. Any default under this Paragraph 30 shall be a
material default enabling Landlord to exercise any of the remedies set forth in
this Lease.
30. Termination Option. Notwithstanding the provisions of the Lease to
the contrary and provided that (a) the Lease is in effect on December 31, 1999,
and (b) an event of default is not continuing hereunder, then the Landlord
grants to Tenant the option to terminate Tenant's future obligations under the
Lease (the "Termination Option"). To exercise the Termination Option, the Tenant
must (a) provide written notice to Landlord of the Tenant's election to exercise
the Termination Option, which written notice must be delivered to Landlord no
less than ninety (90) days prior to December 31, 1999; and (b) pay to Landlord
in cash an amount equal to $10,776.52 (the "Termination Consideration"), which
amount represents consideration for the early termination of the Lease. In the
event the Tenant exercises this Termination Option, Tenant shall continue to pay
Rent through December 31, 1999. Further, the Tenant shall pay to Landlord the
sum of $10,150.00 (the "Allowance Recapture") which represents the approximate
unamortized balance of the Tenant Allowance provided by Landlord for the
construction of the Leasehold Improvements with respect to the Leased Premises.
In the event that Tenant exercises the Termination Option hereunder, the
Termination Consideration and the Allowance Recapture shall be paid by Tenant to
the Landlord within thirty (30) days following Tenant's written notice
exercising the Termination Option. In the event the Termination Option is not
timely exercised in strict compliance with the terms hereof, then the
Termination Option will expire and the Tenant will have no further right to
terminate the Lease, which will remain in full force and effect. However, it is
expressly agreed that in the event Tenant exercises the Termination Option
hereunder, then the Lease will terminate and Landlord and Tenant agree to
execute a Surrender and Acceptance Agreement to evidence the termination on the
terms set forth herein.
31. Landlord's Relocation. Notwithstanding anything in the Lease to the
contrary, the Landlord shall have the right, upon sixty (60) days written notice
to the Tenant, to provide and furnish the Tenant with space elsewhere in the
Building or The Urban Center at Liberty Park (the "Park") of approximately the
same size, configuration and decor as the Leased Premises and to move and place
the Tenant in such new space at Landlord's sole expense; provided however,
Tenant shall have no obligation to move until such remodeling is completed. In
the event Tenant does not provide Landlord with written notice of approval of
the relocation of the Leased Premises as proposed by Landlord within thirty (30)
days after the date of Landlord's written notice, the Lease, at Landlord's
option, may be terminated upon Landlord's second (2nd) written notice to Tenant,
with such termination to be effective at the expiration of the sixty (60) day
period provided in the initial notice from Landlord. In the event the Landlord
moves the Tenant from the Leased Premises to the new relocation space, then the
Lease and each and all of the terms, covenants and conditions thereof shall
remain in full force and effect, and such new relocation space will be
substituted for the Leased Premises hereunder and the Landlord and the Tenant
will promptly execute an amendment to the Lease evidencing such relocation.
32. Tenant's Relocation. Notwithstanding anything in the Lease to the
contrary, in the event the Leased Premises is not reasonably meeting Tenant's
space needs, then Tenant, at any time during that portion of the Lease Term
beginning one hundred eighty (180) days subsequent to the Commencement Date with
respect to the Leased Premises and ending one hundred eighty (180) days prior to
the Expiration Date (the "Relocation Period") may request that Landlord relocate
the Leased Premises to "Available Space" as hereafter defined, within the Park.
The term "Available Space" as used herein shall mean any contiguous block of
office space in the Park containing approximately 5,500 to 6,500 square feet of
Net Rentable Area which is then vacant and which space: (a) is not subject to an
expansion option or other preferential right held by an existing tenant; (b) is
not subject to then ongoing specific discussions with a prospective tenant for
the leasing of such space; and (c) is of similar decor to the Leased Premises.
To request such relocation, the Tenant, during the Relocation Period, must
provide Landlord with sixty (60) days written notice of Tenant's desire to
relocate. Within thirty (30) days following the Landlord's receipt of Tenant's
notice, Landlord will provide Tenant with a list of all Available Space in the
Park and the terms upon which Landlord is willing to lease the respective
Available Space to Tenant. Within thirty (30) days following Tenant's receipt of
Landlord's notice of Available Space and lease terms with respect thereto,
Tenant shall advise Landlord of whether Tenant desires to relocate the Leased
Premises to any such Available Space. In the event Tenant provides Landlord
notice of its election to relocate the Leased Premises to Available Space, then
as soon as practical after Landlord receipt of Tenant's notice thereof, but in
no event greater than one hundred twenty (120) days thereafter, Tenant shall
move to the selected Available Space. All costs to move and place Tenant in such
new space shall be paid by Tenant. Upon Tenant's occupancy of the new space,
such new space will become a part of the Leased Premises and the Phase I Space
and Phase II Space shall no longer be a part of the Leased Premises. The
Landlord and Tenant will promptly execute an amendment to the Lease evidencing
such relocation and the terms upon which Tenant shall lease the selected
Available Space. In the event the Tenant does not approve of any of the
Available Space as proposed by the Landlord within thirty (30) days after
receipt of Landlord's written notice, the Lease will nevertheless continue in
full force and effect with respect to the Leased Premises. Notwithstanding the
foregoing, Tenant shall have the right to make two (2) requests to relocate the
Leased Premises to suitable Available Space within the Park during any
consecutive twelve (12) month period in the Relocation Term, and Landlord agrees
to use reasonable efforts to satisfy Tenant's relocation needs.
33. Miscellaneous. Landlord and Tenant further agree as follows:
33.1 Park and Building Name. Landlord reserves the right at
any time to change the name of either the Park or the Building without liability
to Tenant.
33.2 Brokerage. Tenant represents to Landlord that the lease
of space described in the Lease was brought about solely by the efforts of L.
Sorrell Chew (the "Landlord's Broker") and Tenant has dealt with no other broker
in connection with the leasing of the Leased Premises. Landlord agrees to pay
the brokerage commission earned by the Landlord's Broker in connection with the
consummation of the Lease. It is agreed that if any other claims for commissions
are ever made against either the Landlord or the Tenant in connection with this
Lease, all such claims shall be handled and paid by the party whose actions form
the basis of such claims, and such party shall indemnify and hold harmless the
other from and against any and all such claims or demands with respect to any
commissions asserted by any person, firm, or corporation in connection with this
Lease.
33.3 Recording. Landlord and Tenant agree that this Lease will
not be recorded, but that a memorandum hereof in substantially the form set
forth at Schedule "4" attached as a part hereof will be executed and delivered
within ten (10) days after the written request of either party, which memorandum
may be recorded in Jefferson County, Alabama.
33.4 Notices. Any notice to be given hereunder will be deemed
to be given five (5) days after being deposited with the United States Postal
Service, certified or registered mail, return receipt requested, with sufficient
postage prepaid, addressed as indicated on page 1 hereof, or on the day of its
personal delivery to the office of the respective party set forth on page 1 of
this Lease; and if telecopied or delivered by overnight courier, such notice
will be deemed to be given on the business day immediately following the day on
which it was telecopied or deposited with the courier. Either party may at any
time designate any other address for notices by giving written notice of such
new address to the other party.
33.5 Joint and Several Liability. If Tenant comprises more
than one person, Tenant's obligations hereunder are joint and several. If there
is a Guarantor, Tenant's obligations hereunder are the joint and several
obligations of Tenant and Guarantor and the release, forbearance or discharge of
any Guarantor will not relieve Tenant from the performance of Tenant's
obligations hereunder.
33.6 Attorneys' Fees. If either the Landlord or the Tenant is
required to hire an attorney because of the breach by either party of any
provision of this Lease, then the party that prevails in any such action will be
entitled to receive its reasonable attorneys' fees and expenses from the
non-prevailing party to the extent permitted by law.
33.7 Entire Agreement. Tenant agrees that there are no
representations, understandings, stipulations, agreements or promises pertaining
to this Lease or the Leased Premises which are not incorporated herein. This
Lease will not be altered, waived, amended or extended, except by a written
agreement signed by Landlord and Tenant.
33.8 Severability. If any clause or provision of this Lease is
illegal, invalid or unenforceable under any present or future law, the remainder
of this Lease will not be affected thereby. It is the intention of the parties
that if any provision is held to be illegal, invalid or unenforceable, there
will be added in lieu thereof a provision as similar in terms to such provision
as is possible and be legal, valid and enforceable.
33.9 Binding Effect. The provisions of this Lease will be
binding on and inure to the benefit of Landlord and Tenant and their respective
heirs, personal representatives, successors and permitted assigns.
33.10 Governing Law. This Lease will be construed and enforced
according to the internal laws of the State of Alabama. All claims, disputes and
other matters in question arising out of or relating to this Lease, or the
breach thereof, will be decided by proceedings instituted and litigated in a
court of competent jurisdiction in the State of Alabama.
33.11 Amendment. This Lease will not be altered, waived,
amended or extended, except by a written agreement signed by Landlord and
Tenant.
33.12 Limitation of Damages to Tenant. In the event of any
alleged default of Landlord under this or any other provision of the Lease,
Tenant shall not seek to secure any claim for damages or indemnification by any
attachment, levy, judgment, garnishment or other security proceedings against
any property of Landlord other than Landlord's equity in the Building, it being
agreed and understood, however, that the maximum recovery of Tenant against
Landlord shall be in an amount equal to Landlord's equity interest in the
Building. It is understood and agreed that in no event shall Tenant have any
right to levy execution against any property of Landlord other than its interest
in the Building. Such right of execution shall be subordinate and subject to any
Encumbrance upon the Building.
33.13 Time. Time is of the essence in the performance of
Landlord's and Tenant's respective obligations hereunder.
IN WITNESS WHEREOF, this Lease has been executed and delivered at The
Urban Center at Liberty Park, under the hands and seals of the duly authorized
officers of the parties on the date first above written.
Landlord:
TORCHMARK DEVELOPMENT CORPORATION,
an Alabama corporation
By /s/ Mark D. Elgin
Mark D. Elgin,
Executive Vice President
Tenant:
BIRMINGHAM SOUTHEAST, L.L.C.,
a limited liability company
By: /s/ Joseph D. Corso
Name: Joseph D. Corso
Title: President
List of Schedules and Attachments:
Guaranty Form
Schedule 1: Description of Leased Premises
Schedule 2: Information Required for Final Working Drawings and
Construction Budget
Schedule 3: Building Regulations
Schedule 4: Form of Memorandum of Lease
Schedule 5: Form of Construction Agreement
<PAGE>
ITEM 14 (d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
BIRMINGHAM STEEL CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Provision Balance
at for Accounts at
Beginning Doubtful Written End of
of Year Acquisition Accounts off Year
--------- ----------- ---------- --------- --------
Year ended June 30, 1997 $1,554 $ - $543 $300 $1,797
Year ended June 30, 1996 1,368 - 418 232 1,554
Year ended June 30, 1995 1,737 136 558 1,063 1,368
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
/s/Robert A. Garvey 9/26/97
- -------------------------------
Robert A. Garvey 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.
/s/E. Mandell de Windt 9/26/97 /s/Robert A. Garvey 9/26/97
- ---------------------------------- ------------------------------
E. Mandell de Windt Date Robert A. Garvey Date
Chairman-Executive Committee Chairman of the Board,
Chief Executive
Officer, Director
/s/Harry Holiday, Jr. 9/26/97 /s/C. Stephen Clegg 9/26/97
- ----------------------------------- -------------------------------
Harry Holiday, Jr. Date C. Stephen Clegg Date
Director Director
/s/George A. Stinson 9/26/97 /s/E. Bradley Jones 9/26/97
- ----------------------------------- -------------------------------
George A. Stinson Date E. Bradley Jones Date
Director Director
/s/Reginald H. Jones 9/26/97 /s/T. Evans Wyckoff 9/26/97
- ----------------------------------- -------------------------------
Reginald H. Jones Date T. Evans Wyckoff Date
Director Director
/s/William J. Cabaniss, Jr. 9/26/97 /s/J. Daniel Garrett 9/26/97
- ----------------------------------- --------------------------------
William J. Cabaniss, Jr. Date J. Daniel Garrett Date
Director Vice President-Controller
/s/Robert D. Kennedy 9/26/97
- ----------------------------------
Robert D. Kennedy Date
Director
EXHIBIT 22.1
BIRMINGHAM STEEL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF JUNE 30, 1997
American Steel & Wire Corporation, a Delaware corporation
Norfolk Steel Corporation, a Virginia corporation
Barbary Coast Steel Corporation, a Delaware corporation
Birmingham Steel Overseas, Ltd, a Barbados corporation
Port Everglades Steel Corporation, a Delaware corporation
Birmingham Recycling Investment Company, a Delaware corporation
Birmingham East Coast Holdings, a Delaware corporation
Birmingham Southeast LLC, a Delaware corporation
EXHIBIT 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; (v) in the Registration
Statement (Form S-8 No. 33-51080) pertaining to the Birmingham Steel Corporation
1992 Non-Union Employees' Stock Option Plans; and (vi) in the Registration
Statement (Form S-8 No. 333-34291) pertaining to the Birmingham Steel
Corporation 1996 Director Stock Option Plan of our report dated August 6, 1997
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, 1997.
/s/Ernst & Young LLP
- ---------------------
Ernst & Young LLP
Birmingham, Alabama
September 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the June 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> YEAR
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Jun-30-1997
<CASH> 959
<SECURITIES> 0
<RECEIVABLES> 129,476
<ALLOWANCES> 1,797
<INVENTORY> 208,595
<CURRENT-ASSETS> 366,864
<PP&E> 935,122
<DEPRECIATION> 173,554
<TOTAL-ASSETS> 1,210,989
<CURRENT-LIABILITIES> 137,982
<BONDS> 53,500
0
0
<COMMON> 297
<OTHER-SE> 471,251
<TOTAL-LIABILITY-AND-EQUITY> 1,210,989
<SALES> 978,948
<TOTAL-REVENUES> 978,948
<CGS> 892,753
<TOTAL-COSTS> 892,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,633
<INTEREST-EXPENSE> 20,195
<INCOME-PRETAX> 24,738
<INCOME-TAX> 10,321
<INCOME-CONTINUING> 14,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,417
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
