UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File
No. 1-9820
BIRMINGHAM STEEL CORPORATION
DELAWARE 13-3213634
(State of Incorporation) (I.R.S. Employer Identification No.)
1000 Urban Center Parkway, Suite 300
Birmingham, Alabama 35242
(205) 970-1200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes x No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 29,255,559 Shares of Common
Stock, Par Value $.01 Outstanding at November 6, 1998.
<PAGE>
BIRMINGHAM STEEL CORPORATION
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, June 30,
ASSETS 1998 1998
(Unaudited) (Audited)
--------------- -------------
Current assets:
Cash and cash equivalents $ 2,697 $ 902
Accounts receivable, net of
allowance for doubtful accounts
$1,670 at September 30, 1998
and $1,838 at June 30, 1998 122,471 121,854
Inventories 241,552 243,275
Other 27,264 27,967
--------------- ------------
Total current assets 393,984 393,998
Property, plant and equipment
Land and buildings 263,601 258,905
Machinery and equipment 652,841 652,240
Construction in progress 99,687 67,401
--------------- -------------
1,016,129 978,546
Less accumulated depreciation (234,906) (221,051)
--------------- -------------
Net property, plant and 781,223 757,495
equipment
Excess of cost over net assets 43,490 44,420
acquired
Other 44,557 48,865
--------------- --------------
Total assets $ 1,263,254 $ 1,244,778
=============== ==============
<PAGE>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current
portion of long-term debt $ 120 $ 10,119
Accounts payable 99,291 92,813
Accrued interest payable 6,968 1,761
Accrued payroll expenses 5,900 12,015
Accrued operating expenses 10,375 12,901
Other current liabilities 20,561 26,715
--------------- ---------------
Total current liabilities 143,215 156,324
Deferred income taxes 45,417 47,922
Deferred liabilities 7,966 7,630
Long-term debt less current portion 597,748 558,820
Minority interest in subsidiary 12,722 13,475
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, par value
$.01; authorized: 5,000 shares - -
Common stock, par value
$.01; authorized: 75,000
shares; issued: 29,826 at
September 30, 1998 and
29,780 at June 30, 1998 298 298
Additional paid-in capital 332,160 331,859
Treasury stock, 542 and 191
shares at September 30,
1998 and June 30, 1998,
respectively, at cost (5,386) (2,929)
Unearned compensation (1,247) (912)
Retained earnings 130,361 132,291
---------- -----------
Total stockholders' equity $ 456,186 $ 460,607
---------- -----------
Total liabilities and
stockholders' equity $ 1,263,254 $1,244,778
=========== ===========
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
Three months ended September 30,
------------------------------------------
1998 1997
(Unaudited) (Unaudited)
--------------- -------------
Net sales $ 270,957 $ 287,547
Cost of sales:
Other than depreciation
and amortization 229,024 243,997
Depreciation and amortization 14,959 12,729
--------------- --------------
Gross profit 26,974 30,821
Pre-operating/start-up
costs 10,865 2,502
Selling, general and administrative 11,489 11,020
------------ ------------
Operating income 4,620 17,299
Interest (8,800) (6,069)
Other income, net 6,873 1,174
Loss from equity investments (1,679) (646)
Minority interest in loss of subsidiary 752 521
------------ ------------
Income before income taxes 1,766 12,279
Provision for income taxes 742 5,034
------------- ------------
Net income $ 1,024 $ 7,245
============= =============
Weighted average shares outstanding 29,488 29,685
============= =============
Basic and diluted earnings per share $ 0.03 $ 0.24
============= =============
Dividends declared per share $ 0.10 $ 0.10
============= =============
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
September 30,
----------------------------------------
1998 1997
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,024 $ 7,245
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 14,959 12,790
Deferred income taxes (2,506) -
Minority interest in loss of subsidiary (752) (521)
Loss from equity investments 1,679 646
Other (718) 230
Changes in operating assets and liabilities:
Accounts receivable (617) (601)
Inventories 1,723 11,235
Prepaid expenses (781) (547)
Other current assets 1,483 822
Accounts payable 6,478 (7,432)
Income taxes payable 279 4,934
Other accrued liabilities (9,867) 8,515
Deferred compensation 336 287
--------- ---------
Net cash provided by operating activities 12,720 37,603
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (37,583) (55,739)
Proceeds from sale of property 2,232 -
Equity investment in Laclede Steel Company - (14,953)
Additions to other non-current assets (1,162) (1,020)
Reductions in other non-current assets 2,347 4,260
---------- ----------
Net cash used in investing activities (34,166) (67,452)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings and repayments (9,999) 10,000
Payments on long-term debt (29) -
Borrowings under revolving credit facility 610,700 447,858
Payments on revolving credit facility (571,743) (425,308)
Proceeds from issuance of common stock - 111
Purchase of treasury stock (2,734) -
Cash dividends paid (2,954) (2,969)
----------- ---------
Net cash provided by financing activities 23,241 29,692
----------- ----------
Net increase (decrease) in
cash and cash equivalents 1,795 (157)
Cash and cash equivalents at:
Beginning of period 902 959
---------- ----------
End of period $ 2,697 $ 802
========== ==========
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 3,500 $ 1,087
Income taxes 312 38
See accompanying notes.
<PAGE>
BIRMINGHAM STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 SBQ
(special bar 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.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned subsidiaries. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included.
All such adjustments are of a normal recurring nature only. All significant
intercompany accounts and transactions have been eliminated. When necessary,
prior year amounts have been reclassified to conform to the current year's
presentation.
Inventories
Inventories are stated at the lower of cost or market value. The cost of
inventories is determined using the first-in, first-out method.
Earnings per share
In the second quarter of fiscal 1998, the Company adopted FASB Statement No.
128, "Earnings per Share". Basic earnings per share is computed using the
weighted average number of outstanding common shares for the period. Diluted
earnings per share is computed using the weighted average number of outstanding
common shares and any dilutive equivalents. The adoption of Statement No. 128
had no effect on earnings per share in the prior year period reflected herein.
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.
Accounting Pronouncements
In June 1997, the FASB issued Statement No. 131 "Disclosures about Segments of
an Enterprise and Related Information" effective for fiscal years beginning
after December 15, 1997. The Company will adopt Statement No. 131 in its annual
financial statements for the fiscal year ending June 30, 1999. The statement
requires companies to report certain financial information based on operating
segments of the business. Management is currently considering the impact, if
any, Statement No. 131 will have on the Company's financial reporting.
2. INVENTORIES
Inventories were valued at the lower of cost (first-in, first-out) or market as
summarized in the following table (in thousands):
September 30, June 30,
1998 1998
--------- ---------
Raw materials and mill supplies $ 54,925 $ 60,960
Work-in-progress 91,912 84,325
Finished goods 94,715 97,990
------- -------
$ 241,552 $ 243,275
======= =======
3. 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 believes that it
is currently in compliance with all 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.
<PAGE>
4. OTHER INCOME
In the first quarter of fiscal 1999, the Company sold real estate in Cleveland,
Ohio and recognized a gain of $2,232,000. Gains on sales of property, plant and
equipment are included in "other income, net" in the Consolidated Statements of
Operations.
In the first quarter of fiscal 1999, the Company recorded settlements from
electrode suppliers of $2,915,000 which were included in "other income, net" in
the Consolidated Statements of Operations.
5. PRE-OPERATING/START-UP COSTS
Pre-operating/start-up costs in the accompanying financial statements consists
of the following (in thousands):
Three Months Ended September 30,
-------------------------------------------
1998 1997
------ --------
Pre-operating/start-up expenses:
Memphis $ 9,502 $ 2,214
Cartersville 1,134 288
Other 229 -
------ -------
$ 10,865 $ 2,502
====== =======
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this report that are not purely historical or which
might be considered an opinion or projection concerning the Company or its
business, whether express or implied, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements include the Company's expectations, hopes, anticipations, intentions,
plans and strategies regarding the future. Forward-looking statements include,
but are not limited to: expectations about environmental remediation costs,
assessments of expected impact of litigation and adequacy of insurance coverage
for litigation, expectations regarding the costs of new projects, expectations
regarding future earnings, expectations concerning the anticipated performance
of new ventures, and expectations regarding the date when facilities under
construction will be operational and the future performance and capabilities of
those facilities. Moreover, when making forward-looking statements, management
must make certain assumptions that are based on management's collective opinion
concerning future events, and blend these assumptions with information available
to management when such assumptions are made. Whether these assumptions are
valid will depend not only on management's skill, but also on a variety of
volatile and highly unpredictable risk factors. Some, but not all, of these risk
factors are described below under the heading "Risk Factors That May Affect
Future Operating Results". The Company's actual results could differ materially
from those described or implied by any forward-looking statements herein. Any
forward-looking statements contained in this document speak only as of the date
hereof, and the Company disclaims any intent or obligation to update such
forward-looking statements. Comparisons of results for current and prior periods
are not necessarily indicative of future performance, and should not be relied
on for any purpose other than as historical data.
For the first quarter of fiscal 1999, the Company reported a profit of
$1,024,000, or $.03 per share, basic and diluted, compared with earnings of
$7,245,000, or $.24 per share in the first quarter of fiscal 1998.
Net Sales
The Company reported net sales of $270,957,000 in the first quarter of fiscal
1999, a decrease of 5.8 percent from $287,547,000 reported in the first period
of fiscal 1998. In the first quarter, the Company achieved steel shipments of
799,002 tons, down 4.6 percent from 837,217 tons reported in the first quarter
of fiscal 1998.
Cost of Sales
As a percentage of net sales, cost of sales (other than depreciation and
amortization) was 84.5% in the current period compared with 84.9% in the first
quarter last year. The decline resulted primarily from a decrease in the market
purchase price of scrap from $131 per ton in the first quarter of 1997 to $122
per ton in the same quarter of 1998. The decline in scrap price was partially
offset by higher average billet costs at the Company's SBQ facilities, and, to a
lesser extent slightly higher rebar conversion costs. These increased costs were
primarily related to mix issues and reduced production levels for some products.
Depreciation and amortization was $2.2 million higher in the first quarter of
fiscal 1999, compared with the prior year period. The increase was attributable
to the recognition of depreciation expense on assets placed into service since
last year at the Memphis melt shop and other locations.
Pre-operating/Start-up Costs
Pre-operating/start-up costs were $10,865,000 in the first quarter of fiscal
1999, compared with $2,502,000 last year. The increased charges related
primarily to start-up costs at the Memphis, Tennessee melt shop which began
operations in November, 1997 and pre-operating costs associated with the
Cartersville, Georgia rolling mill project. The charges for the same period a
year ago related primarily to pre-operating expenses incurred during the
construction of the Memphis, Tennessee melt shop. The Company believes that the
Memphis facility will be able to produce billets at costs equal to the market
price of billets upon attainment of a production level of 75% of capacity. The
operation is currently producing at a rate in excess of 50% of capacity. The
Company believes that Memphis could attain a 75% run rate in the third quarter
of fiscal 1999; however, market factors could limit production requirements at
Memphis in the near term.
Selling, General and Administrative Expenses ("SG&A")
SG&A expense was $11,488,000 in the first quarter compared with $11,020,000 in
the first quarter last year. As a percent of sales, SG&A was 4.2 percent in the
first quarter, up from 3.8 percent in the same quarter a year ago. The increased
percentage was primarily the result of increased information technology expenses
(including "Year 2000" initiatives) and lower sales volumes.
Interest Expense
Interest expense increased to $8,800,000 in the first quarter of fiscal 1999
from $6,069,000 reported last year. The increase was the result of additional
borrowings under the Company's long-term credit facility and a reduction in
capitalized interest because of the start-up of the Memphis project. It is
anticipated that the Company will begin reducing total debt in the fourth
quarter of fiscal 1999 upon completion of the Cartersville mid-section rolling
mill project.
Income Taxes
Effective income tax rates for the three months ended September 30, 1998 were
42.0% essentially unchanged from 41.0% in the same period last year.
Liquidity and Capital Resources
Operating Activities:
For the three months ended September 30, 1998, net cash provided by operating
activities was $12.7 million, compared with $37.6 million in the first quarter a
year ago. The difference of $24.9 million was primarily caused by reduced net
income ($6.2 million), and increases in inventories ($9.5 million), and other
accrued liabilities ($18.4 million). Inventory levels increased because of
changing market conditions and reduced shipments. These were partially offset by
a favorable change in accounts payable ($13.9 million).
Investing Activities:
Net cash used in investing activities was $34.2 million at September 30, 1998,
compared with $67.5 million last year. During the period ending September 30,
1997, the Company purchased an interest in Laclede Steel Company (LCLD) for
approximately $15 million and continued capital expenditures on such major
projects as the Memphis melt shop and the Cartersville project. During the
current period the level of capital expenditures has decreased, due in part to
the completion of construction at Memphis. The Company also sold real estate in
the first quarter of fiscal 1999, generating cash of $2.2 million.
Through September 30, 1998, the Company had made equity investments of
$20,000,000 in American Iron Reduction, L.L.C. (AIR), a 50 percent owned
subsidiary of the Company, that operates a direct reduced iron (DRI) facility in
Louisiana. Pursuant to the Equity Contribution Agreement, the Company may be
obligated to make additional equity investments in AIR of not more than
$7,500,000. The Company has agreed to purchase one-half of the annual output of
the facility (approximately 600,000 metric tons per year) at prices which
are equivalent to AIR's total cost excluding depreciation and amortization, but
including debt service payments. In the first quarter of fiscal 1999, the
Company purchased approximately $12,579,000 of DRI from AIR. For financial
reporting purposes, AIR is accounted for as an equity method investee. Because
AIR is a captive supplier of raw materials, the Company recognizes its share of
operating profits or losses of AIR as a component of cost of sales.
Financing Activities:
Net cash provided by financing activities was $23.2 million in the first three
months of fiscal 1999, compared with $29.7 million in the same three month
period last year.
In March, 1997 the Company completed a five year, $300 million unsecured
revolving credit agreement. Net borrowings on the revolving credit facility
amounted to $39.0 million for the three months ended September 30, 1998. Net
short-term borrowings for the current year period amounted to $10.0 million.
In July, 1998 the Company's Board of Directors authorized a stock buyback
program until July 13, 1999 pursuant to which the Company is authorized to
purchase up to 1,000,000 shares of its common stock in the open market at a
purchase price not to exceed $20 per share. During the first three months of
fiscal 1999 the Company purchased 366,900 of its common shares in the open
market for a purchase price of approximately $2.7 million.
The Company is currently in compliance with the restrictive debt covenants
governing its loan agreements and does not anticipate any covenant violations in
the foreseeable future. However, should factors described under "Risk factors"
adversely affect fiscal 1999 operating results, the Company could violate one or
more of it's restrictive covenants within the next twelve months. The Company
has evaluated its alternatives in the event that it is unable to comply with its
restrictive covenants in the near term, including refinancing the Company's
outstanding obligations. Based upon recent discussions with its lenders, the
Company expects to amend its $300 million revolving credit facility and $280
million private debt agreements in order to provide additional flexability for a
temporary period with respect to restrictive debt covenants. The impact of such
measures is not expected to have a significant impact on future results of
operations.
Working Capital:
Working capital at the end of the first quarter was $250.8 million, compared
with $202.3 million at the end of September, 1997. The change was primarily
attributable due primarily to an increase in inventories of $44.2 million.
Other Comments
On October 12, 1998, the Company announced a temporary reduction in it's
dividend from $.10 per share to $.025 (two and one-half cents) per share payable
November 3, 1998 to shareholders of record on October 23, 1998. The reduction
was implemented in response to changing economic conditions in the global steel
industry and to conserve cash. The Company stated that it expected to return to
the previous dividend level once conditions improve.
Year 2000 Issues
The following Year 2000 discussion is provided in response to the Securities and
Exchange Commission's recent interpretive statement expressing it's view that
public companies should include detailed discussion of Year 2000 issues in their
10Q submission of the MD&A.
The Company is pursuing an organized program to assure the Company's information
technology systems and related infrastructure will be Year 2000 compliant. The
Company has divided it's Year 2000 issues into five areas including; (1)business
systems at corporate headquarters, (2)business systems at the Cleveland, Ohio
operation, (3)infrastructure systems at all locations, (4) manufacturing systems
at all locations, and (5) facility and support systems at all locations. The
Company includes certain systems which might not be considered as IT systems,
such as phone switches and certain safety systems, in the facility and support
systems area of the Year 2000 project. The Company's Year 2000 program includes
three phases: (1) an audit and assessment phase designed to identify Year 2000
issues; a modification phase designed to correct Year 2000 issues ( this phase
includes testing of individual modifications as they are installed); and (3) a
testing phase to test entire systems for Year 2000 compliance after individual
modifications have been installed and tested. A dedicated Year 2000 project
manager has been assigned to this project for over one year. Project teams have
been assembled for each area, specific responsibilities have been identified and
specific time lines have been prepared for the activities to take place within
each area of the project. Senior management receives monthly updates on the
progress against the time lines for each strategic area.
The Company has completed the audit and assessment phase for both the business
systems at the corporate headquarters and at the Cleveland, Ohio operation and
for infrastructure at all locations. The Company currently expects that the
audit and assessment phase will be completed for the remaining areas prior to
December 31, 1998. The Company is currently performing the second phase of it's
program involving modifications and testing of the individual modifications, on
it's business systems at both the corporate headquarters and the Cleveland, Ohio
operation. The Company expects to complete the second phase of it's program for
these business systems by December 31, 1998. This schedule allows for six months
of contingency time prior to the July 1, 1999 deadline (the beginning of the
Company's fiscal Year 2000) for completion of these upgrades.
The Company expects to conduct the third phase test of it's business systems in
January of 1999.
The Company currently expects to complete the second phase of it's program
(modifications and testing) for it's infrastructure systems, manufacturing
systems, facility and support systems by June 30, 1999 leaving six months of
contingency time before the December 31, 1999 deadline for completion of Year
2000 modifications of these systems. Appropriate systems testing will be
conducted after June 30, 1999 and problems which are identified will then be
corrected.
Management believes based on available information that the costs for correction
of the Year 2000 issues, including any software and hardware changes (but
excluding any hardware systems that would have been replaced in any event) and
the cost involved in working on this project will be less than $3 million. The
Company estimates that 40% of the costs have been spent to date. The Year 2000
upgrades are being funded out of the normal operating funds, and account for
less than 25% of the Company's IT budget.
The Year 2000 compliance effort is a priority project for the Company's IT
department. Other IT projects, however, including upgrades of certain existing
systems and design and installation of new systems, continue while the Year 2000
effort is being accomplished.
The Company's Year 2000 program also includes investigation of major vendors'
and customers' Year 2000 readiness. The Company is using questionnaires, letters
and protocols to examine it's vendors' and customers' Year 2000 readiness. The
Company is contacting, for example, energy and scrap vendors and it's phone and
data line service vendors to determine their Year 2000 compliance status. If any
such vendors indicate that they will not be Year 2000 compliant, the Company
will develop contingency plans to address the issue, which may include changing
vendors. In addition, the Company is contacting significant customers to
determine their progress towards Year 2000 compliance and to identify issues, if
any, which might develop because of customers failure to be prepared for Year
2000 issues. In the event issues are identified, the Company expects to try to
develop procedures to permit the Company to continue to supply the customer
involved despite the Year 2000 issues. The Company has been assured by its key
financial institutions that they are already Year 2000 compliant of will be Year
2000 compliant in early 1999.
At the present time, the Company does not have a contingency plan to operate in
the event that its business systems are not Year 2000 compliant. If testing
scheduled for the first calendar quarter of 1999 suggests that there is a
significant risk that the business systems might not be Year 2000 compliant, a
contingency plan will be developed.
Notice: various statements in this discussion of Year 2000 are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements include statements of the Company's expectations,
statements with regard to schedules and expected completion dates and statements
regarding expected Year 2000 compliance. These forward-looking statements are
subject to various risk factors which may materially affect the Company's
efforts to achieve Year 2000 compliance. These risk factors include the
inability of the Company to complete the plans and modification that it has
identified, the failure of software vendors to deliver the upgrades and repairs
to which they have committed, the wide variety of information technology systems
and components, both hardware and software, that must be evaluated and the large
number of vendors and customers with which the Company interacts. The Company's
assessment of the effects of Year 2000 on the Company are based, in part, upon
information received from third parties upon which the Company reasonably relied
must be considered as a risk factor that might affect the Company's Year 2000
efforts. The Company is attempting to reduce the risks by utilizing an organized
approach, extensive testing, and allowance of ample contingency time to address
issues identified by tests.
Market Risk Sensitive Instruments
The market risk inherent in the Company's financial instruments represents the
potential loss arising from adverse changes in interest rates (principally U.S.
Treasury and prime bank rates). In order to manage this risk, the Company
attempts to maintain certain ratios of fixed to variable rate debt. However, the
Company does not currently use derivative financial instruments. At September
30, 1998, the Company had fixed rate long-term debt with a carrying value of
$281.5 million and variable rate borrowings of $316.4 million outstanding.
Assuming a hypothetical 10% adverse change in interest rates, the fair value of
the Company's fixed rate debt would decrease by $9.8 million and the Company
would incur an additional $2.1 million of annual interest expense on variable
rate borrowings. These amounts are determined by considering the impact of the
hypothetical change in interest rates on the Company's cost of borrowing. The
analysis does not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in the Company's financial structure.
Risk Factors That May Affect Future Operating Results
The Company's actual results could differ materially from those described or
implied in any forward-looking statements contained in this document. Among the
factors that could cause actual results to differ materially are the factors
detailed below. In addition, readers should consider the risk factors described
from time to time in other Company reports filed with the Securities and
Exchange Commission, including the Company's fiscal 1998 Annual Report filed on
Form 10K.
The Company's results are currently being impacted by disturbed economic
conditions in other countries creating a dramatic increase in steel imports in
the U.S. Until such time as the U.S. government intervenes with trade sanctions
or the foreign economic situation improves, the Company's performance will
continue to be adversely impacted by the import situation.
As a result of a number of factors primarily related to management and workforce
turnover the Company's new melt shop in Memphis, Tennessee continues to operate
at less than a commercially viable production level. Continued delays or other
start-up issues in this project could materially adversely affect the Company's
future results. While in start-up operations, the facility can experience
"learning curve" problems which would prevent the Company from realizing the
timing of certain plans that it has made for the future.
Until the Memphis melt shop begins producing at commercially viable levels and
costs, the Company's SBQ Division will continue to incur start-up losses.
The Company expects to begin start-up operations of a new mid section rolling
mill at its Cartersville facility in the second half of fiscal 1999. Results in
fiscal 1999 will continue to reflect pre-operating and start-up losses
associated with this project. Unexpected increases in the amount of
pre-operating and start-up losses could negatively impact the Company's
financial performance.
The Company is committed to purchase one half (approximately 600,000 metric
tons) of DRI production from AIR. Currently the price paid to AIR for its DRI
production exceeds the cost of alternative raw materials sources (i.e. scrap).
This condition is expected to continue until the end of calendar 1999.
Recent declines in the demand for steel products in the Pacific Rim region have
caused steel manufacturers in these countries to reduce their production of
steel products. Pacific Coast Recycling, LLC, the venture jointly owned by the
Company and Raw Materials Development Corporation, an affiliate of Mitsui and
Company, Ltd., is heavily involved in the export of scrap products to Pacific
Rim markets. Further significant erosion in the demand for scrap products
occasioned by the reduced demand for steel products in these countries could
have a material adverse effect on Pacific Coast Recycling, LLC, and in turn, on
the value of the Company's investment in the joint venture.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Refer to the information in MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS under the caption MARKET RISK SENSITIVE
INSTRUMENTS
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
No exhibits are required to be filed with this report.
During the quarter ended September 30, 1998, the Company filed a current report
on Form 8-K (Item 5) on July 16, 1998 to report on Amendments to the Bylaws, and
a current report on Form 8-K (Item 5) on September 2, 1998 to report on certain
press releases made concerning the Laclede Steel investment and the 1998 fourth
quarter earnings.
<PAGE>
Pursuant to the requirements 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
November 13, 1998
/s/ Kevin E. Walsh
-------------------------------
Kevin E. Walsh
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1998 Consolidated Balance Sheets and Consolidated Statements of
Operations of Birmingham Steel Corporation and is qualified in its entirety by
reference to such.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Sep-30-1998
<CASH> 2,697
<SECURITIES> 0
<RECEIVABLES> 122,471
<ALLOWANCES> 1,670
<INVENTORY> 241,552
<CURRENT-ASSETS> 393,984
<PP&E> 1,016,129
<DEPRECIATION> 234,906
<TOTAL-ASSETS> 1,263,254
<CURRENT-LIABILITIES> 143,215
<BONDS> 53,500
0
0
<COMMON> 298
<OTHER-SE> 455,888
<TOTAL-LIABILITY-AND-EQUITY> 1,263,254
<SALES> 270,957
<TOTAL-REVENUES> 270,957
<CGS> 243,983
<TOTAL-COSTS> 243,983
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 10,865
<INTEREST-EXPENSE> 8,800
<INCOME-PRETAX> 1,766
<INCOME-TAX> 742
<INCOME-CONTINUING> 1,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,024
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
