-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWgWWISAGIkh4EmjEyIcSgEdvLz/mI02K1k70xe5IYMV5whXWdUGp0GxFUj5EjU2 D2A5UdVrZkMT/N8FUikkgw== 0000779334-97-000048.txt : 19971113 0000779334-97-000048.hdr.sgml : 19971113 ACCESSION NUMBER: 0000779334-97-000048 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIRMINGHAM STEEL CORP CENTRAL INDEX KEY: 0000779334 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 133213634 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09820 FILM NUMBER: 97716659 BUSINESS ADDRESS: STREET 1: 1000 URBAN CENTER PARKWAY STREET 2: SUITE 300 CITY: BIRMINGHAM STATE: AL ZIP: 35242 BUSINESS PHONE: 2059701255 MAIL ADDRESS: STREET 1: P.O. BOX 1208 CITY: BIRMINGHAM STATE: AL ZIP: 35201-1208 10-Q 1 CURRENT REPORT ON FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-9820 BIRMINGHAM STEEL CORPORATION DELAWARE 13-3213634 (State of Incorporation) (I.R.S. Employer Identification No.) 1000 Urban Center Parkway, Suite 300 Birmingham, Alabama 35242 (205) 970-1200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes x No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 29,717,130 Shares of Common Stock, Par Value $.01 Outstanding at November 10, 1997. BIRMINGHAM STEEL CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares) September 30, June 30, 1997 1997 (Unaudited) (Audited) ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 802 $ 959 Accounts receivable, net of allowance for doubtful accounts of $1,797 at September 30, 1997 and June 30, 1997 130,077 129,476 Inventories 197,360 208,595 Other 27,296 27,834 ----------- ----------- Total current assets 355,535 366,864 Property, plant and equipment (including property and equipment, net, held for disposition of $19,752 and $19,568 at September 30, 1997 and June 30, 1997, respectively): Land and buildings 199,790 199,363 Machinery and equipment 574,426 572,802 Construction in progress 215,598 162,957 ----------- ----------- 989,814 935,122 Less accumulated depreciation (184,440) (173,554) ----------- ----------- Net property, plant and equipment 805,374 761,568 Excess of cost over net assets acquired 49,098 50,089 Other assets 43,313 32,468 ----------- ----------- Total assets $ 1,253,320 $ 1,210,989 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 10,000 $ - Accounts payable 86,529 94,273 Accrued interest payable 7,313 2,068 Accrued operating expenses 9,093 7,503 Accrued payroll expenses 6,229 7,387 Income taxes payable 5,104 170 Other current liabilities 28,958 26,581 ----------- ----------- Total current liabilities 153,226 137,982 Deferred income taxes 54,352 54,352 Deferred compensation 6,220 5,933 Long-term debt 548,606 526,056 Minority interest in subsidiary 14,597 15,118 Commitments and contingencies - - Stockholders' equity: Preferred stock, par value $.01; authorized 5,000,000 shares - - Common stock, par value $.01; authorized: 75,000,000 shares; issued and outstanding: 29,744,550 at September 30, 1997 and 29,735,815 at June 30, 1997 297 297 Additional paid-in capital 331,304 331,139 Treasury stock, 42,508 and 55,342 shares at September 30, 1997 and June 30, 1997, respectively, at cost (775) (996) Unearned compensation (1,316) (1,425) Retained earnings 146,809 142,533 ----------- ----------- Total stockholders' equity 476,319 471,548 ----------- ----------- Total liabilities and stockholders' equity $ 1,253,320 $ 1,210,989 =========== =========== See accompanying notes. BIRMINGHAM STEEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data; unaudited) Three months ended September 30, -------------------------------- 1997 1996 --------- ---------- Net sales $287,547 $233,422 Cost of sales: Other than depreciation and amortization 243,997 198,700 Depreciation and amortization 12,790 10,716 -------- -------- Gross profit 30,760 24,006 Pre-operating/start-up costs 2,502 1,422 Selling, general and administrative 11,020 8,450 Interest 6,069 3,988 -------- -------- 11,169 10,146 Other income (expense), net 589 614 Minority interest in loss of subsidiary 521 - -------- -------- Income before income taxes 12,279 10,760 Provision for income taxes 5,034 4,412 -------- -------- Net income $ 7,245 $ 6,348 ======== ======== Weighted average shares outstanding 29,685 28,625 ======== ======== Earnings per share $ 0.24 $ 0.22 ======== ======== Dividends declared per share $ 0.10 $ 0.10 ======== ======== See accompanying notes. BIRMINGHAM STEEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Three Months Ended September 30, ------------------------ 1997 1996 (Unaudited) (Unaudited) ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,245 $ 6,348 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,790 10,716 Provision for doubtful accounts receivable - 15 Deferred income taxes - (331) Minority interest in loss of subsidiary (521) - Loss from equity investments 646 - Other 230 559 Changes in operating assets and liabilities: Accounts receivable (601) (2,169) Inventories 11,235 5,307 Prepaid expenses (547) (353) Other current assets 822 5,112 Accounts payable (7,432) (20,463) Income taxes payable 4,934 - Other accrued liabilities 8,515 5,425 Deferred compensation 287 (207) --------- -------- Net cash provided by operating activities 37,603 9,959 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (55,739) (53,471) Equity investment in Laclede Steel Company (14,953) - Additions to other non-current assets (1,020) (526) Reductions in other non-current assets 4,260 1,218 --------- -------- Net cash used in investing activities (67,452) (52,779) CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowings and repayments 10,000 46,120 Proceeds from issuance of long-term debt 447,858 - Payments of long-term debt (425,308) - Proceeds from issuance of common stock 111 296 Cash dividends paid (2,969) (2,862) --------- -------- Net cash provided by financing activities 29,692 43,554 --------- -------- Net increase (decrease) in cash and cash equivalents (157) 734 Cash and cash equivalents at: Beginning of period 959 6,663 --------- -------- End of period $ 802 $ 7,397 ========= ======== Supplemental cash flow disclosures: Cash paid during the period for: Interest (net of amounts capitalized) $ 1,087 $ 1,223 Income taxes 38 1 See accompanying notes. BIRMINGHAM STEEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 and 1996 1. Description of the Business and Significant Accounting Policies Description of the Business Birmingham Steel Corporation (the Company) operates steel mini-mills in the United States producing steel reinforcing bar, merchant products and high quality bar, rod and wire. The Company operates in one industry segment and sells to third parties primarily in the construction and automotive industries throughout the United States and Canada. Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature only. All significant intercompany accounts and transactions have been eliminated. Inventories Inventories are stated at the lower of cost or market value. The cost of inventories is determined using the first-in, first-out method. Earnings per share Earnings per share are computed using the weighted average number of outstanding common shares and dilutive equivalents (if any). In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share", which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement No. 128 on the calculation of primary earnings per share and fully diluted earnings per share is not expected to be material. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. Business Acquisitions and Joint Ventures On September 24, 1997, Midwest Holdings Inc., a wholly owned subsidiary of the Company, purchased LCL Holdings II, LLC (LCL), a subsidiary of IVACO, Inc. for a purchase price of approximately $14,953,000. LCL owns 25.4 percent of the outstanding common shares and 44.0 percent of the outstanding non-voting convertible preferred shares of Laclede Steel Company stock which is accounted for using the equity method. On November 15, 1996, the Company entered into a Contribution Agreement with Atlantic Steel Industries, Inc. (Atlantic) and IVACO, Inc., the parent of Atlantic, pursuant to which the Company and Atlantic formed Birmingham Southeast, LLC (Birmingham Southeast), a limited liability company owned 85 percent by Birmingham East Coast Holdings, a wholly owned subsidiary of the Company, and 15 percent by a subsidiary of IVACO, Inc. On December 2, 1996, pursuant to the Contribution Agreement the Company contributed the assets of its Jackson, Mississippi facility to Birmingham Southeast which had no impact on the accompanying consolidated financial statements. Birmingham Southeast then purchased the operating assets of Atlantic located in Cartersville, Georgia for $43,309,000 in cash and assumed liabilities approximating $44,257,000. The purchase price has been allocated to the assets and liabilities of the Company as follows (in thousands): Current assets $ 31,667 Property, plant and equipment 63,400 Other non-current assets, primarily goodwill 9,964 -------- Total assets acquired 105,031 Fair value of liabilities assumed (44,257) Minority interest (17,465) -------- Total purchase price $ 43,309 ======== The non-cash financing and investing activities related to the purchase of the Cartersville, Georgia assets have been excluded from the statement of cash flows. Pro forma results for fiscal 1997 would not be materially different from the amounts reported in the Company's consolidated statements of operations if the acquisition had occurred as of the beginning of the period. On September 18, 1996, the Company entered into an agreement with Raw Materials Development Co., Ltd., an affiliate of Mitsui & Co., Ltd. forming Pacific Coast Recycling, LLC (Pacific Coast), a 50/50 joint venture established to operate in southern California as a collector, processor and seller of scrap. The Company made equity investments in Pacific Coast of approximately $7,500,000 on December 27, 1996 and $1,750,000 on January 23, 1997. Pacific Coast is accounted for using the equity method. On December 27, 1996, Pacific Coast purchased certain assets from the estate of Hiuka America Corporation and its affiliates with a minimum annual scrap processing capacity of approximately 600,000 tons. Pacific Coast is utilizing the facility at the Port of Long Beach to export scrap. At September 30, 1997, the Company had current and non-current loans outstanding to Pacific Coast in the amount of $6,400,000 and $10,000,000 respectively. On August 30, 1996, the Company entered into an Equity Contribution Agreement with American Iron Reduction, L.L.C. (AIR), a 50 percent owned subsidiary of the Company, for the purpose of constructing a direct reduced iron (DRI) facility in Louisiana. Under the Equity Contribution Agreement, the Company is required to make an equity contribution to AIR of not less than $20,000,000 and not more than $27,500,000 upon completion of the DRI facility, which is expected to be completed in the first quarter of calendar year 1998. The Company also entered into a DRI Purchase Agreement with AIR on August 30, 1996, whereby the Company will purchase a minimum of 600,000 metric tons of DRI annually. The DRI purchased will be utilized primarily at the Memphis melt shop as a substitute for premium, low-residual scrap. 3. Inventories Inventories were valued as summarized in the following table (in thousands): September 30, June 30, 1997 1997 ------------- ----------- At lower of cost (first-in, first-out) or market: Raw materials and mill supplies $ 49,851 $ 51,832 Work-in-progress 71,211 71,693 Finished goods 76,298 85,070 -------- -------- $197,360 $208,595 ======== ======== 4. Borrowing Arrangements The Company has a five year, unsecured revolving credit agreement whereby the Company may borrow up to $300,000,000 with interest at market rates mutually agreed upon by the Company and the lender or at other contractual borrowing rates. Approximately $84,894,000 was available under this credit facility at September 30, 1997. Under three line of credit arrangements for short-term borrowings, the Company may borrow up to $50,000,000 with interest at market rates mutually agreed upon by the Company and the lender. At September 30, 1997, $40,000,000 was available under these credit facilities. 5. Contingencies Environmental The Company is subject to federal, state and local environmental laws and regulations concerning, among other matters, waste water effluents, air emissions and furnace dust management and disposal. The Company has been advised by the Virginia Department of Waste Management of certain conditions involving the disposal of hazardous materials at the Company's Norfolk, Virginia property which existed prior to the Company's acquisition of the facility. The site has been accepted into Virginia's Voluntary Remediation Program. This program allows regulatory closure upon certification by the Virginia Department of Environmental Quality of the site remediation. The Company was also notified by the Department of Toxic Substances Control (DTSC) of the Environmental Protection Agency of the State of California of certain environmental conditions regarding its property in Emeryville, California. The Company has performed environmental assessments of these sites and developed work plans for remediation of the properties for approval by the applicable regulatory agencies. The remediation plan for the Emeryville site was approved by DTSC, and the Company recently received letters from DTSC confirming that the site has been remediated in accordance with the approved remedial implementation plan. The Company has also received an approved remedial completion report. As part of its ongoing environmental compliance and monitoring programs, the Company is voluntarily developing work plans for environmental conditions involving certain of its operating facilities and properties which are held for sale. Based upon the Company's study of the known conditions and its prior experience in investigating and correcting environmental conditions, the Company estimates that the potential costs of these site restoration and remediation efforts may range from $2,400,000 to $4,200,000. Approximately $2,062,000 of these costs is recorded in accrued liabilities at September 30, 1997. The remaining costs principally consist of site restoration and environmental exit costs to ready the idle facilities for sale, and have been considered in determining whether the carrying amounts of the properties exceed their net realizable values. These expenditures are expected to be made in the next two years if the necessary regulatory agency approvals of the Company's work plans are obtained. Though the Company believes it has adequately provided for the cost of all known environmental conditions, the applicable regulatory agencies could insist upon different and more costly remediative measures than those the Company believes are adequate or required by existing law. Additionally, if other environmental conditions requiring remediation are discovered, site restoration costs could exceed the Company's estimates. Except as stated above, the Company believes that it is currently in compliance with all known material and applicable environmental regulations. Legal Proceedings The Company is involved in litigation relating to claims arising out of its operations in the normal course of business. Such claims are generally covered by various forms of insurance. In the opinion of management, any uninsured or unindemnified liability resulting from existing litigation would not have a material effect on the Company's business, its financial position, liquidity or results of operations. 6. Pre-Operating/Start-up Costs Pre-operating/start-up costs consist of non-capitalized costs incurred prior to a facility reaching commercial production levels. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this report that are not purely historical or which might be considered an opinion or projection concerning the Company or its business, whether express or implied, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include the Company's expectations, hopes, anticipations, intentions, plans and strategies regarding the future. Forward-looking statements include, but are not limited to: expectations about environmental remediation costs, assessments of expected impact of litigation and adequacy of insurance coverage for litigation, expectations regarding the costs of new projects, expectations regarding future earnings, expectations concerning the anticipated performance of new ventures, and expectations regarding the date when facilities under construction will be operational and the future performance and capabilities of those facilities. Moreover, when making forward-looking statements, management must make certain assumptions that are based on management's collective opinion concerning future events, and blend these assumptions with information available to management when such assumptions are made. Whether these assumptions are valid will depend not only on management's skill, but also on a variety of volatile and highly unpredictable risk factors. Some, but not all, of these risk factors are described below under the heading "Risk Factors That May Affect Future Operating Results". The Company's actual results could differ materially from those described or implied by any forward-looking statements herein. Any forward-looking statements contained in this document speak only as of the date hereof, and the Company disclaims any intent or obligation to update such forward-looking statements. Comparisons of results for current and prior periods are not necessarily indicative of future performance, and should not be relied on for any purpose other than as historical data. In the first quarter of fiscal 1998, the Company reported net income of $7,245,000, up 14.1 percent from $6,348,000 reported in the first quarter of fiscal 1997. Earnings per share for the quarter were $.24, compared with $.22 reported in the prior year period. First quarter earnings reflected a $2.5 million pretax charge for pre-operating expenses primarily related to the new melt shop currently under construction in Memphis, Tennessee. Prior year first quarter earnings reflected a $1.4 million pretax charge for expenses associated with the start-up of the new bar mill in Cleveland, Ohio and pre-operating charges related to the Memphis melt shop. First quarter steel shipments were 837,000 tons, compared with 669,000 tons shipped a year ago. Net sales for the first quarter were $287,547,000, compared with $233,422,000 in the same period last year. Net Sales Net sales in the first quarter of fiscal 1998 increased 23.2 percent to $287,547,000, compared with $233,422,000 in the prior year period. The Company achieved record steel shipments of 837,000 tons, up 25.1 percent compared with 669,000 tons in the same period a year ago. Selling prices for the first quarter of fiscal 1998 were slightly improved over the same period a year ago. For the first quarter of fiscal 1998, selling prices averaged $304 per ton for rebar, $340 per ton for merchant products and $455 per ton for rod and bar products (SBQ). For the same period last year, selling prices averaged $300 per ton for rebar, $339 per ton for merchant products and $453 per ton for SBQ. Cost of Sales As a percentage of net sales, cost of sales (other than depreciation and amortization) declined slightly to 84.9 percent from 85.1 percent in the first quarter last year. Scrap cost was $131 per ton in the first quarter of fiscal 1998, down $3 per ton from $134 in the first quarter of fiscal 1997. The cost of purchased billets at the Company's rod and bar facilities was $352 per ton, down $5 per ton from $357 per ton in the prior year period. Conversion costs at the Company's rebar/merchant facilities was $123 per ton in the first quarter of fiscal 1998, an increase of $9 per ton compared with $114 per ton in the first quarter of fiscal 1997. The increase in conversion costs is due to the production of billets with higher quality specifications at the Cartersville, Georgia facility of Birmingham Southeast, LLC, an affiliate of the Company, which was acquired in December 1996 and a shift in production mix at the Company's mini-mills. In the first quarter of fiscal 1998, the Company's rebar/merchant facilities produced approximately 61 percent rebar and 39 percent merchant products compared to 73 percent rebar and 27 percent merchant products for the same period a year ago. SBQ conversion costs were $66 per ton, down $11 per ton from $77 per ton in the first quarter of last year. SBQ conversion costs in the prior year period reflected increased costs during the start-up phase of the bar mill which began operations in July 1996. Depreciation and amortization expense increased to $12,790,000 in the current year first quarter from $10,716,000 in the first quarter of fiscal 1997, primarily due to the recognition of depreciation on fixed asset additions during fiscal 1997 and in the first quarter of fiscal 1998. Pre-operating/Start-up Costs Pre-operating/start-up costs amounted to $2,502,000 in the first quarter of fiscal 1998, compared with $1,422,000 in the prior year first quarter. The current quarter charges consist of pre-operating costs primarily related to the Memphis, Tennessee melt shop currently under construction. The prior year charges consist primarily of pre-operating costs at the Memphis melt shop and start-up costs associated with the bar mill in Cleveland, Ohio. Selling, General and Administrative Expenses (SG&A) SG&A increased to $11,020,000 in the first quarter of fiscal 1998 from $8,450,000 in the first quarter of fiscal 1997. The change is primarily attributable to increased salaries and benefits at the Cartersville, Georgia facility of Birmingham Southeast, LLC, a Company affiliate, which was acquired in December 1996 and at the Company's corporate offices to support increased sales volumes. As a percent of net sales, first quarter SG&A expenses were 3.8 percent, compared with 3.6 percent last year. Interest Expense Interest expense increased to $6,069,000 in the first quarter of fiscal 1998 from $3,988,000 in the prior year first quarter. The increase is primarily due to borrowings on the Company's long-term credit facility completed in March, 1997 and the $26 million industrial revenue bond completed in October, 1996. The increase in interest was partially offset by a decline in borrowings on the Company's short-term credit lines in the current quarter compared with the prior year period, and by capitalized interest related to construction projects amounting to approximately $2.7 million in the first quarter of fiscal 1998. Capitalized interest in the same period of fiscal 1997 was $1.8 million. Income Taxes Effective income tax rates for the first quarters of fiscal 1998 and fiscal 1997 were 41.0%. Liquidity and Capital Resources Operating Activities In the first quarter of fiscal 1998, net cash provided by operating activities was $37.6 million, compared with $10.0 million reported in the first quarter of last year. The favorable increase in cash flow was due to increased net income, increased depreciation and amortization and changes in operating assets and liabilities, primarily inventories, other current assets, accounts payable and income taxes payable. Investing Activities Net cash used in investing activities during the first quarter was $67.5 million, compared with $52.8 million last year. On September 26, 1997, Midwest Holdings Inc., a wholly owned subsidiary of the Company, purchased 24.9% of the outstanding common shares and 44.0% of the outstanding non-voting convertible preferred shares of Laclede Steel Company (Laclede), for a purchase price of approximately $15 million. The equity investment in Laclede, a manufacturer of carbon and alloy steel products including pipe, hot rolled and wire products and welded chain, provides the Company with an opportunity to participate in new product markets. The investment in Laclede will be accounted for on the equity method with the Company recording its share of earnings or loss beginning in the second quarter of fiscal 1998. On August 30, 1996, the Company entered into an Equity Contribution Agreement with American Iron Reduction, L.L.C. (AIR), a 50 percent owned subsidiary of the Company, for the purpose of constructing a direct reduced iron (DRI) facility in Louisiana. Pursuant to the Equity Contribution Agreement, the Company is required to make an equity contribution to AIR of not less than $20,000,000 and not more than $27,500,000 upon completion of the facility, which is expected to occur in the third quarter of fiscal 1998. The Company also entered into a DRI Purchase Agreement with AIR on August 30, 1996, whereby the Company will purchase a minimum of 600,000 metric tons of DRI annually once the facility becomes operational. The DRI purchased by the Company will be utilized primarily as feedstock at the new Memphis melt shop. Financing Activities Net cash provided by financing activities was $29.7 million in the first quarter, compared with $43.6 million in the first quarter of the prior year. The decline is attributable to decreased borrowings on the Company's short-term lines of credit during the first quarter of fiscal 1998 compared with the first quarter of the prior year, partially offset by net borrowings of approximately $23 million on the Company's long-term credit facility completed in March, 1997. Working Capital Working capital at the end of the first quarter decreased to $202.3 million, compared with $228.9 million at the end of fiscal 1997. The decrease in working capital was essentially due to a decline in inventories and increased borrowings on the Company's short-term lines of credit partially offset by a reduction in accounts payable. Other Comments On October 1, 1997, subsequent to the end of the first quarter, the Company completed the sale of its property located in Emeryville, California for a sale price of $13.6 million and recognized a pre-tax gain of approximately $2.1 million. On October 14, 1997, the Company declared a regular quarterly cash dividend of $.10 (ten cents) per share which was paid November 4, 1997 to shareholders of record on October 24, 1997. On October 15, 1997, subsequent to the end of the first quarter, the Company sold its idle rolling mill in Cartersville, Georgia, acquired in December 1996, for $1.6 million and recognized a pre-tax gain of approximately $1.2 million. On November 10, 1997, subsequent to the end of the first quarter, the Company entered into a 15 year operating lease agreement and received $75 million in cash for equipment located at the Company's Memphis melt shop which was previously reflected in construction in progress. The Company is scheduled to begin implementation of a new business information system, which is year 2000 compliant, in the third quarter of fiscal 1998. The new business information system is expected to be fully implemented by the end of fiscal 1999. The Company is evaluating its other systems on an on-going basis for year 2000 issues. While total costs of the conversion process have not yet been determined, the Company does not currently expect those costs to be significant. Risk Factors That May Affect Operating Results The Company's actual results could differ materially from those described or implied in any forward-looking statements contained in this document. Among the factors that could cause actual results to differ materially are the factors detailed below. In addition, readers should consider the risk factors described from time to time in other Company reports filed with the Securities and Exchange Commission. The Company is in the steel industry, an industry that is vulnerable to unpredictable economic cycles. A downturn in the economy or in the Company's markets could have an adverse effect on the Company's performance. The Company has attempted to spread its sales across the reinforcing bar, merchant product and special bar quality markets to reduce the Company's vulnerability to an economic downturn in any one product market. The Company's performance, however, can still be materially affected by changes in demand for any one of its product lines and by changes in the economic condition of the construction industry, manufacturing industry or automobile industry. The cost of scrap is the largest element in the cost of the Company's finished rebar and merchant products. The Company purchases most of its scrap on a short-term basis. Changes in the price of scrap, therefore, can significantly affect the Company's profitability. Changes in other raw material prices can also influence the Company's profitability. Prices for some of the Company's products are positively affected by the influence of trade sanctions imposed on the Company's foreign competitors. Changes in these sanctions or their enforcement could adversely affect the Company's results. Energy costs are also a significant factor influencing the Company's results. Current reforms in the electric utility industry at the state and federal level are expected to lower energy costs in the long run. However, numerous utilities and political groups are fighting these reforms and states are approaching the reforms in different fashions. The possibility exists, therefore, that the Company could be exposed to energy costs which are less favorable than those available to its competitors. Such a situation could materially affect the Company's performance. Until completion of the Memphis melt shop, currently under construction, the Company's SBQ division will purchase substantially all of its steel billets from third parties. The cost of these steel billets is the largest element in the cost of the SBQ division's finished products. Thus, the performance of this division, and in turn, the performance of the Company, can be materially affected by changes in the price of the steel billets it buys from third parties. Delays or cost overruns associated with the new Memphis melt shop or the DRI project in Louisiana could materially adversely affect the Company's future results. While both projects are currently on schedule, these projects, like other construction projects, can be affected or delayed by factors such as unusual weather, late equipment deliveries, unforeseen conditions and untimely performance by contractors. The Company is constantly engaged in the process of evaluating new opportunities to strengthen its long-term business and financial prospects. From time to time, this process may lead the Company to make strategic investments, such as acquisitions and joint ventures, which have the potential to improve the Company's position in the markets in which it currently competes, as well as new markets it may choose to enter. In connection with these investments, the Company may incur, either directly or indirectly, start-up expenses, losses and other charges that may have a material affect on the Company's financial performance. Further, there can be no assurance that these strategic investments will in fact be profitable, and the Company could incur significant losses as a result of one or more of these investments. The Company believes its labor relations are generally good. The Company's work force is substantially non-union and the Company has never suffered a strike or other labor related work stoppage. If this situation changes, however, the Company's performance could suffer material adverse effects. The Company operates in an industry subject to numerous environmental regulations. Changes in environmental regulations or in the interpretation or manner of enforcement of environmental regulations could materially affect the Company's performance. Further, the Company is planning and performing certain environmental remediations. Unforeseen costs or undiscovered conditions requiring unplanned expenditures in connection with such remediations could materially affect the Company's results. The Company's economic performance, like most manufacturing companies, is vulnerable to a catastrophe that disables one or more of its manufacturing facilities and to major equipment failure. Depending upon the nature of the catastrophe or equipment failure, available insurance may or may not cover a loss resulting from such a catastrophe or equipment failure and the loss resulting from such a catastrophe or equipment failure could materially affect the Company's earnings. The Company anticipates that it will continue to borrow funds in the future. Increases in interest rates or changes in the Company's ability to borrow funds could materially affect the Company's performance. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in litigation relating to claims arising out of its operations in the normal course of business. Some of these claims against the Company are covered by insurance, although the insurance policies do include deductible amounts. It is the opinion of management that any uninsured or unindemnified liability resulting from existing litigation would not have a material adverse effect on the Company's business or financial position. There can be no assurance that insurance, including product liability insurance, will be available in the future at reasonable rates. Item 6. Exhibits and Reports on Form 8-K No exhibits are required to be filed with this report. During the quarter ended September 30, 1997, no reports on Form 8-K were required to be filed. EX-27 2 FDS
5 This schedule contains summary financial information extracted from the September 30, 1997 Consolidated Balance Sheets and Consolidated Statements of Operations of Birmingham Steel Corporation and is qualified in its entirety by reference to such. 1,000 3-Mos Jun-30-1998 Sep-30-1997 802 0 130,077 1,797 197,360 355,535 989,814 184,440 1,253,320 153,226 53,500 0 0 297 476,022 1,253,320 287,547 287,547 256,787 256,787 0 2,502 6,069 12,279 5,034 7,245 0 0 0 7,245 .24 .24
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