0000950144-01-507838.txt : 20011019
0000950144-01-507838.hdr.sgml : 20011019
ACCESSION NUMBER: 0000950144-01-507838
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20011015
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-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-09820
FILM NUMBER: 1759555
BUSINESS ADDRESS:
STREET 1: 1000 URBAN CENTER DRIVE
STREET 2: SUITE 300
CITY: BIRMINGHAM
STATE: AL
ZIP: 35242
BUSINESS PHONE: 2059701200
MAIL ADDRESS:
STREET 1: P.O. BOX 1208
CITY: BIRMINGHAM
STATE: AL
ZIP: 35201-1208
10-K405
1
g72152e10-k405.txt
BIRMINGHAM STEEL CORPORATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FROM THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9820
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)
(205) 970-1200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 October 1, 2001, 31,341,816 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 October 1, 2001) held by non-affiliates was $26,646,078. For
purposes of this calculation only directors and officers are deemed to be
affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our Proxy Statement for the 2001 Annual Meeting of Stockholders
are incorporated herein by reference in response to items 10 through 12 in Part
III of this report.
ITEM 1. BUSINESS
OVERVIEW
Birmingham Steel Corporation (the Company) owns and operates facilities in
the mini-mill sector of the steel industry. In addition, the Company owns an
equity interest in a scrap collection and processing operation. From these
facilities, which are located across the United States and Canada, the Company
produces a variety of steel products including semi-finished steel billets,
reinforcing bars (rebar) and merchant products such as rounds, flats, squares,
strips, angles and channels. In fiscal 2000, the Company began producing
structural products such as angles, channels and beams that are three inches
wide and above. The Company also operates regional warehouse and steel
distribution facilities.
The following table summarizes the Company's principal production
facilities:
PRIMARY PRODUCTS
LOCATION OPERATION PRODUCED
-------- --------- --------
Birmingham, AL Mini Mill Billets, Rebar, Merchant Products
Kankakee, IL Mini Mill Billets, Rebar, Merchant Products
Joliet, IL(A) Rolling Mill Rebar, Merchant Products
Seattle, WA Mini Mill Billets, Rebar, Merchant Products
Jackson, MS (B) Mini Mill Billets, Rebar, Merchant Products
Cartersville, GA(B) Mini Mill Billets, Merchant Products, Structural Products
Cleveland, OH (C) Rolling Mills Special Bar Quality (SBQ) Rods, Bars and Wire
Memphis, TN (C) Melt Shop SBQ Blooms and Billets
(A) The Joilet rolling mill was shut-down indefinitely in June 2001.
(B) Facilities owned by Birmingham Southeast, L.L.C., an 85% owned consolidated
subsidiary.
(C) These facilities are designated as discontinued operations in fiscal 2001
-- see "Discontinued Operations." In June 2001, the Company suspended
melting operations at Cleveland. Melting operations were suspended at
Memphis in January 2000. These facilities are currently classified as
assets held for disposal.
In addition to the production facilities listed above, the Company owns a
50% equity interest in Richmond Steel Recycling, Ltd., a joint venture scrap
collecting and processing operation located in Vancouver, British Columbia. The
Company also owns a 50% interest in American Iron Reduction, L.L.C. (AIR), which
operates a direct reduced iron (DRI) production facility in Convent, Louisiana.
AIR filed for Chapter 7 protection under the United States Bankruptcy Code in
March 2001.
CHANGE IN MANAGEMENT
In July 1999, The United Company Shareholder Group (the United Group), a
dissident shareholder group, initiated a proxy contest to replace the Company's
Chief Executive Officer and Board of Directors and certain members of
management. On December 2, 1999, the Company and the United Group reached a
settlement appointing John D. Correnti as Chairman and Chief Executive Officer
and reconstituting the Board of Directors to include a total of twelve
directors, nine of which were appointed by the United Group and three of which
were appointed by previous management. Since the conclusion of the proxy contest
in December 1999, new management has accomplished a number of significant
achievements, which it believes improved the overall financial condition of the
Company and has positioned the Company for improved financial results in the
future. These accomplishments have been achieved notwithstanding the fact that,
in management's opinion, 2000 and the first half of 2001 have been the worst
years in the U.S. steel industry in nearly 30 years. During this period, 17
steel companies have filed for bankruptcy under either Chapter 11 or Chapter 7
of the United States Bankruptcy Code.
The actions of the new management team have essentially returned the
Company to the proven and profitable business platforms of its core operations
under which the Company was previously successful. Significant measures
implemented by the Correnti management team during the past 22 months include
the following:
- Shutdown of operations at the Memphis melt shop, resulting in cash
savings of approximately $2 million per month (January 2000);
- Completion of necessary capital expenditures and completion of
start-up operations at the Cartersville rolling mill (July 2000);
- Shutdown of operations at Cleveland, which will result in cash savings
of $2 million to $3 million per month (completed July 2001);
- Shutdown of operations of the Convent, Louisiana DRI facility (AIR),
resulting in cash savings of approximately $1 million per month
(October 2000);
- Sale of the Company's interest in the California scrap processing
joint venture, which eliminated $34 million in contingent liabilities
(June 2000);
- Reduction of corporate headquarters personnel by more than 30%,
resulting in annual savings of $2 million per year (December 1999
to June 2001);
- Hiring of seven highly experienced steel operations and sales
individuals from other steel companies to join the Correnti management
team;
- Reduction in inventories by $78 million (from December 1999 to June
2001); and
- Reduction in trade accounts payable by $54 million (from December 1999
to June 2001), and significant improvement in vendor relationships
which had been impaired under prior management.
The actions above indicate the aggressive steps the Correnti management
team is taking to complete a profitable turnaround of the Company, and
demonstrate management's ability to implement changes as needed. Also, during
the extremely challenging business conditions which have prevailed in the U.S.
steel industry during the past 22 months, the Company has reduced costs,
improved margins, reduced debt, improved vendor relations and improved
availability under its revolving credit facility. However, the positive
financial impact of management's actions has been offset by deteriorating
conditions in the domestic steel industry, a surge in steel imports and a
general decline in U.S. economic conditions.
In January 2000, one month after joining the Company, new management
publicly articulated a strategy for returning to profitability and providing a
platform for the Company to refinance its debt. The refinancing of debt is an
important element of management's turnaround plan, because the Company is
currently over-leveraged and the maturity dates of its debt do not meet the
Company's cash flow capabilities. In addition, the existing financial structure
is highly complex and involves approximately 55 lenders.
The Company has never had a monetary default on any interest or principal
payment and is currently generating sufficient cash flow to service debt. The
current lender group has indicated support for the new management team and,
during the past 22 months, has accommodated the Company's requests to relax
certain covenants, extend certain maturity dates and provide adequate liquidity
for management to implement its turnaround plan.
As previously stated, the new management team has implemented numerous
measures to reduce costs, enhance margins, improve cash flow and reduce debt.
Management's goal is to position the Company to be a leader in the consolidation
of the U.S. steel industry, which a broad consensus of industry experts agree
must occur in order for the domestic industry to remain viable. Experts expect
that a wave of consolidation will occur over the next three to five years as the
U.S. steel industry wrestles with the impact of a global economy. In fact,
consolidation activity is already underway in Europe and, in management's view,
consolidation of the U.S. industry is inevitable if the U.S. industry is to
compete on a worldwide basis. Furthermore, the drastic decline in steel company
market capitalization over the past two years is indicative of the prevailing
view of the financial and investment communities that industry consolidation is
inevitable.
According to available industry data, total demand for all steel products
in the U.S. is approximately 130 million tons per year. Currently, domestic
steel producers have the capacity to produce approximately 100 million tons per
year, which mandates a necessity for at least 30 million tons of annual steel
imports. However, during the past two years, import levels reached a record 45
million tons.
The domestic steel industry is highly fragmented with an excess number of
high-cost, inefficient operations. The industry is divided into two segments:
integrated steel and mini-mill steel companies. Today, there are approximately
ten domestic integrated steel producers and twenty-five mini-mill companies.
Along with many others, management believes the eventual consolidation activity
will ultimately result in three to four domestic integrated producers and ten to
eleven mini-mill companies. As is the usual case in consolidation, the survivors
will be the efficient, low-cost producers.
With the exception of the Cartersville operation, which completed start-up
operations in July 2000, the Company's core operations are low-cost, highly
efficient, state-of-the-art facilities. Management believes that Cartersville,
upon a return of more favorable market conditions and the attainment of
consistent normalized capacity levels, will also be a low-cost and efficient
operation.
According to published industry reports, the Company is recognized as
having one of the most experienced and capable management teams in the industry.
Since December 1999, the Company has attracted seven experienced sales and
operations managers from other steel companies to join the Birmingham Steel
management team. Because of the quality of its core assets and management team,
management believes the Company is viewed as a key participant in the
prospective consolidation of the domestic industry. Other mini-mill companies
have strong asset bases, viewed desirable for consolidation, but many lack the
management and operational bench strength to effectively lead the industry
consolidation.
In order to participate in the pending industry consolidation, the primary
obstacle the Company must overcome is its large debt level. Management is
currently investigating ways to address its debt in order to enable the Company
to proactively participate in consolidation activity. In addition to improving
financial performance and operating cash flow, management is aggressively
pursuing the sale of its non-core assets as a means of obtaining proceeds to
reduce debt. The Company is also exploring debt financing/restructure
alternatives, which could include the sale of one or more of its core
facilities, in order to allow the Company to recapitalize its balance sheet and
reduce debt.
Alternatives for refinancing the Company's debt with new lenders are
limited because of softness in the current financial markets. Therefore, the
Company is currently in discussions with its existing lender group regarding an
overall debt restructure or extension of maturity dates under existing financing
arrangements. As the Company's financial performance continues to improve and
the general financial markets recover, management believes additional
opportunities to improve the debt structure will become available. The Company
does not anticipate any defaults or breach of financial covenants under its
existing financing arrangements; however, a major portion of the Company's debt
(approximately $291.0 million) is currently scheduled to mature April 1, 2002.
On September 17, 2001, the Company announced it had signed a letter of
intent to sell the Cleveland operation to Corporacion Sidenor, S.A. The
transaction is expected to close in December 2001. Management believes an
extension or more favorable refinancing terms can be obtained once the Cleveland
operation is sold and the Company's core operations continue the positive trend
in financial results.
The key elements of management's turnaround strategy as set forth by new
management upon assuming office in December 1999 were as follows:
- Completing start-up operations at Cartersville;
- Rationalization of the Cleveland and Memphis operations;
- Sale of the Company's interest in the California scrap joint venture;
- Reducing and limiting the Company's liability with respect to AIR, the
Louisiana DRI joint venture;
- Reducing overall spending;
- Reducing selling, general and administrative expenses and headcount at the
corporate headquarters;
- Strengthening and reorganizing of the Company's sales and marketing
functions; and
- Stabilizing the Company's management and workforce.
During the past 22 months, the Company has successfully completed each of
the key elements of its turnaround strategy. Unfortunately, the benefits of
these accomplishments have been overshadowed by a drastic deterioration of
economic conditions in the U.S. steel industry which began in 1998 and have been
exaggerated further by increased economic uncertainty in view of the tragic
events surrounding September 11, 2001. Despite these trying economic conditions,
management will continue to aggressively pursue opportunities to return
Birmingham Steel to profitability and to improve the Company's capital
structure.
DISCONTINUED OPERATIONS
Fiscal 1999
In fiscal 1999, prior to the conclusion of a proxy contest and subsequent
change in management, the Company announced plans to sell its SBQ segment, which
included rod, bar and wire facilities in Cleveland, Ohio; a high quality melt
shop in Memphis, Tennessee; and the Company's 50% interest in AIR. Accordingly,
the operating results of the SBQ segment were reflected as discontinued
operations in the Company's annual Consolidated Financial Statements for fiscal
1999 and in the first quarter of fiscal 2000.
Fiscal 2000
On January 31, 2000, subsequent to a change in management which occurred
after a proxy contest, new management decided to re-establish its
Cleveland-based American Steel & Wire (AS&W) SBQ operations. Management's
decision to continue operating the AS&W facilities was based on the following
considerations:
- The Company's attempts to sell the facility had not been successful and, at
that time, management believed that a sale in the near term would not
generate sufficient proceeds to pay down a meaningful amount of the
Company's long-term debt.
- New management believed there was a viable long-term market for AS&W's
high-quality rod, bar and wire products.
- The Company had identified several potential sources of high-quality
billets for the AS&W operations to replace the Memphis melt shop (which was
shut down in January 2000) as the primary supply source.
Management also concluded that a sale of the entire SBQ segment by the end
of fiscal 2000, as had been previously anticipated by former management, was no
longer likely based upon the results of selling efforts at that time and the
then prevalent market conditions. In accordance with EITF 90-16, "Accounting for
Discontinued Operations Subsequently Retained," the results of operations of the
SBQ segment were reported within continuing operations from the second quarter
of fiscal 2000 through the first fiscal quarter of 2001. Consequently, in the
quarter ended December 31, 1999, the operating results of the SBQ segment for
all periods prior to October 1, 1999 were reclassified from discontinued
operations to continuing operations. In addition, as a result of unwinding the
discontinued operations accounting treatment of the SBQ segment, the Company
reversed the remaining balance of the reserves for loss on disposal and
operating losses, and their related income tax effects. The reversal of
previously established reserves (net of tax) increased net income in fiscal 2000
by $173.2 million ($5.82 per share).
Fiscal 2001
In a press release dated September 28, 2000, the Company reported it had
signed a definitive agreement with North American Metals, Ltd. (NAM) to sell the
Cleveland and Memphis facilities of the SBQ segment with March 23, 2001 as the
targeted closing date. On February 12, 2001, the Board of Directors authorized
management of the Company to proceed with the sale. Accordingly, as required by
APB Opinion 30 (as interpreted by EITF 95-18), the operating results of the SBQ
segment for the second quarter of fiscal 2001 and prior periods were restated
and reported in discontinued operations in the unaudited Consolidated Financial
Statements for the period ended December 31, 2000.
In the second quarter of fiscal 2001, the Company recorded an $89.9 million
estimated loss ($2.90 per share) on disposal of the SBQ segment, which included
a $12.3 million provision (pre-tax) for estimated operating losses during the
expected disposal period. The proceeds expected to be realized on the sale of
the SBQ segment, and the expected operating losses during the disposal period,
were based on management's estimates of the most likely outcome based on the
terms of the definitive agreement between the Company and NAM at that time.
In a press release dated March 26, 2001, management reported that the
definitive agreement with NAM for the sale of the SBQ assets had been terminated
because NAM was unable to complete financing arrangements by the March 23, 2001
deadline. As the Company continued to pursue discussions with other interested
parties, an additional $12.3 million was provided for disposal period losses in
the quarter ended March 31, 2001. Due to a general economic slowdown in the U.S.
steel industry, which impacted demand for all steel products, including SBQ
products, shipments for the Cleveland facility fell precipitously in the third
fiscal quarter of 2001. Subsequently, in a press release dated April 24, 2001,
management reported that operations at the Cleveland facility would be
indefinitely suspended unless the facility was sold by June 22, 2001. Operations
were subsequently suspended in June 2001.
On September 17, 2001, the Company announced that a letter of intent had
been signed to sell the idled Cleveland facility to Sidenor, S.A., an SBQ
producer headquartered in Bilbao, Spain. Proposed terms of the sale are $20
million for the operating assets plus selected inventory. In addition, after the
sale is completed, the Company is required to pay retention incentives of $1.2
million to certain key people employed at the facility after the shutdown. Per
terms of the letter of intent, Sidenor is reimbursing the Company for the costs
of rehiring these key employees through the close of the sale. Based on the
terms of the letter of intent, in the quarter ended June 30, 2001, the Company
established an additional $61.2 million reserve for loss on sale. In addition,
the Company recorded additional reserves for estimated losses through the
anticipated disposal period of $10.1 million. The expected loss on sale and
disposal period losses are based on management's estimates of the most likely
outcome based on the carrying costs of the SBQ assets and anticipated costs to
complete the sale of the facilities. Additionally, the Company continues to
discuss the disposition of the Memphis facility with interested parties.
As with all estimates of future events and circumstances, the actual loss
on disposal of the SBQ segment, including operating losses and carrying costs
through the disposal period, will most likely be different from the estimates
reflected in the Consolidated Financial Statements and the difference could be
material. To the extent actual proceeds from the eventual sale of the remaining
assets of the SBQ segment or operating losses during the disposal period differ
from the estimates reflected in the Consolidated Financial Statements, the
variance will be reported within discontinued operations in future periods.
HISTORY
The Company was formed in 1983 and commenced operations in 1984. Upon
commencement of operations, the Company owned two mini-mills located in
Birmingham, Alabama and Kankakee, Illinois. Subsequently, the Company has
followed a strategy of growing by acquisition when market and economic
conditions warrant. The Company acquired additional mini-mills in Jackson,
Mississippi (1985) and Seattle, Washington (1986). In 1991, the Company acquired
the assets of Seattle Steel, Inc. and consolidated all of its Seattle operations
at the former
Seattle Steel site. In 1993, the Company entered the SBQ market with the
acquisition of AS&W, which added the Joliet mini-mill as well as rod and wire
mill assets at the Company's Cleveland facility.
In 1994, the Company acquired a Florida-based steel distributor, Port
Everglades Steel Corporation, which distributes steel products manufactured by
the Company and other third parties. In December 1996, the Company contributed
its Jackson, Mississippi mini-mill facility to Birmingham Southeast, L.L.C.
(Birmingham Southeast), a consolidated subsidiary 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 steel making
assets located in Cartersville, Georgia from Atlantic Steel Industries, Inc.
(Atlantic), a subsidiary of IVACO, Inc. At the time of its formation, Birmingham
Southeast entered into a tolling agreement with Atlantic pursuant to which
Atlantic converted 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. These agreements expired January 1,
1999. In March 1999, the Company commenced start-up of a new medium-section mill
to replace the rolling production that was provided under the tolling
arrangement with Atlantic. In March 1999, the Company commenced the start-up
phase of its Cartersville rolling mill. The Cartersville rolling mill facility
is expected to expand the Company's merchant and structural product offerings
and enable the Company to penetrate new markets. As of July 2000, the
Cartersville rolling mill completed the start-up phase of operations.
Following its acquisition of AS&W in 1993, management sought to build the
Company's SBQ operations using the AS&W assets as a platform. In addition to
building additional rolling mill capacity in Cleveland, the Company constructed
a melt shop in Memphis, Tennessee. The Memphis melt shop facility was intended
to provide lower cost raw materials (high grade, low carbon billets) for the
Cleveland SBQ rod, bar and wire operations. During the development and expansion
of the Cleveland and Memphis facilities, industry overcapacity and an increase
in imported SBQ products created unfavorable pricing conditions. In August 1999,
the Company announced its intention to divest its SBQ operations in order to
focus on its core mini-mill and scrap operations. In January 2000, under new
management, the Company decided to rationalize the SBQ operations by suspending
melting operations at the Memphis facility and continuing operations at the AS&W
facilities using third-party billets. In December 2001, new management announced
its intention to divest its SBQ operations in order to focus on its core
mini-mill and scrap operations.
OPERATIONAL MANAGEMENT
The Company's strategies for its rebar/merchant mini-mills are to (a)
increase sales by actively pursuing new customers and strengthening
relationships with existing customers; (b) improve its position as a low-cost
producer through continued operating cost reductions; (c) optimize capacity
utilization at each facility; and (d) increase production and sales of merchant
and structural products.
For management purposes, the Company's rebar and merchant product
mini-mills are operated as independent business units, reporting directly to the
Company's Chief Executive Officer. The rebar/merchant facilities are aggregated
and reported within a single segment because, among other things, they produce
essentially the same products using essentially identical production equipment
and techniques and they sell steel products to the same classes of customers. In
addition, their distribution methods are identical and they operate under the
same regulatory environment. Furthermore, over the long-term, the rebar/merchant
facilities are expected to generate similar long-term average gross margins.
SBQ operations are considered a separate segment for financial reporting
purposes due to differences in: (a) the class of customer served; (b) finished
product chemistry and surface quality; (c) intended uses of finished product;
and (d) expected long-term average profit margins. The SBQ operations are
reported in discontinued operations (see Footnote 2 to the Consolidated
Financial Statements).
STEEL MANUFACTURING
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
(a) use more costly raw materials; (b) consume more energy; (c) consist of
older and less efficient facilities which are more labor-intensive; and (d)
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 operates mini-mills (electric arc furnace melt shops and
finished product rolling mills) in Birmingham, Alabama; Kankakee, Illinois; and
Seattle, Washington. The Company also has a rolling mill in Joliet, Illinois
(which was indefinitely shut-down in June 2001), and has warehouse and
distribution facilities in Fontana and Livermore, California; Baltimore,
Maryland; and Ft. Lauderdale, Florida. Through its wholly owned subsidiary,
Birmingham East Coast Holdings, the Company owns 85% of Birmingham Southeast, a
consolidated subsidiary that operates mini-mills in Cartersville, Georgia and
Jackson, Mississippi. The Company also owns SBQ rod, bar and wire production
facilities in Cleveland, Ohio and a SBQ melt shop in Memphis, Tennessee.
Carbon steel rebar products produced by the Company are sold primarily to
independent fabricators and distributors for use in the construction industry.
Merchant and structural products are sold to fabricators, steel service centers
and original equipment manufacturers for use in general industrial applications.
SBQ rod, bar and wire products are targeted to customers in the automotive,
fastener, welding, appliance and aerospace industries.
The Company's mini-mills melt ferrous scrap to produce rebar and merchant
steel products. Production begins with the melting of ferrous scrap in an
electric arc furnace. The molten steel is then funneled through a continuous
caster which produces steel billets (continuous rectangular strands of steel),
which are then cut into predetermined lengths. Billets are transferred to a
rolling mill where they are reheated, passed through a roughing mill for size
reduction, rolled into finished rebar, merchant or structural products and
cooled. Merchant and structural products then pass through state-of-the-art
straightening and stacking equipment. At the end of the production process,
rebar and merchant steel products pass through automated bundling equipment to
ensure uniform packaging for shipment to customers.
The Company's electric arc furnace in Memphis, Tennessee has capability to
melt high quality scrap and DRI to produce molten steel that is then poured into
a continuous caster to form a bloom -- which is a larger size than a billet. In
a continuous process, blooms are moved from the caster directly to stands which
reduce the blooms to a billet. The bloom cast is essential to achieving the
necessary quality for SBQ products. The Company's SBQ operations in Cleveland
require high quality carbon and alloy semi-finished billets which have been
obtained from third parties and from the Memphis melt shop. The high quality
billets are then converted into a variety of high quality rod, bar and wire
products.
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 scrap merchants and is
not generally dependent on any single supplier. In fiscal 2001, scrap costs
represented approximately 40% of the Company's total manufacturing costs at its
core 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 in the past 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. 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 discontinued SBQ rod, bar and
wire 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 rod, bar and wire products using approximately 120 generic grades of
billets. Until December 1999 (when operations at Memphis were suspended), the
Memphis melt shop used both high-grade scrap and DRI as feedstock. Substantially
all of the Memphis DRI was obtained from AIR, the Company's DRI joint venture.
In fiscal 2000, upon termination of operations at Memphis, the Company was
required to obtain a substantial portion of its Cleveland billet requirements
from third party suppliers. Until suspending operations at the Cleveland
facility in June 2001, the Company had informal arrangements to obtain billets
from several foreign and domestic steel producers.
The Company consumes large amounts of electricity and natural gas. The
Company purchases electricity from regulated utilities under interruptible
service contracts because the costs of interruptible contracts are generally
lower than alternative arrangements. However, under these high volume industrial
contracts, electricity suppliers may periodically interrupt service during peak
demand periods. Although service interruptions have ordinarily been limited to
several hours and have occurred no more than ten days per year, there can be no
assurance that such interruptions will not be more severe in the future. The
Company also consumes substantial amounts of natural gas. Since deregulation of
the natural gas industry, the Company has generally obtained natural gas through
negotiated contract purchases of well-head gas, with transportation through
local pipeline distribution networks.
PRODUCTION CAPACITY
The table below presents management's estimated melting and rolling mill
capacity, together with actual steel melting and rolling production for fiscal
2001. The capacities presented are management's estimates and are based upon a
normal 168-hour weekly work schedule, assuming an average product mix for each
facility and include the effects of capacity limitations currently impacting
each facility. Production capacities listed below are estimated year-end
capacity levels:
ANNUAL FISCAL ANNUAL FISCAL
MELTING 2001 ROLLING 2001
CAPACITY PRODUCTION CAPACITY PRODUCTION
-------- ---------- -------- ----------
(IN THOUSANDS OF TONS) (IN THOUSANDS OF TONS)
---------------------- ----------------------
Continuing core mini-mills:
Birmingham .............. 500 462 550 483
Kankakee ................ 835 651 600 503
Joliet (A) .............. -- -- 280 130
Seattle ................. 750 686 750 615
Jackson ................. 450 257 400 221
Cartersville..(B) ....... 1,000 417 600 286
Discontinued SBQ Operations:
Cleveland...(C) ......... -- -- 1,100 187
Memphis...(D) ........... 1,000 -- -- --
----- ----- ----- -----
4,535 2,473 4,280 2,425
===== ===== ===== =====
(A) The Joliet facility ceased operations temporarily in February 2001 and
indefinitely in June 2001.
(B) The Cartersville facility completed the start-up phase of operations in
July 2000.
(C) Cleveland ceased operations in June 2001. See "Discontinued Operations".
(D) Memphis ceased operations in December 1999. See "Discontinued Operations".
The Company has the capability to produce both rebar and merchant products
at each of its core mini-mills. Converting rebar production to merchant products
production is a routine facet of operations at the Company's mini-mill
facilities and no major impediments exist which would preclude changing the
product mix to meet changes in demand.
PRODUCTION FACILITIES -- CONTINUING OPERATIONS - CORE MINI-MILLS
Birmingham, Alabama
The Birmingham, Alabama facility was the first mini-mill built in the
United States. Since acquisition of the Birmingham facility, the Company has
installed a new electric arc furnace and sequence casting system in the melt
shop, 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 and some merchant products.
Kankakee, Illinois
The Kankakee, Illinois facility is located approximately 50 miles south of
Chicago. Since its acquisition in 1981, 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. The Kankakee operation produces rebar and a
variety of merchant products, including rounds, angles, channels, squares, flats
and strip.
Joliet, Illinois
The Joliet, Illinois facility was acquired with the Company's purchase of
American Steel & Wire Corporation in November 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 to the operational control of the Kankakee
management group. The Company also invested approximately $30 million to upgrade
the rolling mill and enable Joliet to produce coiled and straight length rebar,
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-to-length line. The Joliet operation obtains its
semi-finished steel billet requirements primarily from the Company's Kankakee
facility. Because of deteriorating market conditions, the operations at Joliet
were indefinitely suspended in June 2001.
Seattle, Washington
The Seattle, Washington facility is located adjacent to the Port of
Seattle. The Company began operating in Seattle in 1986 upon the acquisition of
a local steel company, which provided 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 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 rebar and a variety of
merchant products, including rounds, angles, channels, squares, flats and strip.
Jackson, Mississippi
The Company originally acquired the Jackson facility in August 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 from 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 renovated the
facilities and equipment. The Jackson facility includes a melt shop which was
completed in 1993 and a modern in-line rolling mill. Installations of automated
in-line straightening and stacking equipment were completed in fiscal 1994. The
Jackson facility produces primarily merchant products including rounds, squares,
flats, strip and angles. The Jackson facility also has the capability to produce
rebar.
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. In addition to merchant
and structural products, Cartersville produced billets for feedstock to the
Cleveland facility. In March 1999, the Company began its own rolling operations
in Cartersville and now produces a wide range of merchant and structural
products at this facility. The Company completed the start-up phase of the
Cartersville facility in July 2000.
PESCO Facilities
In December 1994, the Company acquired substantially all of the assets of
Port Everglades Steel Corporation (PESCO), a Florida-based steel distributor
which operates facilities in Florida and Texas. PESCO obtains the majority of
its steel requirements from the Company's Birmingham, Jackson and Kankakee
mills.
PRODUCTION FACILITIES -- DISCONTINUED SBQ OPERATIONS
In February 2001, the Company announced its intention to divest its SBQ
operations in order to focus efforts on its core mini-mill and scrap operations.
Cleveland, Ohio
The Company's Cleveland, Ohio facilities include a rod mill, a bar mill and
a wire mill. The rod and wire assets were acquired in 1993 when the Company
purchased American Steel & Wire Corporation (AS&W).
The Cleveland facilities produce a variety of high quality steel rod, bar
and wire products. The Cleveland operation has achieved QS9000 registration,
which is a quality system requirement established by Chrysler, Ford and General
Motors, and is based upon the internationally recognized ISO9000 series of
standards. The Cleveland operation also includes a facility which produces
ultra-high tensile strength specialty wire (TOW) for use in the U.S.
Government's anti-tank missile guidance systems. The Cleveland plant is the only
producer of TOW missile wire.
Memphis, Tennessee
In November 1997, the Company began start-up operations of an SBQ melt shop
in Memphis. The Memphis melt shop was designed to produce 1 million tons of high
quality billets per year. The facility consists of an electric arc furnace,
vacuum degassing tank, a ladle metallurgy station, a continuous bloom caster
and a billet rolling mill. The facility also includes inspection and
conditioning equipment used to analyze billets prior to shipment. The Company
ceased operations of the Memphis facility as of January 1, 2000 and committed to
a plan to sell the assets. The Memphis facility assets are held for sale as of
June 30, 2001. See Note 2 to the Consolidated Financial Statements.
PRODUCTS
Note 12 to the Consolidated Financial Statements provides information about
net sales for each of the past three years by type of product and by geographic
area. Following is a discussion of each of the Company's principal products and
distribution methods.
Rebar Products
The Company has the capability to produce rebar at each of its continuing
core mini-mill facilities. 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 could 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, which makes price the primary
competitive factor. As a result, freight costs limit rebar competition to
regional producers generally concentrated within a 700 mile radius of a mill.
Except in unusual circumstances, the customer's delivery expense is limited to
freight from the nearest mini-mill. Any incremental freight charges from another
source must be absorbed by the supplier. The Company ships rebar products to
customers primarily via common carrier and, to a lesser extent, by rail.
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
steel trade association), depict apparent rebar consumption in the United States
from 1989 through 2000. 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
------------- --------- --------- -----
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 ........... 6,071,000 1,288,000 21.2%
1997 ........... 6,188,000 1,432,000 23.1%
1998 ........... 7,373,000 1,363,000 18.5%
1999 ........... 6,546,000 1,446,000 22.1%
2000 ........... 6,907,000 1,402,000 20.3%
The Company's rebar operations are subject to a period of moderately reduced
sales from November to February, when winter weather and the holiday season
impact construction market demand.
Merchant and Structural Products
The Company has the capability to produce merchant products at each of its
continuing core mini-mill facilities. Merchant products consist of rounds,
squares, flats and strip, along with angles and channels less than three
inches wide. Merchant products are generally sold to fabricators, steel service
centers and manufacturers who cut, bend, shape and fabricate 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.
The Company has the capability to produce structural products at its
Cartersville mini-mill facility. Structural products consist of angles,
channels and beams that are three inches wide and above. Structural products
are used to manufacture a wide variety of products including housing beams,
trailers, light to medium structural support for buildings and other
construction based uses.
Merchant and structural products typically require more specialized
processing and handling than rebar, including straightening, stacking and
specialized bundling. Because of the greater variety of shapes and sizes,
merchant and structural products are typically produced in shorter production
runs, requiring more frequent changeovers in rolling mill equipment. Merchant
products generally command higher prices and can produce higher profit margins
on a per ton basis than rebar products. The Company has installed modern
straightening, stacking and bundling equipment at its mills to strengthen its
competitiveness in merchant and structural markets. As with rebar, the Company
generally ships merchant products to customers by common carrier or by rail and
equalizes freight costs to the nearest competing mill.
The following data reported by the American Iron and Steel Institute depict
apparent consumption of merchant products in the United States from 1989 through
2000. 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
------------- --------- --------- -----
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..... 10,341,000 520,000 5.0%
1997..... 10,534,000 925,000 8.8%
1998..... 11,600,000 909,000 7.8%
1999..... 10,237,000 908,000 8.9%
2000..... 9,236,000 955,000 10.3%
Data reported by the American Iron and Steel Institute depict apparent
consumption of structural products in the United States in calendar year 2000
was 8,691,000 tons. Cartersville shipped 23,000 tons of structural products in
the United States in calendar year 2000, which represented approximately 0.3% of
the market share. In calendar year 1999, data reported by the American Iron and
Steel Institute depict apparent consumption of structural products in the United
States was 6,391,000 tons. Since Cartersville did not begin construction of
their mid-section mini-mill until March 1999, and was in start-up through July
2000, the Company did not have a significant amount of structural shipments
during calendar 1999.
SBQ Rod, Bar and Wire Products
In February 2001, the Company announced its intention to divest its SBQ
operations in order to focus on its core mini-mill and scrap operations. For
financial reporting purposes, the SBQ operations are classified as discontinued
operations. The following discussion is provided for historical reference
purposes.
The Company's SBQ facilities sold high-quality rod, bar and wire products
to customers in the automotive, agricultural, industrial fastener, welding,
appliance and aerospace industries. Because of the flexibility of the Cleveland
facility, the Company produced a wide variety of SBQ products, including cold
heading quality, cold finish quality, cold rolling quality, welding quality,
specialty high carbon quality, industrial quality, bearing quality and wire
products. Approximately 70% of the Company's SBQ shipments were to customers
serving the original equipment and after-market segments of the automotive
industry.
COMPETITION
Price sensitivity in markets for the Company's products is driven by
competitive factors, including the cost and availability of steel in the
marketplace. The geographic marketing areas for the Company's products are
principally the United States and Canada.
Because rebar, merchant and structural products are commodity products, the
major factors affecting the sale of finished products are competitive pricing,
inventory availability, facility location and service. The Company competes in
the rebar, merchant and structural markets primarily with numerous regional
domestic mini-mill companies and foreign importers.
Foreign Competition
During the past three years, foreign steel imports have had a significant
impact on the Company's shipments. Selling prices have decreased in each of the
past three years, primarily because of increased imports. In July 2000, the
Company and other United States rebar producers (the Rebar Trade Action
Coalition) filed a petition with the International Trade Commission (ITC)
against dumping rebar in certain United States regional markets. In August 2000,
the ITC ruled in favor of the Rebar Trade Action Coalition, preliminarily
finding that certain regional United States markets had been injured or
threatened with injury due to dumped steel imports. As a result of these
findings, the Department of Commerce imposed duties ranging from 17% to 133% on
imports from eight countries beginning in April 2001. In addition, the President
of the United States requested an investigation of steel imports under section
201 of the trade code for all steel products from all countries to determine if
dumping is a global issue. Findings from this investigation are expected to be
released in February 2002.
EMPLOYEES
Production Facilities
At June 30, 2001, the Company employed 1,410 people at its production
facilities. The Company estimates that approximately 32% 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 2001, hourly employee costs at these facilities were
approximately $28 per hour, including overtime and fringe benefits, which is
competitive with other mini-mills. Approximately 90 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 September 2004. However, due to business conditions, the Joliet
operations were indefinitely suspended effective June 23, 2001. Affected
employees were provided a sixty day advance notice of the shutdown in compliance
with the Worker Adjustment and Retraining Notification Act (WARN). During fiscal
2001, hourly employee costs at this facility were approximately $28 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 remain good.
Sales and Administrative Personnel
At June 30, 2001, the Company employed 173 sales and administrative
personnel, of which 82 were employed at the Company's corporate office
headquarters located in Birmingham, Alabama.
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
material compliance with all known and applicable environmental regulations.
Changes in federal or state regulations or a discovery of unknown conditions
could require substantial additional 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 sites or recycling sites through contracts with approved waste disposal
and recycling firms.
The Cleveland and Joliet facilities were acquired pursuant to an Asset
Sales Agreement dated May 19, 1986 (the Agreement), by and between AS&W and USX
Corporation (formerly United States Steel Corporation) (USX). Pursuant to the
Agreement, AS&W is indemnified by USX for claims, if any, which may be asserted
against AS&W 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 AS&W acquired these facilities. To date, no
material claims have been identified or asserted against AS&W.
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 presented below.
The following table sets forth the name of each executive officer of the
Company, the offices they hold, and their ages as of October 1, 2001:
NAME AGE OFFICE HELD
---- --- -----------
John D. Correnti 54 Chairman of the Board and Chief Executive Officer
James A. Todd, Jr. 73 Vice Chairman and Chief Administrative Officer
Robert G. Wilson 64 Vice President - Rebar Sales
Philip L. Oakes 54 Vice President - Human Resources
J. Daniel Garrett 43 Chief Financial Officer and Vice President - Finance
John D. Correnti joined the Company as Chairman of the Board and Chief
Executive Officer in December 1999. Prior to joining the Company, Mr. Correnti
served as Vice Chairman, President and Chief Executive Officer of Nucor
Corporation from 1996 to 1999.
James A. Todd, Jr. joined the Company as Chief Administrative Officer in
December 1999. Mr. Todd served as Chairman of the Board and Chief Executive
Officer of the Company from 1991 to January 1996.
Robert G. Wilson joined the Company in 1988 as Vice President - Sales and
has served as Vice President - Rebar Sales since December 1999.
Philip L. Oakes joined the Company in 1996 and serves as Vice President -
Human Resources. Prior to joining the Company, Mr. Oakes served as Vice
President - Human Resources of Waste Management, Inc. from 1992 to 1996.
J. Daniel Garrett joined the Company in 1986 and has served as Chief
Financial Officer and Vice President - Finance since June 2000. From October
1997 to June 2000, Mr. Garrett served as Vice President-Finance & Control.
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 OWNED
SQUARE OR
LOCATION ACREAGE FOOTAGE LEASED
-------- ------- ------- ------
Corporate Headquarters:
Birmingham, Alabama ......... -- 41,433 Leased
Continuing Operating Facilities:
Rebar/Merchant mini-mills:
Birmingham, Alabama ....... 26 260,900 Owned
Kankakee, Illinois ........ 222 400,000 Owned
Seattle, Washington ....... 69 736,000 Owned
Jackson, Mississippi ...... 99 323,000 Owned(A)
Cartersville, Georgia ..... 283 367,000 Owned
Distribution Facility:
Ft. Lauderdale, Florida ... -- 29,500 Leased
SBQ Operations (B):
Cleveland, Ohio .......... 216 2,041,600 Owned(A)
Memphis, Tennessee ....... 500 184,800 Owned(A)
All of these facilities are encumbered by mortgages held by lenders as
security for outstanding debt.
(A) Portions of equipment that were financed by Industrial Revenue Bonds are
leased pursuant to the terms of such bonds.
(B) These facilities are designated as discontinued operations in fiscal 2001 -
see "Discontinued Operations". In June 2001, the Company suspended melting
operations at Cleveland. Melting operations were suspended at Memphis in
January 2000. These facilities are currently classified as assets held for
disposal.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation relating to claims arising out of its
operations in the normal course of business. Most of the existing known claims
against the Company are covered by insurance, subject to the payment of
deductible amounts by the Company. Management believes that substantially all
uninsured or unindemnified liability resulting from existing litigation will not
have a material adverse effect on the Company's business or financial position.
However, there can be no assurance that insurance, including product liability
insurance, will be available in the future at reasonable rates.
The Company has been named as a defendant in a number of lawsuits arising
out of an accident on March 15, 1999, involving the Amtrak passenger train, City
of New Orleans, and a tractor trailer at the McKnight Road Grade Crossing
located in front of the Company's plant in Kankakee, Illinois. The truck was
owned and operated by Melco Transfer, Inc., and driven by John R. Stokes, a
Melco employee. The railroad tracks, warning lights and gates were owned,
operated and maintained by Illinois Central Railroad. At the time of the
accident, the truck was just leaving the Kankakee plant carrying steel
reinforcing bar produced by the Company. There were approximately 122 injuries
and 11 deaths in the accident. The Company has been named as a defendant or
counterdefendant in 56 cases pending in the Circuit Court of Cook County,
Illinois, which have been consolidated under the style Deborah Dowe, personal
representative of the Estate of Sheena Dowe, Deceased v. Melco Transfer, Inc.,
et al. The Company has also been named as a defendant in five Federal Employers
Liability Act (FELA) cases brought by Amtrak
employees in the Circuit Court of Cook County, which have also been consolidated
in the Dowe case. The Company has also been named as a defendant in a suit
brought by Amtrak in the Circuit Court of Cook County, Illinois, styled National
Railroad Passenger Corporation d/b/a Amtrak v. Birmingham Steel Corporation, et
al. Amtrak's complaint seeks to recover for property damage to the train,
cleanup costs and loss of income resulting from the accident and contribution in
any judgments awarded against Amtrak in any personal injury actions arising out
of the lawsuits. The Amtrak case has been consolidated with the Dowe case. The
Company has been named as a defendant in a case pending in the United States
District Court for the Northern District of Illinois, Anna Wilson-McCray v. John
R. Stokes, et al. The Company has been named as a counterdefendant in two cases
pending in the Circuit Court for Kankakee County, Illinois, styled Dawson v.
Illinois Central Railroad, and Neils v. Illinois Central Railroad. The Dawson
and Neils cases are injury cases. The Company has also been named as a defendant
in four cases filed in New Orleans Parish, Louisiana. Those cases are Williams,
Brister, George, and Martin. The plaintiffs in those cases were all employees of
Amtrak at the time of the accident. The Company has been named as a defendant in
third party complaints filed by Amtrak in four (4) bodily-injury suits pending
in the U.S. District Court for the Central District of Illinois where the
plaintiffs were employees of Amtrak and/or Illinois Central who filed FELA
claims against Amtrak.
The various plaintiffs in both the Illinois and Louisiana cases contend
that at the time of the accident John R. Stokes, the driver of the truck, was
acting as an employee or agent of the Company; that the Company was negligent in
loading the trailer; that the load placed on the trailer exceeded the weight
limit allowed by statute; and that the Company negligently allowed some rail
cars to be parked on a side track near the intersection. The Company is being
defended in all of the cases through insurance counsel. The Company denies all
liability, and is vigorously defending the cases. At this time, however, the
cases remain in their early stages, and discovery is incomplete. The Company
cannot accurately assess the plaintiffs' chance of recovery against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 2001.
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, par value $0.01 per share (Common Stock),
is traded on the New York Stock Exchange (NYSE) under the symbol BIR.
The table below sets forth for the two fiscal years ended June 30, 2001 and
2000, 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 NYSE Composite Tape:
HIGH LOW
---- ---
Fiscal Year Ended June 30, 2001
First Quarter.................... $3.75 $2.25
Second Quarter................... 2.88 0.75
Third Quarter.................... 2.15 0.93
Fourth Quarter................... 1.60 0.60
Fiscal Year Ended June 30, 2000
First Quarter.................... $9.06 $4.31
Second Quarter................... 8.19 3.25
Third Quarter.................... 5.44 3.19
Fourth Quarter................... 5.00 3.00
The last sale price of the Common Stock as reported on the NYSE on October
1, 2001 was $0.98. As of October 1, 2001, there were 1,417 holders of record of
the Common Stock. The Company's registrar and transfer agent is First Union
National Bank of North Carolina.
On July 13, 2001, the Company announced that, as a result of writedowns
associated with the decision to divest of certain unprofitable operations
(including Cleveland and Memphis), it was not in compliance with the NYSE
minimum continued listing standards with respect to total equity. The Company
also reported it was below the minimum market capitalization requirement of $50
million. On September 4, 2001, the NYSE accepted the Company's proposed plan to
attain compliance with continued listing standards on or before November 21,
2002. As a result, subject to the Company's realizing certain interim and
ongoing objectives as outlined in its plan, the Company's stock will continue to
be traded on the NYSE.
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 (refer to "Selected Consolidated Financial Data" for
information concerning dividends paid by the Company during the past five fiscal
years). In December 1999, the Company's Board of Directors decided to suspend
quarterly dividend payments until the Company's profitability and cash flows
improve and the restrictive covenants of its long-term debt obligations become
less restrictive. Under the terms of the Company's amended debt agreements
(refer to Note 7 to the Consolidated Financial Statements), dividends and other
"restricted payments," as defined in the agreements, are limited to the lesser
of $750,000 per quarter or 50% of quarterly income from continuing operations.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED JUNE 30,
--------------------
2001 2000(A) 1999(A) 1998(A) 1997(A)
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales ......................................... $ 700,115 $ 770,840 $ 754,285 $ 884,890 $ 707,279
Cost of sales:
Other than depreciation and amortization .. 614,122 646,320 613,097 737,362 595,247
Depreciation and amortization ............. 42,162 42,294 40,227 37,954 32,739
--------- --------- --------- --------- ---------
Gross profit .................................. 43,831 82,226 100,961 109,574 79,293
Start-up and restructuring costs and other unusual
items, net (B) ................................ (16) 45,235 12,854 1,305 6,730
Selling, general and administrative expense ....... 34,287 37,642 36,625 44,214 33,492
--------- --------- --------- --------- ---------
Operating income (loss) ....................... 9,560 (651) 51,482 64,055 39,071
Interest expense .................................. 49,519 37,807 24,248 17,261 11,906
Other income, net (C) ............................. 1,627 2,858 9,930 12,794 4,704
(Loss) income from equity investments (D) ......... (23) 1,974 (24,563) (18,326) (1,566)
Minority interest in loss of subsidiary ........... -- 7,978 5,497 1,643 2,347
--------- --------- --------- --------- ---------
(Loss) income from continuing operations before
income taxes .................................. (38,355) (25,648) 18,098 42,905 32,650
Provision for income taxes ........................ 184 33,835 14,814 14,960 12,863
--------- --------- --------- --------- ---------
(Loss) income from continuing operations .......... (38,539) (59,483) 3,284 27,945 19,787
(Loss) income from discontinued operations, net (E) (158,447) 6,332 (227,520) (26,316) (5,370)
--------- --------- --------- --------- ---------
(Loss) income before extraordinary item ........... (196,986) (53,151) (224,236) 1,629 14,417
Loss on restructuring of debt, net ................ -- (1,669) -- -- --
--------- --------- --------- --------- ---------
Net (loss) income ................................. $(196,986) $ (54,820) $(224,236) $ 1,629 $ 14,417
========= ========= ========= ========= =========
Basic and diluted per share amounts:
(Loss) income from continuing operations ...... $ (1.25) $ (1.97) $ 0.11 $ 0.94 $ 0.68
(Loss) income on discontinued operations ...... (5.11) 0.21 (7.72) (0.89) (0.18)
Loss on restructuring of debt ................. -- (0.06) -- -- --
--------- --------- --------- --------- ---------
Net (loss) income ............................. $ (6.36) $ (1.82) $ (7.61) $ 0.05 $ 0.50
========= ========= ========= ========= =========
Dividends declared per share ...................... $ 0.00 $ 0.05 $ 0.175 $ 0.40 $ 0.40
========= ========= ========= ========= =========
JUNE 30,
--------
BALANCE SHEET DATA: 2001 2000(A) 1999(A) 1998(A) 1997(A)
---------- ---------- ---------- ---------- ----------
Working capital ................... $ (195,072) $ 142,659 $ 110,434 $ 237,673 $ 228,881
Total assets ...................... 647,461 859,375 877,466 1,158,015 1,124,717
Long-term debt less current portion 254,000 551,965 469,135 516,439 485,056
Stockholders' (deficit) equity .... (6,504) 188,015 230,731 460,607 471,548
(A) The selected consolidated financial data for fiscal 1997 through 2000 has
been restated, as required by generally accepted accounting principles, to
reflect the Company's special bar quality (SBQ) business as discontinued
operations. Refer to Note 2 to the Consolidated Financial Statements.
(B) Includes start-up costs of $16,537, $12,854, $1,305 and $6,730 in 2000,
1999, 1998 and 1997, respectively. In fiscal 2000, the Company recorded
asset impairment, restructuring charges and other unusual items amounting
to $28,698. Refer to Note 14 to the Consolidated Financial Statements.
(C) Includes $4,414 in refunds from electrode suppliers in both 1999 and 1998
and $5,200 and $5,225 gain on sales of idle properties and equipment in
1999 and 1998, respectively.
(D) Includes impairment losses for equity investees of $19,275 and $12,383 in
1999 and 1998, respectively. Refer to Note 3 to the Consolidated Financial
Statements.
(E) Reflects $138,236, $(173,183) and $173,183 loss (reversal of loss) on
disposal of SBQ line of business in 2001, 2000 and 1999, respectively,
including estimated losses during the disposal period (net of income tax
expense of $78,704 in 2000 and benefit of $78,704 in 1999). Refer to Note 2
to the Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
2001 QUARTERS(A)
----------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Net sales ................................ $ 192,895 $ 162,210 $ 165,524 $ 179,486
Gross profit ............................. 15,271 2,237 10,168 16,155
Start-up and restructuring costs and other
unusual items (B) ..................... 400 (416) -- --
Loss from continuing operations .......... (6,803) (17,324) (10,925) (3,487)
Loss from discontinued operations (C) .... (8,226) (101,836) (12,310) (36,075)
Net loss ................................. $ (15,029) $(119,160) $ (23,235) $ (39,562)
Weighted average shares outstanding ...... 30,892 30,987 31,032 31,065
========= ========= ========= =========
Basic and diluted per share amounts:
Loss from continuing operations ..... $ (0.22) $ (0.56) $ (0.35) $ (0.11)
Loss on discontinued operations ..... (0.27) (3.29) (0.40) (1.16)
--------- --------- --------- ---------
Basic and diluted loss per share .... $ (0.49) $ (3.85) $ (0.75) $ (1.27)
========= ========= ========= =========
2000 QUARTERS(A)
----------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Net sales .......................................... $ 189,310 $ 181,256 $207,290 $192,984
Gross profit ....................................... 28,236 15,148 17,781 21,061
Start-up and restructuring costs and other
unusual items (B) ............................... 5,060 28,547 8,416 3,212
Income (loss) from continuing operations ........... 5,764 (41,676) (8,417) (15,154)
Income (loss) from discontinued operations (C) ..... -- 22,907 (17,578) 1,003
Income (loss) before extraordinary item ............ 5,764 (18,769) (25,995) (14,151)
Loss on restructuring of debt, (net of income taxes) -- (1,330) -- (339)
Net income (loss) .................................. $ 5,764 $ (20,099) $ (25,995) $ (14,490)
Weighted average shares outstanding ................ 29,705 29,763 30,508 30,836
========= ========= ========= =========
Basic and diluted per share amounts:
Income (loss) from continuing operations ...... $ 0.19 $ (1.41) $ (0.27) $ (0.49)
Income (loss) from discontinued operations .... -- 0.77 (0.58) 0.03
Income (loss) before extraordinary item ....... 0.19 (0.63) (0.85) (0.46)
Loss on restructuring of debt ................. -- (0.04) -- (0.01)
--------- --------- --------- ---------
Basic and diluted earnings (loss) per share ... $ 0.19 $ (0.68) $ (0.85) $ (0.47)
========= ========= ========= =========
Cash dividends declared per share ............. $ 0.025 $ 0.025 $ -- $ --
========= ========= ========= =========
(A) Operating results of the SBQ line of business for fiscal 2001 and 2000 and
all prior periods presented herein have been restated and reported in
discontinued operations. See Note 2 to the Consolidated Financial
Statements.
(B) See Note 14 to the Consolidated Financial Statements for a summary of these
costs.
(C) Fiscal 2001 reflects the accrued loss on disposition of the SBQ line of
business. Fiscal 2000 reflects the reversal of the loss, originally
recorded in fiscal 1999, for the disposal of the SBQ line of business.
Refer to Note 2 to the Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
In July 1999, The United Company Shareholder Group (the United Group), a
dissident shareholder group, initiated a proxy contest to replace the Company's
Chief Executive Officer and Board of Directors and certain members of
management. On December 2, 1999, the Company and the United Group reached a
settlement appointing John D. Correnti as Chairman and Chief Executive Officer
and reconstituting the Board of Directors to include a total of twelve
directors, nine of which were appointed by the United Group and three of which
were appointed by previous management. Since the conclusion of the proxy contest
in December 1999, new management has accomplished a number of significant
achievements, which it believes improved the overall financial condition of the
Company and positioned the Company for improved financial results in the future.
These accomplishments have been achieved notwithstanding the fact that, in the
opinion of management, 2000 and the first half of 2001 have been the worst years
in the U.S. steel industry in nearly 30 years. During this period, 17 steel
companies have filed for bankruptcy under either Chapter 11 or Chapter 7 of the
United States Bankruptcy Code.
The actions of the new management team have essentially returned the
Company to the proven and profitable business platforms of its core operations
under which the Company was previously successful. Significant measures
implemented by the Correnti management team during the past 22 months include
the following:
- Shutdown of operations at the Memphis melt shop, resulting in cash
savings of approximately $2 million per month (January 2000);
- Completion of necessary capital expenditures and completion of
start-up operations at the Cartersville rolling mill (July 2000);
- Shutdown of operations at Cleveland, which will result in cash savings
of $2 million to $3 million per month (completed July 2001);
- Shutdown of operations of the Convent, Louisiana DRI facility (AIR),
resulting in cash savings of approximately $1 million per month
(October 2000);
- Sale of the Company's interest in the California scrap processing
joint venture, which eliminated $34 million in contingent liabilities
(June 2000);
- Reduction of corporate headquarters personnel by more than 30%,
resulting in an annual savings of $2 million per year (December 1999
to June 2001). However, the positive financial impact of management's
actions has been offset by deteriorating conditions in the domestic
steel industry, a surge in steel imports and a general decline in U.S.
economic conditions.
- Hiring of seven highly experienced steel operations and sales
individuals from other steel companies to join the Correnti management
team;
- Reduction in inventories by $78 million (from December 1999 to June
2001); and
- Reduction in trade accounts payable by $54 million (from December 1999
to June 2001), and significant improvement in vendor relationships
which had been impaired under prior management.
The actions above indicate the aggressive steps the Correnti management
team is taking to complete a profitable turnaround of the Company, and
demonstrate management's ability to implement changes as needed. Also, during
the extremely challenging business conditions which have prevailed in the U.S.
steel industry during the past 22 months, the Company has reduced costs,
improved margins, reduced debt, improved vendor relations and improved
availability under its revolving credit facility. However, the positive
financial impact of management's actions has been offset by deteriorating
conditions in the domestic steel industry, a surge in steel imports and a
general decline in U.S. economic conditions.
In January 2000, one month after joining the Company, new management
publicly articulated a strategy for returning to profitability and providing a
platform for the Company to refinance its debt. The refinancing of debt is an
important element of management's turnaround plan, because the Company is
currently over-leveraged and the maturity dates of its debt do not meet the
Company's cash flow capabilities. In addition, the existing financial structure
is highly complex and involves approximately 55 lenders.
The Company has never had a monetary default on any interest or principal
payment and is currently generating sufficient cash flow to service debt. The
current lender group has indicated support for the new management team and,
during the past 22 months, has accommodated the Company's requests to relax
certain covenants, extend certain maturity dates and provide adequate liquidity
for management to implement its turnaround plan.
As previously stated, the new management team has implemented numerous
measures to reduce costs, enhance margins, improve cash flow and reduce debt.
Management's goal is to position the Company to be a leader in the consolidation
of the U.S. steel industry, which a broad consensus of industry experts agree
must occur in order for the domestic industry to remain viable. Experts expect
that a wave of consolidation will occur over the next three to five years as the
U.S. steel industry wrestles with the impact of a global economy. In fact,
consolidation activity is already underway in Europe and, in management's view,
consolidation of the U.S. industry is inevitable if the U.S. industry is to
compete on a worldwide basis. Furthermore, the drastic decline in steel company
market capitalization over the past two years is indicative of the prevailing
view of the financial and investment communities that industry consolidation is
inevitable.
According to available industry data, total demand for all steel products
in the U.S. is approximately 130 million tons per year. Currently, domestic
steel producers have the capacity to produce approximately 100 million tons per
year, which mandates a necessity for at least 30 million tons of annual steel
imports. However, during the past two years, import levels reached a record 45
million tons.
The domestic steel industry is highly fragmented with an excess number of
high-cost, inefficient operations. The industry is divided into two segments:
integrated steel and mini-mill steel companies. Today, there are approximately
ten domestic integrated steel producers and twenty-five mini-mill companies.
Along with many others, management believes the eventual consolidation activity
will ultimately result in three to four domestic integrated producers and ten to
eleven mini-mill companies. As is the usual case in consolidation, the survivors
will be the efficient, low-cost producers.
With the exception of the Cartersville operation, which completed start-up
operations in July 2000, the Company's core operations are low-cost, highly
efficient, state-of-the-art facilities. Management believes that Cartersville,
upon a return of more favorable market conditions and the attainment of
consistent normalized capacity levels, will also be a low-cost and efficient
operation.
According to published industry reports, the Company is recognized as
having one of the most experienced and capable management teams in the industry.
Since December 1999, the Company has attracted seven experienced sales and
operations managers from other steel companies to join the Birmingham Steel
management team. Because of the quality of its core assets and management team,
management believes the Company is viewed as a key participant in the
prospective consolidation of the domestic industry. Other mini-mill companies
have strong asset bases, viewed desirable for consolidation, but many lack the
management and operational bench strength to effectively lead the industry
consolidation.
In order to participate in the pending industry consolidation, the primary
obstacle the Company must overcome is its large debt level. Management is
currently investigating ways to address its debt in order to enable the Company
to proactively participate in consolidation activity. In addition to improving
financial performance and operating cash flow, management is aggressively
pursuing the sale of its non-core assets as a means of obtaining proceeds to
reduce debt. The Company is also exploring debt financing/restructure
alternatives, which could include the sale of one or more of its core
facilities, in order to allow the Company to recapitalize its balance sheet and
reduce debt. Depending on the assets sold, such transactions could result in
material gains or losses in future periods.
Alternatives for refinancing the Company's debt with new lenders are
limited because of softness in the current financial markets. Therefore, the
Company is currently in discussions with its existing lender group regarding an
overall debt restructure or extension of maturity dates under existing financing
arrangements. As the Company's financial performance continues to improve and
the general financial markets recover, management believes additional
opportunities to improve the debt structure will become available. The Company
does not anticipate any defaults or breach of financial covenants under its
existing financing arrangements; however, a major portion of the Company's debt
(approximately $291.0 million) is currently scheduled to mature on April 1,
2002.
On September 17, 2001, the Company announced it had signed a letter of
intent to sell the Cleveland operation to Corporacion Sidenor, S.A. The
transaction is expected to close in December 2001. Management believes more
favorable extension or refinancing terms can be obtained once the Cleveland
operation is sold and the Company's core operations continue the positive trend
in financial results.
The key elements of management's turnaround strategy as set forth by new
management upon assuming office in December 1999 were as follows:
- Completing start-up operations at Cartersville;
- Rationalization of the Cleveland and Memphis operations;
- Sale of the Company's interest in the California scrap joint venture;
- Reducing and limiting the Company's liability with respect to the
Louisiana DRI joint venture;
- Reducing overall spending;
- Reducing selling, general and administrative expenses and headcount at
the corporate headquarters;
- Strengthening and reorganizing of the Company's sales and marketing
functions; and
- Stabilizing the Company's management and workforce.
During the past 22 months, the Company has successfully completed each of
the key elements of its turnaround strategy. Unfortunately, the benefits of
these accomplishments have been overshadowed by a drastic deterioration of
economic conditions in the U.S. steel industry which began in 1998 and have been
exaggerated further by increased economic uncertainty in view of the tragic
events surrounding September 11, 2001. Despite these trying economic conditions,
management will continue to aggressively pursue opportunities to return
Birmingham Steel to profitability and to improve the Company's capital
structure.
RESULTS FROM CONTINUING OPERATIONS
The following table sets forth, for the fiscal years indicated, trade
shipments, product mix percentages and average selling prices per ton for the
Company's continuing rebar, merchant/structural and scrap operations:
2001 2000 1999
------------------------------ ------------------------------ -------------------------------
TONS % OF AVG. TONS % OF AVG. TONS % OF AVG.
SHIPPED TOTAL SELLING SHIPPED TOTAL SELLING SHIPPED TOTAL SELLING
(000'S) SALES PRICE (000'S) SALES PRICE (000'S) SALES PRICE
------- ----- ----- ------- ----- ----- ------- ----- -----
Rebar 1,386 57.2% $ 260 1,459 56.8% $ 263 1,354 56.7% $ 275
Merchant/structural 879 36.2 288 950 37.0 314 885 37.0 323
Other 161 6.6 210 159 6.2 239 151 6.3 261
------ ----- ------ ------ ------- ------
Total continuing 2,426 100.0% 2,568 100.0% 2,390 100.0%
====== ===== ====== ====== ======= ======
Loss from continuing operations for fiscal 2001 was $38.5 million, or $1.25
per share, basic and diluted, compared to the loss of $59.5 million, or $1.97
per share in fiscal 2000. The following table sets forth, for the years
indicated, selected items in the consolidated statements of operations as a
percentage of net sales:
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
------ ------ ------
(RESTATED) (RESTATED)
Net sales .................................. 100% 100% 100%
Cost of sales:
Other than depreciation and amortization 87.7 83.8 81.3
Depreciation and amortization ........... 6.0 5.5 5.3
------ ------ ------
Gross margin ............................... 6.3 10.7 13.4
Start-up and restructuring costs and other
unusual items ........................... -- 5.9 1.7
Selling, general and administrative expense 4.9 4.9 4.9
Interest expense ........................... 7.1 4.9 3.2
Other income, net .......................... 0.2 0.4 1.3
Income (loss) from equity investments ...... -- 0.3 (3.2)
Minority interest in loss of subsidiary .... -- (1.0) (0.7)
Provision for income taxes ................. -- 4.4 2.0
------ ------ ------
Net (loss) income from continuing operations (5.5)% (7.7)% 0.4%
====== ====== ======
NET SALES
Fiscal 2001 compared to fiscal 2000
In fiscal 2001, net sales from continuing operations decreased 9.2% to
$700.1 million from $770.8 million in fiscal 2000. The decrease resulted from
both a 5.5% decline in shipment volumes as well as reductions in average selling
prices for rebar and merchant products. The Company's average selling price for
rebar decreased $3 per ton in 2001 versus 2000 while the average selling price
for merchant/structural products decreased $26 per ton in 2001 versus 2000.
Shipments and selling prices have declined in fiscal 2001 primarily because of
continuing pressure of steel imports, higher overall inventories of existing
steel service center customers and a general decline in United States economic
conditions.
Average selling prices were lower in fiscal 2001 as compared to fiscal 2000
for rebar and merchant/structural product. While the Company announced various
price increases in the peak summer seasonal period in fiscal 2001, continued
industry pricing pressure has kept prices relatively flat. Economic conditions
have generally slowed in calendar 2001, and the tragic events of September 11,
2001 could cause this trend to continue until consumer confidence is restored.
The Company will follow industry pricing trends while maintaining regular
production levels. In an effort to offset the impact of continued pricing
pressures the Company has discontinued certain rebate and discount programs.
Fiscal 2000 compared to fiscal 1999
In fiscal 2000, net sales from continuing operations increased 2.2% to
$770.8 million from $754.3 million in fiscal 1999, reflecting a 7.5% increase in
steel shipments which were partially offset by decreased selling prices which
prevailed in the latter half of the year. The Company's average selling price
for rebar decreased $12 per ton in 2000 versus 1999 while the average selling
price for merchant products decreased $9 per ton in 2000 versus 1999. The
decline in overall selling prices and sales volume was attributable to
unprecedented levels of steel imports and general market downward pressure on
pricing during fiscal 1999.
COST OF SALES
Fiscal 2001 compared to fiscal 2000
As a percent of net sales, cost of sales (other than depreciation and
amortization) from continuing operations increased to 87.7% in fiscal 2001,
compared to 83.8% in 2000. The percentage increase in cost of sales as a
percentage of sales during fiscal 2001 have resulted primarily due to record low
selling prices, higher energy costs and higher production costs due to
production curtailments implemented to control inventories. As selling prices
and shipments return to normal levels, cost of sales as a percentage of sales
should improve.
Depreciation and amortization expense from continuing operations decreased
slightly in fiscal 2001 to $42.2 million as compared to $42.3 million in fiscal
2000. At the Company's continuing mini-mill facilities, average scrap cost per
ton was $90 and $106 for fiscal 2001 and 2000, respectively. The cost per ton to
convert scrap to finished steel products increased to $138 per ton in fiscal
2001 from $132 per ton in fiscal 2000 due to generally lower production volumes
in fiscal 2001 due to inventory level constraints implemented to manage cash
flows.
Fiscal 2000 compared to fiscal 1999
Cost of sales (other than depreciation and amortization), as a percent of
net sales, increased slightly to 83.8% in fiscal 2000 from 81.3% in fiscal 1999.
The increase in cost of sales resulted primarily because of lower average
selling prices resulting from import pricing pressure. In addition, fiscal 2000
included a full year of operating lease costs for equipment at the Cartersville,
Georgia facility, which became operational in the second half of fiscal 1999.
The cost per ton to convert scrap to finished steel products increased to $132
per ton in fiscal 2000 compared with $128 per ton in fiscal 1999. Scrap cost was
$106 and $102 per ton in fiscal 2000 and 1999, respectively.
Depreciation and amortization expense from continuing operations increased
5.1% in fiscal 2000 compared with fiscal 1999. The increase was primarily
attributable to completion of capital projects at the Cartersville facility.
START-UP AND RESTRUCTURING COSTS AND OTHER UNUSUAL ITEMS
Fiscal 2001 compared to fiscal 2000
Start-up and restructuring costs at the Cartersville mid-section mill
during fiscal 2001 were substantially offset by the recovery of previously
expensed legal fees in a lawsuit settlement. In fiscal 2000, the Company
recognized $16.5 million in start-up expenses at Cartersville. In addition, the
Company recognized $13.1 million in impairment charges for assets taken out of
service in the quarter ended December 31, 1999, and incurred $13.2 million in
nonrecurring charges related to proxy solicitation and executive severance. For
additional discussion of these items, refer to Note 14 of the Consolidated
Financial Statements.
Fiscal 2000 compared to fiscal 1999
Start-up expense, restructuring costs and other unusual items from
continuing operations were $45.2 million in fiscal 2000 compared to $12.9
million in fiscal 1999.
Start-Up: Substantially all of the fiscal 2000 start-up costs were related
to the Cartersville, Georgia mid-section mill (which began operations in March
1999). Start-up was determined to be complete in July 2000 when Cartersville
achieved consistent, commercially viable production levels.
Asset impairment: In the second quarter of fiscal 2000, the Company wrote
off equipment taken out of service at the Seattle and Cartersville mills and
recognized losses of $13.1 million.
Proxy Solicitation: These costs, principally consisting of legal, public
relations and other consulting fees, were incurred during fiscal 2000 in the
Company's defense of a proxy contest led by The United Company Shareholder Group
(the United Group). In December 1999, the former Board of Directors of the
Company and the United Group reached a settlement appointing John D. Correnti as
Chairman and Chief Executive Officer and appointing nine new board members
approved by the former Board of Directors of the Company and the United Group.
All of the expenses for the aforementioned proxy contest were recorded during
fiscal 2000.
Executive Severance: As a result of the proxy contest, the Company
terminated several executives, including the former CEO, in the second quarter
of fiscal 2000. These executives were covered by the Company's executive
severance plan, which provides for specified benefits after a change in control
of a majority of the Board of Directors of the Company, among other triggering
events.
Debt amendment costs: In conjunction with the May 2000 amendments to the
Company's borrowing agreements, the Company incurred $2.4 million in legal and
financial consulting fees.
For additional discussion of each of the above items refer to Note 14 to
the Consolidated Financial Statements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Fiscal 2001 compared to fiscal 2000
SG&A expenses attributable to continuing operations were $34.3 million in
fiscal 2001, a decrease of 8.9% from $37.6 million in fiscal 2000. The decrease
in current year SG&A expenses is the result of a 14% reduction in personnel at
the corporate headquarters during fiscal 2001 and decreased overall spending
levels in conjunction with the Company's turnaround efforts.
Fiscal 2000 compared to fiscal 1999
SG&A expenses were $37.6 million in fiscal 2000, an increase of 2.8% from
$36.6 million in fiscal 1999. The increase in SG&A was primarily due to costs
associated with increased headcount with the start-up of the Cartersville,
Georgia mid-section mill and increased computer and telephone equipment lease
expense. In December 1999 and January 2000, new management implemented a program
to control SG&A costs by, among other things, decreasing the size of the
corporate office staff.
INTEREST EXPENSE (INCLUDING DEBT ISSUANCE COST AMORTIZATION)
Fiscal 2001 compared to fiscal 2000
Interest expense applicable to continuing operations increased to $49.5
million in fiscal 2001 compared with $37.8 million in fiscal 2000. The increase
in interest expense was primarily due to higher average debt balances in fiscal
2001. Debt issuance cost amortization also is higher in 2001, reflecting the
impact of amendment fees and other issuance costs incurred in connection with
amending the Company's debt agreements. These increases were partially offset by
a decrease in the Company's average borrowing rate to 7.94% in fiscal 2001 from
8.96% in fiscal 2000.
The Company is currently limited as to the amount of capital expenditures
it can make under capital spending programs and does not expect significant
levels of capital expenditures or capitalized interest during fiscal 2002. Refer
to "Liquidity and Capital Resources - Financing Activities".
\Fiscal 2000 compared to fiscal 1999
Interest expense increased to $37.8 million in fiscal 2000 compared with
$24.2 million in fiscal 1999. The increase in interest expense was primarily due
to increased borrowings on the Company's revolving credit line and an increase
in the Company's average borrowing rate (from 6.65% to 8.96%) due to a series of
modifications to the Company's long-term debt agreements in fiscal 2000.
Recurring amortization of debt issue costs was also higher in fiscal 2000,
reflecting the impact of amendment fees and other issuance costs incurred in
connection with amending debt agreements in October 1999 and May 2000.
Additionally, interest expense increased because of a decline in capitalized
interest previously attributed to the mid-section mill project at the
Cartersville, Georgia facility, which was placed in service in the third quarter
of fiscal 1999.
INCOME TAX
The effective tax rate applicable to continuing operations in fiscal 2001
was (0.5)% as compared to (131.9)% in fiscal 2000 and 81.9% in fiscal 1999.
These rates were adversely impacted by valuation allowances established to
reserve the Company's net deferred tax assets to zero based on uncertainty about
the Company's ability to realize future tax benefits through offset to future
taxable income.
The Company's consolidated federal net operating loss (NOL) for fiscal 2001
was approximately $90 million which will be carried forward and may be used to
reduce taxes in future periods for up to 20 years. In addition, the Company has
loss carryforwards from prior years of approximately $206 million that will be
carried forward for a period of up to 19 years, for a total NOL carryforward of
approximately $296 million. None of these losses will be carried back, because
available prior year taxes have been recovered through previous carryback
claims. In addition, the Company has state net operating losses of approximately
$473 million, the majority of which will expire in 15 years.
As a result of the sizeable NOL carryforwards, the Company does not expect
to pay significant amounts of taxes in the foreseeable future.
OTHER INCOME
In fiscal 1999, the Company received approximately $4.4 million in refunds
from electrode suppliers that related to electrodes purchased in prior years.
RESULTS FROM DISCONTINUED OPERATIONS
NET SALES
Fiscal 2001 compared to fiscal 2000
In fiscal 2001, sales from discontinued operations decreased 66.3% to $76.0
million from $225.8 million in fiscal 2000. The decrease was primarily the
result of a substantial decrease in tons shipped reflecting customer uncertainty
regarding the Cleveland facility continuing its operations and the ultimate
shut-down of the facility in June 2001. The Company's average selling price for
all SBQ products was $415 per ton in fiscal 2001, compared with $403 per ton in
fiscal 2000. In fiscal 2001, the SBQ segment shipped 236,000 tons of high
quality and industrial quality rod, bar and wire compared to 546,000 tons in
fiscal 2000.
Fiscal 2000 compared to fiscal 1999
Net sales from discontinued operations in fiscal 2000 decreased 19.8% to
$225.8 million from $281.6 million in fiscal 1999. Substantially all of the
decrease in fiscal 2000 discontinued operation net sales was attributable to
lower volumes and pricing pressures. The Company's average selling price for SBQ
products decreased by $13 per
ton to $403 per ton in fiscal 2000 compared with $416 per ton in fiscal 1999. In
fiscal 2000, the SBQ operations shipped 546,000 tons of SBQ products compared to
654,000 tons in fiscal 1999. The decline in selling prices was attributable to
increased levels of steel imports and general market downward pressure on
pricing during fiscal 2000.
COST OF SALES
Fiscal 2001 compared to fiscal 2000
As a percent of net sales, cost of sales (other than depreciation and
amortization) from discontinued operations increased to 129.0% in fiscal 2001
from 110.0% in fiscal 2000. The increase in cost of sales as a percent of net
sales was primarily due to significantly lower production, which dramatically
increased per ton production costs.
Depreciation and amortization expense from discontinued operations in
fiscal 2001 decreased $7.5 million compared to fiscal 2000 because depreciation
at both the Cleveland and Memphis facilities was ceased as part of discontinued
operations accounting treatment. Average net billet cost per ton for the SBQ
segment was $256 and $302 for fiscal 2001 and 2000, respectively. Average
conversion cost per ton for the SBQ segment was $134 and $78 for fiscal 2001 and
2000, respectively. Also, as operations were shut-down at the Cleveland
facility, in the fourth quarter of fiscal 2001, billet and finished product
inventories were liquidated at below market costs.
Fiscal 2000 compared to fiscal 1999
As a percentage of net sales, costs of sales (other than depreciation and
amortization) from discontinued operations increased to 110.0% in fiscal 2000
from 103.0% in fiscal 1999. This increase resulted primarily because of lower
average sales prices and sales volumes. In fiscal 2000, the SBQ segment
recognized $3.8 million in inventory write-downs (primarily for lower of cost or
market adjustments) during the second quarter.
Depreciation and amortization expense from discontinued operations in
fiscal 2000 decreased $5 million compared to fiscal 1999 because of a $4 million
depreciation expense reduction due to the shut-down of the Memphis facility in
January 2000. Average net billet cost per ton for the SBQ segment was $302 and
$348 for fiscal 2000 and 1999, respectively. Average conversion cost per ton for
the SBQ segment was $78 and $71 for fiscal 2000 and 1999, respectively.
START-UP AND RESTRUCTURING COSTS AND OTHER UNUSUAL ITEMS
Fiscal 2001 compared to fiscal 2000
Pre-operating/start-up recoveries from discontinued operations were $35.3
million in fiscal 2001 compared with costs of $165.2 million for fiscal 2000.
Recoveries in fiscal 2001 resulted from a reversal of the remaining $36.6
reserve for potential loss on AIR as of June 30, 2001. In the second quarter of
fiscal 2000, the Company recorded a $40.2 million probable loss on settlement of
a contract to purchase DRI from AIR. In response to unforeseeable market
conditions, the co-sponsors decided to suspend production at AIR in October
2000. In February 2001, the other co-sponsor (which was contractually committed
to purchase 50% of AIR's annual DRI production under a purchase commitment that
was similar to the Company's) filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. In March 2001, AIR filed for protection under Chapter 7 of the
U.S. Bankruptcy Code and is now in liquidation. Although the Company's purchase
commitment has not been terminated, the Company is obligated to purchase DRI
only if produced and tendered by AIR. Given AIR's uncertain status, management
concluded in the fourth quarter of fiscal 2001 that it is no longer probable
that the Company will incur further losses on purchases of DRI from AIR and
reversed the remaining $36.6 million loss reserve ($1.18 per share) through
discontinued operations.
In fiscal 2000, the Company recorded an $85.0 million impairment charge and
a $2.5 million charge for severance and termination benefits related to the
shutdown of the Memphis facility; a $22.1 million impairment charge related to
excess cost over net assets acquired at the Cleveland facility; a $40.2 million
charge related to a DRI purchase commitment for AIR; and $15.4 million in
start-up losses at the Memphis facility prior to shut-down.
Fiscal 2000 compared to fiscal 1999
Start-up expense, restructuring costs and other unusual items from
discontinued operations were $165.2 million for fiscal 2000 and $37.9 million in
fiscal 1999. In fiscal 2000, the Company recorded an $85.0 million impairment
charge and a $2.5 million charge for severance and termination benefits related
to the shutdown of the Memphis facility; a $22.1 million impairment charge
related to excess cost over net assets acquired at the Cleveland facility; a
$40.2 million charge related to a DRI purchase commitment for AIR; and $15.4
million in start-up losses at the Memphis facility prior to shut-down. Start-up
costs in fiscal 1999 were primarily attributable to the start-up of the Memphis
melt shop, which began start-up operations in November 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Fiscal 2001 compared to fiscal 2000
SG&A expenses from discontinued operations were $5.1 million in fiscal
2001, a decrease of 56.1% from $11.6 million in fiscal 2000. The decrease in
SG&A is primarily due to a reduction of personnel in fiscal 2000 and the closing
of the Cleveland facility in fiscal 2001.
Fiscal 2000 compared to fiscal 1999
SG&A expenses from discontinued operations in fiscal 2000 increased 21.9%
to $11.6 million from $9.5 million reported in fiscal 1999. This increase was
attributable to professional fees incurred associated with the sale of SBQ
assets and charges to provide for doubtful accounts. In December 1999 and
January 2000, new management implemented a program to control SG&A costs by,
among other things, eliminating corporate positions in Cleveland and Memphis.
OTHER INCOME
In fiscal 1999, operating results of the SBQ operations included a gain of
$2.2 million from the sale of real estate in Cleveland, Ohio. The gain was
offset by a one time charge of $2.1 million to terminate a long-term raw
materials purchase commitment with a third party supplier.
ONGOING COSTS
As of June 30, 2001, all SBQ assets have been either idled or indefinitely
shut-down. Management expects to incur ongoing costs of approximately $1.5
million per month to maintain the Cleveland and Memphis facilities and service
outstanding lease and debt obligations until the facilities are sold or
disposed of otherwise. The Company currently is not incurring any costs
associated with the AIR facility.
There are no known material contingent liabilities related to discontinued
operations, such as product or environmental liabilities or litigation, that are
expected to remain with the Company after the disposal of the SBQ segment other
than remaining reserves for claims under the Company's workers' compensation and
health insurance plans and contingencies associated with AIR.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Fiscal 2001 compared to fiscal 2000
Net cash provided by operating activities of continuing operations was
$24.1 million in fiscal 2001 compared to $1.2 million in fiscal 2000. The
improvement in cash generated from continuing operations is primarily
attributable to reduced cash losses at the Cartersville facility, which
completed the start-up phase of operations in July 2000 and changes in
operating assets. In fiscal 2001, changes in operating assets provided cash of
$12.2 million compared to a $5.9 million use of cash in fiscal 2000. In an
effort to reduce borrowings under the Company's revolving credit facility, the
Company implemented inventory reduction programs at each of its core mini-mills
which were successful in reducing inventories of core continuing operations by
$30.8 million during fiscal 2001. Days sales outstanding in accounts receivable
remained relatively stable in 2000 and 2001.
Fiscal 2000 compared to fiscal 1999
Net cash provided by operating activities of continuing operations was $1.2
million in fiscal 2000, compared to $122.0 million in fiscal 1999. In fiscal
2000, margins deteriorated due to lower average selling prices, higher raw
material scrap costs during the second and third quarters of fiscal 2000 and
higher average conversion costs due to the impact of the Cartersville start-up.
Additionally, in fiscal 2000, changes in operating assets and liabilities of
continuing operations used cash of $5.9 million while changes in operating
assets and liabilities of continuing operations in fiscal 1999 provided cash of
$46.8 million. The increased use of cash was principally due to a $35.9 million
increase in inventories in fiscal 2000 compared to a $41.9 million decrease in
inventories in fiscal 1999.
INVESTING ACTIVITIES
Fiscal 2001 compared to fiscal 2000
Net cash flows used in investing activities of continuing operations were
$2.0 million in fiscal 2001 compared to $15.5 million in fiscal 2000, primarily
attributable to reduced capital spending for major projects in fiscal 2001.
Debt covenants in the Company's financing agreements restrict capital
expenditures to $40 million in fiscal 2001 and to $25 million in fiscal
2002; however, the Company may carryover unused capital expenditures to
succeeding fiscal years. Expenditures related to capital projects of continuing
operations decreased to $12.6 million in fiscal 2001 versus $22.1 million in
2000. The Company believes the level of capital expenditures allowed in the new
financing agreements is adequate to support management's plans for ongoing
operations. Estimated costs to complete authorized projects under construction
as of June 30, 2001 is approximately $4.2 million.
Fiscal 2000 compared to fiscal 1999
Net cash flows used in investing activities of continuing operations were
$15.5 million in fiscal 2000, compared to $48.8 million in fiscal 1999.
Expenditures related to capital projects of continuing operations decreased to
$22.1 million in fiscal 2000 versus $121.8 million in fiscal 1999, principally
related to the completion of the mid-section mill and caster projects at
Cartersville. The increased capital expenditures in fiscal 1999 were offset in
part from the proceeds of two sale-leaseback transactions involving equipment
totaling $75.2 million at Cartersville.
Through June 30, 1999, the Company had invested approximately $29.4 million
in Pacific Coast Recycling, L.L.C. (PCR), a scrap processing joint venture
between the Company and Mitsui & Co., including loans of approximately $20
million. Due to conditions in the Asian scrap export market and PCR's inability
to compete in the domestic scrap market, the Company wrote off its investment in
PCR in fiscal 1999. On June 29, 2000, the Company sold its interest in PCR to
Mitsui for $2.5 million and recognized a $2.1 million gain, partially recovering
the 1999 write-down. (Refer to Note 3 to the Consolidated Financial Statements.)
FINANCING ACTIVITIES
Fiscal 2001 compared to fiscal 2000
Net cash used in financing activities of continuing operations was $7.9
million in fiscal 2001 compared to cash provided by financing activities of
$65.1 million in fiscal 2000. Net outstanding borrowings on the Company's
Revolving Credit Agreement decreased $4.5 million during fiscal 2001 as a result
of cash conservation measures put in place by management. The Company also paid
$3.4 million in additional debt issuance costs in fiscal 2001 (see Note 7 to the
Consolidated Financial Statements).
The Company is currently in compliance with the restrictive debt covenants
governing its loan agreements, which were amended on February 20, 2001. Among
other things, the February 2001 amendments changed the financial covenants and
extended the maturity dates for principal payments previously due before March
31, 2002. The new agreements maintain the interest rates or spreads previously
in effect for the Company's debt. The amendments also limit the borrowings under
the Company's Revolving Credit Facility and BSE Credit Facility to $290 million
and $10 million, respectively. In consideration for the financing agreement
modifications, and in lieu of any cash fees, the exercise price for three
million warrants held by the Company's lenders was reduced from $3.00 to $0.01
per share.
At June 30, 2001, the Company had $26.7 million availability under its
revolving credit line. Average availability during 2001 was $21.5 million. Based
upon the current level of the Company's operations and current industry
conditions, the Company anticipates that it will have sufficient cash flow and
liquidity to meet its obligations as they become due in the ordinary course of
business through March 31, 2002. However, the Company is required to make
significant principal repayments on April 1, 2002, and, accordingly, will be
required to refinance its obligations under the Revolving Credit Facility and
Senior Notes on or prior to such date. There can be no assurance regarding the
success of the Company's restructuring or refinancing efforts. Although the
financial and credit markets have recently tightened, the Company continues to
investigate the possibility of refinancing its debt with new lenders. The
Company also continues to pursue alternatives to reduce the existing debt,
including the sale of SBQ assets or other core assets to make a refinance or
restructuring more feasible. The Company also is negotiating with its existing
lenders to obtain an extension of the current maturities or otherwise to
restructure its debt. However, there can be no assurance that such negotiations
will be successful or that alternative financing can be obtained from other
sources.
Fiscal 2000 compared to fiscal 1999
Net cash provided by financing activities of continuing operations was
$65.1 million in fiscal 2000, compared to cash used in financing activities of
$55.7 million in fiscal 1999. In fiscal 2000, the Company increased outstanding
borrowings under its Revolving Credit Agreement by $83 million to fund working
capital needs and substantially higher interest payments. In fiscal 1999, the
Company's strategy of reducing inventory levels, coupled with the completion of
the sale-leaseback transactions at Cartersville, enabled the Company to reduce
outstanding borrowings under its Revolving Credit Agreement by $37.3 million and
repay $10 million in short-term notes. On October 12, 1999, the Company reduced
its quarterly cash dividend from $0.10 per share to $0.025 per share; and in
December 1999, the Company's Board of Directors decided to suspend quarterly
dividend payments until the Company's profitability and cash flows improve and
the restrictive covenants of its long-term debt obligations become less
restrictive.
On October 12, 1999, the Company executed amendments to its principal debt
and letter of credit agreements. The October 1999 amendments waived all then
existing covenant violations and modified the financial and other covenants to
provide the Company with additional flexibility to meet its operating plans. The
amendments also provided for increased interest rates payable to the banks and
Senior Noteholders, granted security interests in substantially all of the
Company's assets to the lenders, and gave the lenders certain approval rights
with respect to a potential sale of the SBQ segment. The Company also paid
modification fees of approximately $1.1 million. As a result of the increased
interest rates applicable to the amended debt facilities, the increased debt
levels for fiscal 2000 and the reduction in capitalized interest, the Company's
total interest expense in fiscal 2000 increased by $16.4 million over fiscal
1999. The Company also recognized an extraordinary loss on extinguishment of
debt of approximately $1.7 million, or $0.06 per share, related to the October
1999 debt restructuring in its financial results for fiscal 2000.
OUTLOOK
The success of the Company in the near term will depend, in large part, on
the Company's ability to (a) extend, refinance or restructure existing debt
obligations; (b) minimize additional losses in its SBQ operations during the
disposal period; (c) dispose of the SBQ operations within the time frame
anticipated; and (d) realize sufficient proceeds from the sale of the SBQ
business or other assets to enable the Company to reduce its debt and, thus,
provide more operational flexibility. However, management's outlook for the
continuing operations, which have proven profitable in recent years, remains
positive. The Company completed a successful start-up of the Cartersville
facility in the first quarter of fiscal 2001, which has expanded the Company's
merchant product line and leveraged melting capacity throughout the
organization. With continued emphasis on a shift in product mix towards the
higher-margin merchant products, the Company expects to be able to improve
operating results at its core mini-mills by increasing volumes, reducing costs
and improving gross margins.
While the Company is confident of its ability to realize the benefits of
the strategic restructuring plan implemented by new management in December 1999,
the level of benefits to be realized could be affected by a number of factors
including, without limitations, (a) the Company's ability (i) to extend,
refinance or restructure existing debt obligations, (ii) to complete the sale of
the Cleveland facility, (iii) to find a strategic buyer willing to acquire the
Memphis facility at a price that fairly values the assets, and (iv) to operate
the Company as planned in light of the highly leveraged nature of the Company;
and (b) changes in the condition of the steel industry in the United States. See
"Risk Factors That May Affect Future Results; Forward-Looking Statements".
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 program to maintain the
Company's strict adherence to required standards. 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 and, to a lesser
extent, the availability of lower-priced foreign steel in the Company's market
channels. 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.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS; FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are forward-looking statements
based on the Company's current expectations and projections about future events.
The words "believe," "expect," "anticipate" and similar expressions identify
forward-looking statements. These forward-looking statements include statements
concerning market conditions, financial performance, potential growth, future
cash sources and requirements, competition, production costs, strategic plans
(including asset sales and potential acquisitions), environmental matters, labor
relations and other matters.
These forward-looking statements are subject to a number of risks and
uncertainties, which could cause the Company's actual results to differ
materially from those expected results described in the forward-looking
statements. Due to such risks and uncertainties, readers are urged not to place
undue reliance on forward-looking statements.
All forward-looking statements included in this document are based upon
information available to the Company on the date hereof, and the Company
undertakes no obligation to publicly update or revise any forward-looking
statement. Moreover, new risk factors emerge from time to time and it is not
possible for the Company to predict all such risk factors, nor can the Company
assess the impact of all such risk factors on its business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those described or implied in any forward-looking statement. All
forward-looking statements contained in this report are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995.
Risks that could cause actual results to differ materially from expected
results include, but are not limited to, the following:
- Changes in market supply and demand for steel, including the effect of
changes in general economic conditions;
- Changes in U.S. or foreign trade policies affecting steel imports or
exports;
- Changes in the availability and costs of steel scrap, steel scrap
substitute materials, steel billets and other raw materials or supplies
used by the Company, as well as the availability and cost of electricity
and other utilities;
- Unplanned equipment failures and plant outages;
- Actions by the Company's domestic and foreign competitors;
- Excess production capacity at the Company or within the steel industry;
- Costs of environmental compliance and the impact of governmental
regulations;
- Changes in the Company's relationship with its workforce;
- The Company's highly leveraged capital structure and the effect of
restrictive covenants in the Company's debt instruments on the Company's
operating and financial flexibility;
- Changes in interest rates or other borrowing costs, or the availability of
credit;
- Uncertainties associated with refinancing or extending the Company's debt
obligations due on April 1, 2002 under its revolving credit facility and
senior notes;
- Changes in the Company's business strategies or development plans, and any
difficulty or inability to successfully consummate or implement as planned
any projects, acquisitions, dispositions, joint ventures or strategic
alliances;
- The effect of unanticipated delays or cost overruns on the Company's
ability to complete or start-up a project when expected, or to operate it
as anticipated; and
- The effect of existing and possible future litigation filed by or against
the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS
The Company is exposed to market risk from financial instruments that could
occur upon adverse changes in interest rates (principally U.S. treasury and
prime bank rates). In order to manage this risk, the Company attempts to
maintain a balance between fixed and variable rate debt. The Company does not
currently use derivative financial instruments. At June 30, 2001, the Company
had fixed rate long-term debt with a carrying value of $281.1 million and
variable rate borrowings of $308.5 million outstanding. Assuming a hypothetical
10% adverse change in interest rates, with no change in the average or
outstanding amounts of long-term debt, the fair value of the Company's fixed
rate debt would decrease by $6.2 million. (However, the Company does not expect
that those debt obligations could be settled or repurchased in the open market
at the lower amount in the ordinary course of business.) The Company also would
incur an additional $1.8 million in interest expense per year 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30,
--------
2001 2000
--------- ---------
ASSETS (RESTATED)
Current assets:
Cash and cash equivalents .................................... $ 935 $ 935
Accounts receivable, net of allowance for doubtful accounts of
$2,146 in 2001 and $1,614 in 2000 ......................... 72,820 76,113
Inventories .................................................. 105,426 136,257
Other current assets ......................................... 3,013 5,023
Net current assets of discontinued operations ................ 14,669 33,837
--------- ---------
Total current assets ...................................... 196,863 252,165
Property, plant and equipment:
Land and buildings ........................................... 177,038 176,187
Machinery and equipment ...................................... 465,470 463,895
Construction in progress ..................................... 16,041 11,942
--------- ---------
658,549 652,024
Less accumulated depreciation ................................ (281,151) (244,324)
--------- ---------
Net property, plant and equipment ......................... 377,398 407,700
Excess of cost over net assets acquired ........................... 13,515 15,642
Other ............................................................. 17,514 26,739
Net non-current assets of discontinued operations ................. 42,171 157,129
--------- ---------
Total assets .............................................. $ 647,461 $ 859,375
========= =========
See accompanying notes.
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30,
--------
2001 2000
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (RESTATED)
Current liabilities:
Accounts payable ..................................................... $ 45,118 $ 70,345
Accrued interest payable ............................................. 3,365 2,020
Accrued payroll expenses ............................................. 5,475 9,589
Accrued operating expenses ........................................... 9,555 9,897
Other current liabilities ............................................ 24,785 17,655
Current maturities of long-term debt ................................. 293,500 --
Reserve for disposal period losses on discontinued operations ........ 10,137 --
--------- ---------
Total current liabilities ....................................... 391,935 109,506
Deferred liabilities .................................................... 8,030 9,889
Long-term debt, less current portion .................................... 254,000 551,965
Stockholders' equity:
Preferred stock, par value $.01; 5,000,000 shares authorized ......... -- --
Common stock, par value $.01; authorized: 75,000,000 shares; issued:
31,142,113 in 2001 and 31,058,205 in 2000 .......................... 311 310
Additional paid-in capital ........................................... 343,908 342,257
Treasury stock, 81,174 shares in 2000 ................................ -- (465)
Unearned compensation ................................................ (317) (667)
Retained deficit ..................................................... (350,406) (153,420)
--------- ---------
Total stockholders' (deficit) equity ............................ (6,504) 188,015
========= =========
Total liabilities and stockholders' equity .................... $ 647,461 $ 859,375
========= =========
See accompanying notes.
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
--------- --------- ---------
(RESTATED) (RESTATED)
Net sales ................................................................. $ 700,115 $ 770,840 $ 754,285
Cost of sales:
Other than depreciation and amortization ............................... 614,122 646,320 613,097
Depreciation and amortization .......................................... 42,162 42,294 40,227
--------- --------- ---------
Gross profit .............................................................. 43,831 82,226 100,961
Start-up and restructuring costs and other unusual items, net ............. (16) 45,235 12,854
Selling, general and administrative expense ............................... 34,287 37,642 36,625
--------- --------- ---------
Operating income (loss) ................................................ 9,560 (651) 51,482
Interest expense, including amortization of debt issuance costs ........... 49,519 37,807 24,248
Other income, net ......................................................... 1,627 2,858 9,930
(Loss) income from equity investments ..................................... (23) 1,974 (24,563)
Minority interest in loss of subsidiary ................................... -- 7,978 5,497
--------- --------- ---------
(Loss) income from continuing operations before income taxes .............. (38,355) (25,648) 18,098
Provision for income taxes ................................................ 184 33,835 14,814
--------- --------- ---------
(Loss) income from continuing operations .................................. (38,539) (59,483) 3,284
Discontinued operations:
Loss from discontinued operations (net of income tax benefit of $74,836
in 2000 and $30,924 in 1999) ......................................... (20,211) (166,851) (54,337)
(Loss) reversal of loss on disposal of SBQ business, including estimated
losses during the disposal period (net of income tax expense of
$78,704 in 2000 and income tax benefit of $78,704 in 1999) ........... (138,236) 173,183 (173,183)
--------- --------- ---------
Loss before extraordinary item ............................................ (196,986) (53,151) (224,236)
Loss on restructuring of debt (net of income taxes of $1,160) ............. -- (1,669) --
--------- --------- ---------
Net loss .................................................................. $(196,986) $ (54,820) $(224,236)
========= ========= =========
Weighted average shares outstanding ....................................... 30,994 30,118 29,481
========= ========= =========
Basic and diluted per share amounts:
(Loss) income from continuing operations ............................... $ (1.25) $ (1.97) $ 0.11
(Loss) income on discontinued operations ............................... (5.11) 0.21 (7.72)
Loss on restructuring of debt .......................................... -- (0.06) --
--------- --------- ---------
Net loss ............................................................... $ (6.36) $ (1.82) $ (7.61)
========= ========= =========
See accompanying notes.
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
YEARS ENDED JUNE 30, 2001, 2000 AND 1999
----------------------------------------
ADDITIONAL RETAINED TOTAL
COMMON STOCK PAID-IN TREASURY STOCK UNEARNED EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT COMPENSATION (DEFICIENCY) EQUITY
------ ------ ------- ------ ------ ------------ ------------ ------
Balances at June 30,
1998 .............. 29,780 $ 298 $ 331,859 (191) $ (2,929) $ (912) $ 132,291 $ 460,607
Options exercised
and shares issued
(repurchased)
under stock
compensation
plans, net ........ 56 -- (108) 56 716 (615) -- (7)
Purchase of treasury
stock ............. -- -- -- (477) (3,209) -- -- (3,209)
Issuance of treasury
shares to employee
benefit plan ...... -- -- (2,695) 462 4,631 -- -- 1,936
Reduction of unearned
compensation ...... -- -- -- -- -- 809 -- 809
Net loss ............ -- -- -- -- -- -- (224,236) (224,236)
Cash dividends
declared, $0.175
per share ......... -- -- -- -- -- -- (5,169) (5,169)
------ --------- --------- --------- --------- --------- --------- ---------
Balances at June 30,
1999 .............. 29,836 298 329,056 (150) (791) (718) (97,114) 230,731
Options exercised
and shares issued
(repurchased)
under stock
compensation
plans, net ........ 146 1 844 69 326 (686) -- 485
Issuance of common
stock to Employee
benefit plan ...... 577 6 2,447 -- -- -- -- 2,453
Reduction of
unearned
compensation ...... -- -- -- -- -- 737 -- 737
Issuance of
warrants .......... -- -- 8,250 -- -- -- -- 8,250
Issuance of common
stock to affiliates
as reimbursement
of proxy
solicitation
costs ............. 499 5 1,660 -- -- -- -- 1,665
Net loss ............ -- -- -- -- -- -- (54,820) (54,820)
Cash dividends
declared, $0.05
per share ......... -- -- -- -- -- -- (1,486) (1,486)
------ --------- --------- --------- --------- --------- --------- ---------
Balances at June 30,
2000 .............. 31,058 310 342,257 (81) (465) (667) (153,420) 188,015
Options exercised
and shares issued
(repurchased)
under stock
compensation
plans, net ........ 84 1 (109) 81 465 -- -- 357
Reduction of
unearned
compensation ...... -- -- -- -- -- 350 -- 350
Repricing of
warrants .......... -- -- 1,760 -- -- -- -- 1,760
Net loss ............ -- -- -- -- -- -- (196,986) (196,986)
------ --------- --------- --------- --------- --------- --------- ---------
Balances at June 30,
2001 .............. 31,142 $ 311 $ 343,908 -- $ -- $ (317) $(350,406) $ (6,504)
======= ========= ========= ========= ========= ========= ========= =========
See accompanying notes.
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES: (RESTATED) (RESTATED)
Net (loss) income from continuing operations .................................. $ (38,539) $ (59,483) $ 3,284
Adjustments to reconcile net (loss) income from continuing operations to
net cash provided by (used in) by operating activities:
Depreciation and amortization ......................................... 42,162 42,294 40,227
Provision for doubtful accounts receivable ............................ 1,219 908 226
Deferred income taxes ................................................. -- 14,415 10,267
Minority interest in loss of subsidiary ............................... -- (7,978) (5,497)
Loss (gain) on sale of equity interest in subsidiaries, idle facilities
and equipment ..................................................... 20 909 (49)
Loss (income) from equity investments ................................. 23 (1,974) 24,563
Impairment of fixed assets and goodwill ............................... -- 13,111 --
Other ................................................................. 6,981 4,927 2,168
Changes in operating assets and liabilities:
Accounts receivable ................................................... 2,073 (4,974) 20,750
Inventories ........................................................... 30,831 (35,927) 41,916
Other current assets .................................................. 2,010 19,903 (9,391)
Accounts payable ...................................................... (25,227) 9,202 (2,872)
Accrued liabilities ................................................... 4,019 5,081 (5,834)
Deferred liabilities .................................................. (1,509) 774 2,212
--------- --------- ---------
Net cash provided by operating activities of continuing
operations ........................................................ 24,063 1,188 121,970
Net cash (used in) provided by operating activities of
discontinued operations ........................................... (14,482) (46,507) 2,923
--------- --------- ---------
Net cash provided by (used in) operating activities ................... 9,581 (45,319) 124,893
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment .................................... (12,581) (22,058) (121,808)
Proceeds from sale/leaseback .................................................. -- -- 75,104
Proceeds from sale of equity investments, property,
plant and equipment, idle facilities and other ............................ 3,505 2,120 839
Other non-current assets ...................................................... 7,066 4,482 (2,958)
--------- --------- ---------
Net cash used in investing activities of continuing operations ........ (2,010) (15,456) (48,823)
Net cash provided by (used in) investing activities of
discontinued operations ........................................... 430 (4,212) (20,239)
--------- --------- ---------
Net cash used in investing activities ................................. (1,580) (19,668) (69,062)
See accompanying notes.
BIRMINGHAM STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES: (RESTATED) (RESTATED)
Net short-term borrowings and repayments ..................... $ -- $ (10,026) $ (10,000)
Borrowings under revolving credit facility ................... 1,875,331 963,330 1,993,941
Payments on revolving credit facility ........................ (1,879,796) (880,501) (2,031,245)
Debt issue and amendment costs paid .......................... (3,405) (6,232) --
Stock compensation plan, net ................................. -- -- 3
Purchase of treasury stock ................................... -- -- (3,209)
Cash dividends paid .......................................... -- (1,485) (5,169)
----------- ----------- -----------
Net cash (used in) provided by financing activities of
continuing operations ............................ (7,870) 65,086 (55,679)
Net cash used in financing activities of
discontinued operations .......................... (131) (99) (119)
----------- ----------- -----------
Net cash (used in ) provided by financing activities . (8,001) 64,987 (55,798)
----------- ----------- -----------
Net increase in cash and cash equivalents .................... -- -- 33
Cash and cash equivalents at:
Beginning of year ............................................ 935 935 902
----------- ----------- -----------
$ 935 $ 935 $ 935
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for:
Interest (net of amounts capitalized) ........................ $ 41,236 $ 34,965 $ 35,504
Income taxes paid (refunded), net ............................ 96 (15,397) (1,801)
NON CASH FINANCING AND INVESTING ACTIVITIES:
Issuance of warrants to purchase 3,000,000 shares of common stock
in connection with debt amendments ........................... $ -- $ 8,250 $ --
Repricing of warrants in connection with debt amendments ............. $ 1,760 $ -- $ --
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001, 2000 AND 1999
1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As summarized in Note 7,
Birmingham Steel Corporation (the Company) has substantial debt maturities due
April 1, 2002, and those maturities are classified as current liabilities in the
Consolidated Balance Sheet at June 30, 2001. Based upon the current level of the
Company's operations and current industry conditions, the Company anticipates it
will have sufficient liquidity to meet its obligations as they become due in the
ordinary course of business through March 31, 2002. However, there can be no
assurance that the Company will be able to refinance, restructure, extend, or
amend its obligations under the Revolving Credit Facility, the Birmingham
Southeast Credit Facility and Senior Notes (see Note 7) on or prior to April 1,
2002. Although the financial and credit markets have recently tightened, the
Company continues to investigate the possibility of refinancing its debt with
new lenders. The Company also continues to pursue alternatives to reduce the
existing debt, including the sale of SBQ assets (see Note 2), which management
believes will make a refinace or restructure more feasible. The Company also is
negotiating with its existing lenders to obtain an extension of the current
maturities or otherwise to restructure its debt. However, there can be no
assurance that such negotiations will be successful or that alternative
financing can be obtained from other sources.
Description of the Business
The Company owns and operates facilities in the mini-mill sector of the
steel industry. In addition, the Company owns an equity interest in a scrap
collection and processing operation. From these facilities, which are located
across the United States and Canada, the Company produces a variety of steel
products including semi-finished steel billets, reinforcing bars, merchant
products such as rounds, flats, squares and strips, along with angles and
channels less than three inches wide and structural products including angles,
channels and beams that are greater than three inches wide. These products are
sold primarily to customers in the steel fabrication, manufacturing and
construction business. The Company has regional warehouse and distribution
facilities that sell its finished products.
In addition, the Company's SBQ (special bar quality) line of business,
which is reported in discontinued operations (see Note 2), produces high-quality
rod, bar and wire sold primarily to customers in the automotive, agricultural,
industrial fastener, welding, appliance and aerospace industries in 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. All significant
intercompany accounts and transactions have been eliminated.
Equity Investments
Investments in 50% or less owned affiliates where the Company has
substantial influence over the affiliate are accounted for using the equity
method of accounting. Under the equity method, the investment is carried at cost
of acquisition plus additional investments and advances and the Company's share
of undistributed earnings or losses since acquisition. The Company generally
records its share of income and losses in equity investees on a one-month
lag. Impairment losses are recognized when management determines that the
investment or equity in earnings is not realizable.
Revenue Recognition
Revenue from sales of steel products is recorded at the time the goods are
shipped or when title passes, if later.
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.
Long-lived Assets and Depreciation
The Company recognizes impairment losses on long-lived assets used in
operations, including allocated goodwill, when impairment indicators are present
and the undiscounted cash flows estimated to be generated by those assets are
less than their carrying values. Long-lived assets held for disposal are valued
at the lower of carrying amount or fair value less cost to sell.
Property, plant and equipment are stated at cost, less accumulated
depreciation. 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 of goodwill was approximately $45,064,000 and $42,937,000 at June
30, 2001 and 2000, respectively. The carrying value of goodwill is reviewed if
the facts and circumstances suggest that it may be impaired. If such review
indicates that goodwill will not be recoverable based upon the undiscounted
expected future cash flows over the remaining amortization period, the carrying
value of the goodwill is reduced to its estimated fair value. In fiscal 2000,
the Company recorded an impairment charge of $22,134,000 relating to SBQ segment
goodwill (see Note 2).
Income Taxes
Deferred income taxes are provided for temporary differences between
taxable income or loss and financial reporting income or loss in accordance with
FASB Statement No.109, Accounting for Income Taxes.
Earnings per Share
Earnings per share are presented in accordance with FASB Statement No. 128,
Earnings Per Share. Basic earnings per share are computed using the weighted
average number of outstanding common shares for the period, excluding unvested
restricted stock. Diluted earnings per share are computed using the weighted
average number of outstanding common shares and dilutive equivalents, if any.
Because the Company reported net losses in fiscal 2001, 2000 and 1999, none of
the options outstanding at the end of those years (see Note 10) were dilutive.
Warrants to purchase 3,000,000 shares of the Company's common stock are not
included in the calculation of earnings per share because to do so would be
anti-dilutive.
Start-up Costs
The Company recognizes start-up costs as expense when incurred. The Company
considers a facility to be in "start-up" until it reaches commercially viable
production levels. During the start-up period, costs incurred in excess of
expected normal levels, including non-recurring operating losses, are classified
as start-up costs in the Consolidated Statements of Operations.
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 financial statements in conformity with accounting
principles generally accepted in the United States 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.
Recent Accounting Pronouncements
The Company adopted the Financial Accounting Standards Board (FASB)
Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and
Handling Fees and Costs, in the fourth quarter of fiscal 2001. Application of
this EITF resulted in the restatement of prior period financial results to
reflect shipping and handling fees billed to customers as revenue. These amounts
were previously recorded in cost of sales. The effect of the restatements
increased net sales and cost of sales by $56.1 million, $51.6 million and $44.4
million, for the years ended June 30, 2001, 2000 and 1999, respectively.
Operating results were not affected by this reclassification.
In June 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations which requires that all business
combinations initiated after June 30, 2001 be accounted for under the purchase
method. This statement also provides new criteria for determining whether
intangible assets acquired in a business combination should be recognized
separately from goodwill.
Also in June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. This pronouncement provides guidance on financial accounting
and reporting for acquired goodwill and other intangible assets. Under SFAS No.
142, goodwill and indefinite-lived intangible assets will no longer be amortized
but will be reviewed annually for impairment. The provisions of this statement
are required to be applied for fiscal years beginning after December 15, 2001,
with early application permitted for entities with fiscal years beginning after
March 15, 2001. The provisions of this standard also require the completion of a
transitional impairment test within six months of adoption, with any impairments
identified treated as a cumulative effect of a change in accounting principle.
The Company plans to adopt this pronouncement in the first quarter of fiscal
2002. The application of the non-amortization provisions of SFAS No. 142 is
expected to positively impact annual pre-tax earnings from continuing operations
by approximately $2.1 million in fiscal 2002; however, the Company is still
assessing the impact of the new standard. During fiscal 2002, the Company will
perform the required impairment tests of goodwill and indefinite-lived
intangible assets and has not yet determined what effect these tests will have
on the earnings and the financial position of the Company.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 is required to be adopted for
fiscal years beginning after June 15, 2002. The Company has not yet determined
what effect this statement will have on its financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
fiscal 2001 presentation.
2. DISCONTINUED OPERATIONS
The following table sets forth events that have occurred in connection with
the disposal of the SBQ segment and the related recording and reversal of
discontinued operations accounting treatment. See further discussion of each
event below:
REPORTED IN FINANCIAL
DATE EVENT STATEMENTS DATED
---- ----- ----------------
August 1999 - Prior Board of Directors adopts plan of disposal for SBQ Fiscal year ended
segment June 30, 1999
- SBQ segment presented as discontinued operations
January 2000 - Reconstituted Board of Directors elects to re-establish SBQ Fiscal quarter ended
segment December 31, 1999
- Discontinued operations accounting treatment recorded in June
1999 reversed
- Remaining reserves for loss previously estimated on disposal
reversed
- Memphis facility shut-down - reserve for impairment
established
February 2001 - Board of Directors authorizes sale of SBQ assets (Cleveland Fiscal quarter ended
and Memphis) to North American Metals (NAM) December 31, 2000
- Discontinued operations accounting treatment re-established,
$89.9 million reserve for loss on disposal established
March 2001 - Definitive agreement with NAM for the sale of SBQ assets is Fiscal quarter ended
terminated because NAM is unable to secure financing for the March 31, 2001
purchase by March 23, 2001 deadline
April 2001 - Management announces decision to close the Cleveland, Ohio Fiscal quarter ended
plant unless the facility is sold by June 22, 2001 March 31, 2001
- Estimated loss on SBQ segment is increased by $12.3 million
to reflect extension of disposal period
September 2001 - Management announces intent to sell Cleveland facility to Fiscal quarter ended
Sidenor, S.A. June 30, 2001
- Estimated loss on sale of SBQ segment is
increased by $36.1 million to reflect
additional loss on sale, disposal period losses
and adjustment to previous reserve for loss on
purchase commitment.
Fiscal 1999
In fiscal 1999, prior to the conclusion of a proxy contest and subsequent
change in management, the Company announced plans to sell its SBQ segment, which
included rod, bar and wire facilities in Cleveland, Ohio; a high
quality melt shop in Memphis, Tennessee; and the Company's 50% interest in AIR,
a facility in Louisiana which produced DRI. Accordingly, the operating results
of the SBQ segment were reflected as discontinued operations in the Company's
annual Consolidated Financial Statements for fiscal 1999 and in the first
quarter of fiscal 2000.
Fiscal 2000
On January 31, 2000, subsequent to a change in management which occurred
after a proxy contest, new management decided to re-establish its
Cleveland-based American Steel & Wire (AS&W) SBQ operations. Management's
decision to continue operating the AS&W facilities was based on the following
considerations:
- The Company's attempts to sell the facility had not been successful and, at
that time, management believed that a sale in the near term would not
generate sufficient proceeds to pay down a meaningful amount of the
Company's long-term debt.
- New management believed there was a viable long-term market for AS&W's
high-quality rod, bar and wire products.
- The Company had identified several potential sources of high-quality
billets for the AS&W operations to replace the Memphis melt shop (which was
shut down in early January 2000) as the primary supply source.
Management also concluded that a sale of the entire SBQ segment by the end
of fiscal 2000, as had been previously anticipated by former management, was no
longer likely based upon the results of selling efforts at that time and the
then prevalent market conditions. In accordance with EITF 90-16, Accounting for
Discontinued Operations Subsequently Retained, the results of operations of the
SBQ segment were reported within continuing operations from the second quarter
of fiscal 2000 through the first fiscal quarter of 2001. Consequently, in the
quarter ended December 31, 1999, the operating results of the SBQ segment for
all periods prior to October 1, 1999 were reclassified from discontinued
operations to continuing operations. In addition, as a result of unwinding the
discontinued operations accounting treatment of the SBQ segment, the Company
reversed the remaining balance of the reserves for loss on disposal and
operating losses, and their related income tax effects. The reversal of
previously established reserves (net of tax) increased net income in fiscal 2000
by $173.2 million ($5.82 per share).
Fiscal 2001
In a press release dated September 28, 2000, the Company reported it had
signed a definitive agreement with North American Metals, Ltd. (NAM) to sell the
Cleveland and Memphis facilities of the SBQ segment with March 23, 2001 as the
targeted closing date. On February 12, 2001, the Board of Directors authorized
management of the Company to proceed with the sale. Accordingly, as required by
APB Opinion 30 (as interpreted by EITF 95-18), the operating results of the SBQ
segment for the second quarter of fiscal 2001 and prior periods were restated
and reported in discontinued operations in the unaudited Consolidated Financial
Statements for the period ended December 31, 2000.
In the second quarter of fiscal 2001, the Company recorded an $89.9 million
estimated loss ($2.90 per share) on disposal of the SBQ segment, which included
a $12.3 million provision (pre-tax) for estimated operating losses during the
expected disposal period. The proceeds expected to be realized on the sale of
the SBQ segment, and the expected operating losses during the disposal period,
were based on management's estimates of the most likely outcome based on the
terms of the definitive agreement between the Company and NAM at that time.
In a press release dated March 26, 2001, management reported that the
definitive agreement with NAM for the sale of the SBQ assets had been terminated
because NAM was unable to complete financing arrangements by the March 23, 2001
deadline. As the Company continued to pursue discussions with other interested
parties, an additional $12.3 million was provided for disposal period losses in
the quarter ended March 31, 2001. Due to a general economic slowdown in the U.S.
Steel industry, which impacted demand for all steel products, including SBQ
products, shipments for the Cleveland facility fell precipitously in the third
fiscal quarter of 2001. Subsequently, in a press release dated, April 24, 2001,
management reported that operations at the Cleveland facility
would be indefinitely suspended unless the facility was sold by June 22, 2001.
Operations were subsequently suspended in June 2001.
On September 17, 2001, the Company announced that a letter of intent had
been signed to sell the idled Cleveland facility to Sidenor, S.A., an SBQ
producer headquartered in Bilbao, Spain. Proposed terms of the sale are $20
million for the operating assets plus selected inventory. In addition, after the
sale is completed, the Company is required to pay retention incentives of $1.2
million to certain key people employed at the facility after the shutdown. Per
terms of the letter of intent, Sidenor is reimbursing the Company for the costs
of rehiring these key employees through the close of the sale. Based on the
terms of the letter of intent, in the quarter ended June 30, 2001, the Company
established an additional $61.2 million reserve for loss on sale. In addition,
the Company recorded additional reserves for estimated losses through the
anticipated disposal period of $10.1 million. The expected loss on sale and
disposal period losses are based on management's estimates of the most likely
outcome based on the carrying costs of the SBQ assets and anticipated costs to
complete the sale of the facilities. Additionally, the Company continues to
discuss the disposition of the Memphis facility with interested parties.
The Company will continually assess the adequacy of the remaining $146.9
million reserves ($136.8 for loss on disposal and $10.1 million for expected
operating losses). As with all estimates of future events and circumstances, the
actual loss on disposal of the SBQ segment, including operating losses and
carrying costs through the disposal period, will most likely be different from
the estimates reflected in these Consolidated Financial Statements and the
difference could be material. To the extent actual proceeds from the eventual
sale of the remaining assets of the SBQ segment and operating losses during the
disposal period differ from the estimates reflected in these Consolidated
Financial Statements, the variance will be reported within discontinued
operations in future periods.
Operating results of the discontinued SBQ operations were as follows (in
thousands):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
--------- --------- ---------
Net sales ................................... $ 76,014 $ 225,774 $ 281,647
Costs of sales .............................. 106,869 263,048 309,867
--------- --------- ---------
(30,855) (37,274) (28,220)
Start-up, restructuring and other
unusual items ........................... (35,340) 165,241 37,881
Selling, general and administrative expenses 5,083 11,584 9,501
Interest expense ............................ 11,595 13,880 11,016
Other (income) expense ...................... (718) 13,708 (1,357)
--------- --------- ---------
Loss before income taxes and
use of reserves ......................... (11,475) (241,687) (85,261)
Benefit from income taxes ................... -- 74,836 30,924
Net income from discontinued operations
subsequent to December 31, 2000
charged to reserve ...................... (8,736) -- --
--------- --------- ---------
Loss from discontinued operations, net of tax $ (20,211) $(166,851) $ (54,337)
========= ========= =========
Interest expense attributable to discontinued operations includes interest
on industrial revenue bonds and other debt specifically associated with the
assets to be sold plus an allocation of interest on general corporate credit
facilities. Interest on borrowings under the Company's general credit facilities
is allocated to discontinued operations based on, and limited to, the
anticipated reduction in interest expense that will occur upon sale of the SBQ
assets utilizing sale proceeds to repay debt.
Start-up and restructuring costs and other unusual items applicable to the
SBQ segment consist of the following (in thousands):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
--------- --------- ---------
START-UP EXPENSES:
Memphis ........................... $ -- $ 15,396 $ 37,881
ASSET IMPAIRMENT:
Memphis facility .................. -- 85,000 --
SBQ segment goodwill impairment ... -- 22,134 --
RESTRUCTURING CHARGES:
(Reversal of loss) loss on purchase
commitment ............. (36,575) 40,238 --
Severance and termination benefits 1,235 2,473 --
--------- --------- ---------
$ (35,340) $ 165,241 $ 37,881
========= ========= =========
A narrative description of the significant items summarized in the preceding
table follows:
Start-up: The Company considers a facility to be in start-up until it
reaches commercially viable production levels. During start-up, costs incurred
in excess of expected normal levels, including non-recurring operating losses,
are classified as start-up. The start-up and restructuring costs incurred by the
SBQ segment during the year ended June 30, 2000 were incurred in the first and
second quarters of fiscal 2000. Start-up costs reflected in discontinued
operations in fiscal 1999 primarily represent excess production costs and other
expenses, such as employee training, incurred at the Memphis facility, which
began the start-up phase of operations in November 1997.
Asset Impairment: On December 28, 1999, the Company announced the suspension
of operations at its melt shop facility in Memphis as of January 1, 2000.
Accordingly, in the second quarter of fiscal 2000, the Company classified the
facility as held for disposal and recorded an impairment charge of $85 million.
Management is actively pursuing a sale or other disposition of the Memphis
facility. The ultimate loss on disposition of the facility could vary
significantly from the estimated impairment loss recognized in 2000. The
adjusted carrying value of the Memphis facility, which is reflected in net
non-current assets of discontinued operations is approximately $74 million at
June 30, 2001.
Intangible Write-off: The $22.1 million impairment charge for intangible
assets represents the unamortized balance of goodwill related to the SBQ
division as of December 31, 1999, which was impaired because the estimated
undiscounted cash flows of the SBQ division were estimated to be insufficient to
cover the net carrying amount of the division's assets.
AIR purchase commitment: In the second quarter of fiscal 2000, the Company
recorded a $40.2 million probable loss on settlement of a contract to purchase
direct reduced iron (DRI) from American Iron Reduction, L.L.C. (AIR), a 50%
owned joint venture. The estimated probable loss was based on management's
assessment of DRI market conditions, AIR's cost structure, and settlement
options that were being pursued at that time. Total purchases of DRI from AIR
under the contract were $9.4 million (37,901 metric tons), $26.6 million
(175,000 metric tons), and $43.7 million (297,000 metric tons) in 2001, 2000,
and 1999, respectively.
In response to unforeseeable unforseeable market conditions, the co-sponsors
decided to suspend production at AIR in October 2000. In February 2001, the
other co-sponsor (which was contractually committed to purchase 50% of AIR's
annual DRI production under a purchase commitment that was similar to the
Company's) filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In
March 2001, AIR filed for protection under Chapter 7 of the U.S. Bankruptcy code
and is now in liquidation. Although the Company's purchase commitment has not
been
terminated, the Company is obligated to purchase DRI only if produced and
tendered by AIR. Given AIR's uncertain status, management concluded in the
fourth quarter of fiscal 2001 that it is no longer probable that the Company
will incur further losses on purchases of DRI from AIR and reversed the
remaining $36.6 million loss reserve ($1.18 per share) through discontinued
operations.
Severance and Termination Benefits: Certain key employees at the Cleveland
facility were offered a retention incentive to stay employed until the facility
sold. As a result, the Company recorded an accrual of approximately $1.2 million
in the second quarter of fiscal 2001.
In connection with the shut down of the Memphis facility, the Company
accrued severance and other employee related exit costs of approximately $2.5
million in the second quarter of fiscal 2000. The Memphis shut down resulted in
the termination of approximately 250 employees, including management,
administrative and labor positions. Most of the Memphis employees were
terminated as of December 31, 1999. As of June 30, 2001 all severance
benefits have been paid.
Assets and liabilities of the discontinued SBQ segment have been reflected
in the Consolidated Balance Sheets as current or non-current based on the
original classification of the accounts, except that current liabilities are
netted against current assets and non-current liabilities are netted against
non-current assets. Net non-current assets at June 30, 2001, reflect a valuation
allowance of $136.8 million to recognize the estimated loss on disposal. The
following is a summary of assets and liabilities of discontinued operations (in
thousands):
JUNE 30,
--------
2001 2000
--------- ---------
Current assets:
Accounts receivable, net .......................................... $ 7,043 $ 17,539
Inventories ....................................................... 15,496 41,578
Other ............................................................. 1,136 927
Current liabilities:
Accounts payable .................................................. (1,089) (9,190)
Reserve for loss on purchase commitment ........................... -- (8,900)
Other accrued expenses ............................................ (7,917) (8,117)
--------- ---------
Net current assets of discontinued operations ............................. $ 14,669 $ 33,837
========= =========
Non-current assets:
Property, plant and equipment, net of accumulated depreciation .... $ 223,140 $ 230,597
Other non-current assets .......................................... 744 807
Provision for estimated loss on disposal of discontinued operations (136,836) --
Non-current liabilities:
Long-term debt .................................................... (41,987) (42,125)
Reserve for loss on purchase commitment ........................... -- (30,000)
Deferred rent ..................................................... (2,890) (2,150)
--------- ---------
Net non-current assets of discontinued operations ......................... $ 42,171 $ 157,129
========= =========
A reserve of $10.1 million for the estimated (pre-tax) operating losses to
be incurred during the expected disposal period is presented separately in the
accompanying Consolidated Balance Sheet for June 30, 2001. Such amount excludes
corporate overhead but includes approximately $1.7 million of interest expense.
There are no known material contingent liabilities related to discontinued
operations, such as product or environmental liabilities or litigation, that are
expected to remain with the Company after the disposal of the SBQ segment other
than remaining reserves for claims under the Company's workers' compensation and
health insurance plans and contingencies associated with AIR.
3. INVESTMENT IN AFFILIATED COMPANIES
Pacific Coast Recycling, L.L.C.
On September 18, 1996, the Company and an affiliate of Mitsui & Co., Ltd.
formed Pacific Coast Recycling, L.L.C. (Pacific Coast), a 50/50 joint venture
established to operate in southern California as a collector, processor and
seller of scrap. Through June 30, 1999, the Company invested approximately
$29,400,000 in Pacific Coast, including loans of $20,150,000. During fiscal
1999, management and the Board of Directors determined that Pacific Coast was no
longer a strategic fit for the Company's core mini-mill operations and decided
not to continue its support of the operations. The Company then re-evaluated the
carrying amount of its investment and concluded that it should be written down
in the fourth quarter of fiscal 1999. The provision for loss of $19,275,000,
together with $4,930,000 in equity method losses for fiscal 1999, are reflected
in "(Loss) income from equity investments."
On June 29, 2000, the Company sold its interest in Pacific Coast for
$2,500,000 and was relieved of all liabilities and guarantee obligations
associated with Pacific Coast. The resulting gain of $2,100,000 was recognized
in the fourth quarter of fiscal 2000 and is included in "(Loss) income from
equity investments."
Richmond Steel Recycling Limited
The Company also owns a 50% interest in Richmond Steel Recycling Limited
(RSR), a scrap processing facility located in Richmond, British Columbia,
Canada, which is accounted for using the equity method. The investment in and
equity in earning of RSR are not significant.
4. INVENTORIES
Inventories as of June 30 were valued at the lower of cost (first-in,
first-out) or market as summarized in the following table (in thousands):
CONTINUING OPERATIONS DISCONTINUED OPERATIONS
--------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Raw materials and mill supplies $ 31,213 $ 34,167 $ 9,811 $ 11,161
Work-in-progress .............. 8,247 20,262 4,957 21,906
Finished goods ................ 65,966 81,828 728 8,511
-------- -------- -------- --------
$105,426 $136,257 $ 15,496 $ 41,578
======== ======== ======== ========
5. CAPITALIZED INTEREST AND INTEREST EXPENSE
Capitalized interest on qualifying assets under construction and total
interest incurred for continuing and discontinued operations were as follows (in
thousands):
CONTINUING DISCONTINUED CONSOLIDATED
OPERATIONS OPERATIONS TOTAL
---------- ---------- -----
Capitalized interest:
Fiscal 2001 ....... $ 682 $ -- $ 682
Fiscal 2000 ....... 1,150 66 1,216
Fiscal 1999 ....... 4,345 620 4,965
Total interest incurred:
Fiscal 2001 ....... $50,201 $11,595 $61,796
Fiscal 2000 ....... 38,957 13,946 52,903
Fiscal 1999 ....... 28,593 11,636 40,229
6. SHORT-TERM BORROWING ARRANGEMENTS
The following information relates to the Company's borrowings under
short-term credit facilities (in thousands):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
--------- ------- -------
Maximum amount outstanding ... $ -- $10,000 $20,000
Average amount outstanding ... -- 864 14,780
Weighted average interest rate -- 6.4% 5.9%
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
JUNE 30,
--------
2001 2000
--------- ---------
Continuing operations:
Senior Notes, $130,000 face amount; interest at 10.03% at June 30,
2001 and 2000, due in 2005 .............................................. $ 130,000 $ 130,000
Senior Notes, $150,000 face amount; interest at 9.80% at
June 30, 2001 and 2000, due in 2002 and 2005 ........................... 150,000 150,000
Revolving Credit Facility, payable in 2002; weighted average interest
of 6.67% and 6.88% at June 30, 2001 and 2000, respectively .............. 255,000 269,465
$10,000 BSE Credit Facility, interest at 10.32% at June 30, 2001, due in 2002 10,000 --
Capital lease obligations, interest rates principally ranging from 43% to
45% of bank prime, payable in November 2001 ............................. 2,500 2,500
--------- ---------
547,500 551,965
Less: current portion ....................................................... (293,500) --
--------- ---------
$ 254,000 $ 551,965
========= =========
Discontinued operations:
Promissory Note, interest at 5.0%, payable in installments
through 2008 ............................................................ $ 1,125 $ 1,256
Industrial Revenue Bonds, interest rates principally ranging from 44% to
45% of bank prime, payable in 2025 and 2026 ............................. 41,000 41,000
--------- ---------
42,125 42,256
Less: current portion ....................................................... (138) (131)
--------- ---------
$ 41,987 $ 42,125
========= =========
Approximately $26,727,000 under the Revolving Credit Facility was available
to borrow at June 30, 2001. The aggregate fair value of the Company's long-term
debt obligations is approximately $592,033,000 compared to the carrying value of
$589,625,000 at June 30, 2001. The fair value of the Company's fixed-rate Senior
Notes is estimated using discounted cash flow analysis, based on the Company's
incremental borrowing rate for similar types of borrowings. The discounted
present value calculation does not include prepayment penalties that might be
paid under the debt agreements, nor does it reflect current conditions that
could impact the value of the Company's debt if it were being traded in a public
market.
Future maturities of long-term debt are scheduled as follows (in
thousands):
CONTINUING DISCONTINUED CONSOLIDATED
OPERATIONS OPERATIONS TOTAL
---------- ---------- -----
Fiscal Year Ending June 30:
2002......... $293,500 $ 138 $293,638
2003......... 105,500 145 105,645
2004......... 29,500 152 29,652
2005......... 29,500 160 29,660
2006......... 89,500 168 89,668
Thereafter -- 41,362 41,362
-------- -------- --------
$547,500 $ 42,125 $589,625
======== ======== ========
The above principal maturity schedule will be accelerated when and if the
SBQ assets are sold, as the net proceeds from any sales are required to be used
to pay down part of the Company's outstanding debt.
On February 20, 2001, the Company and its lenders executed amendments to
its principal debt and letter of credit agreements to provide for the
continuation of the Company's borrowing arrangements. These amendments modify or
supplement previous amendments executed in May 2000.
Among other things, the February 2001 amendments changed the financial
covenants and extended the maturity dates for principal payments previously due
before March 31, 2002. The new agreements maintain the interest rates or spreads
previously in effect for the Company's debt. The amendments also limit the
borrowings under the Company's Revolving Credit Facility and BSE Credit Facility
to $290 million and $10 million, respectively. In addition, the lenders
maintained a security interest in substantially all assets of the Company. In
consideration for the financing agreement modifications, and in lieu of any cash
fees, the exercise price for three million warrants held by the Company's
lenders was reduced from $3.00 to $0.01 per share. The fair value of the
re-pricing of the warrants was estimated to be approximately $1.8 million at the
date of re-pricing using a Black-Scholes option pricing model and assumptions of
5.016% for the risk-free interest rate, a 54.4% expected volatility and a
remaining expected life of 9.2 years. The Company recorded the incremental fair
value of the re-priced warrants as an equity transaction in March 2001.
Under the terms of the Company's amended debt agreements, dividends and
other "restricted payments," as defined in the agreements, are limited to the
lesser of $750,000 per quarter or 50% of quarterly income from continuing
operations.
8. COMMITMENTS
The Company leases office space and certain production equipment under
operating lease agreements. 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 (in thousands):
CONTINUING DISCONTINUED CONSOLIDATED
OPERATIONS OPERATIONS TOTAL
---------- ---------- -----
Fiscal Year Ending June 30,
2002....................... $13,006 $ 7,128 $ 20,134
2003....................... 12,488 6,827 19,315
2004....................... 11,788 6,692 18,480
2005....................... 11,605 6,645 18,250
2006....................... 11,499 6,645 18,144
Thereafter................. 16,179 56,389 72,568
------- ------- --------
$76,565 $90,326 $166,891
======= ======= ========
Rental expense under operating lease agreements charged to continuing
operations was $13.3 million, $13.0 million and $1.9 million in fiscal 2001,
2000 and 1999, respectively. Rental expense charged to discontinued operations
was $7.5 million, $7.6 million and $7.1 million in fiscal 2001, 2000 and 1999,
respectively.
The Company has a fifteen year operating lease on production equipment at
the Memphis melt shop. Future minimum lease payments required by the lease are
reflected in the preceding table under discontinued operations. The Company has
options to purchase the equipment both prior to and at the end of the lease for
amounts that are expected to approximate fair market value at the exercise date
of the options. The remaining lease obligation is expected to be either settled
or assumed by the buyer in connection with the disposal of the SBQ operations
(See Note 2).
In fiscal 1999, the Company executed two sale/leaseback transactions with
respect to equipment at the Cartersville facility. Total proceeds from the
sale/leaseback transactions were $75,104,000, which approximated the fair value
of the equipment at the dates of the transactions. The Company has options to
purchase the equipment both prior to and at the end of the lease terms, which
range from eight to ten years, for amounts that are expected to approximate fair
market value at the exercise date of the options.
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,
--------
2001 2000
---- ----
(RESTATED)
Deferred tax liabilities:
Tax depreciation in excess of book depreciation .............. $ (51,273) $ (47,855)
Deferred tax assets:
Allowance for losses on disposal of discontinued operations .. 55,826 --
Federal net operating loss carryforwards ..................... 104,199 71,636
State net operating loss carryforwards ....................... 16,285 6,599
AMT credit carryforwards ..................................... 5,687 5,388
Capital loss carryforwards ................................... 3,580 --
Deferred compensation ........................................ 2,943 3,676
Worker's compensation ........................................ 1,095 982
Inventories .................................................. 1,282 1,315
Equity investments ........................................... 2,071 18,710
Other, net ................................................... 4,201 8,205
--------- ---------
Gross deferred tax assets .................................... 197,169 116,511
Less valuation allowance ..................................... (145,896) (68,656)
--------- ---------
Deferred tax assets .......................................... 51,273 47,855
--------- ---------
Net deferred tax asset (liability) ........................... $ -- $ --
========= =========
The provisions for income taxes applicable to continuing operations
consisted of the following (in thousands):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
-------- -------- --------
(RESTATED) (RESTATED)
Current:
Federal ......... $ 189 $ 2,564 $ 662
State ........... (5) (400) 3,885
-------- -------- --------
184 2,164 4,547
Deferred:
Federal ......... -- 39,937 12,005
State ........... -- (8,266) (1,738)
-------- -------- --------
-- 31,671 10,267
-------- -------- --------
$ 184 $ 33,835 $ 14,814
======== ======== ========
The provisions for income taxes applicable to continuing operations
differ from the statutory tax amounts as follows (in thousands):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
-------- -------- --------
(RESTATED) (RESTATED)
Tax at statutory rates during the year ............... $(13,424) $ (9,117) $ 6,334
State income taxes, net .............................. (1,449) (1,422) 459
Amortization of non-deductible goodwill .............. 125 125 125
Valuation allowance .................................. 11,853 51,139 8,045
Other ................................................ 3,079 (6,890) (149)
-------- -------- --------
$ 184 $ 33,835 $ 14,814
======== ======== ========
The Company's federal net operating loss for fiscal 2001 was approximately
$90,300,000, all of which will be carried forward, and may be used to reduce
taxes due in future periods for up to 20 years, along with the previous years'
losses of approximately $205.7 million, which will be carried forward for a
period of up to 19 years, for a total carryforward of $296 million. The capital
loss carryover of $3,580,000 may be carried-forward five years, while the
alternative minimum tax credit carryforwards of $5,687,000 may be carried
forward indefinitely. In addition, the Company has state net operating loss
carryforwards of approximately $473,000,000 the majority of which will expire in
15 years.
In fiscal 2000, the Company provided a valuation allowance in the tax
provision applicable to continuing operations in the amount of $51,307,000. The
Company further increased the valuation allowance for deferred tax assets by
$77,240,000 in fiscal 2001 because, in light of recent trends and circumstances,
management concluded that the net deferred tax assets might not be realized.
10. STOCK COMPENSATION PLANS
The Company has six stock compensation plans that provide for the granting
of stock options, stock appreciation rights and restricted stock to officers,
directors and employees. The exercise price of stock option awards issued under
these plans equals or exceeds the market price of the Company's common stock on
the date of grant. Stock options under these plans are exercisable one to ten
years after the grant date, usually in annual installments. No stock
appreciation rights have been issued. Until January 14, 2000, the Company
maintained a stock accumulation plan, which provided for the purchase of
restricted stock with a three-year vesting period to participants in lieu of a
portion of their cash compensation.
The status of the Company's stock compensation plans is summarized below as
of June 30, 2001:
TOTAL NUMBER OF OPTIONS OR SHARES
---------------------------------
AVAILABLE FOR RESERVED FOR
FUTURE GRANT ISSUANCE UNDER
AUTHORIZED OR PURCHASE THE PLAN
---------- ----------- --------
1986 Stock Option Plan.................... 900,000 -- 4,949
1990 Management Incentive Plan............ 900,000 -- 351,168
1996 Director Stock Option Plan........... 100,000 3,000 95,500
1997 Management Incentive Plan............ 900,000 334,131 494,050
2000 Management Incentive Plan............ 2,900,000 861,500 2,038,500
2000 Director Stock Option Plan........... 200,000 186,500 13,500
The Company records stock-based compensation under the provisions of APB
No. 25, Accounting for Stock Issued to Employees (APB No. 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 No. 25, because the
exercise price of the Company's employee stock options equals or exceeds the
market price of the underlying stock on the date of grant, no compensation
expense is recognized for stock options. The Company recognizes compensation
expense on grants of restricted stock and stock grants under the 1995 Stock
Accumulation Plan based on the intrinsic value of the stock on the date of grant
amortized over the vesting period. Total compensation expense recognized for
stock-based employee compensation awards was $310,000, $621,000 and $541,000 in
2001, 2000 and 1999, respectively.
As required by SFAS No. 123, the Company has determined pro forma net
income and earnings per share as if it had accounted for its employee stock
compensation awards using 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:
2001 2000 1999
------- ------- -------
Risk free interest rate ....... 4.95% 6.18% 5.76%
Dividend yield ................ 0.00% 0.00% 2.48%
Volatility factor ............. 80.19% 69.5% 60.4%
Weighted average expected life:
Stock options .............. 5 years 5 years 5 years
Restricted stock awards .... -- 3 years 4 years
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 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 granted beginning in fiscal 1996. The Company's pro forma
information follows (in thousands, except for per share information):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
----- ----- ----
Pro forma: (RESTATED) (RESTATED)
(Loss) income from continuing operations ......... $ (39,605) $ (61,450) $ 2,815
(Loss) income per share from continuing operations (1.28) (2.04) 0.10
Net loss ......................................... (198,052) (56,787) (224,705)
Net loss per share ............................... (6.39) (1.89) (7.62)
A summary of the Company's stock option activity and related information
for the years ended June 30 is as follows:
2001 2000 1999
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
Outstanding -- beginning of year ..... 3,379,181 $ 6.51 1,654,621 $10.99 1,009,165 $16.89
Granted .............................. 126,040 3.96 2,347,500 4.62 964,000 5.95
Exercised ............................ -- -- (29,500) 4.76 -- --
Canceled ............................. (454,866) 17.13 (593,440) 11.61 (318,544) 14.23
---------- ---------- ----------
Outstanding -- end of year ........... 3,050,355 6.06 3,379,181 6.51 1,654,621 10.99
========= ========== ==========
Exercisable at end of year ........... 1,192,103 $ 8.00 844,681 $10.86 455,463 $16.90
========= ========== ==========
Weighted-average fair value of options
granted during year .............. $ 1.78 $ 2.43 $ 2.86
Summary information about the Company's stock options outstanding at
June 30, 2001 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------------
WEIGHTED
AVERAGE REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER OF TERM (IN EXERCISE NUMBER OF EXERCISE
RANGE OF EXERCISE PRICES OPTIONS YEARS) PRICE OPTIONS PRICE
------------------------ ------- ------------------ ----- ------- -----
$3.00........................... 60,000 9.1 $ 3.00 -- --
$4.00 - $6.31................... 2,612,500 8.4 4.63 864,848 $ 4.70
$7.94 - $9.62................... 40,000 7.2 9.41 17,400 9.53
$15.38 - $18.63................. 335,355 3.7 17.17 307,355 17.04
$31.88.......................... 2,500 2.7 31.88 2,500 31.88
--------- ---------
$3.00 - $31.88.................. 3,050,355 7.9 $ 6.06 1,192,103 $ 8.00
========= =========
In addition to the stock option activity presented in the preceding table,
the Company granted 100,000 and 61,720 shares of restricted stock to employees
in 2000 and 1999, respectively. The weighted average fair value of these awards
was $2.82 in 2000 and $7.35 in 1999. The Company also issued 32,195 and 60,505
shares to employees in 2000 and 1999, respectively, under the Stock Accumulation
Plan.
11. DEFERRED COMPENSATION AND EMPLOYEE BENEFITS
The Company maintains a defined contribution 401(K) plan that covers
substantially all non-union employees. The Company makes both discretionary and
matching contributions to the plan based on employee compensation and
contributions. Company contributions charged to continuing operations amounted
to $2,248,000, $5,424,000 and $3,911,000 in fiscal 2001, 2000 and 1999,
respectively. Discontinued operations includes charges of $428,000, $782,000 and
$866,000 related to the plan for those same periods.
Certain officers and key employees participate in the Executive Retirement
and Compensation Deferral Plan, a non-qualified deferred compensation plan,
which allows participants to defer specified percentages of base and bonus pay,
and provides for Company contributions. This plan was amended effective January
1, 2001 to discontinue the Compensation Deferral Plan (CDP) component of the
plan. As part of the amendment, existing participant CDP account balances were
distributed in the fourth quarter of fiscal 2001. Under the Executive Retirement
Plan, the Company recognizes compensation costs as contributions become vested.
Investment performance gains and losses on each participant's plan account
result in additional compensation costs to the Company. The Company's
obligations to participants in the Plan are reported in deferred liabilities.
Other than the plans referred to above, the Company provides no
post-retirement or post-employment benefits to its employees that would be
subject to the provisions of SFAS No. 106 or No. 112.
12. PRODUCTS AND GEOGRAPHIC AREAS
Net sales to external customers, by product type and geographic area from
continuing operations were as follows for the periods indicated (in thousands):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
---- ---- ----
(RESTATED) (RESTATED)
By Product Class:
Reinforcing bar .............................. $388,824 $411,219 $410,595
Merchant products ............................ 272,800 316,869 301,705
Semi-finished billets ........................ 28,097 29,116 29,337
Strand, mesh, and other ...................... 10,394 13,636 12,648
-------- -------- --------
$700,115 $770,840 $754,285
======== ======== ========
By Geographic Area
United States ................................ $651,101 $719,044 $714,076
Canada ....................................... 48,665 51,351 39,782
All others ................................... 349 445 427
-------- -------- --------
$700,115 $770,840 $754,285
======== ======== ========
Substantially all of the Company's long-lived tangible assets are located
in the continental United States. Revenues in the preceding table are attributed
to countries based on the location of the customers. No single customer
accounted for 10% or more of consolidated net sales.
13. 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 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, substantially all
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.
The Company has been named as a defendant in a number of lawsuits arising
out of an accident that occurred on March 15, 1999 involving an Amtrak passenger
train and a truck carrying steel reinforcing bar produced by the Company's
Kankakee plant. There were approximately 122 injuries and 11 deaths in the
accident. The plaintiffs in these lawsuits claim that at the time of the
accident, the driver of the truck was acting as an employee or agent of the
Company; that the Company was negligent in loading the trailer; that the load
placed on the trailer exceeded the weight limit allowed by statute; and that the
Company negligently allowed some rail cars to be parked on a side track near the
intersection. The Company is being defended in all of the cases by counsel
provided by its liability insurance carrier. The Company denies all liability
and is vigorously defending all of these cases. At this time, however, the cases
remain in their early stages and discovery is incomplete. Although the Company
believes its defenses should prevail in these actions, the Company cannot
predict the ultimate outcome of these cases or the probability of recovery from
insurance with certainty. However, no amount of loss is considered probable at
this time, and accordingly no reserve has been provided for these actions.
14. START-UP AND RESTRUCTURING COSTS AND OTHER UNUSUAL ITEMS
Start-up and restructuring costs and other unusual items consist of the
following (in thousands):
YEARS ENDED JUNE 30,
--------------------
2001 2000 1999
-------- -------- --------
(RESTATED) (RESTATED)
START-UP (RECOVERIES) EXPENSES:
Cartersville ............. $ (16) $ 16,537 $ 12,817
Other .................... -- -- 37
ASSET IMPAIRMENT:
Assets retired ........... -- 13,111 --
OTHER UNUSUAL ITEMS:
Proxy solicitation costs . -- 6,887 --
Executive severance costs -- 6,298 --
Debt amendment costs ...... -- 2,402 --
-------- -------- --------
$ (16) $ 45,235 $ 12,854
======== ======== ========
A narrative description of the significant items summarized in the preceding
table follows:
Cartersville Start-up: During a start-up phase, costs incurred in excess of
expected normal levels, including non-recurring operating losses, are classified
by the Company as start-up expenses. In the third quarter of fiscal 1999,
the Cartersville, Georgia mid-section mill began operations and was considered
to be in start-up phase through July 2000, when Cartersville achieved
consistent, commercially viable production levels.
Asset impairment: In the second quarter of fiscal 2000, the Company wrote
off equipment taken out of service at the Seattle and Cartersville mills and
recognized losses of $13.1 million.
Proxy Solicitation: These costs, principally consisting of legal, public
relations and other consulting fees, were incurred during fiscal 2000 in the
Company's defense of a proxy contest led by The United Company Shareholder Group
(the "United Group"). In December 1999, the former Board of Directors of the
Company and the United Group reached a settlement appointing John D. Correnti as
Chairman and Chief Executive Officer and appointing nine new board members
approved by the former Board of Directors of the Company and the United Group.
Executive Severance: As a result of the proxy contest, the Company
terminated several executives, including the former CEO, in the second quarter
of fiscal 2000. These executives were covered by the Company's executive
severance plan, which provides for specified benefits after a change in the
majority of the Board of Directors of the Company, among other triggering
events.
Debt Amendment Costs: In conjunction with the May 2000 amendments to the
Company's borrowing agreements (see Note 7), the Company incurred $2.4 million
in legal and financial consulting fees.
15. OTHER INCOME
In fiscal 1999, the Company received approximately $4.4 million in refunds
from electrode suppliers that related to electrodes purchased in prior years.
16. SHAREHOLDER RIGHTS PLAN
On January 16, 1996, the Company's Board of Directors adopted a shareholder
rights plan. Under the plan, rights to purchase stock, at a rate of one right
for each share of common stock held, were distributed to stockholders of record
on January 19, 1996. The rights generally become exercisable after a person or
group (i) acquires 10% or more of the Company's outstanding common stock or (ii)
commences a tender offer that would result in such a person or group owning 10%
or more of the Company's common stock. When the rights first become exercisable,
a holder will be entitled to buy from the Company a unit consisting of one
one-hundredth of a share of Series A Junior Participating Preferred Stock of the
Company at a purchase price of $74. In the event that a person acquires 10% or
more of the Company's common stock, each right not owned by the 10% or more
stockholder would become exercisable for common stock of the Company having a
market value equal to twice the exercise price of the right. Alternatively,
after such stock acquisition, if the Company is acquired in a merger or other
business combination or 50% or more of its assets or earning power are sold,
each right not owned by the 10% or more stockholder would become exercisable for
common stock of the party which has engaged in a transaction with the Company
having a market value equal to twice the exercise price of the right. Prior to
the time that a person acquires 10% or more of the Company's common stock, the
rights are redeemable by the Board of Directors at a price of $.01 per right.
The rights expire on January 16, 2006, except as otherwise provided in the plan.
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, 2001 and 2000, 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, 2001. 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. The 1999 financial statements of
Pacific Coast Recycling, L.L.C. (a 50% owned joint venture), were audited by
other auditors whose report, which has been furnished to us, included an
explanatory paragraph describing an uncertainty regarding the ability of Pacific
Coast Recycling, L.L.C. to continue as a going concern. Our opinion on the 1999
consolidated financial statements, insofar as it relates to data included for
Pacific Coast Recycling, L.L.C., is based solely on the report of other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1999, the report of other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Birmingham Steel
Corporation at June 30, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 2001, in conformity with accounting principles generally accepted in
the United States. 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.
The accompanying financial statements have been prepared assuming that
Birmingham Steel Corporation will continue as a going concern. As more fully
described in Note 1, the Company is required to make significant debt principal
repayments on April 1, 2002 and has a working capital deficiency at June 30,
2001. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Birmingham, Alabama
August 6, 2001, except for
Note 2, as to which the date
is September 17, 2001
INDEPENDENT AUDITORS' REPORT
The Members
Pacific Coast Recycling, L.L.C.:
We have audited the statements of operations, members' capital (deficit) and
cash flows of Pacific Coast Recycling, L.L.C. for the year ended June 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Pacific Coast
Recycling, L.L.C. for the year ended June 30, 1999 in conformity with accounting
principles generally accepted in the United States of America.
The financial statements have been prepared assuming that Pacific Coast
Recycling, L.L.C. will continue as a going concern. As discussed in note 3 to
the financial statements, the Company has suffered recurring losses from
operations, has a net capital deficiency and as of June 30, 1999, and the
members have stated that they will no longer provide letters confirming their
continuing financial support of the Company. These parent companies provide a
significant amount of funding for the operations of the Company as described in
note 9 to the financial statements. These circumstances raise substantial doubt
about the entity's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG LLP
Los Angeles, California
July 30, 1999
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 in Birmingham Steel Corporation's 2001 Proxy
Statement, 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 in Birmingham Steel Corporation's 2001 Proxy
Statement, 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 in Birmingham Steel Corporation's 2001 Proxy
Statement, 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 in Birmingham Steel Corporation's 2001 Proxy
Statement, with respect to directors and executive officers of the Company is
incorporated herein by reference in response to this item.
PART IV
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, 2001 and 2000
Consolidated Statements of Operations -- Years ended June 30, 2001,
2000 and 1999
Consolidated Statements of Changes in Stockholders' Equity -- Years
ended June 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows -- Years ended June 30, 2001,
2000 and 1999
Notes to Consolidated Financial Statements -- June 30, 2001, 2000 and
1999
Report of Ernst & Young LLP, Independent Auditors
Independent Auditors Report (KPMG LLP)
ITEM 14 (a) 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule is included in item
14 (d) of this report.
FORM 10-K
Schedule II -- Valuation and Qualifying Accounts -- Years ended June 30, 2001,
2000 and 1999
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.
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.
ITEM 14 (b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter ended June 30,
2001.
ITEM 14 (c) EXHIBITS
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 By-laws of the Registrant as amended on August 3, 1999
(incorporated by reference to Exhibit 3.1 from Current Report on
Form 8-K filed August 11, 1999)
4.1 Amended and Restated $130,000,000 Senior Note Purchase Agreement
dated as of October 12, 1999 between the registrant and the
financial parties thereto (incorporated by reference to Exhibit
4.1.4 from Form 10-K/A for the year ended June 30, 1999)
4.1.1 Second Amendment to the Amended and Restated $130,000,000 Senior
Note Purchase Agreement dated May 15, 2000 (incorporated by
reference to Exhibit 4.1.1 from Annual Report on Form 10-K for year
ended June 30, 2000)
4.1.2 Third Amendment to the Amended and Restated $130,000,000 Senior
Note Purchase Agreement dated February 20, 2001 (incorporated by
reference to Exhibit 4.1.2 from Form 10-Q/A for quarter ended
December 31, 2000)
4.2 Amended and Restated $150,000,000 Senior Note Purchase Agreement
dated as of October 12, 1999 (incorporated by reference to Exhibit
4.2.3 from Form 10-K/A for the year ended June 30, 1999)
4.2.1 Second Amendment to the Amended and Restated $150,000,000 Senior
Note Purchase Agreement dated May 15, 2000 (incorporated by
reference to Exhibit 4.2.1 from Annual Report on Form 10-K for year
ended June 30, 2000)
4.2.2 Third Amendment to the Amended and Restated $150,000,000 Senior
Note Purchase Agreement dated February 20, 2001 (incorporated by
reference to Exhibit 4.2.2 from Form 10-Q/A for quarter ended
December 31, 2000)
4.3 Letter from Birmingham Steel Corporation to Senior Noteholders
dated October 13, 1999 (incorporated by reference to Exhibit 4.3
from Form 10-K/A for the year ended June 30, 1999)
4.4 Shareholder Rights Plan of Registrant (incorporated by reference
from Form 8-K filed January 23, 1996)
4.5 Reimbursement Agreement, dated as of October 1, 1996, between
Birmingham Steel Corporation and PNC Bank, Kentucky, Inc.
(incorporated by reference to Exhibit 4.1 from Form 10-Q for
quarter ended December 31, 1996)
4.5.1 Fifth Amendment to the Reimbursement Agreement, dated as of
February 20, 2001, between Birmingham Steel Corporation and PNC
Bank, Kentucky, Inc. (incorporated by reference to Exhibit 4.5.1
from Form 10-Q/A for quarter ended December 31, 2000)
4.6 Warrant Agreement dated May 15, 2000, between the Registrant and
the warrant holders parties thereto (incorporated by reference to
Exhibit 4.6 from Annual Report on Form 10-K for year ended June 30,
2000)
4.6.1 First Amendment to the Warrant Agreement dated February 20, 2001,
between the Registrant and the warrant holders parties thereto
(incorporated by reference to Exhibit 4.6.1 from Form 10-Q/A for
quarter ended December 31, 2000)
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 to Exhibit 1.2 from Form 10-K for
year ended June 30, 1994)
10.3 Steel Billet Sale and Purchase Master Agreement between American
Steel & Wire Corporation and QIT-Feret Titane, Inc. dated July 1,
1994 (incorporated by reference to Exhibit 10.3 from Annual Report
on Form 10-K for year ended June 30, 1995)
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 to Exhibit 10.6.3 from Registrant
Statement No. 33-945 filed November 20, 1985)
10.5 1989 Non-Union Employees' Stock Option Plan of the Registrant
(incorporated by reference to Exhibit 4.1 from a Registration
Statement on Form S-8, Registration No. 33-30848, filed August 31,
1989)
10.6 Restated Birmingham Steel Corporation 401(k) Plan restated as of
January 1, 1990 (incorporated by reference to Exhibit 4.1 from
Post-Effective Amendment No. 1 to Form S-8, Registration No.
33-23563, filed July 12, 1990)
10.7 Special Severance Benefits Plan of the Registrant (incorporated by
reference to Exhibit 10.12 from the Annual Report on Form 10-K for
the Year ended June 30, 1989)
10.8 Lease Agreement, as amended, dated July 13, 1993 between Torchmark
Development Corporation and Birmingham Steel Corporation
(incorporated by reference to Exhibit 10.12 from Annual Report on
Form 10-K for year ended June 30, 1993)
10.8.1 Third Amendment to Lease Agreement, dated November 30, 1993,
between Torchmark Development Corporation and Birmingham Steel
Corporation (incorporated by reference to Exhibit 10.8.1 from
Annual Report on Form 10-K for year ended June 30, 1997)
10.8.2 Fourth Amendment to Lease Agreement, dated June 13, 1994, between
Torchmark Development Corporation and Birmingham Steel Corporation
(incorporated by reference to Exhibit 10.8.2 from Annual Report on
Form 10-K for year ended June 30, 1997)
10.8.3 Fifth Amendment to Lease Agreement, dated September 6, 1995,
between Torchmark Development Corporation and Birmingham Steel
Corporation (incorporated by reference to Exhibit 10.8.3 from
Annual Report on Form 10-K for year ended June 30, 1997)
10.8.4 Sixth Amendment to Lease Agreement, dated April 11, 1997, between
Torchmark Development Corporation and Birmingham Steel Corporation
(incorporated by reference to Exhibit 10.8.4 from Annual Report on
Form 10-K for year ended June 30, 1997)
10.8.5 Seventh Amendment to Lease Agreement, dated April 11, 1997, between
Torchmark Development Corporation and Birmingham Steel Corporation
(incorporated by reference to Exhibit 10.8.5 from Annual Report on
Form 10-K for year ended June 30, 1997)
10.8.6 Eighth Amendment to Lease Agreement, dated April 11, 1997, between
Torchmark Development Corporation and Birmingham Steel Corporation
(incorporated by reference to Exhibit 10.8.6 from Annual Report on
Form 10-K for the year ended June 30, 1998)
10.9 1990 Management Incentive Plan of the Registrant (incorporated by
reference to Exhibit 4.1 from a Registration Statement on Form S-8,
Registration No. 33-41595, filed July 5, 1991)
10.10 1992 Non-Union Employees' Stock Option Plan of the Registrant
(incorporated by reference to Exhibit 4.1 from a Registration
Statement on Form S-8, Registration No. 33-51080, filed August 21,
1992)
10.11 Employment Agreement, dated May 12, 2000, between Registrant and
John D. Correnti (incorporated by reference to Exhibit 10.11 from
Annual Report on Form 10-K for year ended June 30, 2000)
10.11.1 Amendment to Employment Agreement, dated May 12, 2000, between
Registrant and John D. Correnti (incorporated by reference to
Exhibit 10.11.1 from Annual Report on Form 10-K for year ended June
30, 2000)
10.12 Stock Accumulation Plan of the Registrant (incorporated by
reference to Exhibit 4.1 from a Registration Statement on Form S-8,
Registration No. 33-64069, filed November 8, 1995)
10.13 Lease Agreement, dated January 7, 1997, between Torchmark
Development Corporation and Birmingham Southeast, L.L.C.
(incorporated by reference to Exhibit 10.13 from Annual Report on
Form 10-K for year ended June 30, 1998)
10.14 Director Stock Option Plan of the Registrant (incorporated by
reference to exhibit 10.1 from Form 10-Q for quarter ended
September 30, 1996)
10.15 Director Compensation Plan of the Registrant (incorporated by
reference to Exhibit 10.18 from Form 10-K/A for the year ended June
30, 1999)
10.16 Amended and Restated Executive Severance Plan of the Registrant
(incorporated by reference to Exhibit 10.19 from Annual Report on
From 10-K for the year ended June 30, 1999)
10.17 Chief Executive Officer Incentive Compensation Plan of the
Registrant (incorporated by reference to Exhibit 10.2 from Form
10-Q for quarter ended September 30, 1996)
10.18 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 to Exhibit 10.3 from Form 10-Q for
quarter ended September 30, 1996)
10.19 DRI Purchase Agreement between Birmingham Steel Corporation and
American Iron Reduction, L.L.C., dated as of August 30, 1996
(incorporated by reference to Exhibit 10.4 from Form 10-Q for
quarter ended September 30, 1996)
10.19.1 Amended and Restated DRI Purchase Agreement between Birmingham
Steel Corporation and American Iron Reduction, L.L.C. dated as of
May 5, 2000 (incorporated by reference to Exhibit 10.19.1 from
Annual Report on Form 10-K for year ended June 30, 2000)
10.20 Operating Agreement between Birmingham Steel Corporation and Raw
Material Development Co., Ltd., dated as of September 18, 1996
(incorporated by reference to Exhibit 10.5 from Form 10-Q for
quarter ended September 30, 1996)
10.21 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 to Exhibit 10.1 from Form 10-Q for
quarter ended December 31, 1996)
10.22 Contribution Agreement, dated as of November 15, 1996, among IVACO,
Inc., Atlantic Steel Industries, Inc., Birmingham Steel Corporation
and Birmingham Southeast, L.L.C. (incorporated by reference from
Current Report on Form 8-K filed December 12, 1996)
10.23 $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 to Exhibit 10.1
from Form 10-Q for quarter ended March 31, 1997)
10.23.1 First Amendment to Credit Agreement dated June 23, 1998
(incorporated by reference to Exhibit 10.2 from Current Report on
Form 8-K filed September 30, 1999)
10.23.2 Second Amendment to Credit Agreement dated September 30, 1998
(incorporated by reference to Exhibit 10.1 from Form 10-Q for
quarter ended December 31, 1998)
10.23.3 Third Amendment to Credit Agreement dated July 27, 1999
(incorporated by reference to Exhibit 10.4 from Current Report on
Form 8-K filed September 30, 1999)
10.23.4 Fourth Amendment to Credit Agreement dated September 28, 1999
(incorporated by reference to Exhibit 10.5 from Current Report on
Form 8-K filed September 30, 1999)
10.23.5 Fifth Amendment to Credit Agreement dated October 12, 1999
(incorporated by reference to Exhibit 10.26.5 from Annual Report on
Form 10-K/A for year ended June 30, 1999)
10.23.6 Seventh amendment to Credit Agreement dated May 15, 2000
(incorporated by reference to Exhibit 10.23.6 from Annual Report on
Form 10-K for year ended June 30, 2000)
10.23.7 Eighth amendment to Credit Agreement dated February 20, 2001
(incorporated by reference from Exhibit 10.23.7 to Form 10-Q/A for
quarter ended December 31, 2000)
10.24 Collateral Agency and Intercreditor Agreement dated October 12,
1999 (incorporated by reference to Exhibit 10.26.6 from Form 10-K/A
for the year ended June 30, 1999)
10.24.1 Amended and Restated Collateral Agency and Intercreditor Agreement
dated May 15, 2000 amending and restating the Collateral Agency and
Intercreditor Agreement dated October 12, 1999 (incorporated by
reference to Exhibit 10.24.1 from Annual Report on Form 10-K for
year ended June 30, 2000)
10.25 $25,000,000 Credit Agreement dated as of May 15, 2000, by and among
Birmingham Southeast, L.L.C., as Borrower, the financial
institutions party thereto, as lenders, and Bank of America, N.A.,
as agent (incorporated by reference to Exhibit 10.25 from Annual
Report on Form 10-K for year ended June 30, 2000)
10.25.1 First Amendment to the $25,000,000 Credit Agreement dated as of
February 20, 2001, by and among Birmingham Southeast, L.L.C., as
Borrower, the financial institutions party thereto, as lenders, and
Bank of America, N.A., as agent (incorporated by reference from
Exhibit 10.25.1 to Form 10-Q/A for quarter ended December 31, 2000)
10.26 Security Agreement dated as of October 12, 1999, executed by
Birmingham Steel Corporation, as Debtor, in favor of State Street
Bank and Trust Company, as Collateral Agent, for the benefit of the
secured parties named therein (incorporated by reference to Exhibit
10.26 from Annual Report on Form 10-K for year ended June 30, 2000)
10.26.1 Security Agreement dated as of May 15, 2000, executed by Birmingham
Southeast, L.L.C., as Debtor, in favor of SouthTrust Bank, National
Association, as Collateral Agent, for the benefit of the secured
parties named therein (incorporated by reference to Exhibit 10.26.1
from Annual Report on Form 10-K for year ended June 30, 2000)
10.27 Amended and Restated Collateral Agency and Intercreditor Agreement
dated May 15, 2000 amending and restating the Collateral Agency and
Intercreditor Agreement dated November 12, 1999 (incorporated by
reference to Exhibit 10.27 from Annual Report on Form 10-K for year
ended June 30, 2000)
10.28 Executive Retirement and Compensation Deferral Plan of the
Registrant (incorporated by reference to Exhibit 10.22 from Annual
Report on Form 10-K for year ended June 30, 1998)
10.28.1 Amendment Number Two to the Executive Retirement and Compensation
Deferral Plan of the Registrant (incorporated by reference from
Form 10-Q for quarter ended March 31, 2001)
10.29 1997 Management Incentive Plan of the Registrant (incorporated by
reference to Exhibit 4.6 from a Registration Statement on Form S-8,
Registration No. 333-46771, filed February 24, 1998)
10.30 Master Restructure Agreement among American Iron Reduction L.L.C.,
GS Industries, GS Technologies Operating Co., Inc., Birmingham
Steel Corporation, Bank of America, N.A., and Canadian Imperial
Bank of Commerce dated May 5, 2000 (incorporated by reference to
Exhibit 10.30 from Annual Report on Form 10-K for year ended June
30, 2000)
10.31 Letter agreement dated February 20, 2001 between the Company and
the Memphis Leaseholders (incorporated by reference to Exhibit
10.32 from Form 10-Q/A for quarter ended December 31, 2000)
10.32 2000 Management Incentive Plan of the Registrant (incorporated by
reference to Exhibit 4.4 from Registration Statement on Form S-8,
Registration No. 333-57048, filed March 14, 2001)
10.33 2000 Director Stock Option Plan of the Registrant (incorporated by
reference to Exhibit 4.4 from Registration Statement on Form S-8,
Registration No. 333-57032, filed March 14, 2001)
22.1 Subsidiaries of the Registrant*
23.1 Consent of Ernst & Young LLP, Independent Auditors*
23.2 Accountants' Consent (KPMG LLP) *
* Being filed herewith
ITEM 14 (d) FINANCIAL STATEMENTS
The list of financial statements and schedules referred to in Items
14(a)(1) and 14(a)(2) is incorporated herein by reference.
BIRMINGHAM STEEL CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE CHARGED
AT TO COSTS BALANCE AT
BEGINNING AND END OF
OF YEAR EXPENSES DEDUCTIONS YEAR
------- -------- ---------- ----
Year Ended June 30, 2001:
Deducted from assets accounts:
Allowance for doubtful accounts .......................... $ 1,614 $ 660 $ 128(A) $ 2,146
Provision for estimated losses for SBQ division
during disposal period .................................. -- 35,963(B) 25,826(C) 10,137
Provision for estimated loss on disposal of discontinued
operations ........................................... -- 138,849(B) 2,013(C) 136,836
--------- --------- --------- ---------
$ 1,614 $ 175,472 $ 27,967 $ 149,119
========= ========= ========= =========
Year Ended June 30, 2000:
Deducted from assets accounts:
Allowance for doubtful accounts ......................... $ 1,207 $ 908 $ 501(A) $ 1,614
Provision for estimated losses for SBQ division
during disposal period ................................. 56,544 (56,544)(D) -- --
Provision for estimated loss on disposal of discontinued
operations .......................................... 195,342 (195,342)(D) -- --
--------- --------- --------- ---------
$ 253,093 $(250,978) $ 501 $ 1,614
========= ========= ========= =========
Year Ended June 30, 1999:
Deducted from assets accounts:
Allowance for doubtful accounts .......................... $ 1,838 $ 376 $ 1,007(A) $ 1,207
Provision for estimated losses for SBQ division during
disposal period ...................................... -- 56,544(B) -- 56,544
Provision for estimated loss on disposal of discontinued
operations ........................................... -- 195,342(B) -- 195,342
--------- --------- --------- ---------
$ 1,838 $ 252,262 $ 1,007 $ 253,093
========= ========= ========= =========
(A) Represents accounts written off.
(B) Represents the provision for the estimated loss on disposal of the SBQ line
of business.
(C) Represents use of the reserve for discontinued operations.
(D) Represents the reversal of the 1999 provision for the loss on disposal of
the SBQ line of business.
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/ JOHN D. CORRENTI 10/15/2001
John D. Correnti 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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOHN D. CORRENTI Chairman of the Board, Chief October 15, 2001
Executive Officer, Director
JOHN D. CORRENTI (Principal Executive Officer)
/s/ James A. Todd Jr. Chief Administrative Officer, October 15, 2001
Director
JAMES A. TODD JR.
/s/ DONNA M. ALVARADO Director October 15, 2001
DONNA M. ALVARADO
/s/ STEVEN R. BERRARD Director October 15, 2001
STEVEN R. BERRARD
/s/ ALVIN R. CARPENTER Director October 15, 2001
ALVIN R. CARPENTER
/s/ C. STEPHEN CLEGG Director October 15, 2001
C. STEPHEN CLEGG
/s/ JERRY E. DEMPSEY Director October 15, 2001
JERRY E. DEMPSEY
/s/ ROBERT M. GERRITY Director October 15, 2001
ROBERT M. GERRITY
/s/ JAMES W. MCGLOTHLIN Director October 15, 2001
JAMES W. MCGLOTHLIN
/s/ RICHARD DE J. OSBORNE Director October 15, 2001
RICHARD DE J. OSBORNE
/s/ ROBERT H. SPILMAN Director October 15, 2001
ROBERT H. SPILMAN
/s/ J. DANIEL GARRETT Chief Financial Officer October 15, 2001
Vice President - Finance
J. DANIEL GARRETT
/s/ BRANT R. HOLLADAY Controller October 15, 2001
BRANT R. HOLLADAY
EX-22.1
3
g72152ex22-1.txt
SUBSIDIARIES OF THE REGISTRANT
EX-22.1
SUBSIDIARIES OF THE REGISTRANT AS OF JUNE 30, 2001
BIRMINGHAM STEEL CORPORATION
American Steel & Wire 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, L.L.C., a Delaware corporation
Birmingham Southeast, L.L.C., a Delaware corporation
Midwest Holdings, Inc., a Delaware corporation
Cumberland Recyclers, L.L.C.*, a Delaware corporation
Birmingham Steel Management, Inc., a Delaware corporation
* Denotes inactive/dormant subsidiary
EX-23.1
4
g72152ex23-1.txt
CONSENT OF ERNST & YOUNG LLP
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, 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 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
Employee's Stock Option Plan; (vi) in the Registration Statement (Form S-8 No.
33-64069) pertaining to the Birmingham Steel Corporation 1995 Stock Accumulation
Plan; (vii) in the Registration Statement (Form S-8 No. 333-34291) pertaining to
the Birmingham Steel Corporation 1996 Director Stock Option Plan; and (viii) in
the Registration Statement (Form S-8 No. 333-46771) pertaining to the Birmingham
Steel Corporation 1997 Management Incentive Plan; (ix) in the Registration
Statement (Form S-8 No. 333-90365) pertaining to the Birmingham Steel
Corporation 1999 Director Compensation Plan; (x) in the Registration Statement
(Form S-8 No. 333-57048) pertaining to Birmingham Steel Corporation 2000
Management Incentive Plan; and (xi) in the Registration Statement (Form S-8 No.
333-57032) pertaining to the Birmingham Steel Corporation 2000 Director Stock
Option Plan of our report dated August 6, 2001, except for Note 2, as to which
the date is September 17, 2001, 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, 2001.
/s/ Ernst & Young LLP
Birmingham, Alabama
October 15, 2001
EX-23.2
5
g72152ex23-2.txt
CONSENT OF KPMG LLP
Exhibit 23.2
CONSENT OF KPMG LLP, INDEPENDENT AUDITORS
The Members
Pacific Coast Recycling, LLC
We consent to the incorporation by reference in the registration statements
(No's 33-16648, 33-23563, 33-30848, 33-41595, 33-51080, 33-64069, 333-34291
333-46771, 333-90365, 333-57048 and 333-57032) on Form S-8 of Birmingham Steel
Corporation of our report dated July 30, 1999, with respect to the statements of
operations, members' capital (deficit) and cash flows of Pacific Coast Recycling
LLC for the year ended June 30, 1999 which report appears in the Form 10-K of
Birmingham Steel Corporation dated June 30, 1999.
/s/ KPMG LLP
Los Angeles, California
October 12, 2001