-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EEmpToLhm/NLNs2kldRHFKImI4vHrkW6pwqpbpQX2V8+HhErtshcNpqR308rDqLR KH0BI7sTujoCbMZ4yMYUrw== 0000950172-99-001634.txt : 19991117 0000950172-99-001634.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950172-99-001634 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIRMINGHAM STEEL CORP CENTRAL INDEX KEY: 0000779334 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 133213634 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09820 FILM NUMBER: 99758062 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-9820 BIRMINGHAM STEEL CORPORATION DELAWARE 13-3213634 (State of Incorporation) (I.R.S. Employer Identification No.) 1000 Urban Center Parkway, Suite 300 Birmingham, Alabama 35242 (205) 970-1200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes x No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 29,735,036 Shares of Common Stock of the registrant were outstanding at November 9, 1999. PART I - FINANCIAL INFORMATION ITEM 1 . FINANCIAL STATEMENTS (UNAUDITED)
BIRMINGHAM STEEL CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) September 30, June 30, 1999 1999 (Unaudited) (Audited) -------------- ---------------- ASSETS Current assets: Cash and cash equivalents $ 978 $ 935 Accounts receivable, net of allowance for doubtful accounts $626 at September 30, 1999 and $586 at June 30, 1999 79,389 72,047 Inventories 111,630 100,330 Other current assets 46,708 52,019 Net current assets of discontinued operations 73,155 45,558 --------------- --------------- Total current assets 311,860 270,889 Property, plant and equipment 659,285 654,089 Less accumulated depreciation (224,524) (214,527) --------------- --------------- Net property, plant and 434,761 439,562 equipment Other non-current assets 41,866 42,527 Net non-current assets of discontinued operations 118,944 124,488 --------------- --------------- Total assets $ 907,431 $ 877,466 =============== =============== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 10,000 $ 10,000 Accounts payable 67,409 61,144 Accrued interest payable 8,464 1,375 Accrued payroll expenses 4,256 8,026 Accrued operating expenses 11,311 6,730 Other current liabilities 19,914 16,636 Allowance for operating losses of discontinued operations 35,126 56,544 -------------- --------------- Total current liabilities 156,480 160,455 Deferred liabilities 9,508 9,167 Long-term debt, less current portion 499,091 469,135 Minority interest in subsidiary 6,220 7,978 Stockholders' equity: Common stock, par value $.01; authorized: 75,000 shares; issued: 29,865 at September 30, 1999 and 29,536 at June 30, 1999 299 298 Additional paid-in capital 329,202 329,056 Treasury stock, 132 and 150 shares at September 30, 1999 and June 30, 1999, respectively, at cost (693) (791) Unearned compensation (585) (718) Retained earnings (deficiency) (92,091) (97,114) -------------- --------------- Total stockholders' equity 236,132 230,731 -------------- --------------- Total liabilities and stockholders' equity $ 907,431 $ 877,466 ============== =============== See accompanying notes.
BIRMINGHAM STEEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) Three months ended September 30, ---------------------------------------- 1999 1998 (Unaudited) (Unaudited) --------------- --------------- Net sales $ 176,802 $ 207,502 Cost of sales: Other than depreciation and amortization 137,919 168,789 Depreciation and amortization 10,647 9,665 ------------- ------------- Gross profit 28,236 29,048 Pre-operating/start-up costs 4,497 1,363 Selling, general and admin expense 10,339 9,707 ------------- ------------- Operating income 13,400 17,978 Interest expense 6,278 5,235 Other income, net 884 5,932 Income/(Loss) from equity investments 8 (1,679) Minority interest in loss of subsidiary 1,758 753 ------------- ------------- Income from continuing operations before income taxes 9,772 17,749 Provision for income taxes 4,006 6,823 ------------- ------------- Income from continuing operations $ 5,766 $ 10,926 Loss from discontinued operations net of tax benefit of $7,497 and $6,082, in 1999 and 1998, respectively - (9,901) ------------- ------------- Net Income $ 5,766 $ 1,025 ============= ============= Basic and diluted per share amounts: Income from continuing operations $ 0.19 $ 0.37 Loss on discontinued operations - (0.34) ------------- ------------- Net income per share $ 0.19 $ 0.03 ============= ============= Cash dividends declared per share 0.025 0.10 See accompanying notes.
BIRMINGHAM STEEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------ 1999 1998 (Unaudited) (Unaudited) --------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Income from continuing operations $ 5,766 $ 10,926 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 10,647 9,665 Minority interest in loss of subsidiary (1,758) (753) Gain on sale of assets (11) (2,232) (Income)/Loss from equity investments (8) 1,679 Other 420 1,612 Changes in operating assets and liabilities: Accounts receivable (7,342) 5,703 Inventories (11,300) 6,210 Other current assets 5,311 1,763 Accounts payable 6,264 13,270 Other accrued liabilities 11,179 (1,695) Deferred liabilities 341 150 --------------- --------------- Net cash provided by operating activities of continuing operations 19,509 46,298 Net cash (used in) operating activities of discontinued operations (42,399) (33,564) --------------- --------------- Net cash (used in) provided by operating activities (22,890) 12,734 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (5,232) (29,178) Proceeds from sale of property 11 2,232 Additions to other non-current assets - (10,486) Reductions in other non-current assets 47 11,747 --------------- --------------- Net cash (used in) investing activities of continuing operations (5,174) (25,685) Net cash used in investing activities of discontinued operations (1,109) (8,406) --------------- --------------- Net cash used in investing activities (6,283) (34,091) CASH FLOWS FROM FINANCING ACTIVITIES: Net short-term borrowings and repayments 31 (10,000) Borrowings under revolving credit facility 372,267 610,700 Payments on revolving credit facility (342,342) (571,742) Purchase of treasury stock - (2,734) Cash dividends paid (742) (2,953) --------------- --------------- Net cash provided by financing activities of continuing operations 29,214 23,271 Net cash provided by (used in) financing activities of discontinued operations 2 (119) --------------- --------------- Net cash provided by financing activities 29,216 23,152 --------------- --------------- Net increase (decrease) in cash and cash equivalents 43 1,795 Cash and cash equivalents at: Beginning of period 935 902 --------------- --------------- End of period $ 978 $ 2,697 =============== =============== See accompanying notes.
BIRMINGHAM STEEL COOPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS Birmingham Steel Corporation (the Company) owns and operates facilities in the mini-mill sector of the steel industry. In addition, the Company owns equity interests in scrap collection and processing operations. 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 and merchant products such as rounds, flats, squares, strips, angles and channels. These products are sold primarily to customers in the steel fabrication, manufacturing and construction business. The Company has regional warehouse and distribution facilities which 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 that is sold primarily to customers in the automotive, agricultural, industrial fastener, welding, appliance, and aerospace industries in the United States and Canada. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles ("GAAP") from interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods reflected herein are not necessarily indicative of the results that may be expected for full fiscal year periods. The balance sheet at June 30, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1999. 2. DISCONTINUED OPERATIONS On August 18, 1999, the Board of Directors authorized management to sell the Company's SBQ operations, which includes rod, bar and wire facilities in Cleveland, Ohio; a high quality melt shop in Memphis, Tennessee; and the Company's 50% interest in American Iron Reduction, L.L.C. (AIR). The Company's decision to discontinue its SBQ operations was attributable to continuing financial and operational challenges which have required a major commitment of management and financial resources and have constrained the Company's financial flexibility while significantly increasing its debt. Immediately after the Board's authorization, the Company formalized its plan of disposal and authorized an investment banking firm to coordinate the efforts to effect the sale of the SBQ operations. The Company expects that the sale will be completed by May 2000. Accordingly, as required by APB Opinion 30, the operating results of the SBQ line of business for the quarter ended September 30, 1999 are reported in discontinued operations in the accompanying financial statements. In addition, the financial statements for the quarter ended September 30, 1999 have been restated to similarly reflect the SBQ operations as discontinued. Operating results of the discontinued SBQ operations (before income taxes) were as follows (in thousands): Three months ended September 30, -------------------------------- 1999 1998 -------------------------------- Net sales $ 57,961 $ 63,454 Costs of sales 64,082 65,531 -------------------------------- Gross profit (loss) ( 6,121) (2,077) Start-up costs 8,145 9,502 Selling, general and administrative expenses 3,097 1,780 Interest expense 4,150 3,565 Other income (expense) 93 941 -------------------------------- Loss before income taxes (21,420) (15,983) Assets and liabilities of the discontinued SBQ operations 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 also reflect a valuation allowance of $184,403,000 and $195,342,000 at September 30, and June 30, 1999, respectively, to recognize the estimated loss on disposal. The following is a summary of assets and liabilities of discontinued operations (in thousands): ------------------------- September 30, June 30, 1999 1999 ------------------------- Current assets: Accounts receivable, net $ 30,511 $ 32,414 Inventories 77,436 61,471 Other 1,487 1,303 Current liabilities: Accounts payable (26,032) (35,190) Other accrued expenses (10,247) (14,440) ------------------------- Net current assets of discontinued operations $ 73,155 $ 45,558 ========================= Non-current assets: Property, plant and equipment, net of accumulated depreciation $ 322,362 $ 325,999 Goodwill and other non-current assets 23,176 23,580 Investment in American Iron Reduction, LLC - 13,889 Provision for estimated loss on disposal of discontinued operations (184,403) (195,342) Non-current liabilities: Long-term debt (42,191) (42,224) Other non-current liabilities - (1,414) ------------------------- Net non-current assets of discontinued operations $ 118,944 $ 124,488 ========================= An accrual for the estimated (pre-tax) losses to be incurred during the expected disposal period of $35,126,000 and $56,544,000 at September 30, and June 30, 1999, respectively, is presented separately in the accompanying consolidated balance sheets for fiscal 1999. Such amount excludes corporate overhead, but includes approximately $13,800,000 of interest expense, which represents the amount allocable to the SBQ operations up to the estimated reduction in consolidated interest expense that is expected to occur upon receipt of the proceeds from the sale. There are no 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 business. 3. INVENTORIES Inventories as of September 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 - ------------------------------------------------------------------------------------------- September 30, June 30, September 30, June 30, 1999 1999 1999 1999 - ------------------------------------------------------------------------------------------ Raw materials and mill supplies $ 36,842 $ 33,652 $ 17,782 $ 19,006 Work-in-progress 13,890 13,986 40,810 26,942 Finished goods 60,898 52,692 18,844 15,523 ---------------------------------------------------- $111,630 $100,330 $ 77,436 $ 61,471
4. 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, any uninsured or unindemnified liability resulting from existing litigation would not have a material effect on the Company's business, its financial position, liquidity or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DISCLOSURE REGARDING FORWARD - LOOKING STATEMENTS The statements contained in this report that are not purely historical or which might be considered an opinion or projection concerning the Company or its business, whether express or implied, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include the Company's expectations, hopes, anticipations, intentions, plans and strategies regarding the future. Forward-looking statements include, but are not limited to: expectations about environmental remediation costs, assessments of expected impact of litigation and adequacy of insurance coverage for litigation, expectations regarding the costs of new projects, expectations regarding future earnings, expectations concerning the anticipated performance of new ventures, and expectations regarding the date when facilities under construction will be operational and the future performance and capabilities of those facilities. Moreover, when making forward-looking statements, management must make certain assumptions that are based on management's collective opinion concerning future events, and blend these assumptions with information available to management when such assumptions are made. Whether these assumptions are valid will depend not only on management's skill, but also on a variety of volatile and highly unpredictable risk factors. The Company's actual results could differ materially from those described or implied by any forward-looking statements herein. Any forward-looking statements contained in this document speak only as of the date hereof, and the Company disclaims any intent or obligation to update such forward-looking statements. Comparisons of results for current and prior periods are not necessarily indicative of future performance, and should not be relied on for any purpose other than as historical data. RESULTS FROM CONTINUING OPERATIONS The Company reported income from continuing operations of $5,766,000, or $.19 per share, basic and diluted, for the first quarter of fiscal 2000 compared with earnings of $10,926,000, or $.37 per share in the first quarter of fiscal 1999. Excluding $5,100,000 pre-tax gains from the sale of property and settlements with electrode suppliers, earnings for the first quarter of fiscal 1999 would be $7,968,000 or $.27 per share. SALES Sales for the first quarter were $176,802,000, down 17% from first quarter 1999's $207,502,000. The decrease was primarily attributable to the increased demand of lower margin rebar products, offset by decreasing higher margin merchant shipments. Also contributing to the declining revenues are the continuing erosion of the company's average sales price of rebar, down $35 per ton from last year, and the $49 per ton decrease of the merchant products average sales price. Steel shipments declined to 642,000 tons from 656,000 tons reported in the first quarter of fiscal 1999. COST OF SALES As a percentage of net sales, cost of sales (other than depreciation and amortization) improved 3.3 percentage points to 78.0% in the current period compared with 81.3% in the first quarter last year. The decline resulted primarily from a 19.7% decrease in the market purchase price of scrap, which fell from $122 per ton in the first quarter of fiscal 1999 to $98 per ton in the same quarter of fiscal 2000. However, the decline in scrap prices was somewhat offset by higher operating costs, including employee benefits, utilities, repairs and maintenance, and leased equipment costs. Increased depreciation and amortization expense was attributable to a higher depreciable asset base, reflecting the start-up of the new caster and mid-section mill equipment at the Cartersville, Georgia facility. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") For the first quarter, SG&A expenses increased from $9,707,000 to $10,339,000, or 6.5% over first quarter fiscal 1999 and increased as a percentage of sales from 4.7% to 5.8%. The increase was principally attributable to higher lease costs for computer equipment and expenses relating to proxy contest by a dissident shareholder group which began in July, 1999. For further explanation of the proxy contest, refer to page 15 of the Company's most recently filed Form 10-K for the fiscal year ended June 30, 1999. PRE-OPERATING/START-UP Pre-operating/start-up costs were $4,497,000 in the first quarter of fiscal 2000, compared with $1,363,000 last year. Substantially all of these costs relate to start-up costs for the Company's Cartersville, Georgia mid-section mill which began operations in March, 1999. The Company expects to continue incurring start-up costs at Cartersville through the quarter ended March 31, 2000, at which time management anticipates that the facility will be operating at a near operating break-even level. INTEREST EXPENSE Interest expense increased to $6,278,000 in the first quarter of fiscal 2000 from $5,235,000 reported last year. The increase was the result of the increase in the Company's average borrowing rate to 7.18% in the first quarter of fiscal 2000 (as compared to 6.93% in the same period last year) and decreased capitalized interest for the mid-section mill project at the Cartersville, Georgia facility, which was placed in service in the first quarter of last year. OTHER INCOME AND EXPENSES Other income (expense) consists primarily of non-operating gains and charges. The Company had other income of $884,000 in the first quarter compared to $5,932,000 reported in the same period last year. The change in other income was primarily attributable to $5,100,000 pre-tax gains recognized in the first quarter of fiscal 1999 from the sale of property and settlements from electrode suppliers. INCOME TAXES The provision for income taxes was $4,006,000 in the first quarter of fiscal 2000 compared to $6,823,000 for the same period last year. The effective income tax rate applicable to continuing operations for the three months ended September 30, 1999 was 41.0%, 3 points higher than in the first quarter of last year. RESULTS FROM DISCONTINUED OPERATIONS The Company did not make any revisions in estimate used to the established reserve for discontinued operations established in the previous fiscal year during the first quarter of fiscal year 2000. SALES Although steel shipments from the SBQ rod, bar and wire products increased to 144,800 tons in the first quarter of fiscal 2000 from 143,000 in fiscal 1999, net sales from discontinued operations decreased 8.7% to $57,961,000 versus $63,454,000 for the first quarter of fiscal 1999. The decrease was primarily due to unfavorable product mix and decreasing average selling prices. The average selling price for all special bar quality products was $404 per ton in the first quarter of fiscal 2000, down $43 from $447 per ton in the first quarter of fiscal 1999. COST OF SALES For the first quarter of fiscal 2000, cost of sales (other than depreciation and amortization) decreased from $65,531,000 in fiscal 1999 to $64,082,000, or 2.3%, but increased as a percentage of net sales from 103.3% to 110.6%. The increase in cost of sales as a percentage of total sales was primarily attributable to lower average selling prices. The decrease in selling prices was partially offset by a slight decrease in conversion cost and raw material billet cost. Conversion cost at the SBQ rolling mill averaged $76 per ton in the first quarter of fiscal 2000 compared to $78 per ton in the same period last year. Average billet cost for the SBQ division also decreased in the first quarter from $355 per ton in fiscal 1999 to $334 per ton in fiscal 2000. Depreciation and amortization expense for the first quarter of fiscal 2000 was $5,146,000 or 8.9% of net sales compared to $5,295,000 or 8.3% of net sales in fiscal 1999. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") For the first quarter of fiscal 2000, selling, general and administrative costs increased from $1,780,000 to $3,097,000, or 74%, over the first quarter of fiscal 1999. PRE-OPERATING/START-UP Pre-operating/start-up costs applicable to discontinued SBQ operations decreased 14.3% to $8,145,000 in the first quarter of fiscal 2000 compared with $9,502,000 for the same period last year. These costs represent continuing excess production costs associated with the start-up of the Memphis, Tennessee melt shop, which began operations in November 1997. The Company has initiated a program to correct the equipment problems that are currently preventing the Memphis facility from achieving its production goals. The program will require capital expenditures of approximately $5 million, and should enable the Memphis facility to sustain a production level of at least 75% of capacity by January, 2000. OTHER INCOME AND EXPENSES Other non-operating income reported from discontinued operations were $93,000 in the first quarter of fiscal 2000, down from $941,000 in fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Net cash provided by operating activities of continuing operations was $19.5 million in the first quarter of fiscal 2000, compared to $46.3 million in fiscal 1999. The change of $26.8 million was primarily caused by reduced income of $5.2 million, and increases in accounts receivable of $7.3 million and inventories of $11.3 million. Days sales outstanding in accounts receivable increased to 43 days in the first quarter and inventory levels increased because of changing market conditions and preparation for higher shipment that are expected levels in the spring. During the quarter, approximately $42 million was used to support discontinued operations in connection with equipment modifications and inventory levels necessary to support the Company's near-term operational goals for the SBQ operations. Based upon the Company's current plans for the SBQ operations and the implementation of operational and financial measures to support such plans, the Company does not expect the SBQ operations in the near term will require cash to the same extent as in the first quarter. INVESTING ACTIVITIES Net cash used in investing activities of continuing operations was $5.2 million in the first quarter of fiscal 2000, compared to $25.7 million in fiscal 1999. The change was attributable to the level of capital expenditures decreasing on such major projects as the Memphis melt shop and the Cartersville mid-section mill. FINANCING ACTIVITIES Net cash provided by financing activities of continuing operations was $29.2 million in the first three months of fiscal 2000, compared with $23.3 million in the same three month period last year. On October 12, 1999, the Company and its lenders executed amendments to the debt and letter of credit agreements. For further explanation, please refer to page 21 in the Company's most recently filed Form 10-K for the fiscal year ended June 30, 1999. WORKING CAPITAL Working capital at the end of the first quarter was $155.4 million, compared to $110.4 million at the June 30, 1999. The $44.9 million increase in working capital was primarily attributable to significant increases in accounts receivable and inventories for both continuing and discontinued operations. YEAR 2000 ISSUES The following Year 2000 discussion is provided in response to the Securities and Exchange Commission's interpretive statement expressing its view that public companies should include detailed discussion of Year 2000 issues in their 10Q submission of the MD&A. The Company estimates that 95% of the cost has been spent to date in addressing the Year 2000 issue. For further explanation, refer to page 23 of the Company's most recently filed Form 10-K for the fiscal year ended June 30, 1999. MARKET RISK SENSITIVE INSTRUMENTS The market risk inherent in the Company's financial instruments represents the potential loss arising from adverse changes in interest rates (principally U.S. Treasury and prime bank rates). In order to manage this risk, the Company attempts to maintain certain ratios of fixed to variable rate debt. However, the Company does not currently use derivative financial instruments. At September 30, 1999, the Company had fixed rate long-term debt with a carrying value of $281.5 million and variable rate borrowings of $270.1 million outstanding. Assuming a hypothetical 10% adverse change in interest rates, the fair value of the Company's fixed rate debt would decrease by $15.8 million and the Company would incur an additional $558 thousand of quarterly interest expense on variable rate borrowings. These amounts are determined by considering the impact of the hypothetical change in interest rates on the Company's cost of borrowing. The analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company's financial structure. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Refer to the information in MANAGEMENT'S DICUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS under the caption MARKET RISK SENSITIVE INSTRUMENTS PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed with this report: (27) Financial Data Schedule (b) Reports on Form 8-K - During the quarter ended September 30, 1999, the Company filed the following reports on Form 8-K: o Report dated August 3, 1999 (Items 5 and 7), with respect to the Amended By-laws of the Company o Report dated September 29, 1999 (Items 5 and 7), with respect to current developments regarding the Company's financing and SEC filings Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Birmingham Steel Corporation November 15, 1999 /s/ Kevin E. Walsh ------------------------------- Kevin E. Walsh Executive Vice President and Chief Financial Officer EX-27 2 FDS
5 This schedule contains summary financial information extracted from the September 30, 1999 Consolidated Balance Sheets and Consolidated Statements of Operations of Birmingham Steel Corporation and is qualified in its entirety by reference to such. 1,000 3-MOS 3-MOS JUN-30-1999 JUN-30-1998 SEP-30-1999 SEP-30-1998 978 902 0 0 79,389 93,023 626 1,259 111,630 142,246 311,860 350,290 434,761 431,002 10,647 9,665 907,431 1,158,014 156,480 112,617 12,500 12,500 0 0 0 0 299 298 235,833 460,309 907,431 1,158,014 176,802 207,502 176,802 207,502 148,566 178,454 148,566 178,484 0 0 4,497 1,363 6,278 5,235 9,772 17,749 4,006 6,823 5,766 10,926 0 0 0 0 0 0 5,766 10,926 .19 0.03 .19 0.03
-----END PRIVACY-ENHANCED MESSAGE-----