10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2001 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-5210 AmeriSteel Corporation Incorporated in State of Florida Employer Identification No. 59-0792436 5100 W. Lemon Street Tampa, Florida 33609 Mailing Address: P. O. Box 31328 Tampa, Florida 33631-3328 Telephone No. (813)286-8383 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- As of July 31, 2001 the registrant had 10,725,455 shares, $.01 par value, Common Stock outstanding. PART I -- FINANCIAL INFORMATION ------------------------------- ITEM I. FINANCIAL STATEMENTS AMERISTEEL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ in thousands)

See notes to consolidated financial statements 2 AMERISTEEL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -- continued ($ in thousands)

See notes to consolidated financial statements 3 AMERISTEEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME ($ in thousands except per share data)

See notes to consolidated financial statements 4 AMERISTEEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands)

5 AMERISTEEL CORPORATION & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- BASIS OF PRESENTATION The consolidated financial statements include the accounts of AmeriSteel Corporation, a Florida corporation (the "Company") after elimination of all significant intercompany balances and transactions. On April 2, 2001, the Company acquired a majority of the outstanding common stock of American Bright Bar of Orrville, Ohio, a producer of cold drawn flat bar, and changed its name to AmeriSteel Bright Bar. The transaction was accounted for as a purchase. The Company is a majority owned subsidiary of FLS Holdings, Inc. (FLS), whose only business is to own common stock of the Company. FLS, which owned approximately 81% of the common stock of the Company as of June 30, 2001 is a wholly owned subsidiary of Brazilian steel manufacturer Gerdau S.A. (Gerdau) through one of Gerdau's subsidiaries. Gerdau acquired 88% of FLS in September 1999, resulting in a change of control, and the remaining 12% in September 2000, in each instance from Kyoei Steel Ltd. In February 2001, the Company sold 1,153,846 shares of Common Stock to a Gerdau subsidiary of which 769,230 remained outstanding as of June 30, 2001. As a result, Gerdau indirectly owns approximately 88% of the outstanding shares of AmeriSteel's common stock. An institutional investor owns approximately 4% of the common stock of the Company. Executives and other employees own the remaining 8% of the Company's common stock. In March 2001, the Company sold 1,000,000 shares of Series A Preferred Stock to a Gerdau subsidiary. Series A Preferred Stock is non-voting with a dividend of $.475 per share every six months. Push down accounting has not been applied to the financial statements of the Company as a result of a change of control in September 1999, therefore the historical cost basis of the Company's assets have not been changed. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all the information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with generally accepted accounting principles. However all adjustments which, in the opinion of management, are necessary for a fair presentation have been included. Such adjustments consisted of only normally recurring items. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The results of the three months and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for future periods. In March 2000, the Board of Directors approved changing the fiscal year end of the Company from March 31 to December 31 effective for the period ending December 31, 2000. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings per Common Share: Basic earnings per common share is based upon the ------------------------- weighted average number of common shares outstanding during the period and the diluted earnings per common share is based upon the weighted average number of common shares plus the dilutive common equivalent shares ___ outstanding during the period. The following is a reconciliation of the basic and diluted earnings per common share computations shown on the face of the accompanying consolidated statements of income (in thousands, except per share data): 6 AMERISTEEL CORPORATION & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Other comprehensive income: Other comprehensive income represents the unrealized -------------------------- loss on marketable securities held for sale. Recent accounting pronouncements: On July 20, 2001, the Financial Accounting -------------------------------- Standards Board issued Statements of Financial Accounting Standards No. 141 (SFAS No. 141), "Business Combinations", and No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination at acquisition. SFAS No. 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001; establishes specific criteria for the recognition of intangible assets separately from goodwill; and requires unallocated negative goodwill to be written off immediately as an extraordinary gain (instead of being deferred and amortized). SFAS No.142 addresses financial accounting and reporting for intangible assets acquired individually or with a group of other assets (but not those acquired in a business combination) at acquisition. SFAS No. 142 also addresses financial accounting and reporting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that goodwill and intangible assets which have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. It also provides that intangible assets that have finite useful lives will continue to be amortized over their useful lives, but those lives will no longer be limited to forty years. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and for all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years beginning after December 15, 2001. The Company will adopt SFAS No. 142 beginning January 1, 2002. The Company is considering the provisions of SFAS No. 141 and No. 142 and at present has not determined the impact of adopting SFAS No. 141 and SFAS No. 142. Reclassifications: Certain amounts in the prior period financial statements ----------------- have been reclassified to conform to the current financial statement presentation. 7 AMERISTEEL CORPORATION & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE C -- INVENTORIES Inventories consist of the following: ($ in thousands)

NOTE D -- BORROWINGS Long-term borrowings consist of the following: ($ in thousands)

The Company's primary financial obligation outstanding as of June 30, 2001 was a $285 million credit facility (the "Revolving Credit Agreement") that includes a $100 million term loan that amortizes at the rate of 25% per year beginning December 2001. It is collateralized by first priority security interests in substantially all accounts receivable and inventory of the Company as well as a lien on the Company's Charlotte Mill property, plant and equipment. Loans under the Revolving Credit Agreement bear interest at a per annum rate equal to one of several rate options (LIBOR, Fed Funds, or Prime Rate) based on the facility chosen at the time of borrowing plus an applicable margin determined by tests of performance from time to time. The effective interest rate on the Revolving Credit Agreement at June 30, 2001 was approximately 6.6%. Subsidiary Debt represents a bank loan of majority owned AmeriSteel Bright Bar secured by machinery and equipment. The loan matures in 2011 with amortization payments beginning in July 2001. The loan currently bears interest at the rate of approximately 8.5% per year with the rate scheduled to be reset June 2002 and every three years thereafter based on prime plus 1%. The Company is a guarantor of the loan. 8 AMERISTEEL CORPORATION & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE E -- ENVIRONMENTAL MATTERS As the Company is involved in the manufacture of steel, it produces and uses certain substances that may pose environmental hazards. The principal hazardous waste generated by current and past operations is EC dust, a residual from the production of steel in electric arc furnaces. Environmental legislation and regulation at both the federal and state level over EC dust is subject to change, which may change the cost of compliance. While EC dust is generated in current production processes, such EC dust is being collected, handled and disposed of in a manner which management believes meets all current federal and state environmental regulations. The costs of collection and disposal of EC dust are being expensed as operating costs when incurred. In addition, the Company has handled and disposed of EC dust in other manners in previous years, and is responsible for the remediation of certain sites where such EC dust was generated and/or disposed. In general, the Company's estimate of the remediation costs is based on its review of each site and the nature of the anticipated remediation activities to be undertaken. The Company's process for estimating such remediation costs includes determining for each site the expected remediation methods, and the estimated cost for each step of the remediation. In all such determinations, the Company employs outside consultants and providers of such remedial services to assist in making such determinations. Although the ultimate costs associated with the remediation are not known precisely, the Company has estimated the total remaining costs to be approximately $2.1 million with these costs recorded as a liability as of June 30, 2001. Of this amount, the Company expects to pay approximately $1.5 million within one year. Based on past use of certain technologies and remediation methods by third parties, evaluation of those technologies and methods by the Company's consultants and third-party estimates of costs of remediation-related services provided to the Company or which the Company and its consultants are aware, the Company and its consultants believe that the Company's cost estimates are reasonable. Considering the uncertainties inherent in determining the costs associated with the clean-up of such contamination, including the time periods over which such costs must be paid, the extent of contribution by parties which are jointly and severally liable, and the nature and timing of payments to be made under cost sharing arrangements, there can be no assurance the ultimate costs of remediation may not be greater or less than the estimated remediation costs. NOTE F - SUBSEQUENT EVENTS On July 13, 2001 a small amount of Cesium, a radioactive source, was received from suppliers among scrap material and accidentally melted in the Company's Jacksonville mill furnace. Appropriate regulatory agencies were immediately notified and the contaminated material and equipment were confined. No injuries were reported and the environment was not put at risk due to alarms and procedures in place at the time. Melt shop activities at the Jacksonville mill were immediately halted pending cleanup and removal of contaminated material and equipment. Melt shop operations resumed on August 6, 2001. The incident is an insured loss and therefore the Company does not anticipate a material impact to the financial position or results of operations. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION Factors That May Affect Operating Results ----------------------------------------- This report contains certain forward-looking statements that are based on the beliefs of the Company's management, as well as assumptions made by, and information currently available to, the Company's management. Such statements include, among others, (i) the highly cyclical nature and seasonality of the steel industry, (ii) the fluctuations in the cost and availability of raw materials, (iii) the possibility of excess production capacity, (iv) the potential costs of environmental compliance, (v) the risks associated with potential acquisitions, (vi) further opportunities for industry consolidation, (vii) the impact of inflation and (viii) the fluctuations in the cost of electricity. Because such statements involve risks and uncertainties, actual actions and strategies and the timing and expected results thereof may differ materially from those expressed or implied by such forward-looking statements. The following presentation of management's discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. General The results of operations of the Company are largely dependent on the level of construction and general economic activity in the U.S. The Company's sales are seasonal with sales in the June and September quarters generally stronger than the rest of the year. The Company's cost of sales includes the cost of its primary raw material, steel scrap, the cost of converting scrap to finished steel products, the cost of warehousing and handling finished steel products and freight costs. The following table sets forth information regarding recent results of operations. 10

11 Net Sales: For the three and six month periods ended June 30, 2001 shipped tons --------- volume remained relatively flat compared to the same prior year periods with modest gains in rebar offset by declines in merchant bar, rods and billets. Average selling prices were down in all products with the exception of rods which reflected a modest increase in the three months ended June 30, 2001 compared to the same prior year period. Rebar demand remained relatively strong due to construction activity and federal spending on infrastructure, however prices reflect the unfavorable impact of dumped foreign imports. Merchant bar demand is reflective of general economic activity that has slowed in the past several quarters. Merchant bar pricing is also reflective of dumped foreign imports and its pressure on domestic pricing. The Company is participating in and supports recent efforts to control the importation of steel at unfair subsidized pricing. These efforts include seeking relief through the International Trade Commission through Section 201of the Trade Act of 1974. Cost of Sales: Yielded scrap costs, which comprise approximately 33% of the ------------- Company's cost of sales, averaged $88 per ton and $89 per ton in the six months and three months ended June 30, 2001, respectively, and are close to their lowest levels in over ten years and over 20% lower than the same periods in the prior year. The low prices reflect a combination of factors, including a strong dollar that restricts exporting scrap and low steel prices in the U.S. Mill conversion costs averaged $127 per ton in both the six months and three months ended June 30, 2001 compared with $124 per ton and $128 per ton in the six and three month periods, respectively, of the prior year periods due primarily to lower production levels. Selling and Administrative: Selling and administrative expenses for the three -------------------------- months ended June 30, 2001 were approximately $805 thousand higher than the same period last year due primarily to spending associated with travel and training. For the six months ended June 30, 2001, selling and administrative expenses were approximately $1.4 million lower than the same period last year due primarily to lower payroll relating to incentives. Other Operating Income: Other operating income in the quarter ended June 30, ---------------------- 2001 relates to prior years tax refunds. Other operating income in the six months ended June 30, 2000 relates to receipts from settlements with electrode suppliers for price fixing violations. Interest Expense: Interest expense decreased in the three months ended June 30, ---------------- 2001 from the same period in the prior year due to lower interest rates and lower outstanding debt. For the six months ended June 30, 2001, interest expense increased from the same period in the prior year as interest rates in the first quarter of 2001 were higher than in the prior year first quarter. Liquidity and Capital Resources ------------------------------- Net cash provided by operating activities for the six months ended June 30, 2001 was $42.2 million compared to $4.6 million for the same period in the prior year. Lower net income was more than offset by reductions in working capital as decreased inventories and increased current and other liabilities offset increased accounts receivable. In the six months ended June 30, 2001, the Company spent a combined $21.4 million related to capital projects, compared to $22.7 million in the same prior year period. In February 2001, the Company sold approximately $15 million of common stock and in March 2001, sold approximately $10 million of newly authorized Series A preferred stock, in each case to a subsidiary of Gerdau. The funds received were used for working capital purposes, for the reduction of debt, and for the acquisition of American Bright Bar. In June 2001, the Company bought back $5 million of the common stock sold in February 2001 at the same price of issuance and has accounted for these shares as treasury stock on the consolidated financial statements. 12 The Company believes that amounts available from operating cash flows and funds available through its Revolving Credit Agreement will be sufficient to meet its expected cash needs and planned capital expenditures for the foreseeable future. The Company continues to comply with all of the covenants of its loan agreements. ITEM 3. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK The interest rates charged on the Company's debt are predominantly variable, the majority of which is based on LIBOR (London Interbank Offered Rate). Less than 3% of the Company's debt is at fixed or long term interest rates. Therefore the Company is subject to changes in interest expense due to fluctuations of interest rates in the markets. PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 30, 2001, the Company mailed to its stockholders an Information Statement indicating that the majority stockholders of the Company holding 95.7% of the common stock of the Company intended to sign a Written Consent (in lieu of an Annual Meeting of Stockholders) electing nine directors to the Board of Directors and approving an amendment to the Company's Equity Ownership Plan. Written Consents approving the amendment to the Equity Ownership Plan and the election of the following nine directors were signed and submitted to the Company on or about May 20, 2001: Phillip E. Casey, Tom J. Landa, J. Donald Haney, Jorge Gerdau Johannpeter, Frederico C. Gerdau, Johannpeter, Klaus Gerdau Johannpeter, Andre Bier Johannpeter, Germano Gerdau Johannpeter, Carlos J. Petry. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as exhibits to this Quarterly Report on Form 10-Q: None. (b) Reports on Form 8-K: None. SIGNATURES 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. AMERISTEEL CORPORATION Date: August 13, 2001 /s/ Phillip E. Casey ---------------------------------------------- Phillip E. Casey, President and Chief Executive Officer Date: August 13, 2001 /s/ Tom J. Landa ---------------------------------------------- Tom J. Landa, Vice President, Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer); Director 13

AMERISTEEL CORP 10-Q