10-Q 1 form10q_12551.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [check mark] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 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 (check mark) No ------------ --- As of April 30, 2001 the registrant had 11,495,071 shares, $.01 par value, Common Stock outstanding. PART I -- FINANCIAL INFORMATION ------------------------------- ITEM I. FINANCIAL STATEMENTS AMERISTEEL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ in thousands)

2 AMERISTEEL CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -- continued ($ 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. AmeriSteel Finance Inc., its only subsidiary, was dissolved September 7, 2000. On April 2, 2001, the Company acquired a controlling interest in American Bright Bar (see Note F - Subsequent Events.) 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 owns 78% of the common stock of the Company, 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. 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 and carries a coupon equivalent to 9.5% per year. 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 consolidated financial statements include the accounts of AmeriSteel Corporation, a Florida corporation, and subsidiary (the "Company"), after elimination of all significant intercompany balances and transactions. The accompanying unaudited condensed 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. It is suggested that these condensed financial statements 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 ended March 31, 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. During the three months ended March 31, 2001, the effect of the common equivalent shares was anti-dilutive and was excluded from the computation of diluted earnings per share. 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. Reclassifications: Certain amounts in the prior period financial statements have been reclassified to conform to the current financial statement presentation. NOTE C -- INVENTORIES Inventories consist of the following: ($ in thousands)

7 AMERISTEEL CORPORATION & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) NOTE D -- BORROWINGS Long-term borrowings consist of the following: ($ in thousands)

The Company's primary financial obligation outstanding as of March 31, 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 March 31, 2001 was approximately 7.7%. 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 March 31, 2001. Of this amount, the Company expects to pay approximately $1.3 million within one year. 8 AMERISTEEL CORPORATION & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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 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. Annual production capacity is estimated at 30,000 tons. 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. 9

10 Net Sales: Despite improved overall volumes indicative of strong demand for the Company's products, average selling prices for all of the Company's products declined from the same prior year period due primarily to dumping by foreign steel producers. In January 2001, the Department of Commerce announced its preliminary finding affirming dumping of rebar by eight countries and setting preliminary anti-dumping duties of 17% to 278%. Prices in the March 2001 quarter improved modestly from the December 2000 quarter when prices for rebar and merchant products reached their lowest in over 10 years. Cost of Sales: Yielded scrap costs, which comprise approximately 33% of the Company's cost of sales averaged $87 per ton in the quarter ended March 31, 2001, reflecting their lowest level in over 10 years. Mill conversion costs averaged $127 per ton in the quarter ended March 31, 2001, up from $123 per ton in the same prior year period due to reduced production levels to reduce inventory levels. Selling and Administrative: Selling and administrative expenses for the quarter ended March 31, 2001 decreased 23% from the same prior year period due primarily to lower spending related to environmental matters and payroll relating to incentives. Other Operating Income: Other Operating Income of $250,000 in the quarter ended March 31, 2000 reflect receipts from settlements with electrode suppliers for price fixing violations. Interest Expense: Interest expense increased from $3.1 million in the quarter ended March 31, 2000 to $3.8 million in the quarter ended March 31, 2001 due to higher interest rates more than offsetting average decreased debt outstanding. Capitalized interest decreased from $548,000 during the quarter ended March 31, 2000 to $210,000 during the quarter ended March 31, 2001. Liquidity and Capital Resources ------------------------------- Net cash provided by operating activities for the quarter ended March 31, 2001 was $19.8 million compared to $6.5 million for the same period last year. Lower net income was more than offset by reductions in working capital as decreased inventories and increased accounts payable more than offset increased accounts receivable. The Company spent $8.4 million related to capital projects. 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. 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 1% of the Company's debt is at a fixed interest rate. Therefore the Company is subject to changes in interest expense due to fluctuations of interest rates in the markets. 11 PART II -- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. On March 30, 2001, the Company's Articles of Incorporation were amended to authorize 10,000,000 shares, par value $.01 per share, of "blank check" preferred stock (the "Preferred Stock"). As a result of the amendment, the Company's Board of Directors has the discretion, from time to time, without stockholder approval to determine the designations and relative voting, distribution, dividend, conversion, liquidation, and other rights, preferences, and limitations of the Preferred Stock, including, among other things: (i) the designation of each class or series and number of shares in a class or series; (ii) the dividend rights, if any, of the class or series; (iii) the redemption provisions, if any, of the class or series; (iv) the preference, if any, to which any class or series would be entitled in the event of the liquidation or distribution of the Company's assets; (v) the provisions of a purchase, retirement or sinking fund, if any, to accommodate redemption of the Preferred Stock; (vi) the rights, if any, to convert or exchange the shares into or for other securities; (vii) the voting rights, if any (in addition to any prescribed by law), of the holders of the shares of the class or series; (viii) the conditions or restrictions, if any, on specified actions of the Company affecting the rights of the shares; and (ix) any other preferences, privileges, powers, rights, qualifications, limitations or restrictions of or on the class or series. Depending on the rights and preferences designated for any particular series, issuances of Preferred Stock could have the effect of diluting stockholders' equity, earnings per share and voting rights attributable to the Common Stock. The existence of unissued and unreserved Preferred Stock may have certain anti-takeover effects. For example, the Board will be able to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of the Company's management and possibly deprive the stockholders of opportunities to sell their shares of Common Stock at prices higher than prevailing market prices. Such additional shares also could be used to dilute the stock ownership of persons seeking to obtain control of the Company. In the case of the Company, however, because Gerdau S.A. owns 88% of the outstanding Class A Common Stock, the use of Preferred Stock for such purposes is not likely unless and until such time as Gerdau S.A. or some other person owns less than 50% of the outstanding voting capital stock of the Company. On February 23, 2001 the Board of Directors of the Company raised approximately $15 million through the issuance of 1,153,846 shares of Common Stock in a private placement in reliance upon Section 4(2) of the Securities Act of 1933. The shares were sold to Gerdau USA, an affiliate of Gerdau S.A. Gerdau S.A. is the ultimate parent of the Company, owning all of the issued and outstanding stock of Gerdau USA. The purchase price was based on the most recent appraisal of the Company's Common Stock as of December 31, 2000 and there were no underwriting discounts or commissions paid in connection with the sale. The purpose of the sale of Common Stock is to provide additional funds for the Company for general working capital purposes and to enable the Company to reduce its debt. On March 30, 2001 the Board of Directors of the Company raised approximately $10 million through the issuance of 1,000,000 shares of Series A Preferred Stock in a private placement in reliance upon Section 4(2) of the Securities Act of 1933. The shares were sold to Gerdau USA. The Series A Preferred Stock are non-voting shares entitling the holder to dividend rights of $.475 per share every six months and are redeemable at the option of the Company at a redemption price of $10.00 per share. Each share of Series A Preferred Stock is also entitled to a liquidation preference of $10.00 upon liquidation or dissolution of the Company. There were no underwriting discounts or commissions paid in connection with the sale. The purpose of the sale of Series A Preferred Stock is to provide additional funds for the Company for general working capital purposes and to enable the Company to reduce its debt. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 27, 2001, the Company mailed to its stockholders an Information Statement indicating that the majority stockholders of the Company intended to sign a Written Consent (in lieu of a special meeting of stockholders) approving an amendment to the Company's Articles of Incorporation to create a class of "blank check" preferred stock. The Board of Directors of the Company approved the proposed amendment by Written Consent on March 14, 2001 and by certain stockholders of the Company (holding 95.1% of the Company's Common Stock) by Written Consent on March 27, 2001. For additional information regarding the amendment to the Articles of Incorporation, see "Item 2. Changes in Securities and Use of Proceeds." 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: 3.1 Amended and restated Articles of Incorporation, as amended to date. (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.

13 EXHIBIT INDEX 3.1 Amended and Restated Articles of Incorporation, as amended to date.

AMERISTEEL CORP 10-Q