---




SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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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, 2002





OR





| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------




Commission File


No. 1-5210





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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





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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, 2002 the
registrant had 10,336,372 shares, $.01 par value, Common Stock outstanding.





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PART IFINANCIAL INFORMATION





Item I.Financial Statements





AMERISTEEL CORPORATION & SUBSIDIARY





CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION


(US$ in thousands)





June 30, 2002 (Unaudited)


December 31, 2001ASSETSCURRENT ASSETSCash and cash equivalents

$
7,595


$
5,087Accounts receivable, less allowance of $1,982 and $1,682 at June 30, 2002 and December 31, 2001, respectively, for
estimated losses


87,746



62,399Inventories


137,366



142,895Deferred tax assets


4,980



4,980Other current assets


835



940TOTAL CURRENT ASSETS


238,522



216,301PROPERTY, PLANT AND EQUIPMENTProperty, plant & equipment held for future sale


6,550



6,550Land and improvements


23,223



21,988Building and improvements


58,416



51,915Machinery and equipment


387,499



374,401Construction in progress


7,559



12,725483,247



461,029Less allowances for depreciation


(168,001
)


(157,879
)PROPERTY, PLANT AND EQUIPMENT, NET


315,246



303,150GOODWILL


77,731



77,731DEFERRED FINANCING COSTS


1,536



1,760OTHER ASSETS


42



41TOTAL ASSETS

$
633,077


$
605,533





See notes to consolidated financial statements




2




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AMERISTEEL CORPORATION & SUBSIDIARY





CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(Continued)


(US$ in thousands, except share data)





June 30, 2002 (Unaudited)


December 31, 2001LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESTrade accounts payable

$
68,582


$
61,709Accrued salaries, wages and employee benefits


18,828



16,826Environmental remediation


978



1,120Other current liabilities


11,902



4,655Interest payable


1,079



1,647Current maturities of long-term borrowings


25,568



25,598TOTAL CURRENT LIABILITIES


126,937



111,555LONG-TERM BORROWINGS, LESS CURRENT MATURITIES


196,967



186,344OTHER LIABILITIES


21,273



26,548DEFERRED TAX LIABILITIES


43,940



44,516SHAREHOLDERS EQUITYCommon Stock, $.01 par value; 100,000,000 authorized; 10,336,522 and 10,338,816 shares outstanding at June 30, 2002 and
December 31, 2001, respectively


103



103Redeemable Preferred Stock, $.01 par value; 10,000,000 authorized; none issued and outstanding






Capital in excess of par


157,012



157,051Retained earnings


87,873



79,579Accumulated other comprehensive loss


(1,028
)


(163
)TOTAL SHAREHOLDERS EQUITY


243,960



236,570TOTAL LIABILITIES AND SHAREHOLDERS EQUITY

$
633,077


$
605,533





See notes to consolidated financial statements




3




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AMERISTEEL CORPORATION & SUBSIDIARY





CONSOLIDATED STATEMENTS OF INCOME


(US$ in
thousands except per share data)





Six Months Ended


Three Months EndedJune 30, 2002 (Unaudited)


June 30, 2001 (Unaudited)


June 30, 2002 (Unaudited)


June 30, 2001 (Unaudited)GROSS SALES

$
369,584


$
333,192


$
198,005


$
174,012Operating Expenses:Cost of sales, excluding depreciation


316,166



284,475



168,040



143,219Selling and administrative


19,394



16,807



10,018



9,418Depreciation


13,770



13,789



6,803



6,952Amortization of goodwill






2,270







1,159Other operating expense (income)


913



(667
)


133



(667
)350,243



316,674



184,994



160,081INCOME FROM OPERATIONS


19,341



16,518



13,011



13,931Other Expenses:Interest


5,294



6,761



2,689



2,921Amortization of deferred financing costs


224



222



112



1125,518



6,983



2,801



3,033INCOME BEFORE INCOME TAXES


13,823



9,535



10,210



10,898Income taxes


5,529



4,713



4,084



4,814NET INCOME

$
8,294


$
4,822


$
6,126


$
6,084PREFERRED STOCK DIVIDENDS






(238
)






(238
)NET INCOME APPLICABLE TO COMMON STOCK

$
8,294


$
4,584


$
6,126


$
5,846PER COMMON SHAREBASIC

$
.80


$
.41


$
.59


$
.51PER COMMON SHAREDILUTED

$
.80


$
.41


$
.59


$
.51Weighted average number of common shares outstanding


10,338



11,111



10,337



11,478Weighted average number of common and common equivalent shares outstanding


10,365



11,112



10,364



11,479Other comprehensive income, net of tax:Net income

$
8,294


$
4,584


$
6,126


$
5,846Other comprehensive loss:Unrealized loss on marketable securities






(1,023
)






Derivative loss


(865
)






(1,183
)


Comprehensive income

$
7,429


$
3,561


$
4,943


$
5,846





See notes to consolidated financial statements




4




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AMERISTEEL CORPORATION & SUBSIDIARY





CONSOLIDATED STATEMENTS OF CASH FLOWS


(US$ in
thousands)





Six Months EndedJune 30, 2002 (Unaudited)


June 30, 2001 (Unaudited)OPERATING ACTIVITIESNet income

$
8,294


$
4,822Adjustments to reconcile net income to net cashProvided by operating activities:Depreciation and amortization


13,994



16,281Other


(442
)


118Changes in operating assets and liabilities:Accounts receivable


(25,347
)


(12,818
)Inventories


6,765



15,489Other assets


271



389Current and other liabilities


9,105



18,006NET CASH PROVIDED BY OPERATING ACTIVITIES


12,640



42,287INVESTING ACTIVITIESAdditions to property, plant and equipment


(12,449
)


(11,943
)Purchase price for acquisitions


(8,356
)


(9,468
)Proceeds from sales of property, plant and equipment


119



4Proceeds from sale of assets held for sale






510NET CASH USED IN INVESTING ACTIVITIES


(20,686
)


(20,897
)FINANCING ACTIVITIESProceeds from (payments of) short term and long term borrowings, net


10,593



(44,851
)Additions to deferred financing costs






(4
)Proceeds from issuance of preferred stock






10,000Proceeds from issuance of common stock


32



15,150Redemption of common stock


(71
)


(5,367
)Dividends declared






(238
)NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES


10,554



(25,310
)INCREASE IN CASH AND CASH EQUIVALENTS


2,508



(3,920
)Cash and cash equivalents at beginning of period


5,087



5,956CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
7,595


$
2,036





See notes to consolidated financial statements




5




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AMERISTEEL CORPORATION & SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE AORGANIZATION, BUSINESS & BASIS OF PRESENTATION





The consolidated financial
statements include the accounts of AmeriSteel Corporation (AmeriSteel), a Florida corporation, and its majority owned subsidiary, AmeriSteel Bright Bar, Inc. (ABB), a Florida corporation (together, the Company)
after elimination of all significant intercompany balances and transactions. The Company operates in the steel production and fabrication industry. Its headquarters are located in Tampa, Florida, and its operations are located throughout the eastern
half of the United States.





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 87% 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 U.S.A., Inc. (GUSA). GUSA 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. An institutional investor owns
approximately 4% of the common stock of the Company. Executives and other employees own the remaining 9% of the Companys common stock. 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.





On March 13, 2001, AmeriSteel formed ABB. On April 2, 2001, ABB merged with American Bright Bar of Orrville, Ohio, a producer of cold drawn flat bars. ABB acquired all of American Bright Bars assets.





On December 28, 2001, the Company acquired certain assets and assumed certain liabilities of the Cartersville, Georgia mill
(Cartersville), a producer of structural steel products, from Birmingham Steel Corporation. In a separate transaction on the same date, the Company acquired certain assets that were being leased by Cartersville from the existing lessor
group for cash and negotiated a new operating lease. The transactions are accounted for as a business combination.





Unaudited proforma consolidated results of operations for the quarter and six months ended June 30, 2001 reflecting the business combination of the Cartersville mill are presented in the table below. The proforma results assume the
Cartersville acquisition was completed on the first day of the respective periods. Interest expense, which is not directly charged to the mill, is based on projected capital employed and actual average interest rates for the respective periods.





Six Months
Ended

Three Months EndedJune 30, 2001(US$ in thousands, unaudited)Net sales

$
388,963

$
203,724Income before income taxes


2,021


7,246Net income


314


3,893





Management believes that the results of operations of Cartersville
in the proforma periods are not reflective of those which would have been achieved under current management and operating conditions. For the three months and six months ended June 30, 2002, Cartersville operating income was $1.1 million and $1.1
million, respectively.





On June 24, 2002, the Company acquired certain assets and assumed certain liabilities of
Republic Technologies cold drawn plant in Cartersville, Georgia, to complement the operations of ABB. The purchase price was $8.4 million and the transaction is accounted for as a business combination. The plant was reopened and commenced
operations on July 2, 2002.




6




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AMERISTEEL CORPORATION & SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)





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, 2002 are not necessarily indicative of the results to be expected for future periods.





NOTE BSUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Property Plant and Equipment:    Property,
plant and equipment are stated at cost. Major renewals and betterments are capitalized and depreciated over their estimated useful lives. Maintenance and repair expenses are charged against operating expenses as incurred; however, as is typical in
the industry, certain major maintenance requires occasional shutdown and production curtailment. The Company accrues for planned periodic major maintenance activities and the estimated cost of these shutdowns. The Company has accrued $1.3 million
and $1.2 million as of June 30, 2002 and June 30, 2001, respectively.





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):





Six Months Ended

Three Months EndedJune 30,

June 30,2002

2001

2002

2001(unaudited)

(unaudited)

(unaudited)

(unaudited)Net income applicable to common stock

$
8,294

$
4,584

$
6,126

$
5,846Weighted average number of common shares outstanding


10,338


11,111


10,337


11,478Dilutive effect of stock option plans


27


1


27


1Weighted average number of common and common equivalent shares outstanding


10,365


11,112


10,364


11,479Basic EPS:Net income (loss) applicable to common stock

$
.80

$
.41

$
.59

$
.51Diluted EPS:Net income (loss) applicable to common stock

$
.80

$
.41

$
.59

$
.51





Other comprehensive income:    Other
comprehensive income represents the unrealized loss on marketable securities held for sale and the unrealized gain on hedging financial instruments. The derivative loss represents the after tax change in the mark-to-market valuation of the interest
rate swaps. The change from period to period is indicative of current interest rate expectations over the remaining life of the swaps (swap yield curves) relative to the swap yield curve at the time the swaps were entered into.




7




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AMERISTEEL CORPORATION & SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)





Recent accounting pronouncements:    In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142 Goodwill
and Other Intangible Assets (SFAS 142). SFAS 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. The provisions of SFAS 142 are
effective for fiscal years beginning after December 15, 2001. At June 30, 2002, the Company did not have indefinite lived intangible assets other than goodwill and did not have any intangible assets with definite lives. The Company has adopted SFAS
142 and no longer amortizes goodwill resulting in improved income from operations of approximately $1.1 million per quarter and $4.4 million annually, or $.43 per basic common share, in 2002. SFAS 142 prescribes a two-phase process for impairment
testing of goodwill. The Company completed its first phase impairment analysis and found no instances of impairment of its recorded goodwill; accordingly, the second phase, absent future indications of impairment, is not necessary during 2002.





In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144), that addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the
presentation of discontinued operations to include more disposal transactions. The implementation of this standard did not have a significant impact on the Company.





Derivatives:    The Company has adopted Statement of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS 137 and SFAS 138 (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative financial instruments and requires that derivative instruments be recorded
in the balance sheet as either an asset or liability measured at their fair value. SFAS 133 allows that changes in the derivative fair values that are designated effective and qualify as cash flow hedges can be deferred and recorded as a component
of accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivatives change in fair value will be immediately recognized in earnings. For derivative
instruments that do not qualify as cash flow hedges, SFAS 133 requires that changes in the derivative fair values be recognized in earnings in the period of change.





In order to reduce its exposure to interest rate fluctuations, the Company entered into interest rate swap agreements in August and September 2001 that are considered cash
flow hedges. The interest rate swaps have a notional value of $55 million with the Company paying a fixed interest rate (ranging between 4.75% and 5.28%) and receiving a variable interest rate based on three-month LIBOR. The underlying hedged
instruments are specific tranches of LIBOR based revolving credit and term loan borrowings under the Companys Revolving Credit Agreement. The Company tests effectiveness of the swaps on a quarterly basis using the hypothetical
derivative method prescribed by SFAS 133. Each period, the fair value of the interest rate swap agreements is recorded on the balance sheet. The effective portion of the swap agreements is deferred in accumulated other comprehensive income
until the hedged transaction occurs and is recognized in income. The ineffective portion of the swap agreements is recognized in income immediately.





Reclassifications:    Certain accounts in prior periods have been restated to conform to current accounting treatment.




8




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AMERISTEEL CORPORATION & SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)





NOTE CINVENTORIES





Inventories consist of the
following:





(US$ in thousands)

June 30, 2002 (Unaudited)

December 31, 2001Finished goods

$
81,484

$
89,798Work-in-process


14,208


11,839Raw materials and operating supplies


41,674


41,258$
137,366

$
142,895





NOTE DBORROWINGS





Long-term borrowings consist of the following:





(US$ in thousands)

June 30, 2002 (Unaudited)


December 31, 2001Term Loan

$
81,250


$
93,750Revolving Loan


99,800



80,000Industrial Revenue Bonds


36,795



33,195Subsidiary Debt


3,727



3,867TVA Loan


905



1,009Capital Lease


58



121Total Borrowings


222,535



211,942Less Current Maturities


(25,568
)


(25,598
)Total long-term borrowings

$
196,967


$
186,344





The Companys primary financial obligation outstanding as of
June 30, 2002 was a $285 million credit facility (the Revolving Credit Agreement) that includes a $100 million term loan that began amortizing at the rate of 25% per year in December 2001 and a $185 million revolving loan. The Revolving
Credit Agreement 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 rate options for the tranches being hedged are always the same. The effective interest rate on the Revolving Credit Agreement at June 30, 2002 was approximately 4.1%.





As part of the acquisition of the Cartersville, Georgia cold drawn operation, the Company assumed an Industrial Revenue Bond in the amount of $3.6 million that matures in
2018.





Subsidiary Debt represents a bank loan of ABB secured by its machinery and equipment. The loan matures in
2011 with amortization payments that began in July 2001. The loan currently bears interest at the rate of approximately 7.2% per year with the rate scheduled to reset June 2005 and every three years thereafter based on prime plus 1%. The Company is
a guarantor of the loan.




9




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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 Emission Control (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 that 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 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 such
determinations, the Company may employ 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 estimated
the total remaining costs to be approximately $2.7 million with these costs recorded as a liability at June 30, 2002, of which the Company expects to pay approximately $1.0 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.





In April 2001, the Company was notified by the United States Environmental Protection Agency (the
EPA) of an investigation that may identify the Company as a potential responsible party (PRP) in a Superfund Site in Pelham, Georgia. The Pelham site was a fertilizer manufacturer in operation from 1910 through 1992, lastly
operated by Stoller Chemical Company, a now bankrupt corporation. The EPA recently offered a settlement to the named PRPs under which the Companys allocation was approximately $1.8 million. The Company objects to its inclusion as a PRP in this
site and is pursuing legal alternatives, including the addition of larger third parties to the allocation which the Company feels were incorrectly excluded from the original settlement offer. The EPA has filed suit with the Company named as a
defendant. As the ultimate exposure to the Company, if any, is uncertain, no liability has been established for this site.




10




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AMERISTEEL CORPORATION & SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)





NOTE FSEGMENT INFORMATION





The Company is organized
into two primary business segments: (a) Mill Operations and (b) Steel Fabrication. Steel products sold to the fabricating divisions are sold at market prices with intracompany transactions eliminated upon consolidation. Performance is evaluated and
resources allocated based on specific segment requirements and measurable factors. Segment assets are those assets that are specifically identified with the operations in each operational segment. Corporate assets include primarily cash, assets held
for sale, some property, plant and equipment, deferred income taxes and deferred financing costs. Corporate expense includes corporate headquarters staff, including executive management, human resources, finance and accounting, procurement and
environmental, and management information systems. Included in these respective areas are payroll costs, travel and entertainment, professional fees and other costs that may not be directly attributable to either specific segment.





Operational results and other financial data for the two manufacturing segments for the three and six months ended June 30,
2001 and June 30, 2002, are presented below:





Three Months Ended June 30, 2001

Mill Operations

Steel Fabrication

Total Segments(US$ in thousands)Revenue from external customers

$
98,079

$
75,933

$
174,012Intracompany revenues


47,164





47,164Segment profit


8,485


5,634


14,119Three Months Ended June 30, 2002

Mill Operations

Steel Fabrication

Total Segments(US$ in thousands)Revenue from external customers

$
126,351

$
71,654

$
198,005Intracompany revenues


39,256





39,256Segment profit


9,637


4,071


13,708Six Months Ended June 30, 2001

Mill Operations

Steel Fabrication

Total Segments(US$ in thousands)Revenue from external customers

$
194,079

$
139,113

$
333,192Intracompany revenues


91,235





91,235Segment profit


6,284


10,422


16,706Six Months Ended June 30, 2002

Mill Operations

Steel Fabrication

Total Segments(US$ in thousands)Revenue from external customers

$
233,522

$
136,062

$
369,584Intracompany revenues


76,102





76,102Segment profit


15,269


5,326


20,595




11




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AMERISTEEL CORPORATION & SUBSIDIARY





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)





Reconciliation of reportable segments to consolidated total:





Six Months Ended June 30, 2002


Six Months Ended June 30, 2001


Three Months Ended June 30, 2002


Three Months Ended June 30, 2001(US$ in thousands)RevenuesTotal segments revenues

$
445,686


$
424,427


$
237,261


$
221,176Elimination of intersegment revenues


(76,102
)


(91,235
)


(39,256
)


(47,164
)Consolidated revenues

$
369,584


$
333,192


$
198,005


$
174,012ProfitTotal segments profit

$
20,595


$
16,706


$
13,708


$
14,119Other profit or loss


913



(667
)


133



(667
)Elimination of intersegment profits


287



(354
)


251



(120
)Unallocated amounts:Other corporate expense (income)


(2,454
)


833



(1,081
)


599Unallocated interest expense


(5,518
)


(6,983
)


(2,801
)


(3,033
)Consolidated income before income taxes

$
13,823


$
9,535


$
10,210


$
10,898





Item 2.Managements Discussion and Analysis of
Financial Condition & Results of Operations





Managements Discussion and Analysis of
Financial Condition & Results of Operations are based on AmeriSteels consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company
reviews the accounting policies used in reporting its financial results on a regular basis. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. These estimates and assumptions are based on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and judgments under different assumptions or conditions.





Critical Accounting Policies





The following critical accounting policies, among others discussed throughout the Managements Discussion and Analysis and the Notes to the Consolidated Financial Statements, involve the more
significant estimates and judgments used in the preparation of AmeriSteels consolidated financial statements.





Revenue
Recognition And Allowance For Doubtful Accounts





AmeriSteel recognizes revenues in accordance with the
Securities and Exchange Commissions Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial Statements. Generally, AmeriSteel recognizes revenues when earned, and the risks and rewards of ownership have transferred to the buyer.





The Company generally recognizes revenues from sales and the allowance for estimated costs associated with
returns from these sales when the product is shipped. Provisions are made for estimated product returns and customer claims based on estimates and actual historical experience. If the historical data used in the estimates does not reflect future
returns and claims trends, additional




12




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provisions may be necessary. An allowance for doubtful accounts is maintained for estimated losses
resulting from the inability of customers to make required payments. If the financial condition of customers was to deteriorate, resulting in the impairment of their ability to make payments, additional allowance may be required.





Allowance For Uncollectible Receivables





The allowance for all potentially uncollectible receivables is based on a combination of historical data, cash payment trends, specific customer issues, write off trends, general economic conditions
and other factors. These factors are continuously monitored by management to arrive at the estimate for the amount of accounts receivable that may be ultimately uncollectible. This analysis requires the Company to make significant estimates, and
changes in facts and circumstances could result in material changes in the allowance for uncollectible receivables.





Impairment Of
Goodwill





The Company periodically evaluates acquired businesses for potential impairment indicators.
Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of acquired businesses. Future events could cause the Company to conclude that impairment indicators exist and that
goodwill associated with acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact on financial condition and results of operations.





Impairments Of Long-Lived Assets





In accordance with the
methodology described in Statement of Financial Accounting Standards (FAS) No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets, the Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be recoverable. Impairment losses would be recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount.





Deferred Tax Assets And Liabilities





The Company recognizes
deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. AmeriSteel regularly reviews its deferred tax assets for recoverability and establishes a
valuation allowance based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. If the Company was to operate at a loss for a continued period, or was unable to
generate sufficient future taxable income, or if there were a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, the Company could be required to establish
a valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase in its effective tax rate and a material adverse impact on its operating results.





Accident Claims Reserves





The Company is self-insured up to the respective stop-loss limits for general, auto and product and workers compensation liability claims. In developing liability reserves, the Company relies on professional third party claims
administrators, insurance company estimates and the judgment of its own safety department personnel. This analysis requires the Company to make significant estimates, and changes in facts and circumstances could result in material changes in the
accident claims reserves.




13




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Environmental Liabilities





The Company has reserved for potential environmental liabilities based on the best estimates of potential clean-up and remediation estimates for known environmental sites.
The Company employs a staff of environmental experts to administer all phases of its environmental programs, and uses outside experts where needed. These professionals develop estimates of potential liabilities at these sites based on projected and
known remediation costs. This analysis requires the Company to make significant estimates, and changes in facts and circumstances could result in material changes in the environmental accrual.





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) global
econometrics and the potential for unfair dumping of imports, (v) the risks associated with potential acquisitions, (vi) further opportunities for industry consolidation, (vii) the impact of inflation, (viii) the potential costs of environmental
compliance, and (ix) 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.




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AMERISTEEL CORPORATION





SUMMARY CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands, except per to and per
share data)





Six Months Ended


Three Months EndedJune 30, 2002 (Unaudited)


June 30, 2001 (Unaudited)


June 30, 2002 (Unaudited)


June 30, 2001 (Unaudited)Gross Sales

$
369,584


$
333,192


$
198,005


$
174,012Cost of sales


316,166



284,475



168,040



143,219Cost of sales as percent of sales


85.5
%


85.4
%


84.9
%


82.3
%Selling and administrative


19,394



16,807



10,018



9,418Depreciation


13,770



13,789



6,803



6,952Amortization of goodwill






2,270







1,159Other operating expense (income)


913



(667
)


133



(667
)350,243



316,674



184,994



160,081Income from operations


19,341



16,518



13,011



13,931Other Expenses:Interest


5,294



6,761



2,689



2,921Amortization of deferred financing costs


224



222



112



112Income before income taxes


13,823



9,535



10,210



10,898Income taxes


5,529



4,713



4,084



4,814Net income

$
8,294


$
4,822


$
6,126


$
6,084EPSBasic applicable to common stock

$
.80


$
.41


$
.59


$
.51EPSDiluted applicable to common stock

$
.80


$
.41


$
.59


$
.51EBITDA*

$
33,388


$
32,701


$
19,848


$
22,098EBITDA margin


9.0
%


9.8
%


10.0
%


12.7
%Capital expenditures

$
12,449


$
11,943


$
3,744


$
3,513Ratio of EBITDA to interest expense


6.3x



4.8x



7.4x



7.6xEBITDA(ttm)**

$
67,327


$
55,007Ratio of total debt to EBITDA (ttm)


3.31x



3.38xShipped TonsStock rebar


350



375



176



192Merchant bar


454



303



243



152Rods


69



49



40



26Subtotal mill finished goods


873



727



459



370Fabricated rebar


224



245



119



132Billets


40



18



29



3Total shipped tons


1,137



990



607



505Average Selling Prices ($ Per Ton)Mill finished goodsStock rebar

$
266


$
271


$
270


$
278Merchant bar


288



293



292



294Rods


289



288



290



289Average mill finished goods


279



281



283



285Fabricated rebar


418



427



413



423Billets


197



201



198



211Average mill finished goods prices (per ton)

$
279


$
281


$
283


$
285Average yielded scrap cost (per ton)


91



88



97



89Average metal spread (per ton)

$
188


$
193


$
186


$
196Average mill conversion costs (per ton)

$
127


$
127


$
126


$
127




15




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AMERISTEEL CORPORATION





SUMMARY CONSOLIDATED FINANCIAL INFORMATION(Continued)





(US$000s)

June 30, 2002 (unaudited)


June 30, 2001 (unaudited)Total current assets

$
238,522


$
214,360Net property, plant & equipment


315,246



303,150Total assets


633,077



603,592Current maturities of LT borrowings


25,568



25,598Total current liabilities


126,937



109,614Long term borrowings


196,967



186,344Total liabilities


389,117



367,022Shareholders equity


243,960



236,570Current ratio


1.9x



2.0xDebt to capital ratio


47.7
%


47.3
%





*EBITDA (earnings before interest taxes depreciation and amortization) excludes non-cash
charges. Non-cash charges included property disposals of $34,000, $277,000 and $296,000 in the three months, six months and twelve months ended June 30, 2002, respectively, and $2,005 investment write-down in the December 31, 2001 quarter. In the
prior year periods, non-cash charges included property disposals of $30,000, $74,000 and $280,000 in the three months, six months and twelve months ended June 30, 2001, respectively, and start-up costs of $2.5 million in the September 30, 2000
quarter relating to the Knoxville meltshop.


** ttm = trailing twelve months





The above summary financial data should be read in conjunction with the Companys Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Historical results are not necessarily indicative of the results
to be expected for the current year.





Gross Sales:    The acquisition of the
Cartersville mill in December 2001 resulted in additional revenues of $27.0 million and $43.7 million during the three months and six months ended June 30, 2002, respectively, primarily from the sale of merchant bars (inlcuding structurals).
Excluding Cartersville, finished tons shipped increased approximately 4.6% in the current quarter and remained relatively flat in the six month period. While pricing improved modestly from the March 31, 2002 quarter, prices remain depressed from the
same periods last year, which resulted in a $2.7 million decline in revenues due to pricing for the three month periods ended June 30, 2002, and $5.9 million less revenue in the six months ended June 30, 2002. Average selling prices for rebar and
merchant products have come off recent 15 year lows. Recent implementation of Section 201 of the Trade Act of 1974 has resulted in tariffs of 15% on rebar and 30% for merchant bar and should help stabilize pricing in the coming quarters.





Cost of Sales:    Yielded scrap costs, which comprise approximately 35% to 40% of the
Companys cost of sales, averaged $97 per ton and $89 per ton in the three months ended June 30, 2002 and June 30, 2001, respectively. Prices have increased as a result of higher demand for scrap in other domestic steel markets as the Section
201 relief has resulted in increased production at domestic mills, primarily in the flat rolled market. Mill conversion costs have remained flat relative to the same prior year periods, with the higher costs associated with Cartersville being offset
by reductions in the other mills. Excluding Cartersville, conversion costs were down to approximately $122 per ton and $123 per ton for the three months ended and the six months ended June 30, 2002, respectively, primarily due to lower utility costs
which tend to fluctuate.





Selling and Administrative:    Selling and administrative
expenses for the three months ended June 30, 2002 were approximately $600,000 higher than the same period last year due primarily to increased professional fees and the incremental costs associated with the acquired businesses, ABB and Cartersville.
For the six months ended June 30, 2002, selling and administrative costs were approximately $2.6 million higher than the same period last year due to higher professional fees, improved performance incentive




16




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pay, severance pay and the incremental costs associated with ABB and Cartersville. The increased professional fees relate to consulting
engagements for strategic development initiatives.





Other Operating Expense:    Other
operating expense in the three and six months ended June 30, 2002 relate to the closing of the Wilmington and St. Albans fabricating plants. Other operating income in the three months and six months ended June 30, 2001 represents tax refunds from
prior years.





Interest Expense:    Interest expense decreased in the three and six
months ended June 30, 2002 from the same prior year periods due to lower interest rates, which more than offset higher average borrowing. Higher average borrowing resulted from the Cartersville mill and cold drawn acquisitions, and last years
issuance of common and preferred stock which reduced debt in the comparable prior year periods. The Companys debt is primarily variable based LIBOR, some of which is hedged via a fixed rate interest swap.





Liquidity and Capital Resources





Net cash provided by operating activities for the six months ended June 30, 2002 was $12.6 million compared to $42.3 for the same period in the prior year due primarily to the incremental working capital. Cartersville operations
added approximately $12 million in accounts receivable and $6 million in inventories during the six months ended June 30, 2002, while gradual price increases have resulted in increased accounts receivable from existing operations. In the six months
ended June 30, 2002, the Company spent a combined $20.8 million related to capital projects, including $5.2 million to purchase fabricating facilities in the northeast that had been leased, and $8.4 million related to the acquisition of the
Cartersville cold drawn facility from Republic Technologies in June 2002. This compared to $21.4 million spent in the same prior year period, of which $9.5 million related to the acquisition of ABB.





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 GUSA. The funds received were used for working capital purposes, for the reduction of debt, and for the acquisition of ABB. The Company bought back at fair value $5 million in June 2001 and $5
million in July 2001 of the common stock sold in February 2001. In October 2001, the Company bought back at fair value the remaining shares issued in February and March 2001.





The closure of the Wilmington and St. Albans fabricating facilities did not have a material effect on the cash flows during the quarter. Total charges relating to the
closures amounted to approximately $915,000 which included severance, lease buyouts and non-cash charges relating to equipment disposals.





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 through the
end of 2003. The Company is confident that it will be successful in any potential refinancing effort to replace the existing facility, if needed. 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). In late 2001, the Company hedged $55 million of its debt via interest rate swaps that in effect result in a fixed interest rate on $55 million for a period of four to five years. As a result, the Company has reduced its
exposure to fluctuations in interest rates with the result being that approximately 75% of the Companys debt is subject to changes in interest expense due to fluctuations of interest rates in the markets. A 10% change in interest rates would
result in a change in annual interest expense of approximately $650,000.





The value of the Companys interest
rate swaps changes from period to period due to changes in the swap yield curve relative to the swap yield curve at the swaps inception, and adjusted for the shortening duration. Generally the market value of the swap




17




---

instrument will decline as interest rates remain lower than previously forecasted and will increase in value as interest rates rise faster the
previously anticipated. The Company recognizes the changes in these mark-to-market valuations through other comprehensive income in accordance with FAS 133, Accounting for Derivative Instruments and Hedging Activities.





PART IIOTHER INFORMATION





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:
| | --- |  | ------------------------------------------------------------------------------------




| | Exhibit |  | 99Written Statement of Chief Executive Officer and Chief Financial Officer
| | ------- |  | ---------------------------------------------------------------------------




| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------




During the quarter ended June 30, 2002, the Company filed a current report on Form 8-K dated May 17, 2002 to report changes in the certifying accountant to PricewaterhouseCoopers, LLP.





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 CORPORATIONDate: August 9, 2002

/s/ PHILLIP E. CASEYPhillip E. Casey, President and Chief Executive OfficerDate: August 9, 2002

/s/ TOM J. LANDATom J. Landa, Vice President, Chief Financial Officer and Secretary(Principal Financial Officer); DirectorDate: August 9, 2002

/s/ ROBERT POWELLRobert Powell, Corporate Controller(Principal Accounting Officer)




18