Man of Steel

Man of Steel

COMPANIES by Dave Szymanski | Tampa Bay Editor

Mario Longi has helped build Tampa-based Gerdau AmeriSteel into the nation's No. 2 steel recycler. He's aiming higher.

Revenue at Tampa steel recycler Gerdau AmeriSteel, which operates 17 mini steel mills with a capacity of nine million tons of steel a year, has jumped 44% a year the past four years. Last year, revenue was nearly $7 billion.

Some of the reasons include acquisitions and the makeup of its business, which is industrial and non-residential. It makes everything from railroad spikes to bridge parts to the steel for the new Dallas Cowboys football stadium.

Strong demand in Europe, Asia, South America and the United States is helping drive sales. Despite the residential slump, there is still significant domestic steel demand in markets such as California and Las Vegas. China represents a competitive threat, but AmeriSteel has a team focused on cost control and productivity.

"There's reasons to be optimistic about the future," says CEO Mario Longhi, 53, who filled the post nearly two years ago. The local headquarters is on Boy Scout Boulevard, in Westshore, near Tampa International Airport.

Longhi was appointed president in June 2005 and as chief executive in January 2006, replacing Phillip Casey. Longhi joined AmeriSteel as president following a 23-year international career with the executive team of Alcoa Inc., the world's leading producer and manager of primary aluminum.

AmeriSteel was founded in Tampa in 1937 as Florida Steel Products, a steel fabricator focused on providing to the construction industry. After a merger, it became Florida Steel in 1956. By 1960, Florida Steel began to diversify into rail products, collated nails and wire mesh with the acquisition of Stafford Rail Products of Lancaster, S.C., and Atlas Steel and Wire of New Orleans.

Gerdau incorporated on Sept. 10, 1970 and has 17 mills, 17 scrap-recycling facilities and 51 downstream operations. It changed its name in 1996 to AmeriSteel to reflect its growing national footprint. The company primarily serves customers in the eastern two thirds of North America.

Its products are generally sold to steel service centers, steel fabricators or directly to original-equipment manufacturers for use in a variety of industries, including construction, mining, cellular and electrical transmission, automotive, metal building manufacturing and equipment manufacturing.

The company's operations fall into two operating divisions: mini-mills and downstream operations. Gerdau AmeriSteel conducts its operations directly and indirectly through subsidiaries and joint ventures in Canada and the United States.

The Gerdau Group S.A. of Brazil, became the majority shareholder of the company in 1999. Gerdau is one of the biggest steel markers in North and South America, with 234 facilities and is Brazil's largest maker of long-rolled steel and steel-laminated products.

Growth through buying

Acquisitions have been a path to growth.

A merger in 2002 between AmeriSteel, Co-Steel of Canada, Gerdau Courtice Steel and Gerdau MRM doubled AmeriSteel's size and made it the second-biggest mini-mill operator in North America.

In February 2006, it acquired Fargo Iron and Metal Co., which operates a recycling yard in Fargo, N.D.

In March 2006, AmeriSteel completed the acquisition of the fixed assets and working capital of Callaway Building Products, a rebar fabricator and supplier of concrete construction products in Knoxville, Tenn.

In June 2006, the company completed the acquisition of Sheffield Steel Corp. Sheffield is a mini-mill producer of long steel products, primarily rebar and merchant bars with annual shipments of about 550,000 tons of finished steel products. The acquisition included a melt shop, rolling mill, downstream facility and short-line railway in Sand Springs, Okla., a rolling mill in Joliet, Ill. and two downstream operations in Kansas City, Mo.

In November 2006, the company completed the acquisition of a controlling interest in Pacific Coast Steel, a joint venture that operates four rebar fabrication plants in San Diego, San Bernardino, Fairfield, and Napa, Calif.

In October, Gerdau AmeriSteel acquired Enco Materials Inc. In September, the company completed the acquisition of Chaparral Steel Co.

Gerdau AmeriSteel owns and operates 13 mills in the United States and three in Canada, and also has a 50% interest in the Gallatin mini-mill in Kentucky, a joint venture with Dofasco Inc. The company makes and markets a range of steel products, including reinforcing steel bar (rebar), merchant bars, structural shapes, beams, special sections, coiled wire rod and flat-rolled sheet.

During 2006, shipments were 7.3 million tons of mill finished steel products. More than 90% of the raw materials for the mini-mills is recycled steel scrap, making Gerdau AmeriSteel the second-largest steel recycler in North America. Six of the mills are provided with scrap by an internal network of 17 scrap recycling facilities. The mini-mills are steel mills that use electric arc furnaces to melt scrap metal by charging it with electricity. During melting of scrap metal, alloys and other ingredients are added to achieve desired metallurgical properties.

The resulting molten steel is cast into long strands, cooled and stored, and then transferred to a rolling mill where they are reheated, passed through roughing mills for size reduction and then rolled into products, such as rebar, structural shapes or rods.

Mini-mills use about a third of the energy of virgin steel mills. Owned or third-party scrap recycling operations within 500 miles of the mills supply the scrap steel.

Downstream operations

AmeriSteel also has a secondary business called downstream operations. These steel fabricating and product-manufacturing operations make steel principally produced in its mini-mills. In 2006, downstream shipments were about 1.1 million tons.

Gerdau AmeriSteel's rebar fabrication and epoxy-coating operations consist of 36 rebar fabricating facilities and two epoxy coating plants serving the concrete construction industry in the eastern half of the United States and Canada. The rebar facilities have the capacity to produce about 1.2 million tons of fabricated and epoxy-coated rebar per year.

The fabricating facilities get the majority of their rebar requirements from the company's mills, and cut and bend it to meet customers' specifications. The epoxy-coating plants apply epoxy coating to rebar for use in construction projects requiring rust-resistant steel, including bridge and tunnel construction.

In November, 2006 the company began offering rebar fabrication and placing services on the west coast of the United States through its Pacific Coast Steel joint venture.

The company has three railroad spike operations that forge steel square bars produced at the Charlotte mill into track spikes. The rail spike operations make and distribute the spikes to the railroad industry throughout North America.

Gerdau AmeriSteel has downstream operations that process light steel beams into cross members for the truck trailer industry and process steel guide rail sections for elevator manufacturers.

The company has three downstream operations that specialize in making different wire end products. Specifically, the Atlas and Beaumont facilities are focused on wire mesh and nails; the Memphis facility produces galvanized weave chain link fabric fencing, and the Carrollton facility produces mainly wire drawing and heat treating products.

At the Duluth, Minn. facility, the company makes grinding balls from one-inch through 3.5-inch diameter using forging machines. The raw material is supplied from the St. Paul mill. Grinding balls are used in milling and for various mineral mining operations.

Longhi says the long-term future of AmeriSteel is bright because of international demand and acquisition opportunities. It just finished successful negotiations with two of its unions.

"We like the path that we're on," he says.

KEY NUMBERS (CURRENCY IN MILLIONS)

Gerdau AmeriSteel Corp.

Income Statement

Total Revenue $4,464.2

Gross Profit $853.4

Total Operating Expense $3,951.3

Operating Income $512.9

Net Income before taxes $580.3

Net Income After taxes $381.4

Net Profit Margin 9.5%

Balance Sheet

Total Assets $3,176.4

Current Assets $1,597.0

Total Liabilities $1,324.3

Current Liabilities $525.7

Long Term Debt $431.4

Total Debt $443.9

Total Equity $1,852.1

Cash Flows

Cash from Operating Activities $508.2

Cash from Investing Activities $(516.7)

Cash from Financing Activities $(296.5)

Net Change in Cash $(305.0)

GROWTH IN RATES

1 Year 3 Years 5 Years

Revenue 14.6% 35.1% 39.6%

Total Operating Expense 13.0% 29.5% 37.7%

Operating Income 28.1% N/A 63.9%

Net Income 28.1% N/A N/A

Total Assets 12.3% 24.0% 24.5%

Total Liabilities 6.3% 5.4% 5.5%

Total Equity 16.9% 51.4% 106.1%

Cash Flows -193.5% 390.0% 222.9%

NET INCOME (MILLIONS)

Q1 Q2 Q3 Q4 12 months

2007 $133.5 $139.1 $123.8 N/A N/A

2006 $88.8 $127.6 $91.4 $69.4 $378.6

2005 $78.6 $74.3 $62.2 $80.4 $295.5

2004 $21.5 $105.5 $144.3 $66.4 $337.7

REVIEW SUMMARY

Company: Gerdau

AmeriSteel Corp.

Industry: Steel recycling

Key: Finding new uses for used steel.