-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LKri89NVvdapi+Ik7A2z6oGEJhM4IqrDtFKvPCw/yMKGIoNcznmDy36hlHEUUyuU HHtNj/gXpIEvO9ErnAUbNg== 0000950172-99-001668.txt : 19991125 0000950172-99-001668.hdr.sgml : 19991125 ACCESSION NUMBER: 0000950172-99-001668 CONFORMED SUBMISSION TYPE: DEFA14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19991123 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIRMINGHAM STEEL CORP CENTRAL INDEX KEY: 0000779334 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 133213634 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEFA14A SEC ACT: SEC FILE NUMBER: 001-09820 FILM NUMBER: 99763299 BUSINESS ADDRESS: STREET 1: 1000 URBAN CENTER DRIVE STREET 2: SUITE 300 CITY: BIRMINGHAM STATE: AL ZIP: 35242 BUSINESS PHONE: 2059701200 MAIL ADDRESS: STREET 1: P.O. BOX 1208 CITY: BIRMINGHAM STATE: AL ZIP: 35201-1208 DEFA14A 1 SCHEDULE 14A (RULE 14A-101) SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) Filed by the Registrant (X) Filed by a Party other than the Registrant ( ) Check the appropriate box: (_) Preliminary Proxy Statement (_) Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) ( ) Definitive Proxy Statement (X) Definitive Additional Materials (_) Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 BIRMINGHAM STEEL CORPORATION --------------------------------------------------------- (Name of Registrant as specified in its charter) ---------------------------- (Name of person(s) filing proxy statement, if other than Registrant) Payment of Filing Fee (Check the appropriate box): (X) No fee required. (_) Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: (4) Proposed maximum aggregate value of transactions: (5) Total fee paid. - ----- (_) Fee paid previously with preliminary materials. (_) Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed:
NOVEMBER 22, 1999 MATERIALS PREPARED FOR DISCUSSION BIRMINGHAM STEEL CORPORATION ORIGINS OF CURRENT SBQ CHALLENGES - ------------------------------------------------------------------------------------------------------------- TIMING PRIOR ASSESSMENTS REACTIONS - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- 1993 AS&W ongoing losses and negative cash flow Market assessment and business analysis acquired by Todd. was never completed - ------------------------------------------------------------------------------------------------------------- 1993 SBQ industry rationalization temporarily Market prices have fallen to $400/ton improved prices. Market prices @ $500/ton since then. and assumed to be going higher. - ------------------------------------------------------------------------------------------------------------- 1995 $126 million new coil bar mill completed Coil product constitutes only 12% of first when new cut-to-length capability market. (for 87% of market) was necessary. - ------------------------------------------------------------------------------------------------------------- 1995 Todd signed letter of intent to guarantee Commitment creates a $30-$50 per ton purchase of 600,000 tons of D.R.I./yr. cost disadvantage during the last three years. - ------------------------------------------------------------------------------------------------------------- 1995 Commitment of construct Memphis w/o direct Decision creates a $40/ton cost billet casting capability and again disadvantage to direct billet casting. without a market study. Used caster is not capable of meeting requirements. - ------------------------------------------------------------------------------------------------------------- 1993-1996 Inadequate consideration given to supply Supply side cost penalties embedded in side cost structure (ore, D.R.I., blooms - current cost structure. logistics - mill rolling) - -------------------------------------------------------------------------------------------------------------
SBQ DIVISION SUMMARY OPERATING ANALYSIS - -------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS) - -------------------------------------------------------------------------------------------------------------------- DECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE 7 MONTHS - -------------------------------------------------------------------------------------------------------------------- SCENARIO 1 (FULL PRODUCTION) Special Bar Quality Division EBITDA ($2,799) ($2,863) ($2,680) ($2,399) ($2,253) ($2,421) ($2,566) ($17,981) Working capital (1,294) (1,471) (8,375) (6,797) (200) (396) 682 (17,852) Capital expenditures (1,500) (2,000) (1,500) 0 0 0 0 (5,000) -------- ------- ------- ------- -------- -------- -------- ---------- Cash flow available for debt (5,593) (6,335) (12,554) (9,197) (2,453) (2,817) (1,884) (40,833) repayment Birmingham Steel (includes SBQ) Credit facility $270,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 Estimated borrowing 259,672 268,168 289,717 310,833 313,175 315,792 321,386 -------- ------- ------- ------- -------- -------- -------- Excess availability $10,328 $31,832 $10,283 ($10,833) ($13,175) ($15,792) ($21,386) SCENARIO 2 (PRODUCTION SCALE-BACK) - -------------------------------------------------------------------------------------------------------------------- Special Bar Quality Division EBITDA ($2,858) ($3,780) ($3,780) ($3,780) ($3,780) ($3,780) ($3,780) ($25,537) Working capital 8,798 4,642 (1,289) 180 873 0 0 13,205 Capital expenditures (1,500) (2,000) (1,500) 0 0 0 0 (5,000) -------- ------- ------- ------- -------- -------- -------- ---------- Cash flow available for debt 4,440 (1,137) (6,569) (3,599) (2,906) (3,780) (3,780) (17,331) repayment Birmingham Steel (includes SBQ) Credit facility $270,000 $300,000 $300,000 $300,000 $300,000 $300,000 $300,000 Estimated borrowing 233,846 237,145 252,708 268,226 271,021 274,601 282,090 -------- ------- ------- ------- -------- -------- -------- Excess availability $36,154 $62,855 $47,292 $31,774 $28,979 $25,399 $17,910 - --------------------------------------------------------------------------------------------------------------------
VALUATION PARAMETERS POINT TO A HIGHER STOCK PRICE - ---------------------------------------------------------------------------------------------------------- BIRMINGHAM'S PEER GROUP(1) IS VALUED AT AN AVERAGE OF 5.7X 2000E EBITDA AND 10.5X 2000E P/E. (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) -------------------------------------------------------------------------------------------- MULTIPLES ----------------------------------------- 5.0x 6.0x 7.0x -------------------------------------------------------------------------------------------- Number of Shares 29.7 2000E(2) EBITDA $127.0 Adjusted Market Value $635.0 $762.0 $889.0 Less Debt 509.1 509.1 509.1 ----- ----- ----- Market Value 125.9 252.9 379.9 Market Value Per Share $4.23 $8.51 $12.78 WITH CARTERSVILLE AT FULL PRODUCTION 2000E(2) EBITDA $167.0 Adjusted Market Value $835.0 $1,002.0 $1,169.0 Less Debt 509.1 509.1 509.1 ----- ----- ----- Market Value 325.9 492.9 659.9 Market Price Per Share $10.96 $16.58 $22.19 ------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------ MULTIPLES --------------------------------------- 10.0x 11.0x 12.0x ------------------------------------------------------------------------------------------ 2000E(2) EPS $1.06 $1.06 $1.06 Market Value Per Share $10.60 $11.66 $12.72 WITH CARTERSVILLE AT FULL PRODUCTION 2000E(2) EPS $1.56 $1.56 $1.56 Market Value Per Share $15.60 $17.16 $18.72 ------------------------------------------------------------------------------------------
(1) Peer group includes Nucor, Steel Dynamics, Timken, Co-Steel, and Quanex. (2) For comparison purposes, CSFB equity research projections have been calendarized. ISSUES RAISED WITH SHUTDOWN / RESTART STRATEGY - ------------------------------------------------------------------------------- o Reversal of accounting adjustments for discontinued operations will impair earnings o Additional write-downs on the assets o Cost of carry on mothballed assets o Memphis lease expense o Assets need to be operational to attract premium valuation even in a strong market o Restarting the SBQ operation is a costly and time consuming exercise o Need to rehire people o Working investment to support operation o 18 - 24 months to qualify
MARKET DEMAND VS. SBQ ASSETS - ------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ MARKET REQUIREMENTS EQUIPMENT CONFIGURATION / SBQ AND ALLOY BAR MARKET SUPPLY CHAIN ------------------------------------------------------------------------------------------------------ TOTAL MARKET (MILLION TONS) CAPACITY @ CLEVELAND 1.0 Coil 900K Tons - Coil Product 6.9 Cut-to-Length 0 Tons - Cut-to-Length --- 7.9 Tons ------------------------------------------------------------------------------------------------------ ANNUAL MARKET REQUIREMENTS EQUIPMENT PURCHASED FOR MEMPHIS FOR MEMPHIS 350K - Bloom Cast 1,000K Bloom Cast 650K - Billet Cast 0 ------ ------ 1,000K 1,000K Cost Disadvantage - $35 / Ton ------------------------------------------------------------------------------------------------------ DIRECT REDUCED IRON DIRECT REDUCED IRON Annual Market - 300K Tons 10 Year Commitment - $40 / Ton ------------------------------------------------------------------------------------------------------ ACTUAL 1999 AVERAGE SELLING PRICE / TON ACTUAL 1999 AVERAGE COST OF SALES / TON --------------------------------------- --------------------------------------- $417 $451 Loss Per Ton $(34.0) X 648,770 Tons (22.0) Million ------ = Start-up Costs (37.8) Million Total 1999 Loss (59.7) Million ------ Loss @ G.P. Level $(92.0) / Ton ------------------------------------------------------------------------------------------------------
ANALYSIS BETWEEN CORE AND SBQ OPERATIONS - --------------------------------------------------------------------------------------------------------------- INCOME STATEMENTS (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------- YEAR ENDED JUNE 30 LATEST ESTIMATE ------------------------------------------------------------------------------- 1997 1998 1999 2000 - --------------------------------------------------------------------------------------------------------------- CORE (1) Tons 2,299 2,517 2,394 2,386 -------- -------- -------- -------- Net sales $667,716 $836,875 $709,876 $708,197 Cost of sales 588,423 727,300 608,915 602,963 -------- -------- -------- -------- Gross Profit 79,293 109,575 100,961 105,234 -------- -------- -------- -------- EBITDA (2) 85,591 117,751 119,990 126,543 Income before taxes 32,650 42,905 18,098 14,752 SBQ Tons 662 662 649 814 -------- -------- -------- -------- Net sales $311,233 $299,144 $270,398 $332,241 Cost of sales 304,331 291,319 298,618 348,242 -------- -------- -------- -------- Gross Profit 6,902 7,825 (28,220) (16,001) -------- -------- -------- -------- EBITDA (2) 17,386 21,880 (53,480) (40,258) Income before taxes (7,912) (40,112) (85,261) (65,808) CONSOLIDATED Tons 2,961 3,328 3,043 3,200 -------- -------- -------- -------- Net sales $978,949 $1,136,019 $980,274 $1,040,438 Cost of sales 892,754 1,018,619 907,533 951,205 -------- -------- -------- -------- Gross Profit 86,195 117,400 72,741 89,233 -------- -------- -------- -------- EBITDA (2) 102,977 139,631 66,510 86,285 Income before taxes 24,738 2,793 (67,163) (51,056) MARKET MEASUREMENTS (AVERAGE) Selling Price/Ton: Core $290.4 $332.5 $296.5 $296.8 SBQ 470.1 451.9 416.6 408.2 Cost of Sales: Core 255.9 289.0 254.4 252.7 SBQ 459.7 440.1 460.1 427.8 - --------------------------------------------------------------------------------------------------------------- (1) Core operations include Kankakee, Joliet, Seattle, Jackson and Cartersville. (2) EBITDA does not include pre-operating/start-up costs.
ANALYSIS BETWEEN CORE AND SBQ OPERATIONS - --------------------------------------------------------------------------------------------------------------- Year ended June 30 ---------------------------------------------------------------------- 1997 1998 1999 - --------------------------------------------------------------------------------------------------------------- CORE Income from operations $19,787 $27,945 $3,284 Depreciation & other 36,942 54,101 71,907 Changes in working capital (58,913) 4,333 46,781 Cash from continuing operations (2,184) 86,379 121,971 Cash used in investing activities (79,937) (59,038) (48,823) Cash from operations and investing (82,121) (27,341) (73,148) --------- --------- --------- Cumulative Cash Flow ($82,121) ($54,781) $18,367 --------- --------- --------- SBQ Income from operations ($5,370) ($26,316) ($227,520) Depreciation & other 13,251 10,188 188,317 Changes in working capital 22,911 (21,622) 42,125 Cash from continuing operations 30,792 (37,750) 2,923 Cash used in investing activities (180,767) (18,700) (20,239) Cash from operations and investing (149,975) (56,450) (17,316) --------- --------- --------- Cumulative Cash Flow ($149,975) ($206,425) ($223,741) --------- --------- --------- CONSOLIDATED Income from operations $14,417 $1,629 ($224,236) Depreciation & other 50,193 64,289 260,224 Changes in working capital (36,002) (17,289) 88,906 Cash from continuing operations 28,607 48,629 124,894 Cash used in investing activities (79,937) (59,038) (48,823) Cash from operations and investing (51,330) (10,409) (76,071) --------- --------- --------- Cumulative Cash Flow ($51,330) ($61,739) $14,332 --------- --------- --------- - ---------------------------------------------------------------------------------------------------------------
FY 2000 CONSIDERATIONS - ----------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- BANK MODEL* E.P.S. $ 0.57 (ESTIMATE) NORMALIZED E.P.S. - (CORE-ONGOING OPERATIONS) $ 0.57 ---- --------------------------------------------------------------------------------------------------------------------------------- ADJUSTMENTS Plus: Proxy Costs (One-Time) $ 4. Million Bank Financing Costs (One-Time) 2. 1. Proxy Costs - $4 Million - INCLUDED * Start-up Costs (One-Time) 14. ----- $ 20. Million 2. 10/99 - Additional (one-time) Bank Financing Costs - $2 Million Less: 12 Months vs. 9 Months Higher Interest 3. Million 3. 1999 - 5th Amendment Higher Interest Costs - $4 Million Net: $17. Million $ 0.34 ---------------------- 4. $14 Million Start-up Costs - Cartersville - INCLUDED* Subtotal $ 0.91 Subtotal E.P.S. Adjustments $ 0.12 Cartersville (normal 12 months) 0.45 Estimated FY 2000- E.P.S. $ 0.45 Normalized E.P.S. Potential $1.36 - $1.40 ==== ==== Earnings Multiple ? ---------------------------------------------------------------------------------------------------------------------------------
MARKET ACCESS / BAR MILL EXPANSION EVOLUTION - ------------------------------------------------------------------------------ 3" ----------------------------------- ------------------- COIL & CUT TO LENGTH Best Solution per ----------------------------------- Market Demand NEEDED ------------------- 3/8" 1 9/16" ------------------------------------------- ---------------------------- $126 Million - 1995/1996 ------------------------------------------- ---------------------------- BAR MILL 7/32" 1/2" - ----------------------------- ---------------------------- Acquired with AS&W - 1993 - ------------------------------ ---------------------------- ROD MILL ------------------------------------------------- Cut-to-Length Mill ------------------------------------------------- 18 months - to build Investment Required 12 months - start up ------------------- --- 2.5 years $75 Million ------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----