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
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(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:
<TABLE>
<CAPTION>
NOVEMBER 22, 1999
MATERIALS PREPARED FOR DISCUSSION
BIRMINGHAM STEEL CORPORATION
ORIGINS OF CURRENT SBQ CHALLENGES
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TIMING PRIOR ASSESSMENTS REACTIONS
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<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
1993 AS&W ongoing losses and negative cash flow Market assessment and business analysis
acquired by Todd. was never completed
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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.
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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.
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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.
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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.
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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)
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</TABLE>
<TABLE>
<CAPTION>
SBQ DIVISION SUMMARY OPERATING ANALYSIS
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(DOLLARS IN THOUSANDS)
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DECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE 7 MONTHS
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
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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
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</TABLE>
<TABLE>
<CAPTION>
VALUATION PARAMETERS POINT TO A HIGHER STOCK PRICE
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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)
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MULTIPLES
-----------------------------------------
5.0x 6.0x 7.0x
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<S> <C> <C> <C> <C>
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
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MULTIPLES
---------------------------------------
10.0x 11.0x 12.0x
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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
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</TABLE>
(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
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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
<TABLE>
<CAPTION>
MARKET DEMAND VS. SBQ ASSETS
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MARKET REQUIREMENTS EQUIPMENT CONFIGURATION /
SBQ AND ALLOY BAR MARKET SUPPLY CHAIN
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<S> <C>
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
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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
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DIRECT REDUCED IRON DIRECT REDUCED IRON
Annual Market - 300K Tons 10 Year Commitment - $40 / Ton
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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
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</TABLE>
<TABLE>
<CAPTION>
ANALYSIS BETWEEN CORE AND SBQ OPERATIONS
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INCOME STATEMENTS (IN THOUSANDS)
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YEAR ENDED JUNE 30 LATEST ESTIMATE
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1997 1998 1999 2000
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<S> <C> <C> <C> <C>
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
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(1) Core operations include Kankakee, Joliet, Seattle, Jackson and Cartersville.
(2) EBITDA does not include pre-operating/start-up costs.
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS BETWEEN CORE AND SBQ OPERATIONS
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Year ended June 30
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1997 1998 1999
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<S> <C> <C> <C>
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
--------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FY 2000 CONSIDERATIONS
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BANK MODEL* E.P.S. $ 0.57 (ESTIMATE) NORMALIZED E.P.S. - (CORE-ONGOING OPERATIONS) $ 0.57
----
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<S> <C>
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 ?
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</TABLE>
MARKET ACCESS / BAR MILL EXPANSION EVOLUTION
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3"
----------------------------------- -------------------
COIL & CUT TO LENGTH Best Solution per
----------------------------------- Market Demand
NEEDED -------------------
3/8" 1 9/16"
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----------------------------
$126 Million - 1995/1996
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BAR MILL
7/32" 1/2"
- -----------------------------
----------------------------
Acquired with AS&W - 1993
- ------------------------------ ----------------------------
ROD MILL
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Cut-to-Length Mill
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18 months - to build Investment Required
12 months - start up -------------------
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2.5 years $75 Million
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