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SCHEDULE 14A
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BIRMINGHAM STEEL CORPORATION
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[LOGO OF BIRMINGHAM STEEL CORPORATION APPEARS HERE]
Dear Birmingham Steel Stockholder:
On August 18, 1999, a new era for Birmingham Steel Corporation began. That
was the date on which your Board of Directors unanimously approved a strategic
restructuring to focus the Company on its strong and profitable core mini-mill
and scrap operations.
Key elements of the restructuring include seeking to divest the SBQ (Special
Bar Quality) division, which became part of the Company when it acquired
American Steel & Wire Co. ("AS&W") in 1993; seeking to divest the Company's
50% interest in American Iron Reduction ("AIR"); and exploring our options
with regard to Pacific Coast Recycling ("PCR"), in which the Company has a 50%
ownership interest.
While implementation of the strategic restructuring is a complex process,
its purpose is simple: to better position the Company to achieve its
overriding objective of building the value of Birmingham Steel for you.
Our Core Operations
The Company's core mini-mill operations, which together provide industrial
customers a broad range of merchant and rebar products, include facilities in
Kankakee, Illinois; Joliet, Illinois; Birmingham, Alabama; Jackson,
Mississippi; Seattle, Washington; and Cartersville, Georgia. The Company's
core businesses also include scrap operations in Jackson, Mississippi and
Vancouver, British Columbia, and the Port Everglades Steel sales and
distribution business in Ft. Lauderdale, Florida.
The strength and profitability of those core operations were clearly
reflected in our financial results for the fiscal year ended June 30, 1999.
The Company reported a consolidated net loss for the year, which was primarily
attributable to the SBQ division and our decision to pursue the strategic
restructuring. Nevertheless, despite continued adverse industry conditions,
including record-high import levels that constrained shipping levels and
reduced selling prices, your Company achieved strong full-year results
throughout its core merchant and rebar businesses.
For the year, our core operations generated earnings before interest, taxes,
depreciation and amortization ("EBITDA") of $106.9 million and operating
income of $57.0 million. EBITDA and operating income from core operations in
fiscal 1998 were $116.4 million and $66.0 million, respectively.
Core operations EBITDA in fiscal 1999 also included pre-operating and start-
up expenses at our new Cartersville rolling facility--which began start-up
operations in March 1999--of $12.9 million, versus $1.3 million in fiscal
1998. Earnings per share from core operations, excluding start-up expenses,
were $1.19.
Net sales from core operations in fiscal 1999 were $709.9 million, versus
$836.9 million in the prior year. Shipments from core operations in fiscal
1999 were approximately 2,390,000 tons, compared with approximately 2,666,000
tons in the prior year.
As these results indicate, our core mini-mill and scrap operations are
indeed strong, despite record imports and resulting reductions in steel prices
and margins. Moreover, further reflecting the strength of our core
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operations, we far exceeded the consensus expectations of the financial
community in our results for the fiscal year 2000 first quarter as well,
reporting (on October 14, 1999) net income for the first fiscal quarter ended
September 30, 1999 of $5.8 million, or $0.19 per share--nearly double the
consensus "Street" estimate of $0.10 per share.
I am pleased to report that the outlook for our core business is positive.
For example, at the new Cartersville mid-section rolling mill, which began
start-up operations in March 1999, we are taking the steps necessary to expand
our merchant product offering, and to leverage Cartersville's melt capacity
throughout the organization. At Jackson, we continue to grow our higher-margin
merchant bar and niche product businesses and to improve volume levels. At
Birmingham, we are achieving higher volumes and improved inventory turns, and
are running the rolling mill near capacity with billets supplied by
Cartersville. At Seattle, we are achieving continued growth in merchant bar
sales, expanding our sales platform in Canada, and taking steps to achieve
higher utilization rates during the winter months. At Kankakee/Joliet, we are
adding volume at the Joliet mill, using billets from Jackson to improve
utilization rates.
We are continuing our steady Cartersville start-up, and have implemented an
operating strategy that includes strengthening the management team, quickly
building melt shop volumes, and having the rolling mill achieve commercial
volumes on all sections by year-end 1999. We expect Cartersville to be
profitable by the first quarter of calendar year 2000, and to significantly
enhance our competitive position as a low-cost rod billet and merchant billet
supplier offering one-stop shopping in the mid-section steel market.
We also have taken steps to further strengthen our management team by some
significant additions. Brian F. Hill joined Birmingham Steel as Chief
Operating Officer in June 1999, after fifteen years in the steel and steel-
related businesses with Cargill, Inc., including serving as Executive Vice
President of Operations at North Star Steel. Kevin E. Walsh joined the Company
in July 1998 as Executive Vice President--Chief Financial Officer, after
serving in executive financial positions at Johnson & Johnson and other
companies. They join a management team and employee base that have done an
outstanding job under very difficult conditions.
The Board and management of your Company are confident that once the
strategic restructuring is completed--which we expect will occur by May 2000--
we will be well-positioned to achieve increasingly and consistently strong
operational and financial results, continue to reduce debt, increase our
strategic and financial flexibility and, in turn, build the value of
Birmingham Steel for you.
Non-Core Operations
The Company's decision to discontinue its SBQ operations, which include its
Memphis and Cleveland facilities and the 50% stake in AIR, was attributable to
continuing financial and operational challenges that have required a major and
continuing commitment of management and financial resources and have masked
the strength and success of our core rebar, merchant and scrap businesses.
Losses from the SBQ operations have also constrained our financial flexibility
by significantly increasing the Company's debt level.
Questionable strategic and operational decisions made before 1996 led
directly to the continuing challenges experienced by the SBQ operations and
the adverse impact to shareholder value that has occurred over the past three
years.
Although the SBQ operations have made meaningful progress, we believe that
the long-term interests of the Company's shareholders will be better served by
building upon our core rebar, merchant and scrap operations. We intend to seek
a buyer for the SBQ operations whose business strategy and operational
resources are more aligned with those operations, and who is prepared to help
the SBQ operations realize their full potential. We believe that the SBQ
operations with the right strategic partner should be in a position to realize
its potential.
Financial Results
For the fiscal year ended June 30, 1999, the Company recorded income from
continuing operations of $3.3 million, or $0.11 per share. Excluding losses
associated with PCR and start-up expenses related to Cartersville, earnings
per share from continuing operations were $1.19.
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For the year, primarily reflecting losses attributable to the SBQ operations
and one-time charges related to the strategic restructuring, the Company
reported a consolidated net loss of $224.2 million, or $7.61 per share, versus
prior-year net income of $1.6 million, or $0.05 per share. The loss from
discontinued operations for the 1999 fiscal year was $227.5 million, or $7.72
per share.
# # #
These are challenging times for the American steel industry, and for this
Company. Notwithstanding those challenges, your Board of Directors and
management are dedicated to building upon the strength of our core mini-mill
and scrap operations and to aggressively implementing the strategic
restructuring. By doing so, and with the continuing dedication and loyalty of
all of our employees, we will be closer to achieving our overriding objective
of building the value of this Company for you, and thereby rewarding you for
your continuing confidence and support.
/s/ Robert A. Garvey
Robert A. Garvey
Chairman and Chief Executive Officer
