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
{ } Definitive Additional Materials
{X} 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:
BIRMINGHAM STEEL CORPORATION
SEPTEMBER 15, 1999
[Title Slide]
MEETING AGENDA
- ------------------------------------------------------------------------
o Core Mini-mill Operating Performance
o Overview of Strategic Restructuring
o 4th Quarter and FY 1999 Results
o Outlook and Key Benchmarks for FY 2000
[Slide 1]
REPORTING GROUPS
- ------------------------------------------------------------------------
Continuing Operations: Core Operations:
--------------------- ---------------
Birmingham Birmingham
Kankakee Kankakee
Joliet Joliet
Jackson Jackson
Seattle Seattle
Cartersville Cartersville
PESCO PESCO
Jackson Scrap Jackson Scrap
Vancouver Scrap Vancouver Scrap
PCR --
Discontinued Operations:
-----------------------
Cleveland
Memphis
AIR
[Slide 2]
CORE OPERATIONS GROUP
- ------------------------------------------------------------------------
Birmingham
Kankakee
Joliet
Jackson
Seattle
Cartersville
PESCO
Jackson Scrap
Vancouver Scrap
[Slide 3]
<TABLE>
<CAPTION>
PROFITABLE CORE MINI-MILL OPERATIONS
- ------------------------------------------------------------------------
DESPITE SOME OF THE WORST INDUSTRY CONDITIONS IN 40 YEARS, BIRMINGHAM'S
CORE MINI-MILL OPERATIONS ARE SOLIDLY PROFITABLE
(Dollars in Millions, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------
QUARTERLY COMPARISON FULL YEAR COMPARISON
---------------------------- ---------------------------
Q4 1998 Q4 1999 FY 1998 FY 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tons Shipped (000) 678 642 2,667 2,389
Net Sales $214.2 $184.0 $836.9 $709.9
EBITDA 35.3 26.5 116.4 106.9
Net Income 14.8 3.3 39.9 26.8
EPS 0.50 0.11 1.34 0.91
Pre-Operating/Start-Up Costs 0.6 3.9 1.3 12.9
EPS (Before Pre-Operating/Start-Up Costs) 0.51 0.20 1.37 1.19
- -----------------------------------------------------------------------------------------------------------------
Note: Core operations include Kankakee, Birmingham, Seattle, Jackson and Cartersville.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[Slide 4]
POSITIVE CORE OPERATIONAL DEVELOPMENTS
- ------------------------------------------------------------------------
FOURTH QUARTER AND FISCAL YEAR 1999
o Continued improvement in product mix - increasing merchant bar
component
o Continued progress in improving efficiency
- Lower melt shop conversion costs and scrap management programs
have improved metal spreads in the FY 1998/1999 period
o Rebar: $169 to $174 per net ton
o Merchant bar: $211 to $221 per net ton
- Inventory at fiscal year-end down $35 million or 32% from FY
1998
o Q3 price increase announcements
- Merchant $15/ton effective 6/1/99
- Rebar $20/ton effective 6/1/99
o Progress made in Cartersville startup
o Winding down of major capital spending requirements
o Reorganization of Company into strategic business units in November
1998 has driven productivity and profitability gains even in a
depressed market
[Slide 5]
<TABLE>
<CAPTION>
TRACK RECORD OF IMPROVEMENT IN CORE MINI-MILL BUSINESSES
- ---------------------------------------------------------------------------
THE CORE MINI-MILL GROUP'S PROFITABILITY UNDER CURRENT MANAGEMENT HAS SHOWN
IMPROVEMENT OVER PRIOR PERFORMANCE EVEN IN A DEPRESSED MARKET
(Dollars in Millions, except per ton amounts)
- ------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shipments (000) 1,790 1,743 1,870 2,173 2,667 2,389
Average Price/Ton $299 $330 $302 $307 $314 $297
Sales $536.1 $574.6 $564.3 $667.7 $836.9 $709.9
EBITDA(1) 58.5 95.1 50.4 85.9 117.7 119.8
% Margin 10.9% 16.6% 8.9% 12.9% 14.1% 16.9%
Net Income 15.5 36.9 (1.3) 20.9 39.9 26.8
% Margin 2.8% 6.4% (0.2%) 3.1% 4.8% 3.8%
- ------------------------------------------------------------------------------------------------------------------------
Note: Core operations include Kankakee, Joliet, Birmingham, Seattle, Jackson and
Cartersville. Fiscal years ending June 30.
(1) EBITDA does not include pre-operating/start-up costs.
</TABLE>
[Slide 6]
CONTINUING STEPS TO BUILD PROFITABILITY
- --------------------------------------------------------------------------
SINCE 1996, MANAGEMENT HAS SUCCESSFULLY IMPLEMENTED SEVERAL INITIATIVES TO
IMPROVE PROFITABILITY IN ITS CORE MINI-MILL OPERATIONS
PROFIT INITIATIVES RESULTS
o Expanded rebar business --- o Average rebar shipments have
increased 11% over 1996 levels
o Improved product mix --- o Merchant bar shipments
increased from 26% to 36%
of mix
o Broadened customer base --- o Increase in OEM shipments has
improved profitability at
Seattle and Kankakee
o Increased operating efficiencies --- o Reduced average manhours/ton
- 1.22 (1994 - 1996)
- 1.05 (1997 - 1999)
o Increased utilization of
internally produced billets
[Slide 7]
<TABLE>
<CAPTION>
STRONG PERFORMANCE RELATIVE TO INDUSTRY PEERS
- ---------------------------------------------------------------------------
THE EBITDA MARGIN OF BIRMINGHAM'S CORE MINI-MILL BUSINESS IS WELL
ABOVE THE INDUSTRY AVERAGE
LTM Performance Comparison
(Dollars in Millions)
- -----------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PEER GROUP
BIRMINGHAM NUCOR METALS CO STEEL GSI AMERISTEEL SCHNITZER AVERAGE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $709.9 $3,775.0 $2,324.9 $1,428.5 $788.4 $669.3 $270.4 -
EBITDA 106.9 581.9 140.5 118.2 30.6 91.7 15.0 -
EBITDA MARGIN (%) 15.1% 15.4% 6.0% 8.3% 3.9% 13.7% 5.5% 8.8%
Net Income 26.8 205.2 45.3 11.8 (47.4) 28.9 (6.8) -
- -----------------------------------------------------------------------------------------------------------------------------
Note: Effective tax rate used where available, otherwise statutory tax rate. Numbers
adjusted for nonrecurring items.
</TABLE>
[Slide 8]
STRATEGIC RESTRUCTURING FOCUS
- ---------------------------------------------------------------------------
BIRMINGHAM STEEL'S STRATEGIC RESTRUCTURING ANNOUNCED ON AUGUST 18, 1999
IMMEDIATELY RETURNS THE COMPANY TO PROFITABILITY IN THE FIRST QUARTER OF FY
2000
o Continue to drive productivity and profitability in core mini-mill
operations
o Divest non-core operations (SBQ, American Iron Reduction (50%)) and
review options for Pacific Coast Recycling (50%)
o Accelerate Cartersville startup initiatives - goal of profitable
mill by third quarter
o Continue to reduce debt levels to restore financial flexibility
[Slide 9]
DIVESTITURE UPDATE - SBQ OPERATIONS
- ---------------------------------------------------------------------------
o Credit Suisse First Boston directing sales process with assistance
from Banc of America Securities
- Initial contacts made
- Selling memoranda to be distributed shortly
- Targeted three to six month sales process
o Management will continue to address current operating issues at
Memphis and Cleveland to maximize asset values during sale
[Slide 10]
WHY SELL SBQ OPERATIONS NOW?
- ---------------------------------------------------------------------------
MANAGEMENT HAS ACTIVELY STUDIED OPTIONS FOR THE CLEVELAND, MEMPHIS AND AIR
OPERATIONS OVER THE PAST TWELVE MONTHS
o SBQ/AIR strategy committed to by prior management
o Operating results of SBQ division have significantly constrained
Birmingham's financial performance and flexibility
- Increased debt levels
- Reduced cash flow
- Led to reductions in dividend rate
o Operational ramp-up has revealed that optimization requires
additional capital spending
o SBQ sector is consolidating - meaningful interest is anticipated
for these assets
o Other growth areas present better opportunities for Birmingham
given its core competencies and asset availability
[Slide 11]
SBQ DIVISION: MARKET AND OPERATIONAL CHALLENGES
- ---------------------------------------------------------------------------
o Declining average SBQ sales prices per ton
- 1996 $472
- 1997 464
- 1998 451
- 1999 420 - Q1 '99 $447 vs. Q4 '99 $400
o DRI - Low production levels/disadvantaged to market price; today up to
$50/ton
o Operational disruptions at Memphis
- Electric power curtailments
- Transformer outage
- Crane downtime
- Caster failures
Pre-tax losses attributable to SBQ were $23.4
million and $85.3 million in Q4 and FY 1999, respectively
[Slide 12]
SBQ DIVISION INTERIM OPERATING PLAN
- ---------------------------------------------------------------------------
o Get Memphis performance on track
- Fix caster bottleneck ($5 million)
- Focus production on higher value added qualities
- Streamline number of quality grades - 165 to 102
- Widen chemistries - more flexibility in melting standards
- Match customer requirements with production capabilities
o Stabilize Cleveland
- Get volume at Cleveland quickly to 70,000 tons per month
o Memphis supply focused on higher-priced cold heading
qualities
o Use Cartersville and outside billet supply - US Steel,
Timken, Republic, etc.
o Increased volume and operating efficiencies should begin to provide
positive impact in Q1 of FY 2000
[Slide 13]
ACCELERATE CARTERSVILLE START-UP
- ---------------------------------------------------------------------------
FOCUS ON SUCCESSFUL START-UP AT CARTERSVILLE HAS BEEN INTENSIFIED
o Implement operating strategy
- Strengthened management team
- Quickly build melt shop volumes
o Develop Cartersville as supplier to Cleveland - minimum 15
M tons per month
o Supply Birmingham plant 5 M tons per month
- Have rolling mill commercial on all sections by December 1999
o Meet near-term profit and loss expectations
- Expected to be profitable by third quarter
- Goal of breakeven for the current fiscal year
o Realize significant long-term opportunity in the mill
- Low-cost rod billet and merchant billet supplier
- Faster penetration of midsection market
[Slide 14]
CARTERSVILLE'S PRODUCT RANGE PROVIDES COMPETITIVE ADVANTAGE - ONE-STOP SHOPPING
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPETITOR PRODUCT AND SIZE COMPARISON
6"-12" 3"-12" 3"-10" 4" x 8" 5"-14" 8"-12" 6"-12" Z's & T's
Capacity C-Chan MC-Chan Std. I Beam Angles Flats MH Beams WF Beams
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BIR 500+ * * * * * * * X
J&L 250 * * * *
Chap - Tx 750 * * * *
Chap - Va (1) 1,000 * *
NUC - DARL 600 * * *
NUC - JEW 600 * * *
NUC - Berk (1) 500 * * * * *
NWS&W 700 * * * *
NUC/YAM 250 * * * * * *
SMI - BI 450 * * * * *
BAYOU 500 * * * * *
NSS - KY 250 * * * * *
LASCO 800 * * * *
AMERISTL 400 * * *
SDI (2) 800 * * * * * * *
KY EL 150 *
IMPORTS 500 * * * * * * *
X Products can be added to Cartersville when the Market demands
(1) New entrant 1999.
(2) New entrant 2000.
</TABLE>
[Slide 15]
REPORTING GROUPS
- --------------------------------------------------------------------------
Continuing Operations: Core Operations:
--------------------- ---------------
Birmingham Birmingham
Kankakee Kankakee
Joliet Joliet
Jackson Jackson
Seattle Seattle
Cartersville Cartersville
PESCO PESCO
Jackson Scrap Jackson Scrap
Vancouver Scrap Vancouver Scrap
PCR -
Discontinued Operations:
-----------------------
Cleveland
Memphis
AIR
[Slide 16]
SUMMARY OF Q4 1999 SPECIAL CHARGES
- --------------------------------------------------------------------------
(Dollars in Millions)
- --------------------------------------------------------------------------
NET OF TAX
- --------------------------------------------------------------------------
Loss from discontinued operations
FY 1999 operating loss $14.1
Loss on disposal, including provision for
estimated operating losses FY 2000 173.2
-------
$187.3
Write-off of PCR $18.1
- ---------------------------------------------------------------------------
[Slide 17]
SELECTED PRE AND POST RESTRUCTURING OPERATING AND FINANCIAL DATA
- ---------------------------------------------------------------------------
(Dollars in Millions)
- ----------------------------------------------------------------------------
PRE RESTRUCTURING POST RESTRUCTURING (1)
Q4 FY 99 Q4 FY 99
- ----------------------------------------------------------------------------
Tons Shipped (000) 831 3,043 642 2,389
Net Sales $258.0 $980.3 $184.0 $709.9
EBITDA 8.1 49.9 26.5 106.9
Start-up Costs 10.3 50.7 3.9(2) 12.9(2)
- -----------------------------------------------------------------------------
(1) Excludes discontinued operations.
(2) Cartersville.
[Slide 18]
<TABLE>
<CAPTION>
COMPARATIVE EPS DATA
- -----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PRE RESTRUCTURING POST RESTRUCTURING
Q4 99 FY 99 Q4 99 FY 99
- --------------------------------------------------------------------------------------------------
EPS
<S> <C> <C> <C> <C>
Continuing Operations $(0.36) $(1.05) $(0.59) $0.11
Discontinued Operations - - (6.31) (7.72)
--------- -------- ------- -------
Reported EPS (0.39) (1.05) (6.90) (7.61)
Reported EPS (from continuing
operations, excluding
start-up) (0.16) 0.10 (0.50) 0.39
EPS Core Operations 0.20 1.19 0.20 1.19
(excluding start-up)
- --------------------------------------------------------------------------------------------------
</TABLE>
[Slide 19]
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET ITEMS
- -----------------------------------------------------------------------------
(Dollars in Millions)
- ----------------------------------------------------------------------------------------------
PRE RESTRUCTURING POST RESTRUCTURING
6/30/99 6/30/99
- ----------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash $0.9 $0.9
Accounts Receivable 104.5 72.0
Inventory 161.8 100.3
Net PPE 765.6 439.6
Net Assets - Discontinued Operations - 444.8
Total Assets 1,155.1 1,122.5
LIABILITIES & EQUITY
Net Liabilities - Discontinued Operations - $222.2
Revolver Debt $186.6 186.6
Other Debt 334.9 334.9
Treasury Stock (0.8) (0.8)
Stockholders' Equity 423.9 230.7
- -----------------------------------------------------------------------------------------------
Note: Reflects restructuring charges, but does not give effect to
application of any sale proceeds.
</TABLE>
[Slide 20]
INCREASED FINANCIAL FLEXIBILITY
- -----------------------------------------------------------------------------
THE STRATEGIC RESTRUCTURING WILL SIGNIFICANTLY STRENGTHEN THE COMPANY'S
BALANCE SHEET AND IMPROVE CASH FLOW
o Cash flow strengthened by elimination of SBQ operating losses
o Debt reduced by net proceeds of assets sales
o Capital spending returned to more normalized levels (approximately
$20 - $30 million)
o Working capital reductions (lower billet inventory)
o Credit ratios significantly strengthened
[Slide 21]
LENDER NEGOTIATIONS ARE PROGRESSING
- -----------------------------------------------------------------------------
BANKS ARE SUPPORTIVE OF MANAGEMENT'S RESTRUCTURING PLAN
o SBQ/AIR strategy committed to by prior management has impacted
Birmingham's financial position
o Company currently negotiating second bank/lender amendments at higher
fees and rates
o Company requested to provide collateral to all parties
o Expect all amendments negotiated by late September
[Slide 22]
CONTINUED STRENGTHENING OF MANAGEMENT TEAM
- -----------------------------------------------------------------------------
Chief Operating Officer Brian Hill (June 1999)
EVP Operations at North Star Steel
during primary growth periods; 31 years
with Cargill including 15 years of
senior-level steel and steel-related
experience with North Star and Cargill
Chief Financial Officer Kevin Walsh (July 1998)
20 years with Johnson & Johnson
(domestic and international); extensive
financial and operational experience with
major multinational corporations
Cartersville Jack Wheeler (Assigned June 1999)
Seasoned mini-mill operator, recently
given responsibility for Cartersville
operation, responsible for recent
success at Birmingham's Northern
Division (Kankakee/Joliet)
SBQ Division - Memphis Harold Olden (September 1998)
Successfully managed four melt shops and
steel plants over his 43 years in the
industry
[Slide 23]
CORE BUSINESS OUTLOOK IS POSITIVE
- -----------------------------------------------------------------------------
Management initiatives currently under way should enhance profitability
- ---------------------- ------------------------------------------
MINI-MILL INITIATIVES
- ---------------------- ------------------------------------------
Cartersville Successful startup, expanded merchant
product offering, and leveraging melt
capacity throughout organization
Jackson Continued growth of higher-margin merchant
bar and niche products and improved volume
levels
Birmingham Higher volume and improved inventory turns,
running rolling mill at capacity with
Cartersville billets
Seattle Continued growth in merchant bar sales,
expanded sales platform in Canada and
higher utilization rates during winter
months
Kankakee/Joliet Added volume at Joliet mill, using billets
from Jackson to improve utilization rates
- ---------------------- -------------------------------------------
[Slide 24]
FY 2000 OBJECTIVES: KEY BENCHMARKS
- -----------------------------------------------------------------------------
Shipments (millions) 2.3 - 2.5 tons
Product Mix 55% Rebar / 45% Merchant
Metal Spread Continued Improvement
Depreciation $45 million
Capital Spending $20 - $30 million
o Complete Strategic Restructuring
o Significantly Improve Core Business Profitability for the Year
o Build Shareholder Value
[Slide 25]
BIRMINGHAM STEEL'S BOARD AND MANAGEMENT TEAM 100% FOCUSED ON BUILDING
SHAREHOLDER VALUE
- -----------------------------------------------------------------------------
o Profitable core mini-mill operations with track record of continuous
improvement
o Strategic restructuring, including sale of SBQ division, immediately
returns the Company to profitability
o Qualified management team in place and committed to successful
execution of the Company's strategic restructuring and repositioning
[Slide 26]
SAFE HARBOR/PARTICIPANT INFORMATION
- -----------------------------------------------------------------------------
Except for historical information, the matters described in this press
release are forward-looking statements within the meaning of the
safe-harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to risks and
uncertainties that may cause actual results to differ materially, including
economic conditions, market demand factors, equipment breakdowns or
failures, Birmingham Steel's success in implementing the restructuring
plan, as well as other risks described from time to time in the Company's
periodic and special filings with Securities and Exchange Commission. Any
forward-looking statements contained in this document speak only as of the
date hereof, and the Company disclaims any intent or obligation to update
such forward-looking statements.
Birmingham Steel Corporation (the "Company") and certain other persons
named below may be deemed to be participants in the solicitation of proxies
in connection with the 1999 annual meeting of shareholders. The
participants in this solicitation may include the directors of the Company
(William J. Cabaniss, Jr., C. Stephen Clegg, Alfred C. DeCrane, Jr., E.
Mandell de Windt, Robert A. Garvey, E. Bradley Jones, Robert D. Kennedy,
Richard de J. Osborne and John H. Roberts) and the following executive
officers, members of management and employees of the Company: Robert A.
Garvey (Chairman and Chief Executive Officer), Brian F. Hill (Chief
Operating Officer), Kevin E. Walsh (Executive Vice President - Chief
Financial Officer), William R. Lucas, Jr. (Managing Director - Southern
Region), Jack R. Wheeler (Managing Director - Northern Region), Raymond J.
Lepp (Managing Director - Western Region), J. Daniel Garrett (Vice
President - Finance & Control). Catherine W. Pecher (Vice President -
Administration & Corporate Secretary), Charles E. Richardson, III (General
Counsel), Philip L. Oakes (Vice President - Human Resources), W. Joel White
(Vice President - Information Technology) and Robert G. Wilson (Vice
President - Business Development). As of the date of this communication,
none of the foregoing participants individually owned in excess of 1
percent of the Company's common stock or in the aggregate in excess of 3
percent of the Company's common stock.
The Company has retained Credit Suisse First Boston Corporation ("CSFB")
and Banc of America Securities LLC ("BAS") to act as its financial
advisors, for which CSFB and BAS will receive customary fees, as well as
reimbursement of reasonable out-of-pocket expenses. In addition, the
Company has agreed to indemnify CSFB, BAS and certain related persons
against certain liabilities, including liabilities under federal securities
laws, arising out of their engagement. Each of CSFB and BAS are investment
banking firms that provide a full range of financial services for
institutional and individual clients. Neither CSFB nor BAS admit that it or
any of its directors, officers or employees is a "participant," as defined
in Schedule 14A promulgated under the Securities Exchange Act of 1934, as
amended, in the solicitation, or that Schedule 14A requires the disclosure
of certain information concerning CSFB or BAS. In connection with their
role as financial advisors to the Company, each of CSFB and BAS, and the
following investment banking employees of CSFB or BAS, as the case may be,
may communicate in person, by telephone or otherwise with a limited number
of institutions, brokers or other persons who are stockholders of the
Company: Peter R. Matt, William C. Sharpstone and Murari S. Rajan of CSFB;
and Gidon Y. Cohen, Shawn B. Welch and Sumner T. Farren of BAS. In the
normal course of their business, both CSFB and BAS regularly buy and sell
securities issued by the Company for their own account and for the accounts
of their respective customers, which transactions may result in CSFB, BAS
or their respective associates having a net "long" or net "short" position
in the Company's securities, or option contracts or other derivatives in or
relating to such securities. As of September 3, 1999, CSFB had a net long
position of 14,200 shares of the Company's common stock and as of September
8, 1999, BAS had a net long position of 264,224 shares of the Company's
common stock.
[Slide 27]
