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:
BIRMINGHAM STEEL CORPORATION
NOVEMBER 1999
[TITLE SLIDE]
AGENDA
- -----------------------------------------------------------------------------
O STRENGTH OF CORE OPERATIONS
O BACKGROUND AND BENEFITS OF THE STRATEGIC RESTRUCTURING
O THE UNITED GROUP SOLICITATION
[SLIDE 1]
CORE OPERATIONS
- -----------------------------------------------------------------------------
BIRMINGHAM
KANKAKEE
JOLIET
JACKSON
SEATTLE
CARTERSVILLE
PESCO
JACKSON SCRAP
VANCOUVER SCRAP
[SLIDE 2]
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)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
FULL YEAR COMPARISON QUARTERLY COMPARISON
------------------------------------------------------------------------------------
FY 1998 FY 1999 Q1 1999 Q1 2000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TONS SHIPPED (000) 2,667 2,389 656 642
NET SALES $836.9 $709.9 $207.5 $176.8
EBITDA 116.4 106.9 34.4 26.7
NET INCOME 39.9 26.8 10.9 5.8
EPS 1.34 0.91 0.19 0.30
PRE-OPERATING/START-UP COSTS 1.3 12.9 1.4 4.5
EPS (BEFORE PRE-OPERATING/START-UP COSTS) 1.37 1.19 0.28 0.30
- ---------------------------------------------------------------------------------------------------------------------------------
NOTE: CORE OPERATIONS INCLUDE KANKAKEE, JOLIET, BIRMINGHAM, SEATTLE, JACKSON AND CARTERSVILLE.
EXCLUDES NON-RECURRING CHARGES.
</TABLE>
[SLIDE 3]
POSITIVE CORE OPERATIONAL DEVELOPMENTS
- -----------------------------------------------------------------------------
FISCAL YEAR 1999 AND FIRST QUARTER FISCAL YEAR 2000
O CONTINUED IMPROVEMENT IN PRODUCT MIX - INCREASING MERCHANT BAR COMPONENT
O CONTINUED PROGRESS IN IMPROVING EFFICIENCY
O 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
O INVENTORY AT FISCAL YEAR-END DOWN $35 MILLION OR 32% FROM FY 1998
O Q3 PRICE INCREASE ANNOUNCEMENTS
O MERCHANT $15/TON EFFECTIVE 6/1/99
O REBAR $20/TON EFFECTIVE 6/1/99
O PROGRESS MADE IN CARTERSVILLE START-UP
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
[SLIDE 4]
<TABLE>
<CAPTION>
CONTINUING STEPS TO BUILD PROFITABILITY
- -----------------------------------------------------------------------------
SINCE 1996, MANAGEMENT HAS SUCCESSFULLY IMPLEMENTED SEVERAL
INITIATIVES TO IMPROVE PROFITABILITY IN ITS CORE MINI-MILL OPERATIONS
<S> <C> <C>
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
O 1.22 (1994 - 1996)
O 1.05 (1997 - 1999)
O INCREASED UTILIZATION OF INTERNALLY PRODUCED
BILLETS
</TABLE>
[SLIDE 5]
<TABLE>
<CAPTION>
CORE BUSINESS OUTLOOK IS POSITIVE
- -----------------------------------------------------------------------------
MANAGEMENT INITIATIVES CURRENTLY UNDER WAY WILL FURTHER ENHANCE
PROFITABILITY
MINI-MILL INITIATIVES
- -------------------------------------- ------------------------------------------------------------------------------------
<S> <C>
CARTERSVILLE SUCCESSFUL START-UP, 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
- -------------------------------------- ------------------------------------------------------------------------------------
</TABLE>
[SLIDE 6]
ACCELERATING CARTERSVILLE START-UP
- -----------------------------------------------------------------------------
FOCUS ON SUCCESSFUL START-UP AT CARTERSVILLE HAS BEEN INTENSIFIED
O IMPLEMENTING OPERATING STRATEGY
O STRENGTHENED MANAGEMENT TEAM
O QUICKLY BUILDING MELT SHOP VOLUMES
O DEVELOPING CARTERSVILLE AS SUPPLIER TO CLEVELAND - MINIMUM 15 M
TONS PER MONTH
O SUPPLYING BIRMINGHAM PLANT 5 M TONS PER MONTH
O WILL HAVE ROLLING MILL COMMERCIAL ON ALL SECTIONS BY DECEMBER 1999
O MEETING NEAR-TERM PROFIT AND LOSS EXPECTATIONS
O EXPECT TO BE PROFITABLE BY THIRD QUARTER
O GOAL OF BREAKEVEN FOR CURRENT FISCAL YEAR
O REALIZING SIGNIFICANT LONG-TERM OPPORTUNITY IN THE MILL
O LOW-COST ROD BILLET AND MERCHANT BILLET SUPPLIER
O FASTER PENETRATION OF MIDSECTION MARKET
[SLIDE 7]
<TABLE>
<CAPTION>
CARTERSVILLE'S PRODUCT RANGE PROVIDES COMPETITIVE ADVANTAGE - ONE-STOP SHOPPING
- -----------------------------------------------------------------------------
COMPETITOR PRODUCT AND SIZE COMPARISON
6" - 12" 3" - 12" 3" - 10" 4" - 8" 5" - 14" 8" - 12" 6" - 12"
CAPACITY C-CHAN MC-CHAN STD. I BEAM ANGLES FLATS MH BEAMS WF BEAMS Z'S & T'S
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BIR 500+ =========== =========== =========== =========== =========== =========== =========== =========
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 =========== =========== =========== =========== =========== =========== ===========
=== PRODUCTS CAN BE ADDED TO CARTERSVILLE WHEN THE MARKET DEMANDS.
(1) NEW ENTRANT 1999.
(2) NEW ENTRANT 2000.
</TABLE>
[SLIDE 8]
A STRONG AND PROVEN MANAGEMENT TEAM
- -----------------------------------------------------------------------------
CHIEF EXECUTIVE OFFICER ROBERT GARVEY (JANUARY 1996)
CEO AT NORTH STAR STEEL FOR 12 YEARS;
BUILT NORTH STAR STEEL INTO THE LEADING
NON-FLAT MINI-MILL PRODUCER
CHIEF OPERATING OFFICER BRIAN HILL (JUNE 1999)
EVP OPERATIONS AT NORTH STAR STEEL
UNDER GARVEY DURING PRIMARY GROWTH
PERIOD; 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 JULY 1999)
SEASONED MINI-MILL OPERATOR;
RESPONSIBLE FOR RECENT SUCCESS AT
BIRMINGHAM'S NORTHERN DIVISION
(KANKAKEE/JOLIET); RECENTLY GIVEN
RESPONSIBILITY FOR CARTERSVILLE
OPERATION
[SLIDE 9]
<TABLE>
<CAPTION>
THE CORE OPERATIONS HAVE SHOWN SUBSTANTIAL IMPROVEMENT
UNDER CURRENT MANAGEMENT...
- -----------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER TON AMOUNTS)
Jim Todd - CEO Bob Garvey - CEO
--------------------------------- -------------------------------------
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 10]
...HAVE OUTPERFORMED THE PRIOR MANAGEMENT...
- -----------------------------------------------------------------------------
RESULTS FROM CORE OPERATIONS(1)
(DOLLARS IN MILLIONS, EXCEPT PER TON AMOUNTS)
AVERAGE AVERAGE
1994 - 1996 1997 - 1999
- -------------------------------------------------------------------------------
SHIPMENTS (000) 1,801 2,410
AVERAGE PRICE/TON $310 $306
SALES 558.3 738.2
EBITDA(2) 68.0 107.8
EBITDA MARGIN % 12.2% 14.6%
- -------------------------------------------------------------------------------
(1) CORE OPERATIONS INCLUDE KANKAKEE, JOLIET, BIRMINGHAM, SEATTLE,
JACKSON AND CARTERSVILLE. FISCAL YEARS ENDING JUNE 30.
(2) EBITDA DOES NOT INCLUDE CARTERSVILLE PRE-OPERATING/START-UP COSTS.
[SLIDE 11]
...AND HAVE PERFORMED WELL 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)
<TABLE>
<CAPTION>
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 12]
BACKGROUND AND BENEFITS OF THE
STRATEGIC
RESTRUCTURING
[TITLE SLIDE]
ORIGINS OF CURRENT SBQ CHALLENGES
- -----------------------------------------------------------------------------
BIRMINGHAM'S CURRENT CHALLENGES ARE LARGELY ATTRIBUTABLE TO PAST
ERRORS MADE BY JAMES TODD AND HIS SENIOR MANAGEMENT PRIOR TO
BOB GARVEY'S ARRIVAL
O FAILURE TO COMPLETE AN APPROPRIATE MARKET STUDY
O SUB-OPTIMAL FURNACE SIZE FOR SBQ
O INABILITY TO DIRECT CAST BILLETS
O INADEQUATE EVALUATION OF EQUIPMENT
O FAILURE TO INCLUDE CUT-TO-LENGTH CAPABILITIES
O FAILURE TO BUILD A MELT SHOP WHEN NEEDED
O DRI PURCHASE COMMITMENT
[SLIDE 13]
OPERATION OF THE SBQ ASSETS IS NOT THE PROBLEM
- -----------------------------------------------------------------------------
THERE IS A FUNDAMENTAL MISALIGNMENT BETWEEN THE COMPANY'S SBQ ASSETS AND
MARKET REQUIREMENTS AS A RESULT OF FAULTY PLANNING BY PRIOR MANAGEMENT
0 THE LACK OF CUT-TO-LENGTH CAPABILITIES ELIMINATES THE COMPANY'S
ACCESS TO AN ESTIMATED 70-80% OF THE OVERALL SBQ MARKET
- WITH ONE MILLION TONS OF BILLETS FROM MEMPHIS, THE SBQ DIVISION
WOULD NEED TO CAPTURE APPROXIMATELY 60% OF THE NON CUT-TO-LENGTH
COIL MARKET
O ONLY AN ESTIMATED 30% OF THE SBQ MARKET REQUIRES THE SIGNIFICANTLY
MORE EXPENSIVE BLOOM CAST BILLETS CURRENTLY PRODUCED AT MEMPHIS
- MANAGEMENT ESTIMATES THAT IT INCURS A $40 PER TON COST PENALTY AS
A RESULT OF NOT HAVING DIRECT CAST CAPABILITIES
O THE HIGHER-QUALITY SCRAP SUBSTITUTE, DIRECT REDUCED IRON ("DRI"), IS
NOT REQUIRED FOR 50-70% OF THE DIVISION'S CUSTOMERS
- THE COMPANY'S PURCHASE OBLIGATION FOR DRI ADDS AN APPROXIMATE
$30 PER TON COST PENALTY TO STEEL GRADES THAT DO NOT REQUIRE THE
INCREMENTAL QUALITY
MANAGEMENT ESTIMATES THAT IT WOULD COST UPWARDS OF $100 MILLION TO REALIGN
THE SBQ ASSETS AND MAKE THE DIVISION COMPETITIVE AND PROFITABLE - THE COMPANY
IS NOT FINANCIALLY POSITIONED TO MAKE THIS COMMITMENT
[SLIDE 14]
WHY SELL SBQ OPERATIONS NOW?
- -----------------------------------------------------------------------------
BOARD AND MANAGEMENT HAVE ACTIVELY REVIEWED A BROAD RANGE OF
STRATEGIC OPTIONS FOR THE SBQ DIVISION OVER THE PAST YEAR
O OPERATIONAL RAMP-UP HAS REVEALED THAT OPTIMIZATION REQUIRES
SIGNIFICANT CAPITAL AND MANAGEMENT RESOURCES
O OPERATING RESULTS OF SBQ DIVISION HAVE SIGNIFICANTLY UNDERMINED
THE COMPANY'S FINANCIAL PERFORMANCE AND INCREASED DEBT LEVELS
O CONTINUED FOCUS ON THE SBQ PRODUCT POSES MANY SIGNIFICANT RISKS
O OTHER MARKET SEGMENTS PRESENT BETTER GROWTH AND PROFIT OPPORTUNITIES
O SBQ SECTOR IS CONSOLIDATING - MEANINGFUL INTEREST IS BEING EXPRESSED
SALE OF SBQ OPERATIONS WILL BEST POSITION
THE COMPANY TO BUILD STOCKHOLDER VALUE
[SLIDE 15]
KEY ELEMENTS OF STRATEGIC RESTRUCTURING
- -----------------------------------------------------------------------------
O DIVEST NON-CORE OPERATIONS (SBQ, AMERICAN IRON REDUCTION); REVIEW
OPTIONS FOR PACIFIC COAST RECYCLING
O ACCELERATE CARTERSVILLE START-UP INITIATIVES - GOAL OF PROFITABLE
MILL BY MID-FY 2000
O CONTINUE TO DRIVE PRODUCTIVITY AND PROFITABILITY IN CORE
MINI-MILL OPERATIONS
O CONTINUE TO REDUCE DEBT LEVELS TO RESTORE FINANCIAL FLEXIBILITY
BIRMINGHAM'S STRATEGIC RESTRUCTURING HAS ALREADY RETURNED THE
COMPANY TO NET PROFITABILITY
[SLIDE 16]
KEY FINANCIAL BENEFITS OF THE RESTRUCTURING
- -----------------------------------------------------------------------------
THE STRATEGIC RESTRUCTURING WILL IMMEDIATELY STRENGTHEN THE
COMPANY'S BALANCE SHEET AND IMPROVE CASH FLOW
O STRENGTHENS CASH FLOW BY ELIMINATING SBQ OPERATING LOSSES
O REDUCES DEBT WITH NET PROCEEDS OF ASSETS SALES
O RETURNS CAPITAL SPENDING TO MORE NORMALIZED LEVELS (APPROXIMATELY
$20 - $30 MILLION)
O REDUCES NEED FOR WORKING CAPITAL (LOWER BILLET INVENTORY)
O SIGNIFICANTLY STRENGTHENS CREDIT RATIOS
O INTEREST RATES WILL INCREASE IF STRATEGIC RESTRUCTURING IS NOT PURSUED.
[SLIDE 17]
FAILURE TO PURSUE RESTRUCTURING POSES SIGNIFICANT RISKS
- -----------------------------------------------------------------------------
O PENDING DIVESTITURE, THE SBQ DIVISION WILL BE A NET USER OF CASH
FOR FORESEEABLE FUTURE
O SBQ DIVISION REQUIRES SIGNIFICANT ADDITIONAL RESOURCES - WHICH
THE COMPANY DOES NOT HAVE - TO BE OPERATIONALLY COMPETITIVE
0 INCREASING PRODUCTION WITHOUT ADDRESSING FUNDAMENTAL ISSUES RELATING
TO ALIGNMENT OF ASSETS WILL INCREASE - RATHER THAN DECREASE - CASH
NEEDS OF SBQ DIVISION
O NO ASSURANCE THAT MARKET WILL TURN AT ANY TIME IN THE NEAR FUTURE
[SLIDE 18]
ANALYSTS SUPPORT THE RESTRUCTURING
- -----------------------------------------------------------------------------
O "BIRMINGHAM STEEL HAS ANNOUNCED A LONG-OVERDUE RESTRUCTURING
WHEREBY THE COMPANY WILL SEEK TO DIVEST SEVERAL UNPROFITABLE
BUSINESSES AND FOCUS ON ITS CORE OPERATIONS." (LARRY BENN, GOLDMAN
SACHS & CO., 8/19/99)
O ". . . THE DIVESTITURE OF THESE BUSINESSES SHOULD HAVE A
SIGNIFICANTLY POSITIVE IMPACT ON THE COMPANY'S EBITDA." (LARRY
BENN, GOLDMAN SACHS & CO., 8/19/99)
O ". . . WE BELIEVE THE DIVESTITURE [OF THE SBQ DIVISION] WOULD BE
ADDITIVE UNDER ALMOST ANY TRANSACTION SCENARIO." (MICHAEL S.
MICHALISIN/MICHELE KEDEM, DEUTSCHE BANC ALEX. BROWN, 9/16/99)
O "IT HAS BEEN THE SBQ DIVISION THAT HAS BEEN THE ISSUE FOR THE
COMPANY. I SEE THIS [THE SALE OF THE DIVISION] AS A POSITIVE
MOVE." SCOTT MORRISON, DONALDSON, LUFKIN & JENRETTE (IN THE
BIRMINGHAM NEWS, 8/19/99)
NOTE: PERMISSION TO USE THESE QUOTATIONS WAS NEITHER SOUGHT NOR GRANTED.
[SLIDE 19]
AGREEMENT REACHED WITH LENDERS
- -----------------------------------------------------------------------------
BIRMINGHAM STEEL'S REVISED AGREEMENTS WITH ITS BANKS AND PRIVATE
LENDERS WERE A VOTE OF CONFIDENCE IN THE COMPANY, ITS BOARD AND
MANAGEMENT, AND THE STRATEGIC RESTRUCTURING
O AVAILABLE LINES MAINTAINED AT $300 MILLION EFFECTIVE JANUARY 1,
2000, PROVIDING LIQUIDITY TO MEET THE COMPANY'S NEEDS
O INTEREST RATES ON THE BORROWINGS INCREASED AND COLLATERAL PROVIDED
TO THE LENDERS
O AGREEMENTS - AS REQUIRED BY OUR LENDERS - CONTINUE TO PROVIDE THAT
DEBT BECOMES DUE AND PAYABLE UPON A CHANGE OF CONTROL
O DECISION AS TO IMPACT OF CHANGE OF CONTROL IS WITH LENDERS AND NOT
THE BOARD OF DIRECTORS
[SLIDE 20]
DIVESTITURE UPDATE - SBQ OPERATIONS
- -----------------------------------------------------------------------------
O CREDIT SUISSE FIRST BOSTON DIRECTING SALES PROCESS WITH ASSISTANCE
FROM BANC OF AMERICA SECURITIES
O INITIAL CONTACTS MADE
O SELLING MEMORANDA DISTRIBUTED
O TARGETED THREE TO SIX MONTH SALES PROCESS
O MANAGEMENT ADDRESSING CURRENT OPERATING ISSUES AT MEMPHIS AND
CLEVELAND TO MAXIMIZE ASSET VALUES DURING SALES PROCESS WHILE
MINIMIZING CASH REQUIREMENTS
O NO FURTHER ASSET WRITE-DOWNS ASSOCIATED WITH THE SBQ OPERATIONS
ARE ANTICIPATED
[SLIDE 21]
THE UNITED GROUP SOLICITATION
[TITLE SLIDE]
BACKGROUND
- -----------------------------------------------------------------------------
AFTER REJECTING BIRMINGHAM STEEL'S EFFORTS TO AVOID A COSTLY AND DISRUPTIVE
PROXY CONTEST, A DISSIDENT STOCKHOLDER GROUP OWNING LESS THAN 8% OF THE
COMPANY'S STOCK IN EFFECT DEMANDED THE KEYS TO THE COMPANY
INITIAL 13D O DISSIDENT GROUP LED BY JAMES MCGLOTHLIN OF THE
PROPOSAL UNITED COMPANY AND JAMES TODD, JR., FORMERLY
OF BIRMINGHAM
O PROPOSAL TO NOMINATE JOHN CORRENTI AS CHAIRMAN AND CEO
O REJECTED COMPANY'S EFFORTS TO AVOID COSTLY AND
DISRUPTIVE PROXY CONTEST
PROXY O NOMINATED SLATE OF 9 DIRECTORS, 7 WITH NO STEEL
FILING INDUSTRY EXPERIENCE, 3 ON BOARD OF BANKRUPT
HARNISCHFEGER
O NO CLEAR STRATEGY TO INCREASE STOCKHOLDER VALUE
[SLIDE 22]
OBSERVATIONS
- -----------------------------------------------------------------------------
CHANGING THE BOARD AND MANAGEMENT NOW IS NOT IN THE BEST INTEREST
OF THE VAST MAJORITY OF BIRMINGHAM STEEL'S STOCKHOLDERS
O BIRMINGHAM'S BOARD AND MANAGEMENT ARE EXPERIENCED AND FOCUSED:
O CORE MINI-MILL OPERATIONS ARE PROFITABLE AND WELL-POSITIONED
O CLEAR RESTRUCTURING PLAN FOCUSES THE COMPANY ON THOSE OPERATIONS
O CHANGE WOULD BE DISRUPTIVE AND WOULD JEOPARDIZE VALUE CREATED BY
THE RESTRUCTURING
O THE DISSIDENT GROUP'S PROPOSAL FAILS BECAUSE:
O WRONG "PLAN"/NO PLAN
O WRONG TEAM
O WRONG TIME
[SLIDE 23]
THE WRONG "PLAN"/NO PLAN
- -----------------------------------------------------------------------------
O THE UNITED GROUP HAS NOT PUT FORTH ANY MEANINGFUL STRATEGIC OR
OPERATIONAL PLAN
O THE UNITED GROUP'S "PLAN" ESSENTIALLY IS TO:
O HIRE AND HOPE - BY:
O HIRING
O CORRENTI
O AN AS-YET-UNIDENTIFIED NEW MANAGEMENT TEAM
O CONSULTANTS
AND
O HOPING THEY CAN FIGURE OUT HOW TO ADD VALUE
O ELEMENTS OF THE DISSIDENTS "PLAN" INCLUDE:
O OPERATING CORE FACILITIES AT OR ABOVE NAMEPLATE CAPACITY
- WHICH WE ALREADY DO!
O "FIXING" MEMPHIS - NOT SO EASY AND OPERATIONS STILL COSTLY!
[SLIDE 24]
THE WRONG "PLAN"/NO PLAN
- -----------------------------------------------------------------------------
O RE-ESTABLISHING SERVICE CENTER RELATIONSHIPS - ALREADY
STRONG SERVICE CENTER RELATIONSHIPS WITH INCREASING VOLUMES
O "FIXING" CARTERSVILLE - CARTERSVILLE ON TRACK TO
PROFITABILITY
O RETAINING SBQ FOR FORSEEABLE FUTURE - CANNOT AFFORD TO
POSTPONE SALE
O "FIXING" THE BALANCE SHEET - WITHOUT OFFERING NEW EQUITY
O "ATTEMPTING" TO BE AN INDUSTRY CONSOLIDATOR - BUT
RESOURCES ARE LIMITED
O THE UNITED GROUP ADMITS THAT IT CURRENTLY HAS NO SPECIFIC PLANS - AT LEAST
THIS IS ACCURATE
[SLIDE 25]
WHO IS JOHN CORRENTI?
- -----------------------------------------------------------------------------
JOHN CORRENTI IS NOT BIRMINGHAM'S SAVIOR
O NO KEN IVERSON
O HISTORY OF FAILED PROJECTS AND BROKEN PROMISES
O TRINIDAD, IRON CARBIDE - ESTIMATED COST: $120 MILLION VS.
BUDGETED $65 MILLION
O "[THE] NEW TRINIDADIAN IRON CARBIDE PLANT HAS BEEN PLAGUED
BY BREAKDOWNS AND DELAYS....THEY TRIED TO BUILD IT TOO FAST
AND WITHOUT AS MUCH ENGINEERING AS THEY NEEDED..." (BUSINESS
WEEK, 6/5/95)
O BERKELEY, S.C. PLANT - ESTIMATED COST: $550 MILLION VS. BUDGETED
$450 MILLION
O "NUCOR'S EARNINGS DECLINED [BECAUSE OF] UNUSUALLY HIGH
START-UP COSTS--IT STARTED UP THE NEW BERKELEY FLAT-
ROLLED MILL, HAD CONTINUED PROBLEMS WITH ITS [TRINIDAD]
FACILITY..." (MORGAN STANLEY DEAN WITTER, 6/5/97)
O "...THE BERKELEY MILL'S CAPITAL COST OF $550 MILLION WAS
SIGNIFICANTLY MORE EXPENSIVE THAN ANY OTHER NUCOR MILL..."
(DONALDSON, LUFKIN & JENRETTE, 8/2/99)
NOTE: PERMISSION TO USE THESE QUOTATIONS WAS NEITHER SOUGHT NOR GRANTED.
[SLIDE 26]
WHO IS JOHN CORRENTI?
- -----------------------------------------------------------------------------
O FLAWED MANAGEMENT STYLE
O FAILED MANAGEMENT STRUCTURE (22 DIRECT REPORTS AT NUCOR)
O "HAVING NO PRODUCT MANAGERS AND ALL PLANT MANAGERS AS
DIRECT REPORTS TO CEO WAS NOT A SIGN OF STRENGTH."
(DONALDSON, LUFKIN & JENRETTE, 8/2/99)
O NO RETURN ANALYSIS ON EXISTING BUSINESSES AND NO LONG-TERM
GROWTH PLANNING
O POOR SAFETY AND ENVIRONMENTAL RECORD
O FROM 1987 - 1991, WHILE CORRENTI WAS VICE-PRESIDENT AND
GENERAL MANAGER OF NUCOR-YAMATO, THREE OSHA
INVESTIGATIONS RESULTED IN 17 CITATIONS (EIGHT OF WHICH
WERE DESIGNATED "SERIOUS"). (OSHA)
O FORCED OUT OF NUCOR
WHY WOULD JOHN CORRENTI'S MANAGEMENT STYLE SUCCEED
AT BIRMINGHAM WHEN IT FAILED AT NUCOR?
NOTE: PERMISSION TO USE THESE QUOTATIONS WAS NEITHER SOUGHT NOR GRANTED.
[SLIDE 27]
WHO IS JOHN CORRENTI?
- -----------------------------------------------------------------------------
O NO EXPERIENCE RUNNING A LEVERAGED COMPANY
O EXCESSIVE PAY PACKAGE
O SALARY.................................................$600,000
O BONUS EQUAL TO 1% OF EBITDA(1)........................1,080,000
O 1 MILLION BELOW-MARKET OPTIONS(2)................... 2,120,000
-----------
$3,800,000
(1) BASED ON CSFB EQUITY RESEARCH FOR 2000 CORE OPERATION EBITDA OF $108
MILLION. BONUS CALCULATION IN CONTRACT EXCLUDES EARNINGS FROM ASSETS
HELD FOR SALE.
(2) BASED ON INTRINSIC VALUE OF $2.12 PER SHARE, THE DIFFERENCE BETWEEN
THE TRADING PRICE OF $7.00 (10/20/99) AND THE EXERCISE PRICE OF $4.88
AS STATED IN THE UNITED GROUP'S 13D FILING.
[SLIDE 28]
SELECTED COMMENTS OF JOHN CORRENTI
- -----------------------------------------------------------------------------
O "IT'S A PROBLEM A MONTH." --CORRENTI COMMENT ON THE TRINIDAD IRON
CARBIDE MILL THAT, ACCORDING TO BUSINESS WEEK, HAD BEEN "PLAGUED
BY BREAKDOWNS AND DELAYS." (BUSINESS WEEK, JUNE 5, 1995)
O "IF WE HAD TO DO THE DECISION AGAIN TODAY, WE'D BUILD ANOTHER
IRON-CARBIDE PLANT IN TRINIDAD [BUT] WE MIGHT HAVE ENGINEERED A
LITTLE MORE DILIGENTLY." (NEW STEEL, APRIL 1997)
O "NONE OF NUCOR'S PROJECTS COMES IN ON BUDGET, CORRENTI SAID. 'THEY
ALL OVERRUN,' HE SAID. 'ANYBODY WHO SAYS THEY DON'T IS LYING.'"
(NEW STEEL, JULY 1998)
NOTE: PERMISSION TO USE THESE QUOTATIONS WAS NEITHER SOUGHT NOR GRANTED.
[SLIDE 29]
WHY NUCOR FORCED OUT CORRENTI:
COMMENTS BY CHAIRMAN H. DAVID AYCOCK
- -----------------------------------------------------------------------------
O "I'D COME TO SEE CONSIDERABLE DEFICIENCIES BASED ON IMPULSE
DECISIONS...YOU NEeD MORE INFORMATION, MORE STRUCTURE AND A BETTER
DECISION-MAKING PROCESS." (BUSINESS JOURNAL OF CHARLOTTE, JUNE 19,
1999)
O "WE'VE HAD IMPULSIVE MANAGEMENT FOR SO LONG, BUT WE'RE AT A DIFFERENT
PLATEAU NOW." (BUSINESS WEEK, JUNE 21, 1999)
O "THE EARNINGS [AT NUCOR] HAVE BEEN DECLINING. AND THE RETURN ON ASSETS
HAS BEEN IN DECLINE FOR SOME TIME. PART OF THAT WAS MANAGEMENT STYLE."
(BUSINESS JOURNAL OF CHARLOTTE, JUNE 19, 1999)
O "THE BOARD SAID THINGS HAVE TO CHANGE. WE COULD NOT HAVE A COMPANY
THAT WAS DRIFTING...THERE WAS NO EFFORT tO DEVELOP A STRATEGIC PLAN TO
CARRY THE COMPANY FORWARD TO THE NEXT CENTURY...THERE [HAVE] BEEN NO
SIGNIFICANT INNOVATION AND DEVELOPMENTS IN THE COMPANY SINCE THE VERY
EARLY 1990S." (CHARLESTON POST AND COURIER, JUNE 5, 1999)
NOTE: PERMISSION TO USE THESE QUOTATIONS WAS NEITHER SOUGHT NOR GRANTED
[SLIDE 30]
WHY NUCOR FORCED OUT CORRENTI:
FURTHER COMMENT BY NUCOR CFO SAM SIEGEL
- -----------------------------------------------------------------------------
O "THEY [IVERSON AND CORRENTI] ARE BOTH GOOD COMMUNICATORS, VERY
PERSONABLE, VERY CHARISMATIC, VERY LIKEABLE. HOWEVER THERE WAS A
WORLD OF DIFFERENCE BETWEEN MR. IVERSON BEFORE HIS MEDICAL DECLINE
AND MR. CORRENTI...IN TERMS OF THEIR WHATEVER-IT-TAKES-TO-BE-A-CEO."
(CHARLOTTE OBSERVER, JUNE 27, 1999)
O "CORRENTI HAD 20 OR SO MANAGERS REPORTING TO HIM, AND THT WAS AN
IMPOSSIBLE SITUATION. THE COMPANY LACKED TOP-NOTCH OVERSIGHT."
(WALL STREET JOURNAL, NOVEMBER 15, 1999)
NOTE: PERMISSION TO USE THESE QUOTATIONS WAS NEITHER SOUGHT NOR GRANTED
[SLIDE 31]
CORRENTI DID NOT CREATE STOCKHOLDER VALUE AT NUCOR
- -----------------------------------------------------------------------------
NUCOR STOCK PRICE PERFORMANCE
[Image of a line graph depicting the per share closing price of Nucor
common stock from January 1, 1996, the date on which John Correnti was
appointed CEO of Nucor, and June 4, 1999, the date on which John
Correnti resigned. The price per share of Nucor common stock on January 1,
1996 and June 4, 1999, respectively, was 57 1/8 and 46 7/16.]
EBITDA MARGIN
[Image of a line graph comparing Birmingham Steel Corporation's EBITDA
margins from core operations for fiscal years ending June 30, 1997, 1998
and 1999 against that of Nucor.]
EBITDA Margin EBITDA Margin EBITDA Margin
1997 1998 1999
Birmingham 12.9% 14.1% 16.9%
Nucor 16.4% 15.6% 15.4%
BIRMINGHAM'S EBITDA MARGINS FROM CORE OPERATIONS HAVE
IMPROVED DRAMATICALLY SINCE 1997, UNLIKE THOSE OF NUCOR
[SLIDE 32]
BIRMINGHAM'S CURRENT BOARD IS SUPERIOR TO SLATE PROPOSED
BY THE UNITED GROUP
- -----------------------------------------------------------------------------
O CURRENT BIRMINGHAM BOARD COMPOSED OF EIGHT INDEPENDENT DIRECTORS AND
GARVEY
O BIRMINGHAM'S BOARD MEMBERS INCLUDE FORMER CEO'S OF UNION CARBIDE, TEXACO,
LTV, ASARCO, AND EATON
O 7 OF THE 9 UNITED GROUP NOMINEES HAVE NO STEEL INDUSTRY EXPERIENCE
O 3 OF 9 NOMINEES, INCLUDING CORRENTI, CURRENTLY SERVE ON THE BOARD OF
HARNISCHFEGER, WHICH RECENTLY FILED FOR BANKRUPTCY
[SLIDE 33]
THE WRONG TIME
- -----------------------------------------------------------------------------
O THE UNITED GROUP IS SEEKING TO GAIN CONTROL OF BIRMINGHAM STEEL AT THE
BOTTOM OF THE CYCLE WITHOUT PROVIDING ALL OTHER STOCKHOLDERS WITH ANY
CHANGE-OF-CONTROL PREMIUM
O CHANGING BIRMINGHAM'S BOARD AND MANAGEMENT NOW WOULD BE COSTLY AND
DISRUPTIVE
O WOULD TRIGGER CHANGE OF CONTROL PROVISIONS IN DEBT INSTRUMENTS
O BIRMINGHAM STEEL ALREADY HAS A HIGHLY QUALIFIED, INDEPENDENT BOARD AND
CAPABLE MANAGEMENT TEAM
O CORE BUSINESS IS STRONG AND PROFITABLE WITH SOLID PROSPECTS
O STRATEGIC RESTRUCTURING PLAN IS IN PLACE AND ALREADY BEING
AGGRESSIVELY IMPLEMENTED - FAILURE TO PURSUE WOULD BE COSTLY
Birmingham Steel is doing what
must be done to build stockholder value
[SLIDE 34]
ADDITIONAL MATERIALS
ORIGINS OF CURRENT S.B.Q. CHALLENGES
- -----------------------------------------------------------------------------
TIMING PRIOR ASSESSMENTS REACTIONS
- -----------------------------------------------------------------------------
1993 AS&W ongoing losses and negative Market assessment and
cash flow acquired by Todd. business analysis was
never completed.
- -----------------------------------------------------------------------------
1993 SBQ industry rationalization Market prices have
temporarily improved prices. fallen to $400/ton
Market prices @ $500/ton and since then.
assumed to be going higher.
- -----------------------------------------------------------------------------
1995 $126 million new coil bar mill Coil product
completed first when new constitutes only 13%
cut-to-length capability (for of market.
87% of market) was necessary.
- -----------------------------------------------------------------------------
1995 Todd signed letter of intent to Commitment creates a
guarantee purchase of 600,000 $30-$50 per ton cost
tons of D.R.I./yr. disadvantage during
the last three years.
- -----------------------------------------------------------------------------
1995 Commitment to construct Memphis Decision creates a
w/o direct billet casting $40/ton cost
capability and again without a disadvantage to
market study. direct billet
casting. Used caster
is not capable of
meeting requirements.
- -----------------------------------------------------------------------------
1993-1996 Inadequate consideration given Supply side cost
to supply side cost structure penalties embedded
(ore, D.R.I., blooms - logistics in current cost
- mill rolling). structure.
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scenario 1 (full production)
December January February March April May June 7 Months
-------- ------- -------- ----- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 repayment (5,593) (6,335) (12,554) (9,197) (2,453) (2,817) ( 1,884) (40,833)
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)
<CAPTION>
Scenario 2 (production scale-back)
December January February March April May June 7 Months
-------- ------- -------- ----- ----- --- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 repayment 4,440 (1,137) (6,569) (3,599) (2,906) (3,780) ( 3,780) (17,331)
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
</TABLE>
SAFE HARBOR
- -----------------------------------------------------------------------------
Except for historical information, the matters described in this
presentation 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.
[SLIDE 35]
