<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 13E-3
(AMENDMENT NO. 1)
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
------------------------
J&L SPECIALTY STEEL, INC.
(NAME OF ISSUER)
------------------------
J&L SPECIALTY STEEL, INC.
ICE ACQUISITION CORP.
USINOR
(NAME OF PERSON(S) FILING STATEMENT)
------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------
466046 10 9
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
<TABLE>
<S> <C>
PATRICK LETOURNEUR KIRK F. VINCENT
ICE ACQUISITION CORP. J&L SPECIALTY STEEL, INC.
USINOR ONE PPG PLACE 18TH FLOOR
13, COURS VALMY P.O. BOX 3373
92070 LA DEFENSE CEDEX, FRANCE PITTSBURGH, PENNSYLVANIA 15230-3373
011-331-41-25-61-88 (412) 338-1600
</TABLE>
(Name, Address and Telephone Number of Persons Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
With Copies to:
<TABLE>
<S> <C> <C>
JOHN J. MADDEN, ESQ. ROBERT C. TREUHOLD, ESQ. JANICE C. HARTMAN, ESQ.
SHEARMAN & STERLING SHEARMAN & STERLING KIRKPATRICK & LOCKHART LLP
599 LEXINGTON AVENUE 114, AVENUE DES CHAMPS-ELYSEES 1500 OLIVER BUILDING
NEW YORK, NEW YORK 10022 75008 PARIS, FRANCE PITTSBURGH, PENNSYLVANIA 15222
(212) 848-4000 011-331-53-89-70-00 (412) 355-6500
</TABLE>
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [X] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [ ]
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
TRANSACTION VALUATION AMOUNT OF FILING FEE
- --------------------------------------------------------------------------------------------------
<S> <C>
$114,928,500.00* $22,985.70**
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</TABLE>
* Calculated by multiplying $6.375, the per share tender offer price, by
18,028,000, the number of currently outstanding shares of Common Stock sought
in the tender offer.
** Calculated as 1/50 of 1% of the transaction value.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $22,985.70 Filing Party:
Usinor and Ice Acquisition Corp.
Form or Registration No.: Schedule 14D-1 Date Filed: November
12, 1998
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<PAGE> 2
INTRODUCTION
This Amendment No. 1 (this "Amendment") to the Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") is being filed by (i) Usinor,
a societe anonyme organized under the laws of the Republic of France ("Parent"),
(ii) Ice Acquisition Corp., a Pennsylvania corporation ("Purchaser") and a
wholly owned subsidiary of Parent, and (iii) J&L Specialty Steel, Inc., a
Pennsylvania corporation (the "Company"), pursuant to Section 13(e) of the
Securities Exchange Act of 1934, as amended, and Rule 13e-3 thereunder in
connection with the tender offer by Purchaser for all the outstanding shares
(the "Shares") of common stock, $0.01 par value, of the Company not already
owned by Parent or any of its affiliates, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated November 12, 1998 (the
"Offer to Purchase") and the related Letter of Transmittal (which together
constitute the "Offer"), copies of which were filed as Exhibits (d)(1) and
(d)(2), respectively, to the Schedule 13E-3.
The following Cross Reference Sheet, prepared pursuant to General
Instruction F to Schedule 13E-3, shows the location in the Tender Offer
Statement on Schedule 14D-1 filed by Parent and Purchaser (the "Schedule 14D-1")
with the Securities and Exchange Commission of the information required to be
included in the Schedule 13E-3. The information set forth in the Schedule 14D-1,
including all exhibits thereto, is hereby expressly incorporated herein by
reference as set forth in the Cross Reference Sheet and the responses in the
Schedule 13E-3, and such responses are qualified in their entirety by reference
to the information contained in the Offer to Purchase and the annexes thereto.
The information contained in the Schedule 13E-3 concerning the Company,
including, without limitation, the information concerning the background of the
transactions, the deliberations of the Company's Board of Directors in
connection with the transaction, the opinion of the Company's financial advisor
and the Company's capital structure and historical financial statements and
projections, was supplied by the Company. Parent and Purchaser take no
responsibility for the accuracy of such information. The information contained
in this Schedule 13E-3 concerning Parent and Purchaser was supplied by Parent
and Purchaser. The Company takes no responsibility for the accuracy of such
information.
2
<PAGE> 3
CROSS REFERENCE SHEET
ITEM IN WHERE LOCATED IN
SCHEDULE 13E-3 SCHEDULE 14D-1
- -------------- ---------------
Item 1(a)..............................................................Item 1(a)
Item 1(b)..............................................................Item 1(b)
Item 1(c)..............................................................Item 1(c)
Item 1(d)......................................................................*
Item 1(e)......................................................................*
Item 1(f)......................................................................*
Item 2(a)..............................................................Item 2(a)
Item 2(b)..............................................................Item 2(b)
Item 2(c)..............................................................Item 2(c)
Item 2(d)..............................................................Item 2(d)
Item 2(e)..............................................................Item 2(e)
Item 2(f)..............................................................Item 2(f)
Item 2(g)..............................................................Item 2(g)
Item 3(a).....................................................Item 3(a) and 3(b)
Item 3(b)..............................................................Item 3(b)
Item 4.........................................................................*
Item 5....................................................................Item 5
Item 6(a)..............................................................Item 4(a)
Item 6(b)......................................................................*
Item 6(c)..............................................................Item 4(b)
Item 6(d)......................................................................*
Item 7(a).................................................................Item 5
Item 7(b)......................................................................*
Item 7(c)......................................................................*
Item 7(d)......................................................................*
Item 8.........................................................................*
Item 9.........................................................................*
Item 10(a).............................................................Item 6(a)
Item 10(b).....................................................................*
Item 11...................................................................Item 7
Item 12(a).....................................................................*
Item 12(b).....................................................................*
Item 13........................................................................*
Item 14........................................................................*
Item 15(a).....................................................................*
Item 15(b)................................................................Item 8
Item 16...............................................................Item 10(f)
Item 17..................................................................Item 11
- ---------------
* The Item is located in the Schedule 13E-3 only.
3
<PAGE> 4
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a)-(c) The response to Item 1(a)-(c) of the Schedule 14D-1 is incorporated
herein by reference.
(d) The information set forth in the Offer to Purchase under "THE TENDER
OFFER -- Section 6. Price Range of Shares; Dividends" is incorporated herein by
reference.
(e) Not applicable.
(f) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger" and "THE TENDER
OFFER -- Section 8. Certain Information Concerning Purchaser and Parent" is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Schedule 13E-3, as amended, is being filed by Parent,
Purchaser and the Company. The response to Item 2 of the Schedule 14D-1 is
incorporated herein by reference as to Parent and Purchaser. The information
concerning the name, state or other place of organization, principal business
and address of the principal office of Parent, Purchaser and the Company, and
the information concerning the name, business address, present principal
occupation or employment and the name, principal business and address of any
corporation or other organization in which such employment or occupation is
conducted, material occupations, positions, offices or employments during the
last five years and citizenship of each of the executive officers and directors
of Parent, Purchaser and the Company is set forth under "INTRODUCTION", "THE
TENDER OFFER -- Section 7. Certain Information Concerning the Company," "THE
TENDER OFFER -- Section 8. Certain Information Concerning Purchaser and Parent"
and Schedule I of the Offer to Purchase and is incorporated herein by reference.
(e)-(f) The response to Item 2 of the Schedule 14D-1 is incorporated herein
by reference with respect to Parent and Purchaser. During the last five years,
none of Parent, Purchaser or the Company, nor, to the best knowledge of Parent,
Purchaser or the Company, any of the persons listed in Schedule I of the Offer
to Purchase has been (i) convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)-(b) The response to Item 3 of the Schedule 14D-1 is incorporated herein
by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the Offer to Purchase on the cover page
thereof and under "INTRODUCTION", "SPECIAL FACTORS -- Background of the Offer
and the Merger", "SPECIAL FACTORS -- The Merger Agreement", "THE TENDER
OFFER -- Section 1. Terms of the Offer; Expiration Date", "THE TENDER
OFFER -- Section 2. Acceptance for Payment and Payment for Shares", "THE TENDER
OFFER -- Section 3. Procedures for Accepting the Offer and Tendering Shares",
"THE TENDER OFFER -- Section 4. Withdrawal Rights", "THE TENDER OFFER -- Section
10. Dividends and Distributions", "THE TENDER OFFER -- Section 12. Certain
Conditions of the Offer", "THE TENDER OFFER -- Section 13. Certain Legal Matters
and Regulatory Approvals" and "THE TENDER OFFER -- Section 15. Miscellaneous" is
incorporated herein by reference.
(b) Not applicable.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(e) The response to Item 5(a)-(e) of the Schedule 14D-1 is incorporated
herein by reference.
(f)-(g) The response to Item 5(f)-(g) of the Schedule 14D-1 is incorporated
herein by reference.
4
<PAGE> 5
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) The response to Item 4(a) of the Schedule 14D-1 is incorporated herein
by reference.
(b) The information set forth in the Offer to Purchase in "SPECIAL
FACTORS -- Fees and Expenses" and "THE TENDER OFFER -- Section 14. Fees and
Expenses" is incorporated herein by reference.
(c) Not applicable.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The response to Item 5 of the Schedule 14D-1 is incorporated herein by
reference.
(b) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Recommendation of the Company's Board; Fairness of the Offer and the
Merger" and "SPECIAL FACTORS -- Purpose and Structure of the Offer and the
Merger; Reasons of Parent and Purchaser for the Offer and the Merger" is
incorporated herein by reference.
(c)-(d) The information set forth in the Offer to Purchase under
"INTRODUCTION", "SPECIAL FACTORS -- Background of the Offer and the Merger",
"SPECIAL FACTORS -- Recommendation of the Company's Board; Fairness of the Offer
and the Merger", "SPECIAL FACTORS -- Purpose and Structure of the Offer and the
Merger; Reasons of Parent and Purchaser for the Offer and the Merger", "SPECIAL
FACTORS -- Plans for the Company After the Offer and the Merger; Certain Effects
of the Offer", "THE TENDER OFFER -- Section 5. Certain U.S. Federal Income Tax
Consequences" and "THE TENDER OFFER -- Section 11. Effect of the Offer on the
Market for the Shares, the NYSE and the Exchange Act Registration" is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth in the Offer to Purchase under
"INTRODUCTION", "SPECIAL FACTORS -- Background of the Offer and the Merger",
"SPECIAL FACTORS -- Recommendation of the Company's Board; Fairness of the Offer
and the Merger", "SPECIAL FACTORS -- Opinion of Lehman Brothers Inc.", "SPECIAL
FACTORS -- Position of Parent and Purchaser Regarding Fairness of the Offer and
the Merger" and "SPECIAL FACTORS -- Purpose and Structure of the Offer and the
Merger; Reasons of Parent and Purchaser for the Offer and the Merger" is
incorporated herein by reference.
(f) Not applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger", "SPECIAL
FACTORS -- Recommendation of the Company's Board; Fairness of the Offer and the
Merger", "SPECIAL FACTORS -- Opinion of Lehman Brothers Inc.", "SPECIAL
FACTORS -- Position of Parent and Purchaser Regarding Fairness of the Offer and
the Merger", "SPECIAL FACTORS -- Analysis of Financial Advisor to Parent" and in
Schedule II is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The response to Item 6(a) of the Schedule 14D-1 is incorporated herein
by reference.
(b) Not applicable.
5
<PAGE> 6
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The response to Item 7 of the Schedule 14D-1, the information set forth in
the Offer to Purchase under "SPECIAL FACTORS -- Beneficial Ownership of Common
Stock" and the information set forth in the Offer to Purchase under "THE TENDER
OFFER -- Section 7. Certain Information Concerning the Company" are incorporated
herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE OFFER AND THE MERGER.
(a)-(b) The information set forth in the Offer to Purchase under
"INTRODUCTION", "SPECIAL FACTORS -- Background of the Offer and the Merger",
"SPECIAL FACTORS -- Recommendation of the Company's Board; Fairness of the Offer
and the Merger", "SPECIAL FACTORS -- Opinion of Lehman Brothers Inc.", "SPECIAL
FACTORS -- Interests of Certain Persons in the Offer and the Merger" and
"SPECIAL FACTORS -- Beneficial Ownership of Common Stock" is incorporated herein
by reference.
ITEM 13. OTHER PROVISIONS OF THE OFFER AND THE MERGER.
(a) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Rights of Shareholders in the Offer and Merger", "SPECIAL FACTORS
- --The Merger Agreement" and in Schedule III is incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in the Offer to Purchase under "THE TENDER
OFFER -- Section 7. Certain Information Concerning the Company" is incorporated
herein by reference. In addition, the Company's audited financial statements for
the fiscal years ended December 31, 1997, 1996 and 1995, and the Company's
unaudited financial statements for the three-month and six-month periods ended
June 30, 1998 and June 30, 1997, are attached to the Offer to Purchase as
Schedules IV and V thereto, respectively.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in the Offer to Purchase under "SPECIAL
FACTORS -- Background of the Offer and the Merger", "SPECIAL
FACTORS -- Recommendation of the Company's Board; Fairness of the Offer and the
Merger", "SPECIAL FACTORS -- Plans for the Company After the Offer and the
Merger; Certain Effects of the Merger" and "THE TENDER OFFER -- Section 11.
Effect of the Offer on the Market for the Shares, the NYSE and Exchange Act
Registration" is incorporated herein by reference.
(b) The response to Item 8 of the Schedule 14D-1 is incorporated herein by
reference.
ITEM 16. ADDITIONAL INFORMATION.
The response to Item 10(f) of the Schedule 14D-1 is incorporated herein by
reference.
6
<PAGE> 7
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a) Not applicable.
(b)(1) Opinion of Lehman Brothers Inc. dated November 5, 1998
(attached as Schedule II to the Offer to Purchase).*
(b)(2) Presentation of Lehman Brothers Inc. dated November 5, 1998.
(b)(3) Presentation of Morgan Stanley & Co. Incorporated dated
October 29, 1998.**
(c) Agreement and Plan of Merger, dated as of November 5, 1998
among Parent, Purchaser and the Company.*
(d)(1) Form of Offer to Purchase dated November 12, 1998.*
(d)(2) Form of Letter of Transmittal.*
(d)(3) Form of Notice of Guaranteed Delivery.*
(d)(4) Form of Letter from Morgan Stanley & Co. Incorporated to
Brokers, Dealers, Commercial Banks, Trust Companies and
Nominees.*
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.*
(d)(6) Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form-9.*
(d)(7) Summary Advertisement as published in The Wall Street
Journal on November 12, 1998.*
(d)(8) Joint Press Release issued by Parent and the Company on
November 5, 1998.*
(e) Sections 1930(a) and 1571-80 (Subchapter D of Chapter 15) of
the Pennsylvania Business Corporation Law (attached as
Schedule III to the Offer to Purchase).*
(f) Not applicable.
</TABLE>
- ---------------
* Incorporated by reference to the Statement on Schedule 14D-1 filed by Parent
and Purchaser on November 12, 1998.
** Previously filed.
7
<PAGE> 8
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
November 12, 1998
USINOR
By: /s/ ROBERT HUDRY
------------------------------------
Name: Robert Hudry
Title: Chief Financial Officer
8
<PAGE> 9
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
November 12, 1998
ICE ACQUISITION CORP.
By: /s/ ROBERT HUDRY
------------------------------------
Name: Robert Hudry
Title: Vice President
9
<PAGE> 10
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
November 12, 1998
J&L SPECIALTY STEEL, INC.
By: /s/ EUGENE A. SALVADORE
------------------------------------
Name: Eugene A. Salvadore
Title: President and Chief
Executive Officer
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
(a) Not applicable.
(b)(1) Opinion of Lehman Brothers Inc. dated November 5, 1998
(attached as Schedule II to the Offer to Purchase).*
(b)(2) Presentation of Lehman Brothers Inc. dated November 5, 1998.
(b)(3) Presentation of Morgan Stanley & Co. Incorporated dated
October 29, 1998.**
(c) Agreement and Plan of Merger, dated as of November 5, 1998,
among Parent, Purchaser and the Company.*
(d)(1) Form of Offer to Purchase dated November 12, 1998.*
(d)(2) Form of Letter of Transmittal.*
(d)(3) Form of Notice of Guaranteed Delivery.*
(d)(4) Form of Letter from Morgan Stanley & Co. Incorporated to
Brokers, Dealers, Commercial Banks, Trust Companies and
Nominees.*
(d)(5) Form of Letter from Brokers, Dealers, Commercial Banks,
Trust Companies and Nominees to Clients.*
(d)(6) Form of Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.*
(d)(7) Summary Advertisement as published in The Wall Street
Journal on November 12, 1998.*
(d)(8) Joint Press Release issued by Parent and the Company on
November 5, 1998.*
(e) Sections 1930(a) and 1571-80 (Subchapter D of Chapter 15) of
the Pennsylvania Business Corporation Law (attached as
Schedule III to the Offer to Purchase).*
(f) Not applicable.
</TABLE>
- ---------------
* Incorporated by reference to the Statement on Schedule 14D-1 filed by Parent
and Purchaser on November 12, 1998.
** Previously filed.
11
<PAGE> 1
EXHIBIT (b)(2)
CONFIDENTIAL
Presentation to:
The Board of Directors of
[J&L LOGO]
J&L SPECIALTY STEEL, INC.
Final Report
November 5, 1998
-------------------------------------
[LEHMAN BROTHERS LOGO]
-------------------------------------
<PAGE> 2
TABLE OF CONTENTS
I. INTRODUCTION
II. SITUATION OVERVIEW
III. EQUITY MARKET PROFILE
IV. VALUATION ANALYSIS
EXHIBIT
I. DISCOUNTED CASH FLOW ANALYSIS
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LEHMAN BROTHERS J&L Specialty Steel, Inc.
<PAGE> 3
I. INTRODUCTION
- --------------------------------------------------------------------------------
LEHMAN BROTHERS J&L Specialty Steel, Inc.
<PAGE> 4
INTRODUCTION
- - Lehman Brothers is pleased to meet with the Board of Directors of J&L
Specialty Steel, Inc. ("J&L" or the "Company") to discuss our valuation
analysis of J&L in the context of the latest proposal put forth by Groupe
Usinor, SA ("Usinor") to buy in the outstanding publicly-held shares
representing 47% of the Company (the "non-Usinor" shares) for $6.375 per
share.
- - In order to perform an assessment of the value of J&L's common stock in
the context of the proposal by Usinor, we have undertaken the following
steps:
-- Met with senior management on September 29, 1998 in Pittsburgh, PA
for management presentations and formal due diligence concerning
J&L's business plan and operating strategy
-- Toured the facilities located in Midland, PA on September 29, 1998
-- Reviewed publicly available information on J&L
-- Reviewed management's short-term business plan and long-term
financial projections
-- Spoke with management telephonically on several occasions during the
weeks of October 5, October 12 and October 19, 1998 to review the
Company's financial projections, liquidity position and capital
requirements
-- Held a series of teleconference calls during the period October 5,
1998 through October 26, 1998 with Morgan Stanley, Usinor's
financial advisor
-- Reviewed Company's preliminary, unaudited financial statements for
the third quarter ended September 30, 1998
- -------------------------------------------------------------------------------
LEHMAN BROTHERS I - 1 J&L Specialty Steel, Inc.
<PAGE> 5
INTRODUCTION
- - We have prepared the following information and analyses for purposes of
today's meeting:
-- A profile of the stainless steel industry and the key industry
trends impacting stainless producers
-- An assessment of J&L's strengths and weaknesses
-- Summary of J&L's historical and year-to-date financial performance
-- Summary of management's financial projections
-- J&L's equity market profile
-- Valuation of J&L
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LEHMAN BROTHERS I - 2 J&L Specialty Steel, Inc.
<PAGE> 6
II. SITUATION OVERVIEW
- -------------------------------------------------------------------------------
LEHMAN BROTHERS J&L Specialty Steel, Inc.
<PAGE> 7
SITUATION OVERVIEW
STAINLESS STEEL INDUSTRY PROFILE
- - Industry pricing is at the lowest levels seen in 10 years, with J&L's
average selling prices having fallen by more than 35% over the past two
years
-- Nickel prices at lowest level in over 11 years
- - Excess global stainless capacity
- - Demand under pressure
-- Decline in exports to Asia
-- Global recession (will U.S. and Europe slide into recession?)
- - Trade cases
-- Preliminary ITC rulings favorable
-- October price increases of 4%-5% have been announced
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 1 J&L Specialty Steel, Inc.
<PAGE> 8
SITUATION OVERVIEW
STAINLESS STEEL INDUSTRY PROFILE (CONT'D)
- - The historical volatility and high correlation of stainless steel and
nickel prices is evident from the chart below, with the peak in 1995 -
1996 corresponding with the most profitable year in J&L's history
STAINLESS STEEL TRANSACTION PRICES - GRADE 304 CR
<TABLE>
<CAPTION>
USA Price Germany Germany
U.S. Grade 304 incl. surcharge incl. surcharge
Cold Rolled Stainless Nickel Spot Price US $/tonne DM/kg
--------------------- ----------------- ---------- -----
<S> <C> <C> <C> <C>
3Q87 1894 3285 2012 3.70
4Q87 2049 4970 2169 3.70
1Q88 2298 20000 2405 4.03
2Q88 3001 14500 2483 4.24
3Q88 3521 11500 2829 5.28
4Q88 3074 17900 3283 5.83
1Q89 3033 15350 3001 5.55
2Q89 3206 12600 3409 6.59
3Q89 2892 10800 2881 5.54
4Q89 2735 8300 2460 4.46
1Q90 2577 9200 1774 3.00
2Q90 2449 8710 1877 3.15
3Q90 2581 10300 2259 3.60
4Q90 2604 8175 2905 4.36
1Q91 2670 9056 2679 4.10
2Q91 2588 8465 2386 4.14
3Q91 2537 7460 2202 3.84
4Q91 2204 7175 2223 3.62
1Q92 2174 7380 2118 3.43
2Q92 2160 7490 2044 3.30
3Q92 2161 6682 2337 3.42
4Q92 2227 5920 2097 3.25
1Q93 2271 6105 2000 3.27
2Q93 2359 5347 2009 3.25
3Q93 2359 4012 1944 3.15
4Q93 2308 5295 1538 2.63
1Q94 2250 5575 1581 2.72
2Q94 2330 6192 1840 3.00
3Q94 2382 6415 2224 3.47
4Q94 2518 8870 2390 3.68
1Q95 2734 7670 2899 4.28
2Q95 2945 8345 3196 4.46
3Q95 2998 8408 3152
4Q95 2865 8094 3030
1Q96 2600 8024 2239
2Q96 2448 7712 1958
3Q96 2247 7010 1727
4Q96 2134 6584 1790
1Q97 2134 7590 1719
2Q97 2239 6790 1943
3Q97 2199 6776 1852
4Q97 2043 5980 1891
1Q98 1914 5473 1741
2Q98 1872 4323 1639
3Q98 1841 4025
4Q98
</TABLE>
Sources: Cold Rolled Stainless data per CRU Monitor, Nickel data per Bloomberg.
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 2 J&L Specialty Steel, Inc.
<PAGE> 9
SITUATION OVERVIEW
================================================================================
BUSINESS PROFILE: STRENGTHS
- - Participation in the high growth stainless steel sector
- - Affiliation with Usinor (Ugine) in serving global automotive and appliance
customers
- - Newly completed DRAP line provides J&L with state-of-the-art, low-cost
finishing capacity; expands finishing capacity by up to 80%
- - Upon full commissioning of the DRAP line, J&L will be positioned as one of
only two domestic competitors (including North American Stainless) capable
of producing 60" wide material, solidifying its position as a leader in
austenitic grades
- - Strength in bright anneal and Kool Line product markets
- - Growth opportunity in penetrating the 409 stainless EMC market
- - Competitive cost position globally with opportunities for improvement
(e.g., Steckel mill, melt shop)
- - Technology agreement with Ugine gives J&L access to thin slab casting
technology (Note: agreement only remains in effect as long as Ugine owns a
majority position)
- - Management believes there are significant opportunities to improve
operating profits
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 3 J&L Specialty Steel, Inc.
<PAGE> 10
SITUATION OVERVIEW
================================================================================
BUSINESS PROFILE: WEAKNESSES
- - Lack of hot rolling mill/Steckel mill
-- High cost of slab conversion
-- Vulnerability to poor quality, finite contract life and strike risk
at LTV
- - Liquidity
-- Expected breach of net worth covenant on $125.0 million Term Loan
and $125.0 million Revolving Credit Facility
-- Liquidity at risk with availability of only $10.0 million under
revolver and $7.2 million under uncommitted lines as of September
30, 1998
-- Generated negative free operating cash flow of approximately $5.0
million per month through the quarter ended September 30th
- - Single product focus on commodity austenitic stainless
-- Subject to commodity price volatility
-- Lack of downstream value-added fabricating operations
-- Plan to increase penetration of 409 stainless EMC market
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 4 J&L Specialty Steel, Inc.
<PAGE> 11
SITUATION OVERVIEW
================================================================================
BUSINESS PROFILE: WEAKNESSES (CONT'D)
- - Difficulties in commissioning new DRAP line
- - Necessity to defer capital projects
-- Temper mill
-- Steckel mill
-- SRA ("Special Repair Authorization")
- - USWA contract expires 7/1/99
-- Only contract up for renewal in the stainless industry
-- Low risk of strike
- - Vulnerability of common dividend
-- The quarterly common dividend was reduced in May from $0.10 per
quarter to $0.025 per quarter
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 5 J&L Specialty Steel, Inc.
<PAGE> 12
SITUATION OVERVIEW
================================================================================
1998 Performance Versus Plan
- - Lower volume, pricing pressure and excessive DRAP commissioning costs,
partially offset by lower nickel prices, have resulted in operating profit
performance year-to-date through September down $64 million versus the
1998 plan
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 6 J&L Specialty Steel, Inc.
<PAGE> 13
SITUATION OVERVIEW
================================================================================
HISTORICAL FINANCIAL PERFORMANCE: SUMMARY INCOME STATEMENT
- - Average revenue per ton has dropped dramatically since 1995, an extremely
profitable year for J&L, resulting in significant current losses and
negative cash flow
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31, NINE MONTHS ENDING LTM
-------------------------------------------------------------- -----------------------
($ in millions, except per 1993 1994 1995 1996 1997 9/30/97 9/30/98 9/30/98
share and per ton data) ---- ---- ---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 648.2 $ 711.7 $ 867.0 $ 628.0 $ 598.9 $ 469.0 $ 373.6 $ 503.6
% Growth -2.9% 9.8% 21.8% -27.6% -4.6% -- -20.3% --
EBITDA 105.4 131.0 178.2 74.1 10.0 13.8 (22.6) (26.3)
% Margin 16.3% 18.4% 20.6% 11.8% 1.7% 2.9% -6.0% -5.2%
EBIT 83.7 108.6 155.4 51.0 (16.9) (4.4) (48.6) (61.1)
% Margin 12.9% 15.3% 17.9% 8.1% -2.8% -0.9% -13.0% -12.1%
Net Income 36.4 53.6 84.4 24.3 (27.6) (7.4) (39.7) (59.9)
Earnings Per Share $ 1.15 $ 1.39 $ 2.18 $ 0.63 $ (0.71) $ (0.19) $ (1.02) $ (1.55)
Dividends Per Share $ 0.63 $ 0.18 $ 0.40 $ 0.40 $ 0.40 $ 0.30 $ 0.23 $ 0.33
Shares Outstanding (MM) 31.815 38.670 38.670 38.670 38.684 38.670 38.763 38.730
OTHER DATA:
Shipments (000 Tons) 331.4 367.7 367.0 306.8 334.2 257.1 235.8 312.9
% Growth -- 11.0% -0.2% -16.4% 8.9% -- -8.3% --
Revenue per Ton $ 1,955.9 $ 1,935.2 $ 2,362.3 $ 2,047.0 $ 1,792.1 $ 1,824.0 $ 1,584.6 $ 1,609.5
% Growth -- -1.1% 22.1% -13.3% -12.5% -- -13.1% --
Operating Income per Ton $ 252 $ 295 $ 423 $ 166 $ (51) $ (17) $ (206) $ (195)
% Growth -- 16.9% 43.4% -60.7% N.M. -- N.M. --
</TABLE>
Note: Excludes effect of extraordinary charges and unusual items.
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 7 J&L Specialty Steel, Inc.
<PAGE> 14
SITUATION OVERVIEW
================================================================================
HISTORICAL FINANCIAL PERFORMANCE: SUMMARY CASH FLOW STATEMENT
- - Despite having completed the capital spending related to the DRAP line,
the Company's ability to generate free cash flow has been severely
impaired
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31, NINE MONTHS ENDING LTM
------------------------------------------------------------------- --------------------------
($ in millions) 1993 1994 1995 1996 1997 9/30/97 9/30/98 9/30/98
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash from Operations $53.9 $73.9 $132.8 $54.8 $5.6 $9.2 $(43.1) $(46.7)
Capital Expenditures (10.3) (7.6) (94.1) (103.3) (58.7) (50.6) (2.9) (11.1)
Dividends Paid (20.0) (13.9) (13.9) (15.1) (15.5) (11.6) (8.7) (12.6)
----------- ----------- ----------- ------------ ------------ ------------ ------------ ------------
Free Cash Flow $23.6 $52.4 $24.8 $(63.6) $(68.6) $(53.0) $(54.7) $(70.3)
</TABLE>
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 8 J&L Specialty Steel, Inc.
<PAGE> 15
SITUATION OVERVIEW
================================================================================
HISTORICAL FINANCIAL PERFORMANCE: SUMMARY BALANCE SHEET
- - Leverage and tangible net worth levels are near debt covenant limitations
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
($ in millions) 1993 1994 1995 1996 1997 9/30/98
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash $6.5 $28.2 $35.4 $0.5 $1.2 $1.1
Goodwill 259.6 252.5 245.3 238.2 211.9 207.0
Total Assets 626.0 674.4 753.8 771.9 792.4 782.5
Short-Term Debt $0.1 $0.1 $0.4 $6.2 $23.3 $33.7
Long-Term Debt 200.6 165.5 147.6 170.5 222.6 266.9
Legacy Liabilities 49.9 56.1 64.1 67.8 81.1 80.3
Equity 267.5 308.0 380.2 390.7 336.5 295.1
Total Capitalization 468.2 473.6 528.2 567.4 582.4 595.7
Tangible Net Worth (Equity - Goodwill)(a) 7.9 55.6 134.9 152.5 124.6 88.1
SELECTED CREDIT STATISTICS:
Total Debt/Total Capitalization 42.9% 35.0% 28.0% 31.1% 42.2% 50.5%
Total Debt + Leg. Liab/Total Cap. + Leg. Liab. 48.4% 41.9% 35.8% 38.5% 49.3% 56.3%
Total Debt/EBITDA 1.9 x 1.3 x 0.8 x 2.4 x 24.5 x NM
Interest Expense $19.0 $9.4 $8.8 $3.9 $6.9 $13.3
EBITDA/Interest Expense 5.5 x 13.9 x 20.3 x 18.9 x 1.5 x NM
EBIT/Interest Expense 4.4 x 11.5 x 17.7 x 13.1 x NM NM
</TABLE>
- -----------------------------------------------
(a) The figures shown do not represent tangible net worth as defined in the
Company's bank agreements.
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 9 J&L Specialty Steel, Inc.
<PAGE> 16
SITUATION OVERVIEW
================================================================================
DEBT AND LIQUIDITY ANALYSIS
- - As of October 21, 1998, J&L was limited to only approximately $9 million
of total availability under its existing bank credit facilities
- - The Company anticipates breaching the tangible net worth covenant under
its bank agreements at the end of the fourth quarter
<TABLE>
<CAPTION>
- -----------------------------------------------
DEBT ANALYSIS ($MM)
9/30/98
- -----------------------------------------------
<S> <C>
Short Term Debt $32.8
Long Term Debt:
Term Loan due 2004 125.0
Revolving Credit Facility 115.0
Industrial Notes 19.6
Economic Development Notes 7.3
------
Total Long Term Debt $266.9
Current Maturities 0.9
------
Total Long Term Debt $267.8
======
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REVIEW OF J&L BANK CREDIT FACILITIES ($MM)
AMOUNT
DRAWN AVAILABILITY
SIZE @ 9/30/98 @ 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revolving Credit Agreement $125.0 $115.0 $10.0
5 Year, Unsecured, due June 30, 2002
Uncommitted Lines of Credit(a) 40.0 32.8 7.2
------ ------ -----
$165.0 $147.8 $17.2
====== ====== =====
</TABLE>
(a) The notional amount is $54.4, however, the maximum borrowing availability
is $40.0 after considering the short-term borrowing limitations provided in
the revolving credit agreement.
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 10 J&L Specialty Steel, Inc.
<PAGE> 17
SITUATION OVERVIEW
================================================================================
ALTERNATIVES CONSIDERED BY USINOR AND J&L TO CURE COVENANT BREACH
- - Seek waiver from Mellon Bank and bank group
-- Difficult environment in which to negotiate with commercial banks
-- Met with bank group on October 1, 1998; requested amendment of
tangible net worth covenant and the freeing up of collateral (~$50mm
of A/R) in exchange for parent company guarantee (Note: Usinor is
rated Baa2/BBB); range of outcomes could include up-front amendment
fee, a change in borrowing spreads, a reduction in the size of the
facility, etc.
- - $40 million accounts receivables securitization facility
-- Pool J&L's A/R with 3 other U.S. subsidiaries of Usinor
-- J&L restricted from contributing A/R under terms of Asset Sale
covenant in bank agreements
- - Rights offering
-- Backstop on up to $75 million of stock to be provided by Usinor
-- Usinor changed course on Saturday, September 19th in favor of buy-in
of minority interest
- - Merger or joint venture with stainless steel producer
-- Explored by operating people at J&L and other producer
-- Lack of agreement over type and location of hot rolling mill, among
other things
-- Discussed a share-for-share exchange
-- Concept rejected by Usinor in August due to lack of agreement on
operating issues and price
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 11 J&L Specialty Steel, Inc.
<PAGE> 18
SITUATION OVERVIEW
================================================================================
ALTERNATIVES CONSIDERED BY USINOR AND J&L TO CURE COVENANT BREACH (CONT'D)
- - Preferred stock
-- $50-75 million of convertible preferred stock/straight preferred
-- Public offering vs. direct investment by Usinor?
-- Rejected by Usinor in Spring, 1998; cost of straight preferred at
market rates deemed too high and the dilutive impact of convertible
preferred too excessive
- - Refinance revolver and term loan with new high yield notes
-- Too expensive in light of very attractive rates and terms of
existing bank debt
-- Tone of the high yield market for steel issuers deteriorated
beginning in May and essentially closed for all issuers in late
August and September
-- Usinor's desire not to consolidate an issuer of high yield notes
- -------------------------------------------------------------------------------
LEHMAN BROTHERS II - 12 J&L Specialty Steel, Inc.
<PAGE> 19
III. EQUITY MARKET PROFILE
- -------------------------------------------------------------------------------
LEHMAN BROTHERS J&L Specialty Steel, Inc.
<PAGE> 20
EQUITY MARKET PROFILE
================================================================================
HISTORICAL STOCK PRICE PERFORMANCE
J&L SPECIALTY STEEL, INC.
STOCK PRICE & VOLUME
WEEKLY: 12/14/93 - 10/23/98
[GRAPH]
12/14/93 - IPO at $14 per share.
9/16/94 - Announces intent to build world's first DRAP line.
7/7/95 - USWA locals ratify new 4-year J&L labor contract.
7/20/95 - Announces 2Q95 earnings increase of 100% year-over-year.
10/20/95 - Announces expected 4Q95 price and shipment declines due to weakened
demand.
4/22/96 - Announces 41% lower 1Q96 earnings due to decreased stainless steel
shipments. Then, on 4/25/96 withdraws planned price increase.
9/4/97 - Settles dispute with third-party vendors & realizes $10 mm gain.
1/22/98 - Reports a loss for fiscal 1997 of $1.05 per share vs. $0.63 per share
in 1996.
5/28/98 - Announces dividend cut from $0.10 to $0.25 per quarter.
9/23/98 - Announces $103.5 mm offer from Usinor.
Date Volume High Low Close
---- ------ ---- --- -----
12/14/93 14.000
12/17/93 3.7689 15.5 14.000 15.500
12/24/93 0.6149 15.75 14.750 14.750
12/31/93 0.4016 16.625 14.375 16.250
01/07/94 0.806 17.125 15.500 16.875
01/14/94 0.4781 17.125 16.500 17.000
01/21/94 0.8802 18.375 16.125 18.125
01/28/94 0.4991 18.5 17.125 17.750
02/04/94 1.7312 19 16.625 16.750
02/11/94 0.6505 17.375 16.125 17.000
02/18/94 1.1109 17.25 16.000 16.375
02/25/94 0.3992 16.375 15.250 15.500
03/04/94 0.6383 16 15.000 15.500
03/11/94 0.1783 16 15.375 15.625
03/18/94 0.3275 16 15.625 15.750
03/25/94 0.2713 15.875 14.750 15.875
04/01/94 0.344 16 13.125 13.750
04/08/94 0.3694 15 13.375 14.750
04/15/94 0.1575 15.25 13.875 14.500
04/22/94 0.9267 14.5 12.875 13.750
04/29/94 0.2531 14.625 13.750 14.000
05/06/94 0.2808 14.25 13.750 13.750
05/13/94 0.3943 14.75 13.375 14.250
05/20/94 0.3606 14.5 13.500 14.500
05/27/94 0.3763 15.375 14.000 15.125
06/03/94 0.2675 15.75 15.000 15.750
06/10/94 0.5811 16.375 15.500 16.000
06/17/94 0.5136 16.5 16.000 16.375
06/24/94 0.2265 16.75 16.000 16.125
07/01/94 0.6958 17.75 16.000 17.625
07/08/94 0.5648 17.375 15.875 16.125
07/15/94 0.3472 17.25 16.250 17.125
07/22/94 0.4069 17.5 16.875 17.250
07/29/94 0.2612 17.5 17.000 17.250
08/05/94 0.756 17.875 16.750 17.875
08/12/94 0.2368 18.125 17.000 18.000
08/19/94 0.1559 18.375 17.000 17.750
08/26/94 0.1532 17.875 16.875 17.375
09/02/94 0.2307 17.875 16.750 17.625
09/09/94 0.1622 17.875 17.250 17.875
09/16/94 0.465 17.75 17.125 17.625
09/23/94 0.3147 17.875 17.375 17.625
09/30/94 0.4488 19.375 17.500 19.000
10/07/94 0.1437 19.25 17.750 18.125
10/14/94 0.3433 19.75 18.125 18.750
10/21/94 0.1262 19 18.000 19.000
10/28/94 0.3926 20.25 17.125 17.625
11/04/94 0.4447 17.75 16.875 17.375
11/11/94 0.4929 17.875 16.750 17.250
11/18/94 0.2324 17.5 15.875 16.625
11/25/94 0.1122 16.875 15.625 16.625
12/02/94 0.2527 17.25 16.250 16.250
12/09/94 0.3513 17 16.375 17.000
12/16/94 0.77 19.25 16.750 18.875
12/23/94 0.3659 20 18.125 19.875
12/30/94 0.2537 20 19.125 19.625
01/06/95 0.1472 19.625 19.000 19.500
01/13/95 0.5332 20 18.750 19.625
01/20/95 0.9654 21 19.750 20.375
01/27/95 0.3594 20.5 19.625 20.250
02/03/95 0.6245 20.25 17.500 18.000
02/10/95 0.3239 18.375 17.250 17.250
02/17/95 0.3463 19.375 17.000 19.000
02/24/95 0.3179 19.25 18.750 19.125
03/03/95 0.1627 19.25 18.750 18.750
03/10/95 0.2783 18.75 16.750 17.250
03/17/95 0.1864 18.75 17.500 18.500
03/24/95 0.4044 18.5 17.250 17.500
03/31/95 0.2748 19.875 17.625 19.875
04/07/95 0.2386 20 18.625 18.625
04/14/95 0.1705 19.375 18.500 18.750
04/21/95 0.3274 19.75 18.750 19.750
04/28/95 1.52 19.875 18.125 18.500
05/05/95 0.2303 19.5 18.500 18.875
05/12/95 0.6387 18.75 17.500 18.250
05/19/95 0.4531 19.875 18.125 19.375
05/26/95 0.3132 19.75 19.125 19.125
06/02/95 0.1524 19.125 18.250 18.500
06/09/95 0.5212 18.375 17.750 18.000
06/16/95 0.4226 18.25 17.750 18.000
06/23/95 0.6426 18.25 17.750 18.250
06/30/95 0.2757 19.25 18.250 19.250
07/07/95 0.2147 20 19.125 20.000
07/14/95 0.4755 20.625 19.875 20.500
07/21/95 1.1561 21.75 19.500 21.375
07/28/95 0.3442 22.75 21.375 22.000
08/04/95 0.2873 22.625 21.750 22.375
08/11/95 0.4888 24.5 22.500 23.875
08/18/95 0.302 25 22.875 24.750
08/25/95 0.4535 27.25 24.875 26.750
09/01/95 0.6007 27.125 25.250 25.250
09/08/95 0.2987 25.875 24.750 25.750
09/15/95 0.3611 25.875 23.375 24.375
09/22/95 0.4628 24.625 21.375 21.500
09/29/95 0.798 21.5 19.875 21.000
10/06/95 0.7308 21.5 20.500 21.125
10/13/95 0.7012 21.125 20.500 20.625
10/20/95 0.6838 20.625 16.500 17.250
10/27/95 1.1288 17.625 15.500 15.500
11/03/95 0.497 16.75 15.750 16.000
11/10/95 0.1998 16.125 15.625 15.750
11/17/95 0.7059 15.75 14.875 15.375
11/24/95 1.5298 17.125 15.250 17.000
12/01/95 0.7519 17 16.375 16.750
12/08/95 0.5402 16.875 15.625 16.000
12/15/95 0.3428 16 15.625 15.875
12/22/95 0.2631 15.875 15.000 15.375
12/29/95 0.6688 18.75 15.250 18.750
01/05/96 0.4768 18.75 17.625 17.875
01/12/96 0.1065 17.875 16.875 17.000
01/19/96 0.1404 17 15.625 17.000
01/26/96 0.2744 17.5 16.375 16.500
02/02/96 1.1183 18.375 16.000 17.750
02/09/96 1.3215 18.375 16.750 18.125
02/16/96 0.3621 18.375 17.625 18.125
02/23/96 0.3334 18.125 17.750 18.000
03/01/96 1.1115 18 17.375 17.375
03/08/96 0.4308 17.625 16.875 17.125
03/15/96 0.2152 17.625 16.500 16.625
03/22/96 0.6684 17.5 16.750 17.375
03/29/96 0.2523 17.625 17.125 17.125
04/05/96 0.2105 17.5 17.000 17.500
04/12/96 0.5434 17.75 17.250 17.625
04/19/96 0.783 17.75 16.625 16.625
04/26/96 1.4304 17.625 16.250 17.250
05/03/96 0.352 18.375 17.250 18.000
05/10/96 0.5213 18.875 17.500 18.750
05/17/96 0.5275 19.25 18.625 19.250
05/24/96 1.2607 19.25 17.500 17.625
05/31/96 0.2554 17.625 17.125 17.375
06/07/96 0.6051 17.5 16.250 16.250
06/14/96 1.0961 16.5 15.375 16.000
06/21/96 0.2546 16 15.500 16.000
06/28/96 0.6591 15.875 14.375 14.875
07/05/96 0.2189 15.375 14.750 15.250
07/12/96 0.3608 15.375 14.625 14.750
07/19/96 0.2244 14.625 13.500 13.500
07/26/96 0.2007 13.875 13.125 13.500
08/02/96 0.4008 14.25 13.375 14.125
08/09/96 0.0776 14.125 13.625 13.875
08/16/96 0.0557 13.875 13.500 13.625
08/23/96 0.1963 13.75 13.250 13.625
08/30/96 0.0748 13.875 13.500 13.625
09/06/96 0.099 13.75 13.375 13.625
09/13/96 0.5432 14 13.375 13.875
09/20/96 0.261 13.875 13.375 13.375
09/27/96 0.5078 13.875 13.125 13.875
10/04/96 0.0804 14 13.500 13.625
10/11/96 0.5422 13.875 13.500 13.875
10/18/96 0.0906 13.875 13.125 13.250
10/25/96 0.948 13.25 11.500 11.875
11/01/96 3.3538 11.875 11.000 11.875
11/08/96 0.1689 11.875 11.000 11.000
11/15/96 0.5696 11.5 10.750 11.375
11/22/96 0.5437 12.5 11.625 12.000
11/29/96 0.203 13 11.875 12.125
12/06/96 0.1897 13.75 12.000 13.000
12/13/96 0.2712 13.125 12.125 12.250
12/20/96 0.3064 12.5 11.500 11.750
12/27/96 0.1863 12.125 11.500 12.000
01/03/97 0.4662 12.125 11.125 11.625
01/10/97 0.2649 12.625 11.500 12.250
01/17/97 0.5568 12.375 12.000 12.250
01/24/97 0.3971 12.375 12.000 12.000
01/31/97 0.6461 12.125 11.750 11.875
02/07/97 0.4307 12.625 11.875 12.250
02/14/97 0.4797 14.25 12.500 14.000
02/21/97 0.3243 14.375 13.375 13.625
02/28/97 0.2092 14.125 13.250 13.875
03/07/97 0.3976 14.25 13.250 13.625
03/14/97 0.2299 13.875 12.875 13.000
03/21/97 0.2509 14 12.875 13.750
03/28/97 0.1838 13.875 13.250 13.375
04/04/97 0.2165 13.375 12.000 13.000
04/11/97 0.135 13.125 12.750 12.875
04/18/97 0.1183 13.125 12.500 13.000
04/25/97 0.1246 13.25 12.500 13.000
05/02/97 0.0799 13 12.250 13.000
05/09/97 0.1114 13.125 12.500 12.500
05/16/97 0.1469 12.75 11.750 11.750
05/23/97 0.1905 12.375 11.375 12.125
05/30/97 0.1512 12.875 12.500 12.750
06/06/97 0.2699 13.375 12.625 13.250
06/13/97 0.1581 13.375 12.250 13.250
06/20/97 0.2841 13.375 12.375 12.375
06/27/97 0.3528 12.5 11.750 11.750
07/04/97 0.2066 12.25 11.750 11.750
07/11/97 0.2048 12.0625 11.500 11.813
07/18/97 0.2823 12.625 11.750 12.500
07/25/97 0.2142 13.4375 12.250 12.875
08/01/97 0.2317 13.75 12.625 13.563
08/08/97 0.1728 13.9375 13.000 13.250
08/15/97 0.093 13.625 13.000 13.000
08/22/97 0.207 13 11.875 12.063
08/29/97 0.1007 12.875 12.063 12.500
09/05/97 0.165 13.125 12.375 13.063
09/12/97 0.0729 13.1875 12.688 12.938
09/19/97 0.0967 13.3125 12.688 12.813
09/26/97 0.3614 12.9375 11.875 12.063
10/03/97 0.3445 13.8125 12.063 13.375
10/10/97 0.332 13.5 12.188 13.250
10/17/97 0.2498 14.1875 13.250 13.500
10/24/97 0.0801 13.9375 13.250 13.313
10/31/97 0.1806 13.5 11.750 12.625
11/07/97 0.1236 13.3125 12.188 12.313
11/14/97 0.1387 12.3125 11.375 11.500
11/21/97 0.9538 11.6875 9.438 10.313
11/28/97 0.3507 10.1875 9.375 9.750
12/05/97 0.2125 9.875 9.250 9.313
12/12/97 0.6686 9.375 8.000 8.625
12/19/97 0.3182 10.375 8.875 9.750
12/26/97 0.1305 9.625 8.688 8.813
01/02/98 0.2631 10.25 8.813 9.938
01/09/98 0.1476 10.25 9.000 9.000
01/16/98 0.2477 9 8.438 8.500
01/23/98 0.6183 8.6875 8.000 8.063
01/30/98 0.1536 8.5 8.063 8.313
02/06/98 0.524 9.125 8.250 8.938
02/13/98 0.1035 9.4375 8.938 9.125
02/20/98 0.0679 9.3125 8.938 8.938
02/27/98 0.1232 9.5 8.938 9.188
03/06/98 0.1409 10.125 9.125 9.938
03/13/98 0.3788 10 9.250 9.688
03/20/98 0.7814 10.25 9.313 9.375
03/27/98 0.1286 9.75 9.375 9.750
04/03/98 0.2003 9.9375 9.500 9.563
04/10/98 0.1421 9.8125 9.313 9.625
04/17/98 0.1722 9.8125 9.500 9.563
04/24/98 0.146 9.6875 8.375 8.438
05/01/98 0.172 8.5625 7.938 8.125
05/08/98 1.0683 8.25 6.813 6.875
05/15/98 0.5144 8.6875 6.750 8.625
05/22/98 0.0924 8.6875 7.688 7.813
05/29/98 0.1837 7.9375 6.875 7.000
06/05/98 0.2914 7.1875 6.625 6.938
06/12/98 1.2837 7.5625 6.750 6.938
06/19/98 0.324 7.125 6.563 6.688
06/26/98 0.3859 6.6875 5.813 5.875
07/03/98 0.2656 6 5.250 5.875
07/10/98 1.1996 6.0625 5.438 5.875
07/17/98 0.3585 6 5.500 5.750
07/24/98 0.4159 6.1875 5.813 6.063
07/31/98 0.2474 6.5625 5.625 5.625
08/07/98 0.2201 5.875 5.313 5.625
08/14/98 0.1403 5.6875 5.000 5.000
08/21/98 0.1127 5.1875 5.000 5.063
08/28/98 0.2259 5.3125 3.813 3.813
09/04/98 0.2999 4.3125 3.563 4.000
09/11/98 0.3427 4.0625 3.000 3.000
09/18/98 0.4676 3.5 2.500 3.063
09/25/98 2.7663 5.625 3.000 5.250
10/02/98 0.4676 5.625 3.000 5.250
10/9/98 0.2804 4.9375 4.563 4.688
10/16/98 0.0234 5.375 5.250 5.313
10/23/98 0.2351 5.375 5.250 5.250
- -------------------------------------------------------------------------------
LEHMAN BROTHERS III - 1 J&L Specialty Steel, Inc.
<PAGE> 21
EQUITY MARKET PROFILE
================================================================================
HISTORICAL STOCK PRICE PERFORMANCE (CONT'D)
J&L SPECIALTY STEEL, INC. VS. STAINLESS STEEL INDEX VS. SPECIALTY METALS INDEX
VS. CARBON STEEL INDEX VS. S&P 400
WEEKLY: 12/14/93 - 9/22/98
[GRAPH]
Stainless Specialty Carbon
J&L Steel Index Metals Index Steel Index S&P 400
12/14/93 100.0% 100.0% 100.0% 100.0% 100.0%
12/24/93 102.6% 104.0% 102.6% 97.9% 100.8%
12/31/93 113.0% 105.1% 100.5% 103.5% 100.9%
01/07/94 117.3% 105.7% 105.3% 97.5% 102.2%
01/14/94 118.2% 106.1% 103.1% 103.8% 103.3%
01/21/94 126.0% 105.9% 107.7% 109.9% 103.4%
01/28/94 123.4% 104.0% 111.1% 110.1% 103.7%
02/04/94 116.5% 89.5% 110.4% 108.2% 102.3%
02/11/94 118.2% 87.3% 113.9% 109.7% 102.6%
02/18/94 113.9% 88.1% 112.2% 108.4% 102.5%
02/25/94 107.8% 87.7% 109.6% 107.7% 101.9%
03/04/94 107.8% 88.7% 110.6% 109.9% 101.8%
03/11/94 108.6% 87.7% 111.9% 116.2% 102.3%
03/18/94 109.5% 86.5% 116.2% 116.1% 103.4%
03/25/94 110.4% 86.6% 114.0% 113.2% 100.8%
04/01/94 95.6% 81.4% 103.3% 104.3% 97.4%
04/08/94 102.6% 83.6% 107.2% 105.2% 97.6%
04/15/94 100.8% 80.2% 108.0% 111.2% 96.8%
04/22/94 95.6% 77.4% 103.4% 102.2% 97.0%
04/29/94 97.3% 84.5% 105.1% 103.7% 98.1%
05/06/94 95.6% 82.9% 103.8% 100.0% 97.7%
05/13/94 99.1% 79.3% 102.3% 99.7% 97.1%
05/20/94 100.8% 78.1% 100.1% 108.8% 99.1%
05/27/94 105.2% 77.4% 98.9% 108.9% 99.7%
06/03/94 109.5% 83.9% 100.9% 111.8% 100.1%
06/10/94 111.2% 89.6% 99.5% 112.9% 99.4%
06/17/94 113.9% 91.3% 101.7% 117.4% 99.6%
06/24/94 112.1% 85.3% 100.7% 111.6% 96.3%
07/01/94 122.5% 81.9% 100.2% 116.4% 96.9%
07/08/94 112.1% 81.3% 101.7% 116.1% 97.8%
07/15/94 119.1% 86.8% 104.1% 118.4% 98.8%
07/22/94 119.9% 89.5% 105.7% 116.6% 98.8%
07/29/94 119.9% 89.1% 107.8% 116.0% 99.8%
08/05/94 124.3% 92.0% 110.6% 116.6% 99.4%
08/12/94 125.2% 93.7% 111.3% 114.2% 100.6%
08/19/94 123.4% 87.4% 113.5% 114.7% 101.4%
08/26/94 120.8% 89.4% 119.6% 118.2% 103.9%
09/02/94 122.5% 92.6% 123.3% 117.0% 103.4%
09/09/94 124.3% 91.0% 122.0% 111.9% 103.1%
09/16/94 122.5% 95.0% 122.8% 118.5% 104.1%
09/23/94 122.5% 94.1% 120.6% 117.4% 101.6%
09/30/94 132.1% 94.1% 121.5% 118.6% 102.4%
10/07/94 126.0% 91.8% 118.8% 107.0% 100.8%
10/14/94 130.4% 88.3% 120.7% 106.8% 104.1%
10/21/94 132.1% 90.0% 115.0% 106.0% 103.3%
10/28/94 122.5% 88.6% 112.0% 108.0% 105.2%
11/04/94 120.8% 86.2% 107.4% 102.1% 102.7%
11/11/94 119.9% 86.4% 107.7% 99.9% 102.9%
11/18/94 115.6% 82.7% 105.0% 93.5% 103.2%
11/25/94 115.6% 81.1% 102.2% 91.7% 100.4%
12/02/94 113.0% 82.1% 102.0% 93.0% 100.7%
12/09/94 118.2% 78.8% 101.5% 96.6% 99.1%
12/16/94 131.2% 84.2% 106.9% 102.9% 101.8%
12/23/94 138.2% 86.0% 106.7% 95.1% 102.3%
12/30/94 136.4% 81.3% 108.4% 95.7% 102.3%
01/06/95 135.6% 82.1% 106.8% 99.6% 102.3%
01/13/95 136.4% 87.6% 107.1% 101.4% 103.5%
01/20/95 141.7% 85.7% 104.4% 99.8% 103.2%
01/27/95 140.8% 86.4% 103.7% 94.2% 103.6%
02/03/95 125.2% 86.1% 104.7% 91.1% 105.4%
02/10/95 119.9% 87.6% 105.2% 92.9% 106.3%
02/17/95 132.1% 89.9% 106.2% 94.5% 106.5%
02/24/95 133.0% 92.0% 110.0% 96.5% 107.7%
03/03/95 130.4% 89.1% 111.4% 95.0% 107.5%
03/10/95 119.9% 90.3% 106.4% 92.3% 108.7%
03/17/95 128.6% 85.7% 106.4% 92.1% 110.1%
03/24/95 121.7% 86.8% 109.2% 88.1% 111.5%
03/31/95 138.2% 91.3% 109.6% 96.0% 111.5%
04/07/95 129.5% 90.1% 113.3% 93.8% 112.2%
04/14/95 130.4% 94.1% 114.6% 94.9% 113.0%
04/21/95 137.3% 96.8% 118.8% 91.0% 113.0%
04/28/95 128.6% 98.6% 121.3% 83.1% 114.5%
05/05/95 131.2% 99.4% 122.3% 80.0% 115.5%
05/12/95 126.9% 95.9% 127.0% 85.7% 116.7%
05/19/95 134.7% 94.1% 129.0% 86.2% 115.5%
05/26/95 133.0% 87.1% 127.7% 82.6% 116.3%
06/02/95 128.6% 85.5% 126.6% 84.8% 117.8%
06/09/95 125.2% 90.7% 125.5% 85.4% 117.5%
06/16/95 125.2% 88.1% 126.8% 87.0% 120.2%
06/23/95 126.9% 85.4% 132.6% 87.8% 122.3%
06/30/95 133.8% 85.8% 133.8% 92.8% 121.4%
07/07/95 139.1% 97.4% 137.3% 108.6% 124.0%
07/14/95 142.5% 94.4% 137.7% 100.7% 125.2%
07/21/95 148.6% 90.1% 132.7% 93.2% 123.6%
07/28/95 153.0% 91.5% 132.9% 91.9% 125.5%
08/04/95 155.6% 90.3% 130.8% 91.5% 124.3%
08/11/95 166.0% 89.3% 129.0% 86.3% 123.5%
08/18/95 172.1% 92.9% 132.1% 88.4% 124.2%
08/25/95 186.0% 92.8% 132.1% 87.3% 124.0%
09/01/95 175.6% 91.7% 130.5% 87.0% 124.4%
09/08/95 179.0% 92.7% 130.5% 90.8% 126.5%
09/15/95 169.5% 93.8% 132.7% 82.3% 128.3%
09/22/95 149.5% 89.8% 123.1% 80.6% 128.3%
09/29/95 146.0% 88.7% 122.1% 79.3% 128.3%
10/06/95 146.9% 84.9% 118.8% 75.3% 127.5%
10/13/95 143.4% 87.1% 120.3% 80.4% 127.5%
10/20/95 119.9% 79.9% 116.0% 80.5% 128.6%
10/27/95 107.8% 75.4% 113.7% 82.6% 127.2%
11/03/95 111.2% 73.8% 115.0% 80.6% 129.6%
11/10/95 109.5% 73.2% 111.8% 79.7% 130.2%
11/17/95 106.9% 75.4% 113.8% 79.5% 131.9%
11/24/95 118.2% 83.9% 117.5% 88.7% 131.9%
12/01/95 116.5% 81.1% 114.8% 88.8% 133.1%
12/08/95 111.2% 80.1% 112.8% 87.4% 135.7%
12/15/95 110.4% 78.4% 112.5% 88.9% 135.3%
12/22/95 106.9% 81.9% 109.2% 90.1% 134.2%
12/29/95 130.4% 80.6% 109.6% 97.0% 134.8%
01/05/96 124.3% 85.0% 111.1% 94.8% 135.2%
01/12/96 118.2% 82.8% 112.2% 90.4% 131.8%
01/19/96 118.2% 84.1% 108.6% 89.5% 133.8%
01/26/96 114.7% 85.8% 119.9% 95.7% 136.4%
02/02/96 123.4% 88.3% 125.4% 101.3% 139.6%
02/09/96 126.0% 88.6% 128.0% 102.7% 143.7%
02/16/96 126.0% 84.0% 128.8% 95.9% 142.3%
02/23/96 125.2% 82.9% 130.4% 96.2% 145.0%
03/01/96 120.8% 80.6% 126.6% 95.3% 141.4%
03/08/96 119.1% 80.8% 123.8% 98.0% 139.8%
03/15/96 115.6% 83.6% 129.8% 107.1% 142.4%
03/22/96 120.8% 80.2% 133.1% 103.3% 143.6%
03/29/96 119.1% 80.9% 131.9% 102.6% 142.4%
04/05/96 121.7% 76.3% 133.0% 102.1% 144.8%
04/12/96 122.5% 84.1% 126.3% 104.0% 141.1%
04/19/96 115.6% 84.1% 123.9% 106.3% 142.9%
04/26/96 119.9% 85.4% 124.9% 99.6% 145.0%
05/03/96 125.2% 90.1% 119.7% 99.2% 142.8%
05/10/96 130.4% 91.9% 126.6% 97.8% 144.4%
05/17/96 133.8% 93.0% 125.3% 95.9% 148.8%
05/24/96 122.5% 92.6% 122.9% 94.3% 150.9%
05/31/96 120.8% 87.9% 123.8% 94.6% 149.2%
06/07/96 113.0% 86.8% 131.4% 87.9% 150.1%
06/14/96 111.2% 83.5% 128.3% 89.0% 148.4%
06/21/96 111.2% 84.1% 131.4% 89.6% 148.8%
06/28/96 103.4% 82.9% 136.6% 87.2% 148.8%
07/05/96 106.0% 84.3% 137.3% 85.8% 146.1%
07/12/96 102.6% 85.0% 133.0% 83.9% 143.2%
07/19/96 93.9% 84.6% 130.4% 81.9% 141.5%
07/26/96 93.9% 82.1% 127.2% 78.6% 140.7%
08/02/96 98.2% 86.3% 127.7% 83.1% 146.3%
08/09/96 96.5% 91.7% 128.1% 85.0% 146.3%
08/16/96 94.7% 93.0% 126.1% 81.8% 146.7%
08/23/96 94.7% 90.8% 126.4% 82.9% 147.1%
08/30/96 94.7% 89.9% 127.3% 81.4% 144.0%
09/06/96 94.7% 90.7% 137.9% 86.1% 144.9%
09/13/96 96.5% 102.5% 139.0% 85.6% 150.3%
09/20/96 93.0% 99.7% 148.1% 87.2% 152.2%
09/27/96 96.5% 102.3% 146.8% 88.5% 151.6%
10/04/96 94.7% 103.9% 148.2% 90.5% 154.7%
10/11/96 96.5% 103.8% 150.6% 90.6% 154.7%
10/18/96 92.1% 98.8% 150.9% 87.0% 156.9%
10/25/96 82.6% 95.1% 154.7% 85.2% 154.2%
11/01/96 82.6% 94.3% 155.4% 83.7% 154.2%
11/08/96 76.5% 98.2% 157.4% 84.2% 160.3%
11/15/96 79.1% 98.5% 155.8% 91.7% 161.9%
11/22/96 83.4% 101.2% 153.7% 90.0% 164.2%
11/29/96 84.3% 104.5% 162.2% 92.4% 165.7%
12/06/96 90.4% 98.4% 158.2% 90.3% 162.3%
12/13/96 85.2% 97.2% 163.4% 87.6% 160.2%
12/20/96 81.7% 101.6% 162.1% 86.6% 164.1%
12/27/96 83.4% 101.5% 162.9% 87.1% 165.9%
01/03/97 80.8% 103.1% 163.9% 89.9% 164.5%
01/10/97 85.2% 101.7% 163.4% 94.1% 167.3%
01/17/97 85.2% 99.7% 166.7% 94.2% 170.7%
01/24/97 83.4% 105.6% 160.2% 92.4% 169.0%
01/31/97 82.6% 106.3% 162.5% 90.1% 172.5%
02/07/97 85.2% 109.8% 156.5% 86.6% 172.5%
02/14/97 97.3% 113.5% 159.9% 84.7% 176.1%
02/21/97 94.7% 119.0% 157.3% 84.1% 174.7%
02/28/97 96.5% 115.0% 151.7% 84.2% 172.6%
03/07/97 94.7% 120.8% 159.7% 82.2% 174.7%
03/14/97 90.4% 130.5% 153.2% 82.1% 173.1%
03/21/97 95.6% 131.2% 152.6% 83.1% 171.0%
03/28/97 93.0% 129.7% 153.2% 79.2% 169.6%
04/04/97 90.4% 122.5% 154.3% 78.0% 166.3%
04/11/97 89.5% 122.5% 153.4% 77.5% 161.7%
04/18/97 90.4% 127.7% 157.4% 80.2% 168.7%
04/25/97 90.4% 116.0% 158.3% 80.5% 168.7%
05/02/97 90.4% 123.5% 162.4% 87.6% 178.3%
05/09/97 86.9% 122.5% 165.1% 93.4% 181.2%
05/16/97 81.7% 115.6% 172.8% 94.1% 182.7%
05/23/97 84.3% 116.8% 183.0% 96.6% 186.8%
05/30/97 88.6% 116.8% 185.2% 99.4% 187.0%
06/06/97 92.1% 117.6% 185.8% 98.9% 188.5%
06/13/97 92.1% 116.5% 196.5% 99.3% 196.3%
06/20/97 86.0% 120.4% 197.0% 98.4% 197.1%
06/27/97 81.7% 118.7% 186.5% 98.8% 195.0%
07/04/97 81.7% 122.6% 193.7% 98.3% 201.3%
07/11/97 82.1% 122.9% 197.1% 101.3% 201.8%
07/18/97 86.9% 132.0% 197.6% 100.4% 202.1%
07/25/97 89.5% 140.1% 193.0% 101.0% 206.9%
08/01/97 94.3% 139.9% 192.4% 104.5% 207.8%
08/08/97 92.1% 139.4% 196.7% 101.7% 205.8%
08/15/97 90.4% 138.6% 194.3% 101.8% 197.8%
08/22/97 83.9% 139.0% 203.5% 98.6% 203.1%
08/29/97 86.9% 138.0% 207.9% 97.3% 197.6%
09/05/97 90.8% 141.1% 207.5% 103.5% 204.0%
09/12/97 90.0% 144.9% 206.3% 105.0% 202.5%
09/19/97 89.1% 145.1% 214.5% 105.8% 207.8%
09/26/97 83.9% 130.5% 213.6% 95.4% 206.5%
10/03/97 93.0% 129.6% 215.9% 91.9% 210.4%
10/10/97 92.1% 128.5% 212.4% 91.3% 211.3%
10/17/97 93.9% 129.2% 206.3% 93.2% 205.6%
10/24/97 92.6% 127.2% 193.6% 95.2% 204.7%
10/31/97 87.8% 116.9% 184.5% 90.8% 199.1%
11/07/97 85.6% 117.9% 189.8% 89.5% 201.9%
11/14/97 80.0% 115.1% 189.7% 87.9% 203.1%
11/21/97 71.7% 114.7% 192.0% 86.6% 210.0%
11/28/97 67.8% 114.8% 191.2% 86.0% 207.5%
12/05/97 64.7% 114.2% 194.1% 86.8% 213.0%
12/12/97 60.0% 111.4% 185.6% 80.9% 206.0%
12/19/97 67.8% 107.1% 178.8% 82.6% 204.4%
12/26/97 61.3% 111.8% 179.4% 79.2% 202.3%
01/02/98 69.1% 119.8% 185.2% 84.8% 210.8%
01/09/98 62.6% 104.7% 177.2% 77.3% 201.3%
01/16/98 59.1% 108.8% 176.2% 80.5% 209.0%
01/23/98 56.1% 102.1% 169.2% 80.1% 209.2%
01/30/98 57.8% 110.1% 172.6% 84.2% 214.1%
02/06/98 62.1% 116.5% 179.0% 86.2% 220.6%
02/13/98 63.4% 117.0% 180.0% 86.1% 222.2%
02/20/98 62.1% 118.3% 178.6% 85.3% 225.1%
02/27/98 63.9% 121.2% 181.7% 90.2% 228.7%
03/06/98 69.1% 124.2% 184.7% 92.8% 229.8%
03/13/98 67.4% 124.4% 190.3% 94.7% 232.1%
03/20/98 65.2% 125.9% 189.8% 100.5% 237.8%
03/27/98 67.8% 128.7% 181.8% 97.3% 238.0%
04/03/98 66.5% 120.2% 183.9% 98.4% 244.1%
04/10/98 66.9% 113.4% 180.5% 98.5% 239.9%
04/17/98 66.5% 119.6% 181.2% 102.9% 242.6%
04/24/98 58.7% 113.8% 188.9% 100.6% 240.9%
05/01/98 56.5% 110.9% 209.5% 103.4% 243.8%
05/08/98 47.8% 110.8% 204.3% 99.8% 242.1%
05/15/98 60.0% 114.7% 202.9% 98.9% 241.9%
05/22/98 54.3% 113.1% 198.0% 95.2% 242.0%
05/29/98 48.7% 102.9% 192.4% 90.3% 237.8%
06/05/98 48.2% 106.5% 192.9% 88.2% 242.8%
06/12/98 48.2% 94.2% 176.4% 81.3% 239.1%
06/19/98 46.5% 91.9% 166.6% 82.2% 240.0%
06/26/98 40.8% 97.9% 165.4% 80.6% 247.4%
07/03/98 40.8% 96.5% 166.1% 81.3% 249.2%
07/10/98 40.8% 94.7% 159.7% 79.0% 252.1%
07/17/98 40.0% 92.8% 160.0% 78.4% 258.0%
07/24/98 42.2% 86.6% 138.3% 69.9% 249.1%
07/31/98 39.1% 87.7% 134.2% 74.5% 244.3%
08/07/98 39.1% 83.3% 132.9% 74.5% 238.8%
08/14/98 34.8% 76.5% 129.3% 69.4% 234.1%
08/21/98 35.2% 80.5% 121.2% 70.9% 239.3%
08/28/98 26.5% 69.7% 109.5% 63.8% 228.4%
09/04/98 27.8% 68.3% 107.1% 65.9% 217.8%
09/11/98 20.9% 67.1% 106.7% 65.2% 225.5%
09/18/98 21.3% 71.1% 101.0% 63.2% 226.7%
09/25/98 22.2% 81.9% 101.2% 71.8% 232.9%
10/02/98 35.6% 77.5% 93.9% 67.8% 223.3%
10/09/98 32.6% 86.8% 88.1% 72.1% 220.1%
10/16/98 36.9% 91.2% 100.9% 76.6% 234.7%
10/23/98 36.5% 87.4% 95.4% 75.0% 238.5%
Stainless Steel Index: Allegheny Teledyne, Armco, Carpenter Technology,
Lukens (through 12/15/97)
Specialty Metals Index: Quanex, RTI International Metals, Special Metals,
Timken, Titanium Metals
Carbon Steel Index: AK Steel, Bethlehem Steel, Geneva Steel, LTV Corp.,
National Steel, Nucor, Rouge Industries, Steel
Dynamics, USX-US Steel, Weirton Steel
- -------------------------------------------------------------------------------
LEHMAN BROTHERS III - 2 J&L Specialty Steel, Inc.
<PAGE> 22
EQUITY MARKET PROFILE
================================================================================
SHARE PRICE PERFORMANCE ANALYSIS
<TABLE>
<CAPTION>
52 WEEK HIGH 1998 HIGH 9/22/98 (a) % CHANGE VS.
----------------------- -------------------- -----------------------
SHARE PRICE DATE SHARE PRICE DATE SHARE PRICE 52 WEEK HIGH 1998 HIGH
----------- --------- ----------- ------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
J&L SPECIALTY STEEL $13.81 10/22/97 $10.19 1/5/98 $3.19 -76.9% -68.7%
ASSUMING USINOR OFFER
PRICE $6.38 -53.8% -37.4%
STAINLESS STEEL PRODUCERS:
Allegheny Teledyne $32.31 9/12/97 $29.19 3/25/98 $17.06 -47.2% -41.5%
Armco Inc. 7.06 4/22/98 7.06 4/22/98 4.25 -39.8% -39.8%
Carpenter Technology 58.31 4/23/98 58.31 4/23/98 35.44 -39.2% -39.2%
------------------------------------
MEAN -42.1% -40.2%
------------------------------------
SPECIALTY STEEL/METALS PRODUCERS:
Quanex $35.19 10/22/97 $33.50 3/2/98 $20.13 -42.8% -39.9%
RTI International Metals 25.69 11/17/97 24.50 3/2/98 19.63 -23.6% -19.9%
Special Metals 23.13 10/21/97 18.81 5/15/98 10.13 -56.2% -46.2%
Timken 41.75 5/4/98 41.75 5/4/98 16.38 -60.8% -60.8%
Titanium Metals 38.00 10/8/97 32.13 3/3/98 12.88 -66.1% -59.9%
------------------------------------
MEAN -49.9% -45.3%
------------------------------------
CARBON STEEL PRODUCERS:
AK Steel $23.03 9/22/97 $21.88 4/15/98 $15.31 -33.5% -30.0%
Bethlehem Steel 16.75 4/20/98 16.75 4/20/98 7.94 -52.6% -52.6%
Geneva Steel 4.13 5/8/98 4.25 5/8/98 1.25 -69.7% -70.6%
LTV Corporation 14.25 3/24/98 14.25 3/24/98 5.44 -61.8% -61.8%
National Steel 21.75 3/24/98 21.75 3/24/98 6.38 -70.7% -70.7%
Nucor 60.44 9/22/97 60.06 5/1/98 38.25 -36.7% -36.3%
Rouge Industries 16.63 9/24/97 15.94 3/27/98 7.38 -55.6% -53.7%
Steel Dynamics 27.06 9/22/97 23.38 4/15/98 11.94 -55.9% -48.9%
USX - U.S. Steel Group 42.75 4/15/98 42.75 4/15/98 22.19 -48.1% -48.1%
Weirton Steel 5.19 9/22/97 4.44 5/13/98 2.56 -50.6% -42.3%
------------------------------------
MEAN -53.5% -51.5%
------------------------------------
S&P 400 Industrials Index 1,380.49 7/17/98 1,380.49 7/17/98 1,224.89 -11.3% -11.3%
S&P Basic Materials Index 143.64 5/13/98 143.64 5/16/98 102.20 -28.8% -28.8%
</TABLE>
- ----------------------------------------
(a) Represents the date one day prior to announcement of Usinor's offer for J&L
shares.
- -------------------------------------------------------------------------------
LEHMAN BROTHERS III - 3 J&L Specialty Steel, Inc.
<PAGE> 23
EQUITY MARKET PROFILE
================================================================================
HISTORICAL FORWARD P/E MULTIPLES - POST J&L IPO
PRICE VS. TWO-YEAR FORWARD EARNINGS
J&L SPECIALTY STEEL, INC. VS. STAINLESS STEEL INDEX VS. SPECIALTY METALS INDEX
VS. CARBON STEEL INDEX VS. S&P 400
MONTHLY: DECEMBER, 1993 - PRESENT
[GRAPH]
J&L Stainless Specialty Carbon
Specialty Steel S&P 400 Steel Index Metals Index Steel Index
12/93 N/A 16.62 15.38 14.19 13.94
1/94 N/A 17.30 19.08 15.24 14.55
2/94 N/A 18.52 12.69 10.62 15.78
3/94 9.00 16.79 11.65 12.18 15.06
4/94 8.08 15.53 11.30 11.71 12.10
5/94 8.22 15.69 11.53 12.72 11.52
6/94 9.30 15.77 12.75 12.46 10.89
7/94 9.86 15.35 12.55 12.45 12.08
8/94 9.77 15.82 12.91 13.61 10.55
9/94 10.01 16.06 13.22 14.39 9.09
10/94 10.53 16.08 12.88 13.56 8.76
11/94 8.71 15.77 11.54 11.32 8.21
12/94 9.10 14.99 11.13 7.72 6.38
1/95 10.62 14.82 12.07 8.03 6.32
2/95 9.19 16.62 9.71 8.58 6.58
3/95 9.01 14.93 9.45 8.43 5.89
4/95 8.53 15.26 9.79 7.69 5.13
5/95 8.26 15.88 9.56 8.39 5.42
6/95 7.46 15.96 8.94 8.30 5.33
7/95 7.84 16.14 9.28 8.62 5.35
8/95 7.96 15.75 8.77 8.05 6.11
9/95 8.22 15.94 9.05 7.99 6.08
10/95 6.98 15.84 8.41 7.35 6.13
11/95 6.75 15.83 8.25 6.98 6.88
12/95 7.19 17.08 8.55 7.15 7.14
1/96 7.28 15.84 8.55 7.16 9.15
2/96 9.25 18.70 9.30 9.41 10.29
3/96 8.64 18.31 8.91 9.38 5.27
4/96 8.87 17.62 9.53 9.26 5.83
5/96 10.43 18.11 10.41 9.08 7.06
6/96 8.71 18.06 9.40 8.60 20.17
7/96 7.72 17.06 9.03 8.88 15.36
8/96 9.86 17.54 9.44 8.36 13.49
9/96 11.2 17.81 9.79 9.64 13.87
10/96 10.93 18.92 10.41 9.62 13.03
11/96 16.54 19.22 12.94 9.83 11.80
12/96 20.96 18.98 15.86 9.29 11.82
1/97 24.09 19.68 18.88 9.05 11.79
2/97 13.59 20.96 11.07 8.89 12.45
3/97 13.16 19.41 10.64 8.31 13.63
4/97 12.37 18.70 10.64 8.08 20.95
5/97 12.93 20.06 10.81 8.63 15.82
6/97 13.75 21.37 11.26 9.80 14.29
7/97 12.85 22.55 11.34 9.94 13.10
8/97 16.84 21.73 12.75 9.63 13.10
9/97 17.23 21.62 13.24 9.84 12.08
10/97 21.17 21.99 13.90 9.83 11.63
11/97 15.07 21.39 11.58 9.02 11.04
12/97 16.64 21.61 12.64 8.00 10.37
1/98 15.47 21.48 13.18 7.94 10.09
2/98 12.00 25.02 11.66 8.79 10.54
3/98 20.05 24.92 13.94 9.03 9.67
4/98 30.44 25.12 17.02 8.47 11.40
5/98 27.29 25.29 15.75 8.43 12.21
6/98 17.54 24.82 11.59 7.93 11.11
7/98 14.71 26.08 10.89 7.60 9.05
8/98 14.77 24.68 9.57 6.51 9.85
9/98 23.87
Stainless Steel Index: Allegheny Teledyne, Armco, Carpenter Technology, Lukens
(through 12/15/97)
Specialty Metals Index: Quanex, RTI International Metals, Special Metals,
Timken, Titanium Metals
Carbon Steel Index: AK Steel, Bethlehem Steel, Geneva Steel, LTV Corp.,
Nucor, Rouge Industries, Steel Dynamics, USX-US Steel,
Weirton Steel
- -------------------------------------------------------------------------------
LEHMAN BROTHERS III - 4 J&L Specialty Steel, Inc.
<PAGE> 24
<TABLE>
<CAPTION>
EQUITY MARKET PROFILE
====================================================================================================================================
Shareholder Profile
FULLY % INTEREST OF MARKET VALUE
DILUTED SHARES NON-USINOR BEFORE OFFER
SHARES OPTIONS OUTSTANDING % INTEREST SHARES ($3.19)(a)
------ ------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHAREHOLDERS:
Scudder Kemper Investments 3,049,500 -- 3,049,500 7.7% 16.2% $ 9,720,281
Keycorp 2,910,985 -- 2,910,985 7.4% 15.5% 9,278,765
Dimensional Fund Advisors 1,530,200 -- 1,530,200 3.9% 8.1% 4,877,513
Valuequest TA LLC 841,300 -- 841,300 2.1% 4.5% 2,681,644
Investment Counselors 785,000 -- 785,000 2.0% 4.2% 2,502,188
Reams Asset Management Company LLC 716,500 -- 716,500 1.8% 3.8% 2,283,844
Shufro Rose & Company LLC 615,735 -- 615,735 1.6% 3.3% 1,962,655
Eaton Vance Management 424,200 -- 424,200 1.1% 2.3% 1,352,138
Barclays Bank PLC 399,551 -- 399,551 1.0% 2.1% 1,273,569
Pzena Investment Management LLC 364,075 -- 364,075 0.9% 1.9% 1,160,489
College Retirement Equities 333,802 -- 333,802 0.8% 1.8% 1,063,994
TCW Group Inc 329,800 -- 329,800 0.8% 1.8% 1,051,238
D C Capital Partners 259,117 -- 259,117 0.7% 1.4% 825,935
Painewebber Group Inc 193,715 -- 193,715 0.5% 1.0% 617,467
Frontier Capital Management 165,920 -- 165,920 0.4% 0.9% 528,870
Other Institutional Investors 997,664 -- 997,664 2.5% 5.3% 3,180,054
------------ ------------ ----------- ----- ----- ------------
TOTAL INSTITUTIONAL SHAREHOLDERS 14,548,972 -- 14,548,972 36.8% 77.3% 46,374,848
CORPORATE INSIDERS:
Usinor (successor by merger to Ugine) 20,730,000 -- 20,730,000 52.4% NA 66,076,875
Claude F. Kronk 50,800 90,000 140,800 0.4% 0.7% 161,925
Eugene A. Salvadore 32,000 30,000 62,000 0.2% 0.3% 102,000
Kirk F. Vincent 18,878 26,666 45,544 0.1% 0.2% 60,174
Geoffrey S. Gibson 15,544 26,666 42,210 0.1% 0.2% 49,547
John A. Wallace 13,500 17,000 30,500 0.1% 0.2% 43,031
William S. Dietrich, II 5,000 -- 5,000 0.0% 0.0% 15,938
Pierre F. de Ravel d'Esclapon 1,000 -- 1,000 0.0% 0.0% 3,188
Other Directors, Officers and Employees 79,332 609,668 689,000 1.7% 3.7% 252,871
------------ ------------ ----------- ----- ----- ------------
TOTAL CORPORATE INSIDERS 20,946,054 800,000 21,746,054 55.0% 5.4% 66,765,547
RETAIL SHAREHOLDERS 3,267,974 -- 3,267,974 8.3% 17.4% 10,416,667
------------ ------------ ----------- ----- ----- ------------
TOTAL SHARES OUTSTANDING 38,763,000 800,000 39,563,000 100.0% 100.0% $123,557,063
============ ============ =========== ===== ===== ============
</TABLE>
- --------------------------
Source: CDA Spectrum data as of 10/2/98.
(a) Based on shares outstanding excluding options.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS III-5 J&L Specialty Steel, Inc.
<TABLE>
<CAPTION>
MARKET VALUE
AT USINOR
OFFER PRICE
($6.38)(a)
--------------
<S> <C>
INSTITUTIONAL SHAREHOLDERS:
Scudder Kemper Investments $ 19,440,563
Keycorp 18,557,529
Dimensional Fund Advisors 9,755,025
Valuequest TA LLC 5,363,288
Investment Counselors 5,004,375
Reams Asset Management Company LLC 4,567,688
Shufro Rose & Company LLC 3,925,311
Eaton Vance Management 2,704,275
Barclays Bank PLC 2,547,138
Pzena Investment Management LLC 2,320,978
College Retirement Equities 2,127,988
TCW Group Inc 2,102,475
D C Capital Partners 1,651,871
Painewebber Group Inc 1,234,933
Frontier Capital Management 1,057,740
Other Institutional Investors 6,360,108
------------
TOTAL INSTITUTIONAL SHAREHOLDERS 92,749,697
CORPORATE INSIDERS:
Usinor (successor by merger to Ugine) 132,153,750
Claude F. Kronk 323,850
Eugene A. Salvadore 204,000
Kirk F. Vincent 120,347
Geoffrey S. Gibson 99,093
John A. Wallace 86,063
William S. Dietrich, II 31,875
Pierre F. de Ravel d'Esclapon 6,375
Other Directors, Officers and Employees 505,742
------------
TOTAL CORPORATE INSIDERS 133,531,094
RETAIL SHAREHOLDERS 20,833,334
------------
TOTAL SHARES OUTSTANDING $247,114,125
============
</TABLE>
<PAGE> 25
EQUITY MARKET PROFILE
===============================================================================
VOLUME DISTRIBUTION ANALYSIS
- - Since J&L's IPO, less than 6% of the aggregate volume has traded at price
levels below $7.00 per share
J&L SPECIALTY STEEL, INC.
MONTHLY: 12/14/97 - 09/22/98
<TABLE>
<S> <C>
3.000 to 4.999................................................ 0.8%
5.000 to 6.999................................................ 4.6%
7.000 to 8.999................................................ 3.7%
9.000 to 10.999............................................... 5.2%
11.000 to 12.999.............................................. 14.2%
13.000 to 14.999.............................................. 11.9%
15.000 to 16.999.............................................. 17.4%
17.000 to 18.999.............................................. 26.6%
19.000 to 20.999.............................................. 9.8%
21.000 to 22.999.............................................. 4.1%
23.000 to 24.999.............................................. 0.0%
25.000 to 27.000.............................................. 1.9%
</TABLE>
TOTAL VOLUME = 104,731,700 SHARES
LEHMAN BROTHERS III-6 J&L SPECIALTY STEEL, INC.
<PAGE> 26
EQUITY MARKET PROFILE
================================================================================
VOLUME DISTRIBUTION ANALYSIS (CONT'D)
- - During the year leading up to Usinor's proposal, over 75% of aggregate
volume traded at price levels above $6.00 per share
J&L SPECIALTY STEEL, INC.
DAILY: 09/22/97 - 09/22/98
<TABLE>
<S> <C>
2.000 to 2.999................................................ 1.1%
3.000 to 3.999................................................ 6.3%
4.000 to 4.999................................................ 0.9%
5.000 to 5.999................................................ 14.8%
6.000 to 6.999................................................ 8.3%
7.000 to 7.999................................................ 15.2%
8.000 to 8.999................................................ 14.8%
9.000 to 9.999................................................ 18.8%
10.000 to 10.999.............................................. 9.4%
11.000 to 11.999.............................................. 1.2%
12.000 to 12.999.............................................. 4.9%
13.000 to 14.000.............................................. 4.3%
</TABLE>
TOTAL VOLUME = 17,561,100 SHARES
LEHMAN BROTHERS III-7 J&L SPECIALTY STEEL, INC.
<PAGE> 27
EQUITY MARKET PROFILE
================================================================================
ANALYST COMMENTARY
The DRAP line gives J&L the most modern and more importantly lowest cost
cold-end in the specialty sector. The new line, which combines the six
operations required to process hot bands to cold rolled coils into one
continuous line, is expected to eventually reduce processing time by as much as
75% and processing costs by approximately $125 per ton. It has an annual
capacity of about 275,000 tons, boosting J&L's stainless finishing capacity by
about 80%.
By being able to produce the critical 60-inch hot bands, J&L will join
privately-owned North American Stainless as the only domestic producers for
60-inch wide cold rolled coils and thus solidify its position as a leader in the
austenitic grades of stainless steel. Both service centers and end users are
attracted to the wider product due to reduced handling costs and higher weld
efficiencies in manufacturing applications.
With only 38.7 million shares and 53.4% in the hands of the parent, the J&L
shares are not liquid enough for some of the larger institutional investors who
play this sector. The Technology Agreement with Ugine that will give J&L access
to the thin slab casting technology only remains in effect as long as Ugine owns
a majority interest in J&L, making a secondary offering unlikely in the near
term.
Waldo Best, Morgan Stanley Dean Witter, July 29, 1998
We have downgraded JL from a TRADING BUY to a HOLD following Wall Street's lack
of response to the June 10 stainless steel trade filings against unfairly priced
imports. While we believe that this critical event marks the bottom of the
stainless steel cycle in North America, the company's share price has actually
gone south from $6 7/8 at the time of the announcement. It appears that nobody
cares with the (a) GM strike, (b) uncertainty over the impact of the Asian
economic crisis, (c) the annual summer manufacturing slowdown, and (d) the
generally negative view of an industry that has been suffering for three years
in a "death by a thousand cuts" product market. The small market capitalization
of the shares has also become an issue for many.
With JL shares at these prices, we would understand Ugine management if they
decided to take JL private by purchasing all outstanding shares. However, we do
not believe this will occur. We view the French as preferring two 51% interests
over one 100% interest. The new Ugine president Guy Doulley is reportedly
interested in building a global stainless steel network and JL is an important
leg of that structure.
David S. MacGregor, CFA, Midwest Research, June 30, 1998
- --------------------------------------------------------------------------------
LEHMAN BROTHERS III - 8 J&L Specialty Steel, Inc.
<PAGE> 28
EQUITY MARKET PROFILE
================================================================================
ANALYSIS OF COMPARABLE COMPANY PUBLIC FLOAT
- - J&L's small market capitalization and high insider ownership results in an
inherent limitation on the level of liquidity in the stock, thereby
impacting the level of Wall Street research coverage and preventing
greater trading activity by large institutional investors. J&L's stock
price and corresponding valuation has suffered, in part, due to its small
public float relative to the comparable public companies
<TABLE>
<CAPTION>
FLOAT POSITIONS AS OF 10/23/98
SHARES FLOAT FLOAT AS A % MARKET VALUE
OUTSTANDING AS OF SHARES OF TOTAL SHARES OF FLOAT(a)
COMPARABLE COMPANIES LAST REPORT (000'S) (000'S) OUTSTANDING (000'S)
------------------------- ------------------ ------------------- ---------------
<S> <C> <C> <C> <C>
STAINLESS STEEL PRODUCERS:
Allegheny Teledyne 197,030 170,884 87% $2,915,708
Armco Inc. 107,879 105,329 98% $447,649
Carpenter Technology 22,729 20,317 89% $669,187
--------------------------------------------------------------------
GROUP MEAN 91% $1,344,181
GROUP MEDIAN 89% $669,187
--------------------------------------------------------------------
SPECIALTY METAL PRODUCERS:
Quanex Corporation 14,179 14,005 99% $281,854
RTI International Metals 20,521 14,849 72% $291,405
Special Metals Corporation 15,479 3,842 25% $38,898
Timken Company 62,338 52,976 85% $867,481
Titanium Metals Corporation 31,459 21,808 69% $280,775
--------------------------------------------------------------------
GROUP MEAN 70% $352,083
GROUP MEDIAN 72% $281,854
--------------------------------------------------------------------
CARBON STEEL PRODUCERS:
AK Steel Company 59,208 49,128 83% $752,277
Bethlehem Steel Corporation 129,622 129,005 100% $1,023,978
Geneva Steel Company Class A & B 33,556 14,432 43% $18,040
LTV Corporation 99,889 99,669 100% $541,952
National Steel 43,288 21,012 49% $133,954
Nucor Corporation 88,070 85,206 97% $3,259,144
Rouge Industries Incorporated 22,060 14,168 64% $104,491
Steel Dynamics 48,183 26,872 56% $320,784
USX-US Steel Group 88,099 87,873 100% $1,949,690
Weirton Steel Corporation 41,523 30,703 74% $78,677
--------------------------------------------------------------------
GROUP MEAN 76% $818,299
GROUP MEDIAN 78% $431,368
--------------------------------------------------------------------
--------------------------------------------------------------------
OVERALL MEAN 77% $776,441
OVERALL MEDIAN 84% $431,368
--------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
J&L SPECIALTY STEEL (JL) 38,763 17,875 46% 56,977(b)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(a) Based on 9/22/98 closing price.
(b) Based on pre-offer share price on 9/22/98 of $3.1875.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS III - 9 J&L Specialty Steel, Inc.
<PAGE> 29
IV. VALUATION ANALYSIS
- --------------------------------------------------------------------------------
LEHMAN BROTHERS J&L Specialty Steel, Inc.
<PAGE> 30
VALUATION ANALYSIS
================================================================================
VALUATION METHODOLOGY
- - For purposes of our valuation, we have employed four valuation
methodologies
-- Comparable Company Analysis: based on current trading multiples of
publicly traded stainless steel, specialty steel and carbon steel
companies (assumes no change in control)
-- Comparable Transaction Analysis: based on recent multiples paid in
transactions involving a change in control of selected stainless
steel, specialty steel and carbon steel companies
-- Discounted Cash Flow Analysis: based on projected operating cash
flows for J&L as provided by J&L and utilizing both the Exit
Multiple approach and the Perpetuity Growth approach for determining
the terminal values; cash flows are discounted at a range of
discount rates which reflect the business risk of the underlying
assets of the company
-- Premiums Paid Analysis: based on premiums paid in transactions
involving the acquisition of a minority stake by a party which
previously held a controlling interest
- - As part of our discounted cash flow analysis, we have evaluated J&L under
two scenarios:
-- Going Concern Scenario: assumes that J&L remains independent, has
adequate liquidity and is able to meet its debt service obligations
without breaching its bank covenants
-- Liquidity Squeeze/Bankruptcy Risk Scenario: assumes that J&L is not
able to operate on a going concern basis without breaching its bank
covenants, and therefore must seek waivers from its bank group
and/or seek an emergency injection of equity from an affiliate or
third party in order to stave off a breach in its covenants and a
subsequent trigger of a put of its debt obligations
- --------------------------------------------------------------------------------
LEHMAN BROTHERS IV - 1 J&L Specialty Steel, Inc.
<PAGE> 31
VALUATION ANALYSIS
================================================================================
ISSUES IMPACTING THE VALUATION OF J&L
- - Lack of liquidity and the potential near term violation of financial
covenants; increased risk of financial distress
-- June 30, 1998 10Q disclosure relating to the potential violation of
financial covenant requirements; investor speculation as to "various
actions being considered by management to avoid a violation"
-- Investors' current views of the risk profile of J&L and the impact
on required equity returns
-- Possible equity injection to improve capital base and stave off a
covenant violation and the potential for significant dilution
-- Investors' expectations concerning Usinor's willingness to fix J&L's
capital structure
- - Lack of profitability over recent operating history; inability to apply
traditional valuation multiples (i.e. earnings multiples) to J&L operating
statistics as an approach to assess value
- - J&L's inability to achieve a "normalized" level of profitability in the
near-to-intermediate term given stainless pricing levels, global
competition and the Company's various capital projects currently underway
(or in various stages of planning)
- - The impact of legacy liabilities (i.e., both pension and other non-pension
benefits) on cash flows, enterprise value and ultimately the value of
J&L's common equity
- - The potential for meaningful operating improvements/cost reductions
available to J&L through the execution of projects identified by external
consultants
- - The level of volatility in current financial markets globally and the
impact on valuation benchmarks and investor return requirements
- --------------------------------------------------------------------------------
LEHMAN BROTHERS IV - 2 J&L Specialty Steel, Inc.
<PAGE> 32
VALUATION ANALYSIS
J&L PROJECTED FINANCIAL PERFORMANCE: KEY ASSUMPTIONS
Management made the following assumptions when preparing its projections:
- - Projection period reflects a full economic cycle
- - Operating margins improve to a cyclical peak of approximately 13% by 2002
through a combination of price improvement and operating cost improvements.
The Company achieves "normalized long-term" operating margins and
profitability by 2007
- - Construction of Steckel mill commences in 2002
- - Melt shop upgrade increases melt capacity by over 40%
- - Full utilization of capacity in both melt shop and downstream finishing
operations achieved by 2007
- --------------------------------------------------------------------------------
LEHMAN BROTHERS IV - 3 J&L Specialty Steel, Inc.
<PAGE> 33
VALUATION ANALYSIS
PROJECTED FINANCIAL PERFORMANCE: SUMMARY INCOME STATEMENT
Lehman Brothers utilized management's short-term operating forecast and
long-term operating projections.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------------
($ in millions, except per share and per ton) 1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $ 498.3 $ 588.5 $ 718.5 $ 757.4 $ 810.8
% Growth -16.8% 18.1% 22.1% 5.4% 7.1%
EBITDA (25.1) 40.1 95.2 119.3 143.7
% Margin -5.0% 6.8% 13.2% 15.8% 17.7%
EBIT (59.9) 5.6 58.6 82.1 107.7
% Margin -12.0% 1.0% 8.2% 10.8% 13.3%
Net Income (51.0) (8.6) 25.4 41.7 62.1
Earnings Per Share $ (1.32) $ (0.22) $ 0.65 $ 1.08 $ 1.60
Dividends Per Share $ 0.25 $ 0.10 $ 0.10 $ 0.10 $ 0.10
Shares Outstanding 38.763 38.763 38.763 38.763 38.763
OTHER DATA:
Shipments (000 Tons) 312.9 353.8 418.5 432.1 447.5
% Growth -6.4% 13.1% 18.3% 3.2% 3.6%
Revenue per Ton $ 1,592.5 $ 1,663.4 $ 1,716.8 $ 1,752.8 $ 1,811.9
% Growth -11.1% 4.5% 3.2% 2.1% 3.4%
Operating Income per Ton $ (191) $ 16 $ 140 $ 190 $ 241
% Growth N.M. N.M. 782.2% 35.8% 26.6%
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
----------------------------------------------------------------------
($ in millions, except per share and per ton) 2003 2004 2005 2006 2007
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $ 839.3 $ 830.9 $ 823.7 $ 836.9 $ 849.6
% Growth 3.5% -1.0% -0.9% 1.6% 1.5%
EBITDA 140.8 114.1 73.4 116.6 158.5
% Margin 16.8% 13.7% 8.9% 13.9% 18.7%
EBIT 107.4 82.0 25.6 65.7 104.7
% Margin 12.8% 9.9% 3.1% 7.9% 12.3%
Net Income 62.8 46.1 5.0 30.9 56.9
Earnings Per Share $ 1.62 $ 1.19 $ 0.13 $ 0.80 $ 1.47
Dividends Per Share $ 0.10 $ 0.10 $ 0.10 $ 0.40 $ 0.40
Shares Outstanding 38.763 38.763 38.763 38.763 38.763
</TABLE>
- --------------------------------------------------------------------------------
LEHMAN BROTHERS IV - 4 J&L Specialty Steel, Inc.
<PAGE> 34
VALUATION ANALYSIS
PROJECTED FINANCIAL PERFORMANCE: SUMMARY CASH FLOW STATEMENT
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
-------------------------------------------------------------------------------------------
($ in millions) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash from Operations $(23.0) $ 48.4 $ 73.8 $ 88.0 $106.0 $114.7 $ 83.8 $ 44.2 $111.5 $121.2
Capital Expenditures (5.4) (20.7) (13.6) (7.9) (87.1) (100.3) (151.6) (46.8) (36.4) (12.0)
Dividends Paid (9.7) (3.9) (3.9) (3.9) (3.9) (3.9) (3.9) (3.9) (15.5) (15.5)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Free Cash Flow $(38.1) $ 23.8 $ 56.3 $ 76.2 $ 15.0 $ 10.5 $(71.7) $ (6.5) $ 59.5 $ 93.6
</TABLE>
- --------------------------------------------------------------------------------
LEHMAN BROTHERS IV - 5 J&L Specialty Steel, Inc.
<PAGE> 35
VALUATION ANALYSIS
PROJECTED FINANCIAL PERFORMANCE: SUMMARY BALANCE SHEET
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
($ in millions) 1998 1999 2000 2001 2002 2003 2004
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 0.5 $ 44.7
Goodwill 205.4 198.9 192.3 185.8 179.2 172.7 166.2
Total Assets 755.2 714.5 710.2 685.1 749.0 830.1 1,006.9
Revolver/Lines of Credit $ 129.5 $ 103.0 $ 44.9 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Term Loan 125.0 125.0 125.0 92.9 81.3 76.8 76.8
Other Long-Term Debt 27.6 27.6 27.6 27.6 27.6 27.6 27.6
Steckel Loan -- -- -- -- -- -- 125.0
-------- -------- -------- -------- -------- -------- --------
Total Debt 282.1 255.6 197.5 120.5 108.9 104.4 229.4
Legacy Liabilities 76.9 78.7 81.1 83.4 85.8 88.6 90.8
Equity 277.3 268.3 291.6 330.2 390.1 449.0 491.2
Total Capitalization 559.4 524.0 489.1 450.7 499.0 553.4 720.6
Tangible Net Worth (Equity - Goodwill) (a) 71.9 69.5 99.2 144.4 210.9 276.3 325.0
SELECTED CREDIT STATISTICS:
Total Debt/Total Capitalization 50.4% 48.8% 40.4% 26.7% 21.8% 18.9% 31.8%
Total Debt + Leg. Liab/Total Cap. + Leg. Liab. 56.4% 55.5% 48.9% 38.2% 33.3% 30.1% 39.5%
Total Debt/EBITDA NM 6.4 x 2.1 x 1.0 x 0.8 x 0.7 x 2.0 x
Interest Expense $ 18.2 $ 15.6 $ 13.4 $ 9.6 $ 1.7 $ 0.3 $ 2.3
EBITDA/Interest Expense NM 2.6 x 7.1 x 12.4 x 85.0 x 412.1 x 50.4 x
EBIT/Interest Expense NM 0.4 x 4.4 x 8.6 x 63.7 x 314.6 x 36.2 x
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
($ in millions) 2005 2006 2007
-------- -------- --------
<S> <C> <C> <C>
Cash $ 0.5 $ 0.5 $ 0.5
Goodwill 159.6 153.1 146.6
Total Assets 971.4 953.7 918.0
Revolver/Lines of Credit $ 0.0 $ 0.0 $ 0.0
Term Loan 41.4 -- --
Other Long-Term Debt 27.6 11.1 --
Steckel Loan 125.0 125.0 42.4
-------- -------- --------
Total Debt 194.0 136.1 42.4
Legacy Liabilities 92.7 94.3 95.6
Equity 492.3 507.6 549.0
Total Capitalization 686.3 643.7 591.4
Tangible Net Worth (Equity - Goodwill)(a) 332.7 354.5 402.4
SELECTED CREDIT STATISTICS:
Total Debt/Total Capitalization 28.3% 21.1% 7.2%
Total Debt + Leg. Liab/Total Cap. + Leg. Liab. 36.8% 31.2% 20.1%
Total Debt/EBITDA 2.6 x 1.2 x 0.3 x
Interest Expense $ 13.1 $ 11.0 $ 7.2
EBITDA/Interest Expense 5.6 x 10.6 x 22.1 x
EBIT/Interest Expense 1.9 x 6.0 x 14.6 x
</TABLE>
- ----------
(a) The figures shown do not represent tangible net worth as defined in the
Company's bank agreements.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS IV - 6 J&L Specialty Steel, Inc.
<PAGE> 36
Valuation Analysis
- --------------------------------------------------------------------------------
Summary Comparable Company Analysis
<TABLE>
<CAPTION>
Market Value
as a Multiple of:
10/26/98 Equity -------------------------------------------------
LTM Share Market LTM 1998E 1999E Book Tangible
Revenue Price Value EPS EPS EPS Value Book
------- -------- ------ --- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
($ in millions, except per share)
J&L Specialty Steel $ 503.6 $ 6.38(a) $ 247.1 N.M. N.M. 27.7x 0.84x 2.81x
Stainless Steel Producers
Allegheny Teledyne $3,939.9 $19.88 $3,916.0 13.3x 13.8x 11.4x 3.01x 3.75x
Armco, Inc. 1,749.6 5.00 539.4 5.6x 6.8x 5.5x N.M. N.M.
Carpenter Technology 1,223.1 35.56 808.3 10.2x 10.8x 9.5x 1.32x 1.82x
Mean 9.7x 10.5x 8.8x 2.16x 2.79x
Median 10.2x 10.8x 9.5x 2.16x 2.79x
Specialty Metals Producers
Quanes Corporation $ 784.8 $17.81 $ 252.6 10.6x 7.8x 7.4x 0.85x 1.23x
RTI International Metals 350.0 16.06 329.6 4.4x 6.6x 5.7x 1.23x 1.23x
Special Metals Corporation 182.4 9.00 139.3 6.8x 6.3x 4.7x 1.34x 1.34x
The Tinken Company 2,697.1 17.44 1,087.0 7.4x 8.9x 8.1x 1.02x 1.19x
Titanium Metals Corp. 759.4 10.13 318.5 4.3x 5.2x 8.6x 0.72x 0.90x
Mean 6.7x 7.0x 6.9x 1.03x 1.18x
Median 6.8x 6.6x 7.4x 1.02x 1.23x
Carbon Steel Producers
AK Steel $2,377.7 $17.63 $1,039.2 9.5x 11.1x 10.1x 1.18x 1.18x
Bethlehem Steel 4,853.9 $ 9.06 1,174.7 5.0x 6.8x 13.3x 1.29x 2.13x
Geneva Steel 742.5 $ 0.75 25.2 N.M. N.M. N.M. 0.32x 0.32x
LTV Corporation 4,431.0 $ 6.13 611.8 9.9x 24.5x 25.5x 0.37x 0.37x
National Steel 3,013.4 $ 6.44 278.7 2.1x 6.6x 6.4x 0.32x 0.32x
Nucor Corp. 4,315.5 $42.94 3,781.5 13.5x 14.7x 14.6x 1.89x 1.89x
Rouge Industries 1,226.1 $ 9.00 198.2 17.6x 10.8x 15.3x 0.44x 0.44X
Steel Dynamics 495.1 $13.50 650.5 20.9x 20.8x 12.6x 1.89x 1.89x
USX - U.S. Steel Group 6,637.0 $23.50 2,070.3 5.4x 7.3x 8.5x 1.04x 1.04x
Weirton Steel 1,317.0 $ 1.88 77.9 8.1x 15.6x N.M.(b) 0.58x 0.58x
Mean 10.2x 13.1x 13.3x 0.93x 1.02x
Median 9.5x 11.1x 13.0x 0.81x 0.81x
-----------------------------------------------------------------------------------------------------------------
Group Mean 9.1x 10.8x 10.4x 1.11x 1.27x
Group Median 8.1x 8.9x 9.1x 1.04x 1.19x
</TABLE>
<TABLE>
<CAPTION>
Enterprise Value Incl. Legacy
Enterprise Liabilities as a Multiple of:
Value Incl. ------------------------------------------------------------
Legacy LTM LTM LTM Assets Tanigble
Liabliities Revenue EBITDA EBIT - Cash Assets-Cash
------------- -------- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
($ in millions, except per share)
J&L Specialty Steel $ 626.9 1.24x N.M. N.M. 0.80x 1.09x
Stainless Steel Producers
Allegheny Teledyne $4,849.7 1.23x 8.8x 10.8x 1.65x 1.80x
Armco, Inc. 1,811.8 1.04x 10.6x 16.8x 1.07x 1.16x
Carpenter Technology 1,495.3 1.22x 6.5x 8.9x 0.90x 1.00x
Mean 1.16x 8.6x 12.2x 1.21x 1.32x
Median 1.22x 8.8x 10.8x 1.07x 1.16x
Specialty Metals Producers
Quanes Corporation $ 413.4 0.53x 4.5x 8.0x 0.64x 0.74x
RTI International Metals 308.3 0.88x 3.8x 4.1x 1.04x 1.04x
Special Metals Corporation 133.2 0.73x 3.7x 4.1x 1.03x 1.03x
The Tinken Company 2,064.0 0.77x 5.0x 7.6x 0.84x 0.90x
Titanium Metals Corp. 518.5 0.68x 3.3x 4.0x 0.65x 0.73x
Mean 0.72x 4.1x 5.6x 0.84x 0.89x
Median 0.73x 3.8x 4.1x 0.84x 0.90x
Carbon Steel Producers
AK Steel $1,984.8 0.83x 6.7x 9.7x 0.80x 0.80x
Bethlehem Steel 4,583.0 0.94x 9.8x 22.7x 0.81x 0.86x
Geneva Steel 492.5 0.66x 5.1x 10.0x 0.73x 0.73x
LTV Corporation 2,757.8 0.62x 7.1x 21.1x 0.54x 0.54x
National Steel 1,129.7 0.37x 4.4x 8.7x 0.52x 0.52x
Nucor Corp. 3,954.7 0.92x 6.0x 9.2x 1.40x 1.40x
Rouge Industries 196.5 0.16x 5.7x 9.3x 0.27x 0.27x
Steel Dynamics 1,060.9 2.14x 12.6x 18.4x 1.35x 1.35x
USX - U.S. Steel Group 5,110.3 0.77x 4.5x 6.0x 0.76x 0.76x
Weirton Steel 809.5 0.61x 6.9x 14.6x 0.72x 0.72x
Mean 0.80x 6.9x 13.0x 0.79x 0.80x
Median 0.72x 6.4x 9.8x 0.74x 0.74x
------------------------------------------------------------------------------------------- ------------------
Group Mean 0.84x 6.4x 10.8x 0.87x 0.91x
Group Median 0.77x 5.8x 9.2x 0.80x 0.83x
</TABLE>
- ------------------
(a) Represents latest per share offer made by Usinor.
(b) Not included in calculation of mean and median slatistics.
<PAGE> 37
VALUATION ANALYSIS
================================================================================
SUMMARY COMPARABLE COMPANY ANALYSIS
IV-7
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 38
VALUATION ANALYSIS
================================================================================
PER SHARE VALUE IMPLIED BY COMPARABLE COMPANIES
COMPARABLE TRADING COMPANIES APPROACH(a)
<TABLE>
<S> <C> <C> <C>
ASSUMED REVENUE MULTIPLE RANGE(b) 0.75 X -- 0.85 X
IMPLIED SHARE PRICE
Current Shares Outstanding (38.8MM) $ (0.05) $ 1.25
Pro Forma Shares Outstanding (57.6MM)(c) $ 1.01 $ 1.88
ASSUMED MULTIPLE RANGE OF TANGIBLE ASSETS LESS CASH(b) 0.80 X -- 0.90 X
IMPLIED SHARE PRICE
Current Shares Outstanding (38.8MM) $ 2.06 $ 3.54
Pro Forma Shares Outstanding (57.6MM)(c) $ 2.43 $ 3.42
ASSUMED MULTIPLE RANGE OF NET TANGIBLE BOOK VALUE 1.00 X -- 1.50 X
IMPLIED SHARE PRICE
Current Shares Outstanding (38.8MM) $ 2.24 $ 3.36
Pro Forma Shares Outstanding (57.6MM)(c) $ 2.55 $ 3.83
ASSUMED TWO YEAR FORWARD P/E (1999E) 8.5 X -- 10.5 X
First Call 1999E EPS (38.8MM Shares Outstanding) $ 0.23 $ 0.23
First Call 1999E EPS (57.6MM Shares Outstanding) $ 0.20 $ 0.20
IMPLIED SHARE PRICE
Current Shares Outstanding (38.8MM) $ 1.96 $ 2.42
Pro Forma Shares Outstanding (57.6MM)(c) $ 1.67 $ 2.06
</TABLE>
- ----------
(a) Based on LTM figures as of 9/30/98 for J&L Specialty Steel.
(b) Based on firm value.
(c) Pro Forma shares outstanding assumes a $60.0 million rights offering at
$3.1875 per share, with proceeds applied to reduce debt.
IV-8
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 39
VALUATION ANALYSIS
================================================================================
SUMMARY COMPARABLE TRANSACTION ANALYSIS
($ in millions)
Annc.
Date Acquiror
- -------- ---------------------------------------------------------
10/19/98 Universal Stainless
7/25/98 Blackstone Group/Veritas Capital Partners LP
2/17/98 Ispat International (Pending)
3/9/98 Alcoa
1/28/98 Allegheny Teledyne Incorporated
1/9/98 Lower Saxony/NLG
12/15/97 Bethlehem Steel
11/21/97 Co-Steel, Inc.
10/31/97 Allegheny Teledyne
5/22/97 Texas Industries, Inc. (Remaining 15% stake)
5/5/97 CPT Holdings, Inc.
10/10/96 Renco Group Inc. (remaining 15%)
9/18/95 BRW Steel Corp. (Veritas Capital Inc.)
4/25/95 Investor Group
10/5/94 Avesta Sheffield AB
9/15/94 Acerinox S.A.
8/2/93 Birmingham Steel
3/12/93 Allegheny Ludlum
12/11/92 Kyoei Steel
3/30/92 Lukens Inc.
9/24/91 Armco Inc.
4/25/90 NKK Corp. (acquired 40%, increasing total interest to 90%)
1/24/90 Imetal
7/8/88 FLS Acquistion Inc. (FLS Holdings Inc.)
<TABLE>
<CAPTION>
TRANSACTION VALUE + NET DEBT
AS A MULTIPLE OF:
TRANSACTION -------------------------------------------------------
VALUE PLUS ASSETS - EBIT
Target NET DEBT(b) REVENUE EBITDA EBIT CASH MARGIN
- ------------------------------------------------- ----------- ------- ------ ---- -------- ------
<S> <C> <C> <C> <C> <C> <C>
AL Tech Specialty Steel 38.0 0.45x NM NM NM NM
Republic Engineered Steels, Inc. 537.6 0.67x 11.0x 23.7x 0.9x 2.8%
Inland Steel Company 2,556.9 1.03x 9.3x 17.7x 1.2x 5.8%
Alumax 3,713.9 1.27x 8.3x 12.7x 1.1x 10.0%
Lukens stainless assets 375.0 0.78x 57.7x(b) NM 4.1x NM
Preussag Stahl AG (51%) 578.3 0.60x 8.2x NM 0.7x NM
Lukens Inc. 914.4 0.92x 14.0x 68.2x(b) 1.1x 1.3%
New Jersey Steel 170.0 0.99x 14.4x 57.4x(b) 1.1x 0.0%
Oregon Metallurgical Corporation 565.1 2.04x 10.4x 11.4x 2.0x 17.9%
Chaparral Steel 490.7 0.80x 4.7x 6.9x 1.0x 11.6%
Steel of West Virginia 53.9 0.57x 4.3x 9.7x NM 5.8%
WCI Steel Inc. (Renco Group Inc. owned 84%) 514.1 0.86x 11.1x 21.7x(b) 1.2x 4.0%
Bliss and Laughlin Industries Inc. 57.2 0.34x 5.0x 6.0x 0.8x 5.7%
Gulf States Steel, Inc. 285.1 0.62x 5.4x 6.0x 1.3x 10.4%
Eastern Stainless Corporation (84%) 35.6 0.51x NM NM 0.6x NM
North American Stainless (45%) 73.0 NA NA NA NA NM
American Steel & Wire 51.6 0.22x 2.8x 4.4x 0.5x 5.0%
Athlone Industries 199.1 0.96x 10.7x 13.3x 1.3x 7.2%
Florida Steel Corporation 403.1 0.87x 14.9x 46.0x(b) 0.9x 1.9%
Washington Steel Corp. (Mercury Stainless Corp.) 640.2 1.64x 22.3x(b) 71.0x(b) 1.8x 2.3%
Cyclops Industries Inc. 505.5 4.04x(b) 15.8x 23.9x(b) 1.0x 16.9%
National Steel Corp. (NII, NKK Corp.) 672.5 0.27x 3.6x 8.3x 0.4x 3.2%
Copperweld (for remaining 44%) 99.5 0.75x 4.4x 5.2x 1.1x 14.5%
Florida Steel Corp. 371.9 NM NM NM 1.3x NM
- ------------------------------------------------------------------------------------------------------------------------------
Mean 579.3 0.82x 8.8x 10.4x 1.2x 7.0%
Median 389.1 0.78x 8.8x 9.0x 1.1x 5.7%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(a) Transaction value includes equity plus debt and legacy liabilities less
cash.
(b) Excluded from the mean and median calculations.
IV-9
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 40
VALUATION ANALYSIS
================================================================================
PER SHARE VALUE IMPLIED BY COMPARABLE TRANSACTIONS
COMPARABLE TRANSACTIONS APPROACH(a)
<TABLE>
<S> <C> <C>
ASSUMED REVENUE MULTIPLE RANGE(b) 0.80 X - 0.90 X
IMPLIED SHARE PRICE
Current Shares Outstanding (38.8MM) $ 0.60 $ 1.90
Pro Forma Shares Outstanding (57.6MM)(c) $ 1.44 $ 2.32
</TABLE>
- ----------
(a) Based on LTM figures as of 9/30/98 for J&L Specialty Steel.
(b) Based on firm value.
(c) Pro Forma shares outstanding assumes a $60.0 million rights offering at
$3.1875 per share, with proceeds applied to reduce debt.
IV-10
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 41
VALUATION ANALYSIS
================================================================================
SUMMARY OF PREMIUMS PAID IN MINORITY SQUEEZE-OUT TRANSACTIONS
<TABLE>
<CAPTION>
DATE
ANNOUNCED TARGET NAME
- ------------ ------------------------------------
<S> <C>
01/24/90 Copperweld Corp (Imetal SA)
07/06/90 Mack Trucks Inc
07/12/90 TVX Broadcast Group Inc
07/19/90 Caesars New Jersey Inc
03/01/91 Metcalf & Eddy Cos Inc
02/06/92 Spelling Entertainment Inc
03/02/92 Grace Energy Corp
04/26/93 Southeastern Public Service Co
10/13/93 Medical Marketing Group Inc
04/26/94 Diamond Shamrock Offshore
07/28/94 Chemical Waste Management
12/22/94 Salick Health Care Inc
04/05/95 Club Med Inc
07/14/95 REN Corp-USA (COBE Labs Inc)
05/27/96 SyStemix Inc (Novartis AG)
07/03/96 Golden Poultry Co Inc
08/08/96 Roto-Rooter Inc (Chemed Corp)
10/10/96 WCI Steel Inc (Renco Group Inc)
11/27/96 Central Tractor Farm & Country
12/06/96 MaxServ Inc (Sears Roebuck)
01/28/97 Calgene Inc (Monsanto Co)
02/18/97 Contour Medical (Retirement)
04/16/97 Steck-Vaughn Publishing Corp
05/22/97 Chaparral Steel Co
06/03/97 Faulding Inc (FH Faulding & Co)
06/13/97 Bally's Grand Inc
07/09/97 Seaman Furniture Co
01/08/98 Rayonier Timberlands LP
01/20/98 NACT Telecommunications (GST)
01/22/98 BT Office Products Intl Inc
03/05/98 XLConnect Solutions Inc
04/30/98 Mycogen Corp (Dow AgroSciences)
05/11/98 * Banner Aerospace Inc
09/11/98 * Prime Resources Group Inc.
09/23/98 * Ryerson Tull Inc
09/29/98 Newmont Gold
09/23/98 * J&L SPECIALTY STEEL INC
</TABLE>
<TABLE>
<CAPTION>
% HELD % OWNED PREMIUM PREMIUM PREMIUM PREMIUM
VALUE OF AT AFTER TO 1-DAY TO 1-WEEK TO 1-MONTH TO 2-MONTH PREMIUM PREMIUM
TRANSACTION DATE TRANS- PRIOR PRIOR PRIOR PRIOR TO 52-WK TO 52-WK
ACQUIROR NAME ($ MIL) ANN. ACTION CLOSE CLOSE CLOSE CLOSE HIGH LOW
- -------------------------------- ----------- ------ ------- -------- --------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Imetal SA 78.0 55.6 100.0 47.8% 41.7% 31.4% 25.9% 6.3% 47.8%
Renault Vehicules Industriels 103.7 60.4 100.0 19.0% 19.0% 22.0% 11.1% -47.9% 31.6%
Paramount Communications 61.4 79.0 100.0 26.7% 90.0% 87.6% 90.0% 26.7% 261.9%
Caesars World Inc 48.4 86.6 100.0 40.0% 49.3% 39.0% 54.4% -19.4% 57.1%
Air & Water Technologies Corp 51.0 82.0 100.0 22.2% 16.7% 24.2% 60.4% -38.4% 108.1%
Charter Co (American Financial) 43.0 82.3 100.0 52.6% 45.0% 48.7% 75.8% 26.1% 81.3%
WR Grace & Co 77.3 83.4 100.0 31.0% 55.1% 60.0% 46.2% 3.4% 68.9%
DWG Corp (Triarc Companies Inc) 86.1 71.0 100.0 65.2% 63.8% 61.3% 87.9% 56.3% 438.9%
Medco Containment Services Inc 122.5 51.5 100.0 -17.8% -6.3% -6.7% -5.1% -22.9% 50.0%
Burlington Resources Inc 42.6 87.1 100.0 -3.1% -0.4% 8.6% -0.4% -33.6% 12.0%
WMX Technologies Inc. 397.4 78.5 100.0 8.9% -1.7% 4.1% -1.7% -21.3% 24.1%
ZENECA Group PLC 234.0 50.0 100.0 40.7% 49.6% 82.9% 83.9% 40.7% 188.8%
Club Mediterranee SA 153.4 67.0 100.0 41.4% 39.9% 45.5% 42.2% 23.1% 49.7%
COBE Laboratories (Gambro AB) 182.1 51.6 100.0 27.0% 20.3% 35.6% 29.0% 20.3% 128.6%
Novartis AG 107.6 67.8 100.0 77.3% 62.5% 51.5% 48.6% 16.4% 77.3%
Gold Kist Inc 52.1 75.0 100.0 52.0% 50.0% 50.0% 50.0% 21.3% 147.8%
Chemed Corp 93.6 54.9 100.0 12.3% 12.3% 13.9% 8.6% -1.2% 34.4%
Renco Group Inc 56.5 84.5 100.0 17.6% 29.0% 73.9% 73.9% 17.6% 166.7%
JW Childs Equity Partners LP 56.7 61.3 100.0 17.5% 17.5% 26.7% 18.8% -12.3% 67.6%
Sears Roebuck & Co 46.0 52.4 100.0 19.2% 67.6% 59.0% 47.6% 19.2% 210.0%
Monsanto Co 242.6 56.3 100.0 62.0% 60.0% 54.2% 48.8% 16.4% 80.3%
Sun Healthcare Group Inc 55.2 65.3 100.0 21.4% 47.8% 63.8% 74.4% 21.4% 112.5%
Harcourt General Inc 40.3 83.0 100.0 35.6% 35.6% 21.6% 32.6% 1.7% 55.3%
Texas Industries Inc 72.8 81.3 100.0 20.4% 25.3% 29.2% 29.2% 4.6% 44.2%
FH Faulding & Co Ltd 77.3 62.0 100.0 25.6% 22.7% 45.9% 56.5% 10.8% 217.6%
Hilton Hotels Corp 42.6 92.5 100.0 32.7% 29.8% 42.6% 59.8% 17.2% 91.8%
Investor Group 45.6 66.9 100.0 27.6% 25.3% 26.4% 30.1% 19.3% 49.6%
Rayonier Inc 65.8 74.7 100.0 11.2% 25.3% 6.1% -14.0% -29.7% 31.6%
World Access Inc 53.1 61.0 100.0 12.0% 12.4% 27.3% 19.7% -1.4% 268.4%
Koninklijke KNP BT NV 138.1 70.0 100.0 32.5% 78.9% 76.0% 36.6% 11.7% 103.7%
Xerox Corp 88.0 69.3 100.0 -11.1% 15.3% 22.1% 23.1% -11.1% 240.4%
Dow Agro Sciences (Dow Chemical) 355.2 69.0 100.0 41.8% 39.1% 53.4% 63.5% 12.0% 69.7%
Fairchild Corp 48.4 67.0 100.0 1.4% 0.3% 6.4% 6.4% 0.3% 66.9%
Homestake Mining Co. 330.6 50.6 100.0 11.5% 14.3% 19.1% 26.7% -2.3% 73.7%
Inland Steel Industries Inc 55.9 86.4 100.0 -16.3% -19.1% -45.5% -48.4% -53.4% -16.3%
Newmont Mining Corp. 264.8 93.8 100.0 -9.2% 15.6% 54.8% 18.1% -48.3% 63.2%
-------------------------------------------------------------------------------------
MEAN 24.9% 31.9% 36.7% 36.4% 1.4% 105.7%
MEDIAN 21.8% 25.3% 33.5% 31.4% 4.0% 69.3%
MAX 77.3% 90.0% 87.6% 90.0% 56.3% 438.9%
MIN -17.8% -19.1% -45.5% -48.4% -53.4% -16.3%
-------------------------------------------------------------------------------------
USINOR SA 115.0(a) 53.5 100.0 100.0% 117.0% 25.9% 5.2% -53.8% 117.0%
</TABLE>
* Pending as 10/26/98
(a) Assumes per share offer price of $6.375.
Note: Includes all of domestic, public minority squeeze-out transactions since
1990 between $40 and $500 million in transaction value where a majority
owner was acquiring the minority.
IV-11
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 42
VALUATION ANALYSIS
PER SHARE VALUE IMPLIED BY MINORITY SQUEEZE-OUT PREMIUM PAID
<TABLE>
<CAPTION>
PREMIUM PAID VS. CLOSING PRICE
--------------------------------------------------------------------------------
1 DAY 1 WEEK 1 MONTH 2 MONTHS 52-WEEK 52-WEEK
PRIOR PRIOR PRIOR PRIOR HIGH LOW
----- ------ ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
J&L SPECIALTY STEEL SHARE PRICE $ 3.188 $ 2.938 $ 5.063 $ 6.063 $ 13.813 $ 2.938
Date of Comparative Price 9/22/98 9/15/98 8/21/98 7/22/98 10/22/97 9/15/98
Mean Premium Paid 24.9% 31.9% 36.7% 36.4% 1.4% 105.7%
---------- ---------- ---------- ---------- ---------- ----------
IMPLIED SHARE PRICE $ 3.98 $ 3.87 $ 6.92 $ 8.27 $ 14.01 $ 6.04
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
IV-12
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 43
VALUATION ANALYSIS
================================================================================
SUMMARY OF DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
"GOING CONCERN SCENARIO" (USING STANDARD WACC ASSUMPTIONS)
EBITDA EXIT MULTIPLE: 5.0 X 6.0 X 7.0 X
------------------------ ------------------------ -------------------------
10.0% 11.0% 12.0% 10.0% 11.0% 12.0% 10.0% 11.0% 12.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares Outstanding
Current 38.8 $4.53 $3.62 $2.78 $6.23 $5.17 $4.21 $ 7.92 $6.73 $5.64
Pro Forma 57.6(a) $4.09 $3.48 $2.91 $5.23 $4.52 $3.87 $ 6.37 $5.57 $4.84
PERPETUITY GROWTH RATE: 1.0% 2.0% 3.0%
------------------------ ------------------------ -------------------------
10.0% 11.0% 12.0% 10.0% 11.0% 12.0% 10.0% 11.0% 12.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
Shares Outstanding
Current 38.8 $7.11 $4.97 $3.26 $8.61 $6.09 $4.11 $10.54 $7.48 $5.14
Pro Forma 57.6(a) $5.83 $4.39 $3.23 $6.84 $5.14 $3.81 $ 8.14 $6.08 $4.50
</TABLE>
<TABLE>
<CAPTION>
"LIQUIDITY SQUEEZE/BANKRUPTCY RISK SCENARIO" (USING LEVERAGED ACQUISITION WACC ASSUMPTIONS)
EBITDA EXIT MULTIPLE: 5.0 X 6.0 X 7.0 X
------------------------ ------------------------ -------------------------
15.0% 16.0% 17.0% 15.0% 16.0% 17.0% 15.0% 16.0% 17.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shares Outstanding
Current 38.8 $0.64 $0.04 $(0.52) $1.76 $1.07 $0.44 $2.88 $2.11 $1.39
Pro Forma 57.6(a) $1.47 $1.07 $0.69 $2.23 $1.76 $1.34 $2.98 $2.46 $1.98
PERPETUITY GROWTH RATE: 1.0% 2.0% 3.0%
------------------------ ------------------------ -------------------------
15.0% 16.0% 17.0% 15.0% 16.0% 17.0% 15.0% 16.0% 17.0%
----- ----- ----- ----- ----- ----- ----- ----- -----
Shares Outstanding
Current 38.8 $(0.26) $(1.09) $(1.79) $0.15 $(0.75) $(1.52) $0.63 $(0.37) $(1.21)
Pro Forma 57.6(a) 0.86 0.31 (0.16) 1.14 0.53 0.02 1.46 0.79 0.23
</TABLE>
- ----------
(a) Pro forma shares outstanding figure assumes a $60.0 million rights offering
at $3.1875 per share, used to reduce net debt.
IV-13
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 44
VALUATION ANALYSIS
================================================================================
PURCHASE PRICE RATIO ANALYSIS
<TABLE>
<CAPTION>
ASSUMED TRANSACTION VALUE PER SHARE
----------------------------------------------------------------------------
PRE-OFFER PRICE
---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Price $ 3.19 $ 5.75 $ 5.88 $ 6.00 $ 6.13 $ 6.25 $ 6.38 $ 6.50
Premium (Discount) to Pre-Offer Price 0.0% 80.4% 84.3% 88.2% 92.2% 96.1% 100.0% 103.9%
------ ------ ------ ------ ------ ------ ------ ------
Value of Common Equity(a) $123.6 $222.9 $227.7 $232.6 $237.4 $242.3 $247.1 $252.0
Fully Diluted Equity Value(b) 123.6 222.9 227.7 232.6 237.4 242.3 247.1 252.0
Net Debt + Legacy Liabilities(c) 379.8 379.8 379.8 379.8 379.8 379.8 379.8 379.8
------ ------ ------ ------ ------ ------ ------ ------
TRANSACTION VALUE = AGGREGATE EQUITY +
NET DEBT + LEGACY LIABILITY $503.3 $602.7 $607.5 $612.3 $617.2 $622.0 $626.9 $631.7
PRICE PER SHARE AS A MULTIPLE OF:
Primary Earnings Per Share
LTM $(1.55) NMx NMx NM NM NMx NMx NMx NMx
1998E per First Call(d) $(1.25) NM NM NM NM NM NM NM NM
1999E per First Call(d) $0.23 13.9 25.0 25.5 26.1 26.6 27.2 27.7 28.3
1999E per Lehman Brothers(e) $(0.22) NM NM NM NM NM NM NM NM
2000E per Lehman Brothers(e) $0.64 4.9 8.9 9.1 9.3 9.5 9.7 9.9 10.1
VALUE OF COMMON EQUITY AS A MULTIPLE OF:
Tangible Book Value (Equity - Goodwill) $87.0 1.42x 2.56x 2.62 2.67 2.73x 2.79x 2.84x 2.90x
TRANSACTION VALUE AS A MULTIPLE OF:
LTM Revenue $503.6 1.00x 1.20x 1.21 1.22 1.23x 1.24x 1.24x 1.25x
1998E Revenue(f) 498.3 1.01 1.21 1.22 1.23 1.24 1.25 1.26 1.27
1999E Revenue(f) 588.5 0.86 1.02 1.03 1.04 1.05 1.06 1.07 1.07
2000E Revenue(f) 718.5 0.70 0.84 0.85 0.85 0.86 0.87 0.87 0.88
LTM EBITDA $(26.3) NMx NMx NM NM NMx NMx NMx NMx
1998E EBITDA(f) (25.1) NM NM NM NM NM NM NM NM
1999E EBITDA(f) 40.1 12.6 15.0 15.2 15.3 15.4 15.5 15.6 15.8
2000E EBITDA(f) 95.2 5.3 6.3 6.4 6.4 6.5 6.5 6.6 6.6
Average 1999-2007 EBITDA(f) 111.3 4.5 5.4 5.5 5.5 5.5 5.6 5.6 5.7
LTM EBIT $(61.1) NMx NMx NM NM NMx NMx NMx NMx
1998E EBIT(f) (59.9) NM NM NM NM NM NM NM NM
1999E EBIT(f) 5.6 89.7 107.3 108.2 109.1 109.9 110.8 111.7 112.5
2000E EBIT(f) 58.6 8.6 10.3 10.4 10.5 10.5 10.6 10.7 10.8
Average 1999-2007 EBIT(f) 71.0 7.1 8.5 8.6 8.6 8.7 8.8 8.8 8.9
Tangible Assets - Cash $574.3 0.88 1.05 1.06 1.07 1.07 1.08 1.09 1.10
</TABLE>
(a) Based on 38.8 million shares outstanding.
(b) Based on 38.8 million shares outstanding.
(c) Net debt as of September 30, 1998: $379.8
(d) Source: First Call Estimates
(e) Source: Lehman Brothers' estimates
(f) Source: Company estimates
KEY DATA
- --------------------------------------------------------------------------------
CALCULATION OF NET DEBT
<TABLE>
<S> <C> <C> <C>
CASH & EQUIVALENTS $ (1.1) COMMON SHARES OUTSTANDING 38.763
OPTION PROCEEDS $ 0.0 OPTIONS OUTSTANDING 0.964
TOTAL DEBT $300.6 AVERAGE OPTION EXERCISE PRICE $ 14.59
LEGACY LIABILITIES $ 80.3 FULLY DILUTED SHARES (B) 38.763
MINORITY INTEREST $ 0.0 TANGIBLE BOOK VALUE ($MM) $ 87.0
------
TOTAL $379.8
</TABLE>
IV-14
================================================================================
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 45
<PAGE> 46
EXHIBIT I: DISCOUNTED CASH FLOW ANALYSIS
LEHMAN BROTHERS J&L SPECIALTY STEEL, INC.
<PAGE> 47
PROJECT PENNSYLVANIA
DISCOUNTED CASH FLOW ANALYSIS - STANDARD WACC ASSUMPTIONS
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDING DECEMBER 31,
($ in millions, except per share) 4Q98 1999 2000 2001
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income $ (12.1) $ 5.6 $ 58.6 $ 82.1
Amortization & Non-Tax Deductible Depreciation 2.8 11.2 11.2 11.2
------- ----- ------ ------
Taxable Operating Income (9.3) 16.8 69.8 93.4
Income Taxes @ 39.0% 3.6 (6.6) (27.2) (36.4)
------- ----- ------ ------
Unlevered Net Income (8.5) (1.0) 31.4 45.7
+ Legacy Costs 0.8 3.0 3.0 3.0
+ Depreciation, & Amortization 8.7 34.5 36.6 37.2
+ Capital Expenditures (1.6) (20.7) (13.6) (7.9)
+ Net Decrease (Increase) in Non-cash Working Capital (2.1) 22.5 12.3 9.1
------- ----- ------ ------
TOTAL FREE CASH FLOW PROVIDED BY OPERATIONS ($2.7) $38.4 $69.6 $87.1
======= ===== ====== ======
EBITDA ($3.4) $40.1 $95.2 $119.3
Terminal Value at 5.0x EBITDA
Terminal Value at 6.0x EBITDA
Terminal Value at 7.0x EBITDA
Net Free Cash Flows at 5.0x EBITDA $ (2.7) $ 38.4 $ 69.6 $ 87.1
Net Free Cash Flows at 6.0x EBITDA (2.7) 38.4 69.6 87.1
Net Free Cash Flows at 7.0x EBITDA (2.7) 38.4 69.6 87.1
EBITDA MULTIPLE 5.0 X
Discount Rate 10.0% 11.0% 12.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 555.5 $ 520.0 $ 487.4
Terminal Value as % of Firm Value 59.1% 58.1% 57.0%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8)
------- ------- -------
Implied Value of Total Equity $ 175.7 $ 140.2 $ 107.6
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $4.53 $3.62 $2.78
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 13.9X 13.0X 12.2X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 5.8X 5.5X 5.1X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 5.0X 4.3X 3.9X
PERPETUITY GROWTH RATE 1.0%
Discount Rate 10.0% 11.0% 12.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 655.3 $ 572.4 $ 506.0
Terminal Value as % of Firm Value 65.3% 61.9% 58.6%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8)
-------- -------- --------
Implied Value of Total Equity $ 275.6 $ 192.7 $ 126.3
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $7.11 $4.97 $3.26
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 16.3X 14.3X 12.6X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 6.9X 6.0X 5.3X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 5.9X 4.8X 4.1X
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDING DECEMBER 31,
($ in millions, except per share) 2002 2003 2004 2005
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income $ 107.7 $ 107.4 $ 82.0 $ 25.6
Amortization & Non-Tax Deductible Depreciation 11.2 11.2 11.2 11.2
------- ------- ------ ------
Taxable Operating Income 118.9 118.7 93.2 36.8
Income Taxes @ 39.0% (46.4) (46.3) (36.3) (14.4)
------- ------- ------ ------
Unlevered Net Income 61.3 61.2 45.6 11.2
+ Legacy Costs 3.0 3.0 3.0 3.0
+ Depreciation, & Amortization 36.0 33.3 32.1 47.9
+ Capital Expenditures (87.1) (100.3) (151.6) (46.8)
+ Net Decrease (Increase) in Non-cash Working Capital 7.9 18.6 5.5 (8.7)
------- ------- ------ ------
TOTAL FREE CASH FLOW PROVIDED BY OPERATIONS $21.1 $15.8 ($65.3) $6.5
======= ------- ------ ------
EBITDA $143.7 $140.8 $114.1 $73.4
Terminal Value at 5.0x EBITDA
Terminal Value at 6.0x EBITDA
Terminal Value at 7.0x EBITDA
Net Free Cash Flows at 5.0x EBITDA $ 21.1 $ 15.8 $ (65.3) $ 6.5
Net Free Cash Flows at 6.0x EBITDA 21.1 15.8 (65.3) 6.5
Net Free Cash Flows at 7.0x EBITDA 21.1 15.8 (65.3) 6.5
EBITDA MULTIPLE 6.0 X
Discount Rate 10.0% 11.0% 12.0% 10.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 621.1 $ 580.3 $ 542.9 $ 686.7
Terminal Value as % of Firm Value 63.4% 62.4% 61.4% 66.9%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8) (379.8)
------- ------- ------- -------
Implied Value of Total Equity $ 241.3 $ 200.5 $ 163.1 $ 306.9
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $6.23 $5.17 $4.21 $7.92
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 15.5X 14.5X 13.5X 17.1X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 6.5X 6.1X 5.7X 7.2X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 5.0X 4.8X 4.7X 5.9X
PERPETUITY GROWTH RATE 2.0%
Discount Rate 10.0% 11.0% 12.0% 10.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 713.6 $ 615.7 $ 538.9 $ 788.5
Terminal Value as % of Firm Value 68.2% 64.0% 60.5% 71.2%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8) (379.8)
-------- -------- -------- --------
Implied Value of Total Equity $ 333.8 $ 235.9 $ 159.1 $ 408.7
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $8.61 $6.09 $4.11 $10.54
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 17.8X 15.4X 13.4X 19.7X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 7.5X 6.5X 5.7X 8.3X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 5.7X 5.1X 4.7X 6.8X
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDING DECEMBER 31,
($ in millions, except per share) 2006 2007
---- ----
<S> <C> <C>
Operating Income $ 65.7 $ 104.7
Amortization & Non-Tax Deductible Depreciation 11.2 11.2
------ -------
Taxable Operating Income 76.9 115.9
Income Taxes @ 39.0% (30.0) (45.2)
------ -------
Unlevered Net Income 35.7 59.5
+ Legacy Costs 3.0 3.0
+ Depreciation, & Amortization 50.9 53.9
+ Capital Expenditures (36.4) (12.0)
+ Net Decrease (Increase) in Non-cash Working Capital 29.7 10.4
------ -------
TOTAL FREE CASH FLOW PROVIDED BY OPERATIONS $82.9 $114.7
------ -------
EBITDA $116.6 $158.5
Terminal Value at 5.0x EBITDA $ 792.7
Terminal Value at 6.0x EBITDA 951.3
Terminal Value at 7.0x EBITDA 1,109.8
Net Free Cash Flows at 5.0x EBITDA $ 82.9 $ 907.5
Net Free Cash Flows at 6.0x EBITDA 82.9 1,066.0
Net Free Cash Flows at 7.0x EBITDA 82.9 1,224.6
EBITDA MULTIPLE 7.0 X
Discount Rate 11.0% 12.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 640.6 $ 598.4
Terminal Value as % of Firm Value 66.0% 65.0%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8)
------- -------
Implied Value of Total Equity $ 260.8 $ 218.6
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $6.73 $5.64
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 16.0X 14.9X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 6.7X 6.3X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 4.7X 3.8X
PERPETUITY GROWTH RATE 3.0%
Discount Rate 11.0% 12.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 669.7 $ 579.0
Terminal Value as % of Firm Value 67.5% 63.8%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8)
-------- --------
Implied Value of Total Equity $ 290.0 $ 199.3
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $7.48 $5.14
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 16.7X 14.4X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 7.0X 6.1X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 4.9X 3.7X
</TABLE>
<PAGE> 48
PROJECT PENNSYLVANIA
DISCOUNTED CASH FLOW ANALYSIS - LEVERAGED WACC ASSUMPTIONS
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDING DECEMBER 31,
($ in millions, except per share) 4Q98 1999 2000 2001
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income $ (12.1) $ 5.6 $ 58.6 $ 82.1
Amortization & Non-Tax Deductible Depreciation 2.8 11.2 11.2 11.2
------- ----- ------ ------
Taxable Operating Income (9.3) 16.8 69.8 93.4
Income Taxes @ 39.0% 3.6 (6.6) (27.2) (36.4)
------- ----- ------ ------
Unlevered Net Income (8.5) (1.0) 31.4 45.7
+ Legacy Costs 0.8 3.0 3.0 3.0
+ Depreciation, & Amortization 8.7 34.5 36.6 37.2
+ Capital Expenditures (1.6) (20.7) (13.6) (7.9)
+ Net Decrease (Increase) in Non-cash Working Capital (2.1) 22.5 12.3 9.1
------- ----- ------ ------
TOTAL FREE CASH FLOW PROVIDED BY OPERATIONS ($2.7) $38.4 $69.6 $87.1
======= ===== ====== ======
EBITDA ($3.4) $40.1 $95.2 $119.3
Terminal Value at 5.0x EBITDA
Terminal Value at 6.0x EBITDA
Terminal Value at 7.0x EBITDA
Net Free Cash Flows at 5.0x EBITDA $ (2.7) $ 38.4 $ 69.6 $ 87.1
Net Free Cash Flows at 6.0x EBITDA (2.7) 38.4 69.6 87.1
Net Free Cash Flows at 7.0x EBITDA (2.7) 38.4 69.6 87.1
EBITDA MULTIPLE 5.0X
Discount Rate 15.0% 16.0% 17.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $404.6 $381.2 $359.7
Terminal Value as % of Firm Value 53.8% 52.7% 51.6%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8)
------- ------- -------
Implied Value of Total Equity $ 24.8 $ 1.5 $ (20.1)
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $0.64 $0.04 ($0.52)
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 10.1X 9.5X 9.0X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 4.3X 4.0X 3.8X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 3.6X 3.4X 3.2X
PERPETUITY GROWTH RATE 1.0%
Discount Rate 15.0% 16.0% 17.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 369.5 $ 337.7 $ 310.4
Terminal Value as % of Firm Value 56.2% 53.5% 50.8%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8)
------- ------- -------
Implied Value of Total Equity $(10.2) $ (42.1) $ (69.4)
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) ($0.26) ($1.09) ($1.79)
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 9.2X 8.4X 7.7X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 3.9X 3.5X 3.3X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 3.3X 2.8X 2.5X
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDING DECEMBER 31,
($ in millions, except per share) 2002 2003 2004 2005
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income $ 107.7 $ 107.4 $ 82.0 $ 25.6
Amortization & Non-Tax Deductible Depreciation 11.2 11.2 11.2 11.2
------- ------- ------ ------
Taxable Operating Income 118.9 118.7 93.2 36.8
Income Taxes @ 39.0% (46.4) (46.3) (36.3) (14.4)
------- ------- ------ ------
Unlevered Net Income 61.3 61.2 45.6 11.2
+ Legacy Costs 3.0 3.0 3.0 3.0
+ Depreciation, & Amortization 36.0 33.3 32.1 47.9
+ Capital Expenditures (87.1) (100.3) (151.6) (46.8)
+ Net Decrease (Increase) in Non-cash Working Capital 7.9 18.6 5.5 (8.7)
------- ------- ------ ------
TOTAL FREE CASH FLOW PROVIDED BY OPERATIONS $21.1 $15.8 ($65.3) $6.5
======= ======= ====== ======
EBITDA $143.7 $140.8 $114.1 $73.4
Terminal Value at 5.0x EBITDA
Terminal Value at 6.0x EBITDA
Terminal Value at 7.0x EBITDA
Net Free Cash Flows at 5.0x EBITDA $ 21.1 $ 15.8 $ (65.3) $ 6.5
Net Free Cash Flows at 6.0x EBITDA 21.1 15.8 (65.3) 6.5
Net Free Cash Flows at 7.0x EBITDA 21.1 15.8 (65.3) 6.5
EBITDA MULTIPLE 6.0X
Discount Rate 15.0% 16.0% 17.0% 15.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 448.0 $ 421.3 $ 396.7 $ 491.5
Terminal Value as % of Firm Value 48.6% 47.7% 46.8% 44.3%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8) (379.8)
------- ------- ------- -------
Implied Value of Total Equity $ 68.2 $ 41.5 $ 16.9 $ 111.7
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $1.76 $1.07 $0.44 $2.88
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 11.2X 10.5X 9.9X 12.3X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 4.7X 4.4X 4.2X 5.2X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 4.0X 3.8X 3.6X 4.4X
PERPETUITY GROWTH RATE 2.0% 3.0%
Discount Rate 15.0% 16.0% 17.0% 15.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 385.5 $ 350.5 $ 320.9 $ 404.1
Terminal Value as % of Firm Value 58.0% 55.2% 52.4% 60.0%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8) (379.8) (379.8)
------- ------- ------- -------
Implied Value of Total Equity $ 5.7 $ (29.2) $ (58.9) $ 24.3
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $0.15 ($0.75) ($1.52) $0.63
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 9.6X 8.7X 8.0X 10.1X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 4.1X 3.7X 3.4X 4.2X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 3.1X 2.9X 2.8X 3.5X
</TABLE>
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDING DECEMBER 31,
($ in millions, except per share) 2006 2007
---- ----
<S> <C> <C>
Operating Income $ 65.7 $ 104.7
Amortization & Non-Tax Deductible Depreciation 11.2 11.2
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Taxable Operating Income 76.9 115.9
Income Taxes @ 39.0% (30.0) (45.2)
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Unlevered Net Income 35.7 59.5
+ Legacy Costs 3.0 3.0
+ Depreciation, & Amortization 50.9 53.9
+ Capital Expenditures (36.4) (12.0)
+ Net Decrease (Increase) in Non-cash Working Capital 29.7 10.4
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TOTAL FREE CASH FLOW PROVIDED BY OPERATIONS $82.9 $114.7
====== =======
EBITDA $116.6 $158.5
Terminal Value at 5.0x EBITDA $ 792.7
Terminal Value at 6.0x EBITDA 951.3
Terminal Value at 7.0x EBITDA 1,109.8
Net Free Cash Flows at 5.0x EBITDA $ 82.9 $ 907.5
Net Free Cash Flows at 6.0x EBITDA 82.9 1,066.0
Net Free Cash Flows at 7.0x EBITDA 82.9 1,224.6
EBITDA MULTIPLE 7.0X
Discount Rate 16.0% 17.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 461.4 $ 433.7
Terminal Value as % of Firm Value 43.5% 42.8%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8)
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Implied Value of Total Equity $ 81.6 $ 54.0
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) $2.11 $1.39
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 11.5X 10.8X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 4.8X 4.6X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 4.1X 3.9X
PERPETUITY GROWTH RATE 3.0%
Discount Rate 16.0% 17.0%
NINE YEAR NET PRESENT VALUE ANALYSIS:
NPV of Operating Cash Flows $ 365.4 $ 332.9
Terminal Value as % of Firm Value 57.0% 54.1%
- - Net Debt (Including Legacy Liabilities) (379.8) (379.8)
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Implied Value of Total Equity $ (14.4) $ (46.9)
DCF IMPLIED STOCK PRICE (38.8 MILLION SHARES OUTSTANDING) ($0.37) ($1.21)
FIRM VALUE AS A MULTIPLE OF 1999E EBITDA 9.1X 8.3X
FIRM VALUE AS A MULTIPLE OF 2000E EBITDA 3.8X 3.5X
FIRM VALUE AS A MULTIPLE OF NORMALIZED EBITDA 2.7X 2.1X
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