Birmingham Steel Corporation

views updated May 23 2018

Birmingham Steel Corporation

1000 Urban Center Drive, Suite 300
Birmingham, Alabama 35242-2516
U.S.A.
Telephone: (205) 970-1200
Toll Free: (800) 888-9290
Fax: (205) 970-1353
Web site: http://www.birminghamsteel.com

Public Company
Incorporated: 1983
Employees: 2,100
Sales: $932.55 million (2000)
Stock Exchanges: New York
Ticker Symbol: BIR
NAIC: 331111 Iron and Steel Mills

Birmingham Steel Corporation (BSC) operates seven steel production facilities across the United States. Its mill products are made from recycled scrap metal and include reinforcement bars (used in the construction of concrete buildings and highways) and steel rounds, flats, squares, angles, strips, and channels (used in the manufacture of a variety of products including farm equipment, safety walks, ornamental furniture, and fences). Although the company pays considerable attention to keeping its plants up-to-date and efficient, excess capacity both at home and abroad have made it difficult for Birmingham Steel to turn a consistent profit. After seven years of losing money in the special bar quality market, Birmingham Steel sold off its American Steel & Wire Corp. unit in 2000.

1983 Incorporation

The New York-based venture capital group AEA Investors Inc. incorporated Birmingham Steel in 1983. At that time, the U.S. steel industry was suffering financially from declining construction start-ups and intense competition from newer, more efficient European and Japanese mills. Encumbered by outdated technology, many mills were unable to compete. Throughout the 1970s and into the 1980s, both large and smaller mills eliminated jobs and many mills closed. Birmingham Steel was founded on the belief that some of these smaller mills were greatly undervalued, and if they were purchased and renovated, they could turn a profit. Birmingham Steel was to operate under the “market mill” concept, a manufacturing and marketing strategy developed as an alternative to that of the large U.S. steel mills. Also known as mini-mills, these new operations were smaller, more efficient, and more specialized than traditional U.S. mills, and were designed to be flexible and responsive to changing market demands.

Birmingham Steel’s first acquisition was that of the Birmingham Bolt Co., which operated a pair of rebar and merchant product mini-mills in Birmingham, Alabama, and in Kankakee, Illinois. The investment was risky, saddling the company with $45 million in debt and two mills that were outdated and inefficient. “We had two of the oldest, meanest, most terrible mills in the nation,” Birmingham Chairman and CEO James A. Todd (formerly chief of Birmingham Bolt) told Iron Age in 1993.

Todd, however, knew how to gain the confidence of investors. He met regularly with Wall Street analysts to apprise them of the progress of his company, and in early 1985 he negotiated a deal in which AEA Investors converted Birmingham Steel’s $4 million in bonds to equity and put up another $12 million to fund the acquisition of the Mississippi Steel division of Magna Corp. With the acquisition of Mississippi Steel, Birmingham Steel was able to close its environmentally unsound melt shop in Kankakee and supply the mill with billets from its Alabama and Mississippi plants. Several months later, Birmingham Steel went public on the New York Stock Exchange, raising $28 million, which was used to pay down debt from the Mississippi Steel and Birmingham Bolt purchases and to upgrade existing facilities. In May 1986 the company made a convertible debenture offering that netted another $30 million.

Within three years, Birmingham Steel found itself in a comfortable position to further pay down debt, renovate existing mini-mills, and begin shopping for others. In the summer of 1986, the company acquired Intercostal Steel Corp., a privately held mini-mill located in Chesapeake, Virginia, for $6.5 million in cash. Birmingham Steel began operating the company under the name Norfolk Steel Corp. and announced its intent to capture some of the Northeastern rebar market segment that opened when industry giant Bethlehem Steel Corporation decided to close its Pennsylvania rebar plants. The market looked promising. The new Norfolk Steel had already captured two former Bethlehem accounts, and Birmingham Steel planned to renovate the facilities to increase production fourfold.

Not content to remain a regional producer, Birmingham Steel began searching for other mini-mills to acquire. “We’re still hungry and we still have money,” Todd told American Metals Market after the Norfolk purchase. Birmingham Steel next acquired Northwest Steel Rolling Mills Inc. of Seattle, a mini-mill with a 150,000-ton capacity and annual sales of $40 million. Less than two weeks later, Birmingham Steel purchased Judson Steel Corp. of Emeryville, California. The two mills provided Birmingham Steel with a foothold in the West Coast rebar and merchant markets, generating a total capacity of 300,000 tons per year. The Judson purchase was solidly in keeping with Birmingham Steel’s strategy of acquiring undervalued mills: the entire operation had been slated for demolition by its Australian parent company, Peko-Wallsend Ltd., and the land had been earmarked for commercial development.

In the two years after it went public, Birmingham Steel’s sales increased fivefold, reaching $218 million in 1987. Its annual steel output hit 648,000 tons, up 49 percent from the 436,000 tons shipped in 1986. Sales of roof support systems also grew at a steady rate, and Birmingham Steel held more than 50 percent of the market.

Modernization of its milling equipment was essential to maintain Birmingham Steel’s competitiveness in an industry plagued by overproduction, and the company strove to continuously upgrade its production facilities. A new melt shop furnace was installed in its Birmingham plant that increased billet capacity to 275,000 tons; new casters and reheat furnaces in the company’s Kankakee plant greatly improved productivity there; and the addition of more efficient rolling equipment at the company’s Jackson plant led that operation to ship a record 1,100 tons per employee. More troublesome was Birmingham Steel’s Norfolk operation. Production was expanded from 80 hours per week to a full 24-hour cycle in 1987, and management soon realized that the plant’s efficiency was greatly in need of improvement. The company made some initial improvements that year and allocated $5 million for new rolling mill equipment in 1988.

Shipments, sales, and earnings reached record levels in 1988, fueled primarily by efficient operation of the Seattle, Jackson, and Birmingham plants. More than one million tons of steel were shipped in 1988, sales grew by 59 percent to $344 million, and earnings reached $24.7 million. The company streamlined operations by selling outdated steel fabricating facilities at its Seattle and Norfolk plants and a rebar coating facility that was part of its Kankakee operations. Capital improvements begun at its Kankakee and Norfolk mills also were completed.

Tough Times in 1989

The next year, 1989, was a difficult one for Birmingham Steel. Share prices rose to $29 on the strength of plans to take the company private through a merger with Harbert Corporation, then plummeted to $14.50 when the merger fell through. Per-share earnings dropped by 58 percent as steel prices slipped and scrap prices remained high. Earnings were further deteriorated by losses due to the troublesome start-up of a new melt shop at the Kankakee plant, costly repairs at the Norfolk plant, and an aborted joint venture to manufacture flat-rolled steel with Proler International Corp. and Danieli & C. officine Meccaniche of Italy. Regarding the decision to terminate the proposed joint venture (which cost Birmingham Steel $1.5 million), Todd reported to Financial World in 1990, “We’d better take care of what we know how to run before we try to run something that is a new business for us.”

Management regrouped in 1990 and focused on expanding existing facilities. Its Jackson melt shop received a $40 million expansion and plans were made to relocate Salmon Bay’s downtown Seattle rolling mill to the site of its suburban melt shop, freeing the Seattle real estate for sale or development. Birmingham Steel began planning the construction of a $125 million mini-mill near Phoenix. The Phoenix plant would replace the company’s aging Emeryville mini-mill, the land under the Emeryville plant would be sold, and profits would go toward the construction of the new mini-mill.

For the first time in Birmingham Steel’s history, net sales declined over the previous year, from $442.5 million in 1990 to $407.6 million in 1991. The sales drop was caused by recessions in both the West Coast and Northeast markets. This led to a 2 percent decline in steel shipments and a 5 percent drop in the selling price of steel. Earnings were eroded as the company closed its Emeryville and Norfolk plants and a melt shop near Seattle. “We probably made a mistake when we bought the mill at Norfolk,” Todd conceded to Iron Age in 1993. The northeastern rebar market remained slow throughout the late 1980s, and this factor, combined with ongoing mechanical problems, squeezed profits. “Economic conditions dictated that the company could not tolerate unprofitable operations,” Todd reported in the company’s 1991 letter to stockholders.

Birmingham Steel boosted production at its four remaining mini-mills and opened steel distribution centers on both the East and West Coasts to serve clients who previously had been served by the closed operations. The company also purchased Seattle Steel Inc. and by late 1993 had consolidated its Seattle operations in a new $50 million mill. Plans continued for the new mini-mill to be built near Phoenix, but a site had not been chosen.

Company Perspectives:

Birmingham Steel will capitalize on new mini-mill technologies ensuring its continued place in the worldwide steel markets. Whether it is through participation in new mini-mill ventures or additional improvements in our current operations, Birmingham Steel Corporation will continue to he on the leading edge, offering quality products and superior service at globally competitive prices.

Despite strong competition in the steel market, per-share earnings improved greatly in 1992 as Birmingham Steel’s continuous modernization program substantially lowered operating costs. The company netted $133 million in a common stock offering, invested $56 million in capital improvements, and reduced its debt by $51 million. By 1992 Birmingham Steel had also begun to sell steel abroad, exporting $24 million worth of steel overseas. In 1993 the company shipped a record 1.6 million tons of steel, 233,000 of which was exported overseas, and sales grew to $442.3 million, but earnings dropped 43 percent from the previous year.

In November 1993, Birmingham Steel purchased American Steel & Wire Corp., an Ohio-based producer of wire and steel rods, for $134 million. American Steel & Wire (ASW), which enjoyed a reputation as the nation’s highest-quality producer of steel rods and wire products, provided Birmingham Steel with an entry into the coiled rod and wire (or SBQ—special bar quality) markets of the automotive, appliance, and aerospace industries and also greatly reduced its dependency on the highly competitive rebar market. Birmingham Steel began construction of a $110 million, state-of-the-art rolling mill that would boost ASW’s annual output from 500,000 tons to approximately 1.1 million tons upon its completion in late 1996.

Birmingham Steel had much to celebrate as it entered its second decade of operation. Sales in 1994 jumped by 59 percent to $702.8 million. Common equity stood at $439 million, and the debt-to-capital ratio was lower than at any time in the company’s history. In early 1995, Birmingham Steel sold its mine roof support business to Excel Mining Systems, Inc., a move that permitted the company to focus exclusively on steel production and sales. Birmingham remained committed to capital improvements, outlining a $650 million renovation program through the year 2000. The company was also well positioned to diversify into other markets and continued to investigate potential joint ventures into the flat rolled steel segment.

Upgrading in 1995

In 1995, Birmingham Steel Corporation had almost a dozen construction projects underway, all part of a $675 million plan to make the company more productive by 1999. The company built a new $175 million melt shop in Memphis to make the American Steel & Wire unit self-sufficient in raw steel, which had amounted to 70 percent of ASW’s costs. Birmingham Steel’s existing melt shop in Birmingham could not provide the quality required by ASW’s automotive clients.

Birmingham Steel also decided to build a new rolling mill next to its existing rod mill in Ohio. The new mill would consume the excess capacity of the new melt shop. Sumitomo Metal Industries was brought in from Japan to help design the state-of-the-art mill. Two U.S. firms, Morgan Construction and Kocks Pittsburgh Co., teamed to build it.

Several other existing facilities were slated for renovations. Birmingham Steel aimed to be the lowest cost producer in its market, with a goal of converting steel scrap metal to product for $100 a ton, according to Metal Center News. Other major mini-mills, including Nucor, North Star, Ipsco, and Oregon Steel Mills, also were expanding, laying out a combined $1 billion a year in capital expenditures in the mid-1990s.

Some of Birmingham Steel’s units had a banner year in 1996. Nonresidential construction, agriculture, and road construction were some of the best performing areas. Total revenues were $832 million, compared with $442 million in 1990. The company employed 1,600 workers, twice as many as it had ten years earlier.

Robert Garvey, president of North Star Steel, replaced James Todd as CEO in January 1996. Both Todd and the board felt that a younger leader was required to carry out the expansion program Todd had started. Garvey aimed to make Birmingham Steel a $2 billion-a-year company by 2001, even in the face of an excess of capacity in many product lines. While expanding, Birmingham Steel had to become the most efficient provider possible. It soon bought a Georgia mill from Atlantic Steel for $43 million and expanded its raw materials operations. It fired most of the workers at the new mill—the company “didn’t have the luxury of waiting three to four years to change the culture,” Garvey told New Steel. The company also retired a significant amount of obsolescent equipment there.

By the fall of 1999, however, a dissident shareholder group led by two prominent steel executives, former Birmingham Steel Chairman Jim Todd and former Nucor Corp. CEO John Correnti, was attempting to oust Garvey. Stockholders, who had seen the company’s share price fall from $17 to $4 in three years, voted Correnti CEO that December. Correnti himself had been forced to resign from Nucor only six months earlier.

Correnti immediately acted to improve the company’s cash flow and reduce its debt. Its main problem was its SBQ operations in Cleveland and Memphis, which supplied the automotive industry. Correnti told shareholders an investment of $100 million was required to make them competitive. One of Birmingham’s most solid performers was its mill at Kankakee, Illinois; it was slated for expansion in 2001. Even this plant was forced to reduce work hours due to a drop in the price of rebar; American steel mills alleged dumping on the part of several countries.

Birmingham finally sold off its SBQ operations in Cleveland and Memphis in November 2000. The buyer, North American Metals Ltd., had recently been formed to acquire niche companies in the steel industry. Birmingham Steel had conducted its SBQ operations under the American Steel & Wire name.

Key Dates:

1983:: AEI investment firm incorporates Birmingham Steel.
1989:: Proposed Harbert Corporation merger collapses.
1992:: Birmingham ships steel abroad.
1993:: American Steel & Wire Corp. is acquired.
1995:: Birmingham Steel upgrades several facilities.
1999:: Proxy fight puts Correnti in CEO’s seat.
2000:: Money-losing ASW is sold off.

Principal Subsidiaries

American Iron Reduction, LLC (50%); Birmingham East Coast Holdings; Birmingham Recycling Investment Company; Birmingham Southeast, LLC (85%); Birmingham Steel Overseas, Ltd. (Barbados); Port Everglades Steel Corporation; Richmond Steel Recycling, Ltd. (50%).

Principal Operating Units

Birmingham; Cartersville; Jackson; Joliet; Kankakee; Seattle.

Principal Competitors

Commercial Metals Company; Co-Steel Inc.; Nucor Corporation.

Birmingham Steel Corporation

views updated May 29 2018

Birmingham Steel Corporation

Suite 300
1000 Urban Center Parkway
Birmingham, Alabama 35242-2516
U.S.A.
(205) 970-1200
Fax: (205) 444-3352

Public Company
Incorporated: 1983
Employees: 1,554
Stock Exchanges: New York
Sales: $702 million
SICs: 3312 Blast Furnaces & Steel Mills

Birmingham Steel Corporation is the second-largest publicly held minimill in the United States. The company operates more than a dozen steel production facilities across the United States including four steel minimills, two rod and wire plants, and two steel distribution centers. Birmingham Steel’s four minimills rank among the most efficient in the nation, producing a ton of steel in 1.4 worker-hours. Its mill products are made from recycled scrap metal and include reinforcement bars (used in the construction of concrete buildings and highways) and steel rounds, flats, squares, angles, strips and channels (used in the manufacture of a variety of products including farm equipment, safety walks, ornamental furniture, and fences). Birmingham Steel also produces high-quality steel used to manufacture components for the automobile, welding, aerospace, and fastener industries through a subsidiary, the American Steel and Wire Corp.

Birmingham Steel was incorporated in 1983 by the New York-based venture capital group AEA Investors Inc. At that time, the U.S. steel industry was suffering financially from declining construction start-ups and intense competition from newer, more efficient European and Japanese mills. Encumbered by outdated technology, many mills were unable to compete. Throughout the 1970s and into the 1980s, both large and smaller mills eliminated jobs and many mills closed. Birmingham Steel was founded on the belief that some of these smaller mills were greatly undervalued, and if they were purchased and renovated, they could turn a profit. Birmingham Steel was to operate under the “market mill” concept, a manufacturing and marketing strategy developed as an alternative to that of the large U.S. steel mills. Also known as mini-mills, these new operations were smaller, more efficient and more specialized than traditional U.S. mills, and were designed to be flexible and responsive to changing market demands.

Birmingham Steel’s first acquisition was the Birmingham Bolt Co., which operated a pair of rebar and merchant product minimills in Birmingham, Alabama, and Kankakee, Illinois. The investment was risky, saddling the company with $45 million in debt and two mills that were outdated and inefficient. “We had two of the oldest, meanest, most terrible mills in the nation,” Birmingham’s chairman and chief executive officer James A. Todd told Iron Age in 1993. But Todd, former chief of Birmingham Bolt, knew how to gain the confidence of investors. He met regularly with Wall Street analysts to apprise them of the progress of his company, and in early 1985 he negotiated a deal in which AEA Investors converted Birmingham Steel’s $4 million in bonds to equity and put up another $12 million to fund the acquisition of the Mississippi Steel division of Magna Corp. With the acquisition of Mississippi Steel, Birmingham Steel was able to close its environmentally unsound melt shop in Kankakee and supply the mill with billets from its Alabama and Mississippi plants. Several months later, Birmingham Steel went public on the New York Stock Exchange, raising $28 million which was used to pay down debt from the Mississippi Steel and Birmingham Bolt purchases and to upgrade existing facilities. In May 1986 the company made a convertible debenture offering which netted another $30 million.

Within three years, Birmingham Steel found itself in a comfortable position to further pay down debt, renovate existing mini-mills, and begin shopping for others. In the summer of 1986, the company acquired Intercostal Steel Corp., a privately held mini-mill located in Chesapeake, Virginia, for $6.5 million in cash. Birmingham Steel began operating the company under the name Norfolk Steel Corp. and announced its intent to capture some of the Northeastern rebar market segment that opened when industry giant Bethlehem Steel Corp. decided to close its Pennsylvania rebar plants. The market looked promising. The new Norfolk Steel had already captured two former Bethlehem accounts, and Birmingham Steel planned to renovate the facilities to increase production fourfold.

Not content to remain a regional producer, Birmingham Steel began searching for other minimills to acquire. “We’re still hungry and we still have money,” Todd told to American Metals Market after the Norfolk purchase. Birmingham Steel next acquired Northwest Steel Rolling Mills Inc. of Seattle, a minimill with a 150,000 ton capacity and annual sales of $40 million. Less than two weeks later, Birmingham Steel purchased Judson Steel Corp. of Emeryville, California. The two mills provided Birmingham Steel with a foothold in the West Coast rebar and merchant markets, generating a total capacity of 300,000 tons per year. The Judson purchase was solidly in keeping with Birmingham Steel’s strategy of purchasing undervalued mills: the entire operation had been slated for demolition by its Australian parent company, Peko-Wallsend Ltd., and the land had been earmarked for commercial development.

In the two years after it went public, Birmingham Steel’s sales increased fivefold, reaching $218 million in 1987. Its annual steel output hit 648,000 tons, up 49 percent from the 436,000 tons shipped in 1986. Sales of roof support systems also grew at steady rate, and Birmingham Steel held over 50 percent of the market.

Shipments, sales, and earnings reached record levels in 1988, fueled primarily by efficient operation of the Seattle, Jackson, and Birmingham plants. Over one million tons of steel were shipped in 1988, sales grew by 59 percent to $344 million, and earnings reached $24.7 million. The company streamlined operations by selling outdated steel fabricating facilities at its Seattle and Norfolk plants and a rebar coating facility that was part of its Kankakee operations. Capital improvements begun at its Kankakee and Norfolk mills were also completed.

1989 was a difficult year for Birmingham Steel. Share prices rose to 29⅝ on the strength of plans to take the company private through a merger with Harbert Corp., then plummeted to 14½ when the merger fell through. Per-share earnings dropped by 58 percent as steel prices slipped and scrap prices remained high. Earnings were further deteriorated by losses due to the troublesome start-up of a new melt shop at the Kankakee plant, costly repairs at the Norfolk plant, and an aborted joint venture to manufacture flat-rolled steel with Proler International Corp. and Danieli & C. Officine Meccaniche of Italy. Regarding the decision to terminate the proposed joint venture (which cost Birmingham Steel $1.5 million), Todd reported to Financial World in 1990, “We better take care of what we know how to run before we try to run something that is a new business for us.”

Management regrouped in 1990 and focused on expanding existing facilities. Its Jackson melt shop received a $40 million expansion, and plans were made to relocate Salmon Bay’s downtown Seattle rolling mill to the site of its suburban melt shop, making the property under the mill free for sale or development. Birmingham Steel began planning the construction of a $125 million minimill near Phoenix. The Phoenix plant would replace the company’s aging Emeryville minimill, the land under the Emeryville plant would be sold, and profits from the sales would go toward the construction of the new minimill.

For the first time in Birmingham Steel’s history, net sales declined over the previous year, from $442.5 million in 1990 to $407.6 in 1991. The sales drop was caused by recessions in both the West Coast and Northeast markets. This led to a two percent decline in steel shipments and a five percent drop in the selling price of steel. Earnings were eroded as the company closed its Emeryville and Norfolk plants and a melt shop near Seattle. “We probably made a mistake when we bought the mill at Norfolk,” Todd conceded to Iron Age in 1993. The Northeastern rebar market remained slow throughout the late 1980s, and this factor, combined with ongoing mechanical problems, squeezed profits. “Economic conditions dictated that the company could not tolerate unprofitable operations,” Todd reported in the company’s 1991 Letter to Stockholders.

Birmingham Steel boosted production at its four remaining minimills and opened steel distribution centers on both the East and West coasts to serve clients who had previously been served by the closed operations. The company also purchased Seattle Steel Inc. and by late 1993 had consolidated its Seattle operations in a new $50 million mill. Plans continued for the new minimill to be built near Phoenix, but a site had not been chosen.

Despite strong competition in the steel market, per share earnings improved greatly in 1992 as Birmingham Steel’s continuous modernization program substantially lowered operating costs. The company netted $133 million in a common stock offering, invested $56 million in capital improvements, and reduced its debt by $51 million. By 1992 Birmingham Steel had also begun to sell steel abroad, exporting $24 million worth of steel overseas. In 1993 the company shipped a record 1.6 million tons of steel, 233,000 of which was exported overseas, and sales grew to $442.3 million, but earnings dropped 43 percent from the previous year.

In November 1993, Birmingham Steel purchased American Steel and Wire Corp., an Ohio-based producer of wire and steel rods, for $134 million. American Steel and Wire (ASW), which enjoyed a reputation as the nation’s highest-quality producer of steel rods and wire products, provided Birmingham Steel with an entry into the coiled rod and wire markets of the automotive, appliance, and aerospace industries and also greatly reduced its dependency on the highly competitive rebar market. Birmingham Steel began construction of a $110 million, state-of-the-art rolling mill which would boost ASW’s annual output from 500,000 tons to approximately 1.1 million tons upon its completion in late 1996.

Birmingham Steel had much to celebrate as it entered its second decade of operation. Sales in 1994 jumped by 59 percent to $702.8 million. Common equity stood at $439 million, and its debt-to-capital ratio was lower than at any time in its history. In early 1995, Birmingham Steel sold its mine roof support business to Excel Mining Systems, Inc., a move that permitted the company focus exclusively on steel production and sales. Birmingham remained committed to capital improvements, outlining a $650 million renovation program through the year 2000. The company was also well positioned to diversify into other markets and continued to investigate potential joint-ventures into the flat rolled steel segment.