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I N V E S T M E N T B A N K I N G S E R V I C E S
CHICAGO
William G. Peluchiwski
MANAGING DIRECTOR
312.456.4714
wpeluchiwski@hlhz.com
Vincent J. Pappalardo
SENIOR VICE PRESIDENT
312.456.4752
vpappalardo@hlhz.com
Daniel P. Sullivan
VICE PRESIDENT
312.456.4775
dsullivan@hlhz.com
• Steel Prices
• Legacy Costs and Labor Agreements
• The Bankruptcy Market
• The Mergers & Acquisitions and Financing Market
• Production, Shipments and Imports
• Raw Materials
• The Public Equity Markets
William G. Peluchiwski Vincent J. Pappalardo We served as exclusive financial advisor, We served as exclusive financial advisor
Managing Director Senior Vice President and initiated, structured and negotiated the and initiated, structured and negotiated the
312.456.4714 312.456.4752 transactionon behalf of J&F Steel Corporation transaction on behalf of J&L Specialty Steel, LLC
and its parent company, Arcelor S.A. and its parent company, Arcelor S.A.
wpeluchiwski@hlhz.com vpappalardo@hlhz.com
H O U L I H A N L O K E Y H O WA R D & Z U K I N
I N V E S T M E N T B A N K I N G S E R V I C E S
w w w. h l h z . c o m U.S. 8 0 0 . 7 8 8 . 5 3 0 0 U.K. + 4 4 ( 0 ) 2 0 . 7 8 3 9 . 3 3 5 5
Los Angeles New York Chicago San Francisco Minneapolis Washington, D.C. Dallas Atlanta London
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
This report is a combination of analysis, statistics and commentary on the specialty/non-ferrous, scrap, service
centers/processors, bar and wire, aluminum, tube and pipe, integrated, minimill, and international producer sub-
sectors of the metals industry and the public companies within these sub-sectors. The report also includes a review
of the mergers and acquisitions, bankruptcy, financing, and public equity markets.
Table of Contents
Executive Summary ……….………...……….……….……….……….................….…..1
Current Events and Industry News ……….………...………….………...….........….….. 4
Bankruptcy Market Analysis ……….………...………….………...…...................……..16
M&A and Financing Market Analysis ……….………...………….………..........….….20
Market Review ……….………...……….……….……….……….......................……20
Second Quarter M&A Analysis ……………………………………………………...21
Summary Statistics ……….………...……….……….……….………...............…….25
Selected Second Quarter M&A Transactions .…………....................................….....26
Selected Latest Twelve Month M&A Transactions ............................................…….29
Selected Steel Producer Transaction Multiples ...........…....................................…….30
Selected International M&A Transactions ..................….......................................…..31
Selected Latest Twelve Month Financing Transactions …..................................……34
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Executive Summary
The second quarter of 2004 illustrated how far the steel industry has come in just a few short years. The
effect of China’s consumption continues to drive demand for both raw materials and finished steel, and
contributed significantly to a relative lull in the markets during the quarter, particularly in the scrap market.
However, we believe the most important factor in the steel industry today is the emergence of pricing
discipline among major producers, particularly with the large amount of capacity being comprised by a
small number of producers.
Prior to the consolidation of the industry, steel mills typically increased production to take advantage of
higher prices, which, over time, caused a surplus in supply. This surplus would then mark the beginning of
price cuts, which perpetuated a down-turn and helped drive the volatile cycles in the market. Now, in the
first upswing since consolidation, steel producers such as ISG, U.S. Steel, Nucor and A.K. Steel (AK)
appear to be exercising significant production discipline, adjusting output commensurate with demand and
stabilizing prices at their current levels. This elevated pricing is further assisted by Chinese demand, as
that country feeds its developing infrastructure and industrial needs.
Houlihan Lokey believes that the current market conditions will lead to a much different dynamic in the
steel industry going forward. While pricing is certain to rationalize during 2005, eventually settling near
$600 per ton for hot-rolled, we are confident that the major producers will be able to maintain pricing and
production discipline and, in turn, significantly reduce the volatility of market swings we have seen in the
past.
Bankruptcy activity during the second quarter was relatively quiet, as no major metals companies filed for
Chapter 11 bankruptcy protection. This compares to two filings in the same period last year. Rising prices
and short supplies for raw materials, as well as for finished metal products, have allowed most companies
in the sector to strengthen their financial position in 2004.
During the second quarter, the industry continued to be impacted by high energy and raw material prices.
This allowed domestic producers to push through substantial price increases through added surcharges for
the higher raw material costs. The steel price increases will significantly benefit producers who are self-
sufficient in their raw material needs, but the price increases will provide an operating margin neutral or
negative position for those producers who purchase the majority of their raw materials.
Steel Prices
Prices of hot-rolled sheet finished the quarter at $610 per ton, representing a 5.2 percent increase during the
quarter, and a 5.2 percent increase over the same period last year. The price increases have largely been a
function of domestic raw material shortages (coke, iron ore and scrap) caused by diminished global coke
capacity and increased Chinese demand.
Raw Materials
During the second quarter, we witnessed spot market prices for coke in the $450 to $500 range, compared
to approximately $150 a year ago, and the price of scrap has followed a similar path, although scrap is
down from recent highs, due to a reduction in Chinese purchases over the last two months of the quarter.
Coke supplies have not kept pace with increased global demand for steel, and China continues to decrease
its annual coke exportation. We believe that relief from high raw material costs is at least six to twelve
months away, particularly for steel producers without captive or consistent sources of raw material.
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)Two
Two Year
YearSteel
SteelPricing
PricingTrends
Trends
400
350
300
Index Prices
250
200
150
100
50
Aug-02
Aug-03
Feb-03
Feb-04
Jun-02
Jun-03
Jun-04
Dec-02
Apr-03
Dec-03
Apr-04
Oct-02
Oct-03
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Raw Material
Coke & Iron Ore
) During the second quarter, companies were contracting coke at approximately $450 per ton, an
increase of 200 percent from $150 per ton a year ago. The price increase is largely a function of
decreased global supply. Since 1998, 17.2 million tons of coke supply have been eliminated, but only
5.7 million tons of new capacity have been added. In addition, China’s coke demand has resulted in
decreased Chinese coke exportation, removing additional coke from the market.
) Last quarter, the China Coking Industry Association (CCIA) reported that total coke exports would be
reduced to approximately 9.0 million tons in 2004, down from 13.3 million tons in 2003. Reduced
exports under China’s export licensing system had led both the European Union and Japan’s Ministry
of Economy, Trade and Industry to threaten to bring cases against China before the World Trade
Organization for restricting free trade, artificially creating shortages and driving up prices.
¾ Since that time, China and the EU reached a deal under which Chinese coke exports to the EU
will at least match last year’s 4.5 million long tons. China has also reassured Japan that the
volume of coke exported to Japanese customers will be the same as last year, or about 2.9
million long tons.
¾ The U.S. is also calling for China to eliminate its coke export restrictions in order to ease
demand constraints. The current coke shortage in the U.S. has also been exacerbated by U.S.
Steel’s decision earlier this year to end its role as a merchant coke supplier, leaving some
domestic producers scrambling to find coke in difficult market conditions.
) While there are a number of new coke batteries being built in China, and at least two coke batteries
under consideration in the U.S., the general view is that the current shortage will extend to 2006. U.S.
Coking Group, which is trying to build a plant in Ohio, has been met with opposition to its state-
approved construction permit for its $350 million FDS Coke Plant, and the project now appears to be
tied down with environmental issues.
) Sun Coke Co., a unit of Sunoco, Inc., has committed to building a $140 million coke plant in
Haverhill, Ohio to supply ISG. The Sun Coke battery is expected to ease some of the market
tightness, but it is still far from complete. There was also late word in July that ISG had signed a
letter of intent for a 15-year deal with Sun Coke to double the original planned capacity of the
Haverhill facility to 1.1 million tons per year, beginning in 2006.
¾ Separately, Sunoco reports that its coke facilities utilize a “proprietary, low-cost, heat-recovery
cokemaking technology,” which Sunoco claims is “environmentally superior” to the chemical
byproduct recovery technology used by most other coke producers.
¾ There are also reports that Sun Coke may construct a coke plant in western Pennsylvania, and
that ISG is discussing a coke battery at Brown’s Island in Weirton, West Virginia.
¾ China’s coke production is on the rise as well. 58 million tons of the 84 million tons of
announced coke projects are scheduled to come out of China over the next several years.
China’s coke consumption totaled 143 million tons in 2003, with an estimated consumption of
161 million tons this year and a projected 176 million tons in 2005. The forecast was based on
the growth of China’s hot metal production, which is estimated to reach 275 million tons in
2005. In comparison, U.S. consumption of coke was 19.4 million tons in 2003.
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Raw Material
Coke & Iron Ore (continued)
) Driven by high coke prices and supply shortages, ISG announced plans to purchase and restart LTV’s
idled Chicago coke plant, a process likely to take 18 months and cost ISG $100 million to $120
million. ISG did not acquire the Chicago coke plant when it acquired LTV out of bankruptcy, and the
facility was allowed to cool in the first quarter of 2002.
) Cleveland-Cliffs Inc. announced that a strike at Canadian-based Wabush Mines and related facilities
will remove some 120,000 tons per week of iron ore pellets from the market. A subsidiary of
Cleveland-Cliffs owns nearly 27 percent of Wabush Mines, and was expecting to receive 32,000 tons
per week of iron ore as part of its stake. Canadian steelmakers Stelco and Dofasco hold stakes of
approximately 45 percent and 29 percent, respectively, in Wabush.
¾ The 6 million-ton-capacity Wabush Mines operation has produced approximately 2.7 million
tons, year-to-date.
Scrap
) The price of scrap declined during the second quarter of 2004, although the price was still
approximately double the price charged one year earlier. Scrap prices closed the end of the quarter at
$140.001 compared with $87.24 charged one year earlier. However, the recent trend of increasing
scrap prices ended in April, when U.S. scrap prices decreased by as much as 10 percent due to
fluctuations in Chinese demand. While scrap prices may ease in the short term, the Chinese economy
is expected to continue to experience growth in the long term, and this growth will continue to drive
high scrap prices.
¾ We expect a price correction for scrap in the second half of 2004, but expect that any
correction should be short-lived as Asian scrap buying resumes and, in turn, pushes export
prices higher.
) Ferrous scrap exports grew to 6.0 million tons for the first six months of 2004, a 10.6 percent increase
over exports of 5.4 million tons during the same period in 2003. Nonferrous scrap exports,
meanwhile, showed a 5.1 percent increase to 769,100 tons in the six months ended June 30, from
731,500 tons for the same period in 2003.
) During the first week of May, ferrous scrap prices plunged as much as $44.64 per short ton. This was
largely due to the Chinese government’s efforts to cool down China’s economy. Additionally,
increasingly large stocks in Korea and Taiwan also contributed to the decline in prices.
) U.S. scrap exporters are poised for another buying binge by China, however. Industry sources
said Chinese ferrous scrap buyers have booked orders for at least six cargoes during the week
of June 6 totaling about 220,460 tons and are looking to buy two more cargoes. Prices were
said to range from $191 to $192 a ton, delivered, for shredded scrap and as high as $187 a ton
for No. 1 heavy melt.
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Global Trade
Global Steel Subsidies Agreement
) In 2002, the Organization for Economic Cooperation and Development (OECD) was
commissioned to host talks between steel-producing nations to negotiate a pact for the elimination
of global steel-specific subsidies and tariffs, which are believed to be one of the main contributors
to the global steel industry’s overcapacity. The talks have focused on creating a framework that
would easily identify violations of the pact and would efficiently remediate disputes between
member nations.
) During the latest round of meetings, however, the OECD decided to suspend further talks until
2005. Although most trade officials agree that steel subsidies should be eliminated, disagreement
occurred on whether exceptions should be allowed for steel subsidies related to permanently
closed plants, environmental causes, or for research & development purposes. These splits
between the delegations were considered too large to overcome in the OECD’s formal format.
) Talks will now shift from the larger, broad-based OECD meetings that have characterized the last
18 months of meetings to country-led bilateral and multilateral discussions among participating
nations. As soon as it became clear that the Paris-based talks would be tabled, U.S. trade officials
set up dates with their Asian, Indian and Egyptian counterparts and were optimistic that
discussions would continue despite the Paris breakdown.
) The U.S. opposed creating subsidy exceptions for developing countries, citing a strong position
against subsidies in any form as the best way to stabilize the global steel market.
) While OECD delegates have all reaffirmed their commitment to the process, we believe that there
is no added incentive to come to a global agreement during the current market cycle, particularly
while demand exceeds production capacity, and do not expect measurable progress on the
elimination of subsidies before the end of 2005.
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3.0
2.5
Millions of Tons
2.0
1.5
1.0
0.5
0.0
July
Aug
Jun
Apr
Dec
Nov
Jan
May
Sept
Oct
Mar
Feb
) During the second quarter of 2004, steel production improved on a year-over-year basis,
increasing by 6.3 percent from the same period last year. Capacity utilization rates increased
dramatically, however, as bankrupt capacity was brought back online and fully integrated into
the production stream.
) U.S. steel production totaled 36.3 million tons during the second quarter, operating at an average
capacity rate of 90.4 percent. This compares to 34.2 million tons produced during the second
quarter of 2003, operating at an average capacity utilization rate of 80.8 percent.
) A recovering U.S. economy and increasing demand for steel products led to increased shipment
levels during the second quarter. U.S. shipments of steel products totaled 29.3 million tons in the
second quarter, a 12.9 percent increase from the 25.9 million tons shipped during the same
period last year.
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Footnotes:
Excludes the second Republic bankruptcy filing
Source: AMM, public filings and industry research.
(1) Represents Houlihan Lokey estimates.
(2) Geneva originally filed for Chapter 11 in Feb. 1999, reorganized and filed again in Jan. 2002.
(3) Laclede Steel will only return 600,000 tons of annual capacity.
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1 Houlihan Lokey acted as the investment banker on behalf of Arcelor for this transaction.
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30 3,000
Number of Transactions
Amount ($Millions)
25 2,500 60 $16,000
$14,000
Number of Transactions
20 2,000 50
Amount ($ Millions)
$12,000
Note:
Sources: Mergerstat, Thomson Financial, SEC filings, press releases and Bloomberg.
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Note:
Sources: Mergerstat, Thomson Financial, SEC filings, press releases and Bloomberg.
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Note:
Sources: Mergerstat, Thomson Financial, SEC filings press releases and Bloomberg.
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Note:
Sources: Mergerstat, Thomson Financial, SEC filings press releases and Bloomberg.
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1/9/2003 U.S. Steel Corporation National Steel Corporation Operational Integrated $1,050,000 ### 6,620 # $159/Ton # 5,319 $197/Ton
#
1/6/2003 International Steel Group Bethlehem Steel Corporation Operational Integrated $1,500,000 ### 11,000 # $136/Ton # 7,600 $197/Ton (3)
#
6/20/2002 Gerdau SA - Ameristeel Republic Technologies International, Inc. - Operational Minimill $7,000 ### 60 # $117/Ton # NA NA
Corporation Georgia Steel Plant
5/30/2002 Nucor Corporation Birmingham Steel Corporation Operational Minimill $615,000 ### 2,000 # $308/Ton # 1,800 $342/Ton (4)
#
5/13/2002 KPS Special Situations Fund L.P. Republic Technologies International, Inc. - Operational Integrated/ $463,000 ### 3,000 # $154/Ton # 1,959 $236/Ton
and Hunt Investment Group L.P. Georgia Steel Plant Minimill #
10/5/2000 U.S. Steel Corporation LTV Steel Corporation - Tin Assets Operational Integrated $80,000 ### 600 # $133/Ton # NA NA
3/26/2003 Nucor Corporation North Star Steel - Kingman, AZ Mill Idled Minimill $35,000 ### 500 # $70/Ton # NA NA
8/12/2002 International Steel Group Acme Metals - Illinois Minimill Idled/Shutdown Minimill $65,000 ### 1,080 # $60/Ton # 993 # $65/Ton
7/28/2002 Steel Dynamics, Inc. Qualitech Steel SBQ LLC Idled/Shutdown Minimill $45,000 ### 500 # $90/Ton # 450 # $100/Ton (5)
7/12/2002 Mid-Coast Industries, Inc. GS Industries, Inc. - Georgetown Steel Idled/Shutdown Minimill $53,000 ### 750 # $71/Ton # NMF NMF
6/5/2002 Slater Steel, Inc. Nucor Corporation - Austeel Lemont Idled/Shutdown Minimill $7,000 ### 430 # $16/Ton # NMF NMF
Division
2/27/2002 International Steel Group LTV Steel Corporation Idled/Shutdown Integrated $327,500 ### 7,300 # $45/Ton # 5,500 # $60/Ton (6)
(7)
1/10/2002 Charter Manufacturing, Inc. Birmingham Steel Corporation - American Idled Minimill $26,000 ### 650 # $40/Ton # NA NA (8)
Steel & Wire
11/21/2001 Nucor Corporation Trico Steel Company Idled/Shutdown Minimill $116,700 ### 1,900 # $61/Ton # 1,200 # $97/Ton
6/21/2001 Companhia Siderurgica Nacional Heartland Steel, Inc. Idled/Shutdown Minimill $69,000 ### 930 # $74/Ton # 880 $78/Ton
#
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Notes:
Sources: Mergerstat, Thomson Financial, SEC filings press releases and Bloomberg.
Pechiney SA’s acquisition of Corus’s aluminum assets has been excluded from Houlihan Lokey’s analysis because of the transaction’s cancellation.
The merger between Corus and CSN has been excluded from our analysis as a result of the transaction being canceled.
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Notes:
Sources: Mergerstat, Thomson Financial, SEC filings press releases and Bloomberg.
Pechiney SA’s acquisition of Corus’s aluminum assets has been excluded from Houlihan Lokey’s analysis because of the transaction’s cancellation.
The merger between Corus and CSN has been excluded from our analysis as a result of the transaction being canceled.
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Notes:
Sources: Mergerstat, Thomson Financial, SEC filings press releases and Bloomberg.
Pechiney SA’s acquisition of Corus‘s aluminum assets has been excluded from Houlihan Lokey’s analysis because of the transaction’s cancellation.
The merger between Corus and CSN has been excluded from our analysis as a result of the transaction being canceled.
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Notes:
Source: Loan Pricing Corporation.
Financing data represent senior placements of bank debt and are all non-public offerings.
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Notes:
Source: Loan Pricing Corporation.
Financing data represent senior placements of bank debt and are all non-public offerings.
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18 0
16 0
14 0
12 0
Index
10 0
80
60
40
20
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Specialty/Non-Ferrous 13.0x 9.7x 19.5x 9.0x Specialty/Non-Ferrous 5.9x 7.5x 9.9x 5.4x
Scrap 5.6x 7.4x 8.6x 7.3x Scrap 4.8x 6.3x 7.3x 6.6x
Service Centers/Processors 8.1x 9.9x 11.5x 9.9x Service Centers/Processors 7.3x 7.5x 7.4x 5.5x
Bar and Wire 9.5x 13.2x 11.6x 4.8x Bar and Wire 8.2x 6.6x 5.6x 1.4x
Aluminum 9.1x 9.1x 10.4x 10.6x Aluminum 6.0x 7.4x 6.0x 6.3x
Tube and Pipe 5.9x 7.6x 12.1x 9.3x Tube and Pipe 6.3x 7.2x 8.2x 3.3x
Integrated 5.7x 22.7x 36.4x 14.2x Integrated 5.7x 5.9x 5.7x 3.3x
Minimills 7.4x 10.7x 11.6x 10.5x Minimills 6.3x 7.4x 5.9x 4.4x
International 5.5x 5.5x 4.5x 5.2x International 4.6x 4.7x 4.2x 4.3x
Notes:
Sub-sector indices and Houlihan Lokey’s Metals Index are calculated on a stock price return basis. January 1, 2002=100.
Equity returns of Houlihan Lokey’s Metals Index exclude the performance of companies that filed for bankruptcy during the last 12 months.
Historical multiples reflect the performance of companies and are not adjusted for additions/deletions of companies from the industry.
Source: Factset
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16 0
14 0
12 0
10 0
80
60
40
20
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct-0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Company Highlights/Announcements
• 6/10/04 – Allegheny Technologies Incorporated announced that its board of directors declared a quarterly dividend of $0.06 per share of common stock. The
dividend is payable June 29, 2004, to stockholders of record at the close of business June 21, 2004. The board expects to continue to evaluate relevant factors
including results of operations, financial condition, cash flow and cash requirements in determining future dividends.
• 7/7/04 – Brush Engineered Materials Inc. (BW) announced that it has completed its previously announced public offering of 2.05 million primary shares of
common stock and 115,000 secondary shares of common stock sold by selling shareholders. The underwriters continue to have an option to purchase up to
an additional 324,750 primary shares of common stock to cover over-allotments as part of the public offering. Brush intends to use the proceeds from the
offering to repay a portion of the amounts outstanding under the credit facilities that are part of the refinancing Brush completed in December 2003. Any
remaining net proceeds will be used for working capital and general corporate purposes.
• 7/12/04 – Allegheny Technologies Incorporated (ATI) announced that it is making a public offering of 10 million shares of its common stock under its
effective shelf registration statement. The underwriters have the option to purchase for a period of 30 days up to 1.5 million additional shares to cover over-
allotments. ATI intends to use net proceeds from the offering to enhance its abilities to make opportunistic growth-oriented investments and to strengthen its
balance sheet
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
6/1/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Allegheny Technologies, Inc. (e) $11.99 81.277 $974.5 $1,441.4 # 26.8 x # 11.1 x # 9.0 x # 5.4 x # 18.8 x # 7.8 x # 0.71 x
Carpenter Technology Corporation (e) $31.50 23.709 $746.8 $1,023.8 # 26.8 x # 11.1 x # 9.0 x # 5.4 x # 18.8 x # 7.8 x # 1.10 x
Footnotes:
Excluded from the Range.
(a) See Endnotes.
(b) See Endnotes.
(c) See Endnotes.
(d) See Endnotes.
(e) See Endnotes.
Source: Compustat, FactSet.
Page 41
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
3 75
325
2 75
Index
225
175
12 5
75
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Company Highlights/Announcements
4/14/04 – Imco announced that Richard L. Kerr, Executive Vice President and President, Aluminum Operations, age 61, has been appointed by Imco’s
board of directors to serve as interim President and Chief Executive Officer. Mr. Kerr replaces Don V. Ingram, age 68, who has left Imco. Additionally,
Board member John E. Balkcom, age 56, was named chairman of the board. Imco also announced that the board has established a search committee and
will engage an executive search firm to identify qualified candidates to fill the position of CEO.
5/5/04 – Schnitzer Steel (SCHN) announced that it is exploring strategic alternatives for, including the possible sale or merger of, its McMinnville,
Oregon steel mini mill, Cascade Steel Rolling Mills, Inc.
6/1/04 – Imco will expand its facility in Saginaw, Mich., by 50 percent to increase the amount of aluminum that it supplies to General Motors Corp. in its
metal casting operations in Saginaw. The alloys will be used in the GEN IV all-aluminum V8 engine for its full size SUVs.
6/29/04 – Metal Management, Inc. (MTLM) announced that it has entered into a new credit agreement with a consortium of lenders led by LaSalle Bank,
N.A. The new credit agreement represents a credit commitment of $200 million with a maturity date of June 28, 2008.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
6/29/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Metal Management, Inc. (e) $19.59 24.886 $487.5 $530.7 # 8.8 x # 8.2 x # 4.9 x # 4.2 x # 5.9 x # 4.9 x # 0.49 x
Schnitzer Steel Industries, Inc. (e) $31.17 31.146 $970.8 $1,044.9 # 15.4 x # 11.8 x # 9.8 x # 6.6 x # 12.0 x # 7.5 x # 1.83 x
Footnotes:
Excluded from the Range.
(a) See Endnotes.
(b) See Endnotes.
(c) See Endnotes.
(d) See Endnotes.
(e) See Endnotes.
Source: Compustat, FactSet.
Page 42
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
18 0
16 0
14 0
12 0
Index
10 0
80
60
40
20
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct-0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Ho ulihan Lo key M et als Ind ex S&P 50 0 Ind ex Service Cent ers / Pro ces s o rs
Company Highlights/Announcements
• 6/17/04 – Gibraltar announced that it has increased it annual dividend by approximately 11percent to .20 cents per share. This was following Gibraltar’s
highest ever quarterly sales and earnings, with sales increasing by 31 percent to $212 million and net income increasing by 91 percent to $9.3 million.
• 6/16/04 – Shiloh Industries, Inc. announced that on June 11, 2004, Standard & Poor's Ratings Services raised its corporate credit rating on Shiloh
Industries, Inc. to 'B+' with a positive outlook from 'B' with a negative outlook. Shiloh's debt of $148 million as reported at April 30, 2004 has been
reduced by about $48 million since April 30, 2003 and by $140 million from its peak at January 31, 2002 because of the use of free cash flow to lower
leverage.
• 6/24/04 – Rising steel prices and an improving economy helped Worthington Industries report record earnings during the fourth quarter. Earnings during
the quarter were $39.4 million, or 45 cents per share, up from $15.6 million, or 18 cents a share, for the same period a year ago. During the fourth quarter,
Worthington reported improvement in all three of it business segments: processed-steel products, metal framing and pressure cylinders.
• 7/6/04 – Steel Technologies Inc. (STTX) announced that it has been added to the Russell 2000 Index as part of the annual reconstitution of that index.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
7/26/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
A.M. Castle & Company (e) $10.05 16.332 $164.1 $267.7 # NMF N/A NMF N/A NMF N/A 0.46 x
Gibraltar Steel Corporation (e) $30.40 19.714 $599.3 $829.6 # 19.1 x # 12.6 x # 9.2 x # 7.1 x # 12.4 x # 8.8 x # 1.03 x
Metals Usa Inc $15.10 21.075 $318.2 $472.2 # 12.2 x # 3.4 x # 10.0 x # 2.9 x # 10.1 x # 2.9 x # 0.45 x
Olympic Steel, Inc. (e) $18.92 10.073 $190.6 $284.8 # 17.5 x # 5.0 x # 9.1 x # 3.7 x # 13.0 x # 4.2 x # 0.52 x
Reliance Steel & Aluminum Company $37.17 32.578 $1,210.9 $1,730.0 # 21.5 x # 7.9 x # 10.7 x # 5.3 x # 14.2 x # 6.0 x # 0.83 x
Ryerson Tull, Inc. $15.04 25.677 $386.2 $676.7 # 74.8 x 8.4 x # 13.2 x 5.7 x # 24.4 x 7.0 x # 0.29 x
Shiloh Industries, Inc. (e) $17.29 16.949 $293.1 $438.9 # 21.3 x # 18.4 x # 6.8 x # 6.5 x # 12.9 x # 11.9 x # 0.72 x
Steel Technologies, Inc. (e) $21.45 12.977 $278.4 $353.3 # 22.7 x # 9.0 x # 9.9 x # 5.1 x # 16.7 x # 6.5 x # 0.62 x
Worthington Industries, Inc. (e) $19.58 87.488 $1,713.0 $1,999.8 # 25.8 x # 13.5 x # 10.2 x # 6.6 x # 15.5 x # 8.5 x # 0.91 x
Footnotes:
Excluded from the Range. (c) See Endnotes. Source: Compustat, FactSet.
(a) See Endnotes. (d) See Endnotes.
(b) See Endnotes. (e) See Endnotes.
Page 43
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
2 50
200
Index
150
10 0
50
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Ho ulihan Lo key M et als Ind ex S&P 50 0 Ind ex Bar and Wire Pro d ucers
Company Highlights/Announcements
• 4/28/04 – Oregon Steel Mills, Inc. (Oregon) today reported first quarter net income of $7.5 million ($.28 per share) compared to a net loss of $9 million (a
negative $.34 per share) for the first quarter of 2003. Sales were $252.4 million, the highest level since 1998 and the second highest in Oregon’s history.
EBITDA for the first quarter of 2004 was $32.9 million (exclusive of a $7 million stock settlement charge) compared to $4.3 million in the first quarter of
2003
• 4/29/04 – Oregon announced that William P. Kinnune and Brett E. Wilcox were elected Directors of Oregon at the April 29, 2004 Annual Meeting of
Stockholders. Mr. Kinnune is a former Executive Vice President of Willamette Industries, Inc., a diversified wood products company. Mr. Wilcox is
President and owner of Golden Northwest Aluminum, Inc., which owns and operates Northwest Aluminum Company and Goldendale Aluminum
Company.
• 5/13/04 – Roanoke Electric Steel (Roanoke) announced it is adding 30 jobs at its mini-mill in Northwest Roanoke. When hiring is complete, employment
at the mini-mill will total about 500. Company-wide employment totals approximately 1,500.
• 6/15/04 – EBITDA for Roanoke for its quarter ended April 30, 2004 was $13,165,109, a 450 percent increase over the year earlier same quarter when
Roanoke generated $2,395,091 in EBITDA. Roanoke has generated nine consecutive quarters of positive EBITDA. EBITDA for the most recent quarter
also reached a three-year high.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
6/1/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Oregon Steel Mills, Inc. (e) $12.16 26.715 $324.9 $648.3 # NMF
MF 3.4 x # 23.6 M
xF 2.9 x # NMF
MF 3.5 x # 0.81 x
Footnotes:
Excluded from the Range.
(a) See Endnotes.
(b) See Endnotes.
(c) See Endnotes.
(d) See Endnotes.
(e) See Endnotes.
Source: Compustat, FactSet.
Page 44
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
18 0
16 0
14 0
12 0
Index
10 0
80
60
40
20
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Company Highlights/Announcements
• 4/7/04 – Century Aluminum Company has priced the approximately $230 million public offering of 9.5 million shares of its common stock at a price to the
public of $24.50 per share. Century will offer 9 million shares and Century's pension plans will offer 500,000 shares. Century has granted the underwriters an
option to purchase up to an additional 950,000 shares of common stock to cover any over-allotments. Century received net proceeds of approximately $209
million.
• 5/11/04 – EBITDA for Century Aluminum Company (CENX) for its quarter ended March 31, 2004 was $39.8 million, a 251 percent increase over the year
earlier same quarter when Century Aluminum generated $11.4 million in EBITDA. Century Aluminum has generated five consecutive quarters of positive
EBITDA. EBITDA for the most recent quarter also reached an eight-year high. Sales for the period totaled $232.1 million versus $179.0 million in the same
period last year.
• 6/2/04 – U.S. aluminum giant Alcoa Inc., Anglo-Australian BHP Billiton and Brazil's CVRD are expected to invest more than $3.0 billion (2.449 billion euro)
in alumina production in the northeastern Brazilian states of Para and Maranhao over the next three years. Big producers considered the production of
alumina, a primary material for aluminum production, as an attractive business due to insufficient energy production and increased costs of aluminum
production in Brazil. There is an increased demand in the international market for alumina pushed mainly by China.
• 5/7/04 – Commonwealth Industries, Inc. (Commonwealth) today announced results for the first quarter ended March 31, 2004. The recovery in aluminum
shipments, which began in the second half of 2003, continued to advance into the first quarter of 2004. Commonwealth's aluminum shipments improved 32
percent to 241.9 million pounds in the first quarter of 2004 compared with 183.7 million pounds in the year-earlier period. EBITDA increased 422 percent to
$12.7 million.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
6/1/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Alcoa, Inc. (e) $31.26 879.411 $27,490.4 $35,753.4 # 24.2 x # 16.4 x # 11.3 x # 7.8 x # 18.4 x # 10.6 x # 1.62 x
Commonwealth Industries, Inc. (e) $8.76 16.201 $141.9 $271.2 # 26.7 x # 11.7 x # 6.3 x # 4.8 x # 13.2 x # 8.0 x # 0.27 x
Footnotes:
Excluded from the Range. (d) See Endnotes.
(a) See Endnotes. (e) See Endnotes.
(b) See Endnotes. Source: Compustat, FactSet.
(c) See Endnotes.
Page 45
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
16 0
14 0
12 0
10 0
Index
80
60
40
20
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Ho ulihan Lo key M etals Ind ex S&P 50 0 Ind ex Tub e and Pip e Pro d ucers
Company Highlights/Announcements
• 4/26/04 – The Shaw Group Inc. of Baton Rouge has offered 2.040 million shares of its common stock at $12.35 per share. Shaw plans to use the
approximately $25 million in net proceeds of the offering for general purposes including replenishing working capital used in connection with increased
business activity.
• 6/15/04 – Maverick Tube Corp. (Maverick) said on June 14 that it will consolidate its electrical-conduit manufacturing operations into one updated facility.
Maverick is considering two sites, both in the Midwest, and plans to announce its selection in the third quarter. Maverick expects to begin construction by
the end of the year and to complete it by the end of 2005. Maverick estimates the consolidation will cost $55 million and will save Maverick about $15
million a year beginning in the middle of 2005.
• 6/18/04 – Joseph Alvarado is taking over the top operating post at the US sheet, pipe and tube producer Lone Star Technologies Inc, which has lost nearly
$140 million in the last two years but reported profits in the first quarter. Alvarado has over 25 years of senior management experience in long products,
mostly with Inland Steel Bar Co, where he was President, and later with its owner, Ispat International, for whom he worked until taking the post of
President and COO at Lone Star this week.
• 6/24/04 – Copper fabricator Wolverine has completed a private placement of 2.45 million shares of common stock that will net Wolverine approximately
$22.9 million, the Alabama-based company said. All of the shares were sold by Wolverine and at a price of $10/share, leaving Wolverine with 14.8 million
common shares outstanding after the closing. The funds raised will be used to reduce debt and for other corporate purposes, as well as create and increase
institutional sponsorship and trading liquidity in Wolverine’s stock.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
6/1/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Maverick Tube Corporation (e) $22.87 42.620 $974.7 $1,111.0 # 17.9 x # 5.7 x # 9.3 x # 3.5 x # 11.6 x # 3.7 x # 1.14 x
Northwest Pipe Company $14.75 6.709 $99.0 $175.5 # 19.8 x # 9.0 x # 9.5 x # 6.1 x # 13.2 x # 7.5 x # 0.69 x
Webco Industries, Inc. (e) $4.26 7.153 $30.5 $75.9 # 29.5 x # N/A/A 6.9 x # N/A/A 19.4 x # N/A N/ 0.41 x
Footnotes:
(a) See Endnotes. (c) See Endnotes. (e) See Endnotes.
(b) See Endnotes. (d) See Endnotes. Source: Compustat, FactSet.
Page 46
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
2 50
200
Index
150
10 0
50
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Company Highlights/Announcements
• 4/28/04 – U.S. Steel Corp. announced that Chief Executive Officer Thomas Usher will step down from that post in September but continue as chairman
through April 2007. John Surma, U.S. Steel's president and chief operating officer, will succeed Usher as CEO.
• 4/28/04 – U.S. Steel reported net income of $58 million for the first quarter, compared with a year-earlier net loss of $38 million. Revenue grew 56 percent
during the period to $2.97 billion from $1.91 billion. U.S. Steel's shipments were up 46 percent, largely because of the acquisition of National Steel Corp.
last year, as well as stronger demand in the tubing market, which serves the oil and gas industries, and flat-rolled products for auto makers.
• 6/30/04 – Wheeling-Pitt, the sixth largest steel producer in the United States, filed with the U.S. Securities and Exchange Commission on June 30 to sell 3.1
million shares of its common stock. Wheeling-Pitt’s stock is expected to sell for $26.94.
• 5/11/04 – EBITDA for AK for its twelve months ended March 31, 2004 was a negative $122.5 million, compared with a positive EBITDA of $319 million
for the comparable year earlier twelve months. EBITDA for the most recent twelve months also reached a six-year low. For AK's quarter ended March 31,
2004 EBITDA was $55,500,000, compared with $17,400,000, a 219 percent increase over the comparable year earlier quarter. AK has generated two
consecutive quarters of positive EBITDA. EBITDA for the most recent quarter also reached a two-year high. Sales for the period totaled $1,134 million.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
6/15/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Footnotes:
Excluded from the Range.
(a) See Endnotes.
(b) See Endnotes.
(c) See Endnotes.
(d) See Endnotes.
(e) See Endnotes.
Source: Compustat, FactSet.
Page 47
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
18 0
16 0
14 0
12 0
Index
10 0
80
60
40
20
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Company Highlights/Announcements
• 6/1/04 – CMC announced that its board of directors raised its quarterly cash dividend from eight to ten cents per share, an increase of 25 percent.
• 4/29/04 – Ipsco has received an order for 36-inch large diameter transmission line pipe for use in Enbridge Energy Partners LP's East Texas expansion
project. The Enbridge order of approximately 43,000 tons is expected to be complete by the end of the third quarter. In addition to the steel for the
Enbridge order, Ipsco has also received approximately 20,000 tons in orders for high-strength specialty steel from other pipe makers for delivery over the
next two quarters.
• 6/10/04 – U.S. Steel and Nucor have entered the world’s top-10 steelmakers for 2003 at the respective ranks of 8 and 10, according to the 2004 edition of
IISI publication World Steel in Figures. U.S. Steel recorded a crude steel output of 17.9m tons in 2003, up 24 percent year-on-year, while output at Nucor
was 15.8m tons, up 27 percent, says IISI.
• 6/4/04 – SDI announced that it intends to launch syndication of a new $225 million senior secured revolving credit facility (the "Revolver"). In addition
to refinancing certain existing senior secured debt, including SDI’s term loan B facility of $110 million, proceeds from the Revolver will be available for
working capital and other general corporate purposes.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
7/16/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Commercial Metals Corporation $36.54 30.077 $1,099.0 $1,489.9 # 22.3 x # 8.2 x # 9.0 x # 4.8 x # 14.9 x # 6.0 x # 0.43 x
Footnotes:
Excluded from the Range.
(a) See Endnotes.
(b) See Endnotes.
(c) See Endnotes.
(d) See Endnotes.
(e) See Endnotes.
Source: Compustat, FactSet.
Page 48
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
16 0
14 0
12 0
10 0
Index
80
60
40
20
0
J ul-0 3 Aug -0 3 Sep -0 3 Oct -0 3 No v-0 3 Dec-0 3 J an-0 4 Feb -0 4 M ar-0 4 Ap r-0 4 M ay-0 4 J un-0 4
Ho ulihan Lo key M et als Ind ex S&P 50 0 Ind ex Ho ulihan Lo key Internat io nal Pro d ucers
Company Highlights/Announcements
For the purposes of this analysis, Houlihan Lokey has used the equity performance of companies’ American Depositary Receipts (ADR) when available; otherwise, trading
information from the companies’ country of incorporation was used. As a result of certain underlying factors, including country-specific risk, market efficiencies and operational
differences between separate equity exchanges, certain irregularities in the trading data may be generated, which have not been adjusted.
• 4/30/04 – Brazilian steelmaker CSN announced that shareholders approved plans to carry out a four-for-one stock split effective May 31, 2004. The stock
split, meant to boost the liquidity of CSN shares traded on the Sao Paulo Stock Exchange, will divide each share into four and then rebundle them so that
each local group equals one CSN American Depositary Receipt traded in New York.
• 6/6/04 – A $180 million steel joint venture between China's Angang Group and Germany's Thyssenkrupp AG (TKA.XE) began production June 4 in
Dalian, northeast China's Liaoning province. ANSC-TKS Galvanizing Co., has annual production capacity of 400,000 zincked plates used for
automobiles, the official Xinhua News Agency said.
• 6/21/04 – World steel giant Arcelor (5786.FR) announced its Turkish subsidiary Borcelik has invested $140 million into a hot-dip galvanizing line. The
investment, inaugurated on June 19, will allow Borcelik, which produces cold-rolled steel, to modernize and increase the capacity of its existing plant.
• 6/28/04 - On June 4, a joint venture company of ThyssenKrupp Steel, the world's largest stainless steel maker, and Anshan Iron and Steel Group
Corporation (Angang), China's second largest steel maker, was announced. The investment for the joint venture is expected to reach $180 million,
making it the largest joint venture in China's steel industry.
Current
Stock Price Fully Diluted Market Price / Earnings EV / EBITDA EV / EBIT EV / Revenue
Per Share as of Shares Value Enterprise
8/3/2004 Outstanding of Equity Value LTM NFY (a) LTM (b) NFY (c) LTM NFY (d) LTM
Arcelor NPV (e) $14.19 477.510 $8,173.6 $13,954.5 # 21.7 x # 23.1 x # 5.3 x # 4.9 x # 13.5 x # 11.4 x # 0.46 x
Companhia Siderurgica Nacional $45.70 71.729 $1,073.2 $2,758.2 # 2.9 x # N/A # 3.0 x # 2.1 x # 3.8 x # 2.7 x # 1.11 x
Dofasco, Inc. $40.95 77.733 $2,413.0 $2,493.7 # 17.2 x # 6.7 x # 5.2 x # 2.8 x # 11.0 x # 3.9 x # 0.93 x
Ispat International N.V. (e) $10.95 121.737 $1,333.0 $3,530.0 # 26.8 x # 3.7 x # 10.0 x # 3.7 x # 20.8 M
xF 4.6 x # 4.55 x
POSCO, Inc. (e) $135.49 88.966 $11,912.0 $21,541.3 # 5.5 x # 17.6 x # 5.1 x # 7.9 x # 7.4 x # 15.1 x # 1.41 x
ThyssenKrupp AG (e) $14.80 497.700 $8,885.4 $14,510.5 # 17.1 x # 14.0 x # 5.1 x # 5.3 x # 12.6 x # N/A N/ 0.35 x
Page 49
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
Endnotes
Scrap Processors
Imco Recycling, Inc. was adjusted for equity in earnings of affiliates.
Metal Management, Inc. was adjusted for income from joint ventures.
Schnitzer Steel Industries, Inc. was adjusted for income from joint ventures.
Service Centers/Processors
A.M. Castle & Co. was adjusted for $.6 million in equity earnings of joint ventures.
Gibraltar Steel Corporation was adjusted for $.5 million inequity earnings of partnerships’ income.
Olympic Steel, Inc. was adjusted for $.3 million in asset impairment charges and a $78,000 gain due to joint ventures.
Shiloh Industries, Inc. was adjusted for a $.1 million loss on sale of assets.
Steel Technologies, Inc. was adjusted for equity in earnings of affiliates of $1 million and gains/losses related to the disposal of PP&E.
Worthington Industries, Inc. was adjusted for charges due to legal settlements for $3.7 million and equity in earnings from affiliates totaling $55 million.
Page 50
HOULIHAN LOKEY HOWARD & ZUKIN 0HWDOV,QGXVWU\8SGDWH² 6HFRQG4XDUWHU
Aluminum Producers
Alcan, Inc. was adjusted for 16 million in equity income and a $7 million recovery of restructuring charges.
Alcoa, Inc. was adjusted for $13 million in layoff charges, specialty chemical business sale gain of $44 million.
Century Aluminum Co. was adjusted for a net gains/losses on forward contracts.
Commonwealth Industries, Inc. was adjusted for FAS 133 ineffective hedges and annual impairment charges totaling $30 million.
International Producers
Thyssen Krupp was adjusted for a gain on discontinued operations of ¼PLOOLon.
POSCO was adjusted for a net loss on disposal of PP&E amounting to KRW 8,013 million, other bad debt expense of KRW 1074 and donations totaling KRW
70,691 million.
Arecelor was adjusted for equity income in affiliates amounting to ¼PLllion.
Ispat International N.V. was adjusted for a $35 million gain due to property tax accounting.
Page 51
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Chapter 11: Planning through Confirmation
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Leveraged Transactions Exchange Offers, Prepackaged and Pre-
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Negotiated Plans of Reorganization
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Private Debt and Equity Placement - Portfolio Valuation
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