forward-looking statements
DESCRIPTION
Forward-Looking Statements. - PowerPoint PPT PresentationTRANSCRIPT
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This presentation contains forward-looking statements with respect to Gerdau AmeriSteel Corporation, including its business operations, strategy, financial performance, and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from expectations include, among other things, risk relating to completing the transaction, and general economic and market factors, including demand for steel products, availability and costs of electricity, natural gas, and raw materials, government regulations and trade policies affecting steel imports or exports in Canada and the United States, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time.
This presentation contains forward-looking statements with respect to Gerdau AmeriSteel Corporation, including its business operations, strategy, financial performance, and condition. Although management believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from expectations include, among other things, risk relating to completing the transaction, and general economic and market factors, including demand for steel products, availability and costs of electricity, natural gas, and raw materials, government regulations and trade policies affecting steel imports or exports in Canada and the United States, and other factors discussed in materials filed with applicable securities regulatory authorities from time to time.
Forward-Looking Statements
Transaction Summary
– 3 –
Transaction Summary
Note: All figures throughout this presentation are in C$ unless otherwise stated.1 Arrangements have been made to squeeze out the minority shareholders of AmeriSteel post-closing (included in 74% ownership).
– 4 –
Investment Highlights
Economies of Scale: Gerdau AmeriSteel will have significant scale of operations, making it the secondlargest North American minimill steel producer and a world class competitor
Product Diversification: With 11 mill locations, Gerdau AmeriSteel will be geographically positioned tostrategically service long product customers throughout North America with a fullycompetitive range of steel products
Downstream Integration: Gerdau AmeriSteel's minimills will be integrated with 29 downstream steelfabricating and specialty product businesses, increasing profit margins and reducingthe volatility of earnings
Cost Savings: The transaction will create near-term annual cost savings of $35 million resultingfrom freight rationalization, the elimination of overhead redundancies, productrationalization, scheduling efficiencies and scrap rationalization
Accretive Transaction: The transaction will be accretive to Co-Steel's earnings and cash flow on a pro formabasis in 2002 and going forward
Financial Strength: The transaction will immediately reduce current net debt/EBITDA from 8.1x on anLTM basis to 3.8x on a pro forma basis
Earnings Stability: Larger scale and higher margin products will provide greater earnings stability
Strong Sponsorship: Gerdau AmeriSteel will have open access to the knowledge base and sponsorship ofits parent company, Gerdau SA
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Investment Highlights – Financial Impact
Gerdau AmeriSteel will be one of the premier North American steel companies, commanding an improved valuation outlook
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Significantly decreases Co-Steel's leverage position Net Debt1 $462 $990
Significantly decreases Co-Steel’s leverage position Net Debt / EBITDA 8.1x2 3.8x3
Significantly increases Co-Steel’s profit margins EBITDA Margin 5.2%2 10.4%4
Significantly decreases Co-Steel’s earnings volatility Change in EBITDA5 57% 26%
Allows for the realization of significant synergies EBITDA Impact $0 $357
Significantly increases Co-Steel’s 2002E EPS 2002E EPS6 $0.10 $0.23 - $0.30
2002E EPS Accretion – $ $0.13 - $0.20
– % 130% - 200%
Significantly increases Co-Steel's 2003E EPS 2003E EPS6 $0.70 $0.80 - $0.94
2003E EPS Accretion – $ $0.10 - $0.24
– % 14% - 34%
1 As at June 30, 2002 including $125 million of convertible debentures.2 For the 12-month period ending June 30, 2002.3 Based on annualized EBITDA for the 6 months ending June 30, 2002.4 Based on the 6 months ending June 30, 2002.5 Measured as the standard deviation of the change in EBITDA over the period from 1997 to 2001.6 IBES estimate (includes effective tax rate of 15%).7 Synergies excluded from 2002 EPS calculation.
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Gerdau AmeriSteel - Calculation of Implied Equity Values
On a consolidated basis, we believe that Gerdau AmeriSteel should trade in a $5.18 to $6.75 per share range, representing a 27% to 65% premium to Co-Steel’s current share price
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Gerdau AmeriSteel 2003E EBITDA $415 $435 $455
Synergies 35 35 35
Gerdau AmeriSteel 2003E EBITDA $450 $470 $490
TEV/EBITDA 4.48x3 4.65x 4.75x
Implied TEV 2,016 2,185 2,328
Pro Forma Net Debt2 (990) (990) (990)
Implied Equity Value 1,026 1,195 1,338
Pro forma Shares Outstanding 198.1 198.1 198.1
Implied Share Price $5.18 $6.03 $6.75
Current Share Price (@ 12/08/02) $4.08
Implied Premium to Current Share Price 27% 48% 65%
Total Capacity 6.8 6.8 6.8
EV/ton $296 $321 $342
EV/ton (US$)4 $191 $207 $221
1 Based on a range of management estimates, see slide 21.2 Based on pro forma financial statements as at June 30, 2002.3 Co-Steel’s current multiple based on a $4.08 share price.4 Converted at 0.65.
Gerdau North America
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Gerdau North America – Overview
Gerdau North America’s operations include AmeriSteel (Tampa, FL), MRM Holdings (Selkirk, MB) and Courtice Steel Inc. (Cambridge, ON)
1 Owned through Gerdau USA.
100%
Gerdau North America
Gerdau North America
MRM HoldingsMRM Holdings
100%87%
Management & Others
Management & Others
13%
AmeriSteel1AmeriSteel1 Courtice Steel Inc.Courtice Steel Inc.
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Gerdau North America – Location of Facilities
Gerdau North America has seven minimill steel production facilities in Canada (2) and in the Southeastern U.S. (5)
In addition, Gerdau North America has 26 downstream and specialty facilities located throughout the Northeastern and Southeastern U.S.
Minimill Facilities
Head Office
Downstream and Specialty FacilitiesJacksonville, FL
Cartersville, GA
Charlotte, NC
Cambridge, ON (Courtice)
Selkirk, MB (MRM)
Knoxville, TN
Jackson, TN
Tampa, FLTampa, FL
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Gerdau North America has an extensive network of modern and efficient minimill melting and rolling operations with capacity to accommodate anticipated increases in demand and no expected major capital expenditure requirements
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AAnnnnuuaallCCaappaacciittyy
22000011PPrroodduuccttiioonn
CCaappaacciittyyUUttiilliizzaattiioonn
(000s of tons) (000s of tons) (000s of tons) (000s of tons)
Charlotte, NC Rebar, merchants 460 358 78% 400 335 84%
Jackson, TN Rebar, merchants, structurals 670 508 76% 600 458 76%
Jacksonville, FL Rebar, wire rod 640 557 87% 615 581 94%
Knoxville, TN Rebar 455 427 94% 500 433 87%
Cartersville, GA2 Merchants, structurals 860 5003 58% 600 2883 48%
Total AmeriSteel 3,085 2,350 83%1 2,715 2,095 85%1
Selkirk, MB (MRM) Special sections 385 354 92% 330 306 93%
Cambridge, ON (Courtice) Rebar, merchants 360 325 90% 325 303 93%
Total Gerdau North America 3,830 3,029 85%1 3,370 2,704 87%1
1 Excludes Cartersville.2 In December 2001, Gerdau North America acquired the Cartersville assets from Birmingham Steel for US$49 million, increasing merchant/structural capacity by 600,000 tons.3 Based on run rate production annualized for the month of June 2002.
Gerdau North America – Capacity
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Gerdau North America – Product Mix
Gerdau North America has a balanced portfolio of products, comprised of approximately 34% merchants, 32% rebar, 24% fabricated and other downstream products, 8% special sections and 2% wire rod products
Product MixProduct Mix11
1 As a percentage of 2001 Trade Shipments.
Fabricated24%
Rebar32%
Merchants34%
Wire Rod2%Special Sections
8%
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Consolidated RevenueConsolidated Revenue
Gerdau North America – Historical Financial Performance
Gerdau North America has experienced relatively stable revenue and EBITDA over the past three years despite margin pressures attributed to cyclical lows in the steel industry
The recent Section 201 decisions in the U.S. and expected CITT rulings in Canada are expected to have a positive impact on Gerdau North America’s future results
Consolidated EBITDAConsolidated EBITDA
1 Unaudited results excluding Cartersville.2 Pro forma for the year ended December 31, 2001.3 Annualized pro forma results for the 6 months ending June 30, 2002. Cartersville included starting in the quarter ending June 30, 2002.
$1,389 $1,381 $1,372
$1,454
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
1999 2000 2001 2002
($ m
illio
ns)
1 1 32
$240.2
$187.7$160.6
$179.6
17.3%
13.6%
11.7% 12.3%
$0
$100
$200
$300
$400
1999 2000 2001 2002
EB
ITD
A (
$ m
illio
ns)
0%
5%
10%
15%
20%
EB
ITD
A M
arg
in (
%)
1 1 32
Gerdau AmeriSteel
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$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Nuco
r
AK
Ste
el
Dofa
sco
Gerd
au A
meri
Ste
el
Com
merc
ial M
eta
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ynam
ics
Ore
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teel M
ills
Carp
ente
r Te
ch
IPSC
O
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Co-S
teel
Sla
ter
Ste
el
NS G
roup
(US
$ m
illion
s)
North American Steel Industry Capacity North American Steel Industry Capacity AnalysisAnalysis11
1 Excludes companies in CCAA, Chapter 11 or Chapter 7 proceedings.2 EBITDA for the LTM period ending June 30, 2002. US$/C$ exchange rate of 1.57:1 has been used.
Gerdau AmeriSteel – Economies of Scale
Gerdau AmeriSteel will have 6.8 million tons of rolling capacity, making it the third largest North American steel producer, and the second largest North American long products producer
More importantly, Gerdau AmeriSteel will become the fourth most profitable North American steel producer on an EBITDA basis, excluding the benefit of any synergies generated through the combination
4th largest
North American EBITDA Analysis (US$)North American EBITDA Analysis (US$)22
3rd largest
0
2
4
6
8
10
12
14
16
18
Nu
cor
US
X U
S S
teel
Gerd
au
Am
eri
Ste
el
AK
Ste
el
Ste
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sco
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-Ste
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IPS
CO
Gerd
au
Nort
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ca
Com
merc
ial M
eta
ls
Ste
el D
yn
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ills
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Qu
an
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orp
Roan
oke
Ele
ctri
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orp
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Gro
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Carp
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Tech
(million
s o
f to
ns)
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((000000ss ooff ttoonnss)) CCaappaacciittyy 22000011 PPrroodduuccttiioonn
FFaacciilliittyy MMeellttiinngg RRoolllliinngg MMeellttiinngg RRoolllliinngg PPrroodduuccttss
Charlotte, NC 460 400 358 335 Rebar, merchantsJackson, TN 670 600 508 458 Rebar, merchants, structuralsJacksonville, FL 640 615 557 581 Rebar, wire rodKnoxville, TN 455 500 427 433 RebarCartersville, GA 860 600 5002 2882 Merchants, structurals
Total AmeriSteel 3,085 2,715 2,350 2,095
Selkirk, MB (MRM) 385 330 354 306 Special sectionsCourtice, ON (Courtice) 360 325 325 303 Rebar, merchants
Total Gerdau North America 3,830 3,370 3,029 2,704
Co-SteelWhitby, ON (Lasco) 960 1,100 439 471 Rebar, merchants, structuralsPerth Amboy, NJ (Raritan) 900 1,000 588 622 Wire rod productsSayreville, NJ 800 600 601 487 Rebar, merchantsGallatin County, KY1 750 750 698 691 Flat rolled products
Total Co-Steel 3,410 3,450 2,326 2,271
Total Gerdau AmeriSteel 7,240 6,820 5,355 4,975
1 Represents 50% ownership in facility.2 Based on run rate production annualized for the month of June 2002.
Gerdau AmeriSteel – Economies of Scale
Minimill Production and Capacity
The transaction will create the second largest North American minimill steel producer and a world class competitor
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The significantly expanded network of 11 mills will allow Gerdau AmeriSteel to serve the U.S. and Canadian markets in a more effective and efficient manner
Gerdau AmeriSteel – Product Diversification
Gerdau North America Minimill Facilities
Co-Steel Minimill Facilities
EOGerdau AmeriSteel Executive Office
HOGerdau AmeriSteel Head Office
Jacksonville, FL
Cartersville, GA
Charlotte, NC
Cambridge, ON (Courtice)
Selkirk, MB (MRM)
Knoxville, TNJackson, TN
Perth Amboy, NJSayreville, NJ
Whitby, ONHO
Gallatin County, KY
EO
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Co-Steel – 2001 Product Mix Co-Steel – 2001 Product Mix 11 Gerdau AmeriSteel – 2001 Product Mix Gerdau AmeriSteel – 2001 Product Mix 11
Gerdau AmeriSteel – Downstream Integration
Gerdau AmeriSteel’s mimimills will be integrated with 29 downstream steel fabricating and specialty product businesses
Approximately 18% total product shipments will be in downstream and specialty products, increasing profit margins and reducing earnings volatility
1 As a percentage of 2001 Trade Shipments.2 Co-Steel “Other” includes Epoxy Rebar, Rounds & Dowels.
Shipments 2.4 million tons Shipments 4.8 million tons
Rod29%
Flat Rolled28%
Merchant Bar21%
Rebar18%
Other4%
2
Merchants28%
Flat Rolled14%
Fabricated14%
Wire Rod15%
Special Sections4%
Rebar25%
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Management has conservatively estimated approximately $35 million in near-term annual cost savings, without any significant capital expense, to be realized as a result of the combination of Co-Steel and Gerdau North America
Additional synergies such as the adoption of best operating practices and coordination of manufacturing technologies have not been included in the $35 million figure but are expected to yield additional cost savings
SSyynneerrggyy AAnnaallyyssiiss
(C$ millions) Amount
Product and mill scheduling efficiencies $22.8
Freight rationalization 10.5
Enhanced purchasing volume 1.7
$35.0
Gerdau AmeriSteel – Cost Savings
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Pro Forma 2002E Financial Performance
Excluding any near-term cost savings, pro forma 2002E EBITDA is expected to be in a range between $310 million and $330 million
Gerdau AmeriSteel - Accretive Transaction
1 Based on June 30, 2002 pro forma financials.2 Based on management estimates.3 May not add due to rounding.
– 20 –
Gerdau AmeriSteel - Accretive Transaction
1 Forecast EBITDA growth from 2002 to 2003.2 Excluding synergies.3 Based on analyst estimates.
2003E Growth Expectations
In fiscal 2003, Gerdau AmeriSteel’s growth is expected to be derived from price and volume increases resulting from Section 201 and CITT case rulings as well as improved operating efficiencies
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Gerdau AmeriSteel - Accretive Transaction
Pro Forma 2002E/2003E EPS
Based on management forecasts for the remainder of fiscal 2002, the proposed transaction is expected to be $0.10 to $0.20 accretive on consensus analyst 2002E EPS estimates of $0.10
If the growth rate assumptions for 2003 are applied to 2002E EBITDA, the implied pro forma EPS is in a range between $0.80 to $0.94, or approximately 14% to 34% accretive to consensus 2003E EPS of $0.70
The effective tax rate used for 2003E is 30% versus the IBES estimate of 15%
1 Based on 2002E forecast results and 2003 estimated growth.2 2002E Net Earnings calculated based on annualized 6 month pro forma depreciation and interest expense for the period ended June 30, 2002 and a blended 30% tax rate.
– 22 –
1 Based on pro forma net debt and annualized EBITDA for the 6 months ending June 30,2002.2 As at June 30, 2002.3 Including $125 million of convertible debentures and net of $1.5 million of cash for Co-Steel and $13.1 million of cash for Gerdau AmeriSteel.4 Excluding $125 million of convertible debentures.5 Based on a pro forma balance sheet as at June 30, 2002.
Gerdau AmeriSteel – Financial Strength
The transaction will immediately reduce net debt/LTM EBITDA (adjusted for non-recurring items) from 8.1x to 3.8x1 on a pro forma basis
43% Decrease
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Current Assets $365 $530 $895
Total Assets $1,095 $1,523 $2,408
Current Liabilities $149 $206 $355
Net Debt $462 3 $511 $990 3
Total Liabilities $516 $946 $1,465
Shareholders’ Equity $453 4 $577 $818 4
Total Liabilities & Shareholders’ Equity $1,095 $1,523 $2,408
Net Debt / EBITDA 8.1x n/a 3.8x
Total Shares Outstanding 51.5 n/a 198.1
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Gerdau AmeriSteel – Earnings Stability
On a pro forma basis, Gerdau AmeriSteel’s larger scale and higher margin products will provide greater earnings stability
Over the 5 year period from 1997 to 2001, the standard deviation of the change in EBITDA for Gerdau North America has averaged 15% compared to 57% for Co-Steel
Standard Deviation on EBITDAStandard Deviation on EBITDA11
1 Measured as the standard deviation of the change in EBITDA from 1997 to 2001.
12% 12%
18%22%
26% 28%
34%37%
45%
52%56% 57%
154%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
IPSCO Quanex Gerdau NorthAmerica
CommercialMetals
Nucor GerdauAmeriSteel
Carpenter Roanoke SteelDynamics
Ivaco Oregon SteelMills
Slater Steel Co-Steel NS Group
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Gerdau AmeriSteel – Management
Phil Casey - Chief Executive Officer and President CEO of AmeriSteel since 1994 Chairman of Steel Manufacturers’ Association Over 15 years of experience in the steel industry
André Bier Johannpeter - Chief Operating Officer, Canada Currently Corporate Executive Vice President of Gerdau SA responsible for business
operations in North America Over 23 years of experience working in a wide range of areas for the Gerdau Group,
including sales, human resources, information technology, and strategic planning
Mike Mueller - Vice President, US Operations Appointed VP, Steel Mill Operations at AmeriSteel in 2001 after rejoining the
company from Auburn Steel where he served as CEO since 1998
André Beaudry - Vice President, Marketing Joined AmeriSteel as Vice President, Mill Product Sales in September 2001 President of Gerdau Courtice Steel from 1998 until he joined AmeriSteel, and prior to
that held a number of management positions at Gerdau Courtice Steel and Sidbec-Dosco
Tom Landa - Chief Financial Officer VP and CFO of AmeriSteel since April 1995 20 years of experience in various financial management positions with Exxon
Corporation and its affiliates worldwide
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Gerdau AmeriSteel – Board Composition
The Board of Gerdau AmeriSteel will be comprised of 4 Co-Steel directors and 5 Gerdau directors
NNaammee CCoommppaannyy RReessiiddeennccyy
Jorge Gerdau Johannpeter (Chairman) Gerdau Brazil
Terry Newman (Vice Chairman) Co-Steel Canada
Phillip Casey Gerdau USA
Joseph Heffernan* Co-Steel Canada
Spencer Lanthier* Co-Steel Canada
Michael Sopko* Co-Steel Canada
Frederico Gerdau Johannpeter Gerdau Brazil
Garry Leach Gerdau Canada
André Bier Johannpeter Gerdau Brazil
* Independent directors.
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Gerdau AmeriSteel – Strong Sponsorship
Gerdau S.A. – Overview
101 years of tradition focused on steel production
Installed capacity of 12 million tons of steel under management
22nd largest world steel producer (IISI)
Largest Latin American long steel producer
Distribution network with 70 sales points
5 service centers for flat steel
26 fabrication shops for civil construction
19 steel plants (10 in Brazil, 9 abroad)
Shares listed on Brazilian stock exchanges since 1947 and on NYSE (ADRs) since 1999
– 27 –
Sipar (1)
Laisa
AmeriSteel
Courtice
MRM
Gerdau S.A.
Açominas
Aza
12 MILLION TONS PER YEAR
BRAZIL* 7.9 million tons of crude steel* 5.2 million tons of rolled products
ABROAD* 4.3 million tons of crude steel* 4.0 million tons of rolled products
Gerdau S.A. – Installed Capacity
Gerdau AmeriSteel – Strong Sponsorship
(1) Rolling mill, 38% owned JV
GERDAU S.A.
AÇOMINAS
Cearense
Açonorte
Usiba
Cosigua
Barão de Cocais
Açominas
Guaíra
PiratiniRiograndense
Divinópolis
‘
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Gerdau AmeriSteel – Strong Sponsorship
Gerdau S.A. – Financial Summary
OutputOutput RevenueRevenue
EBITDAEBITDA Net IncomeNet Income
$461 $497 $466 $483 $513
21.8%
18.1%20.2%
24.8%
20.0%
$0
$250
$500
$750
$1,000
$1,250
1997 1998 1999 2000 2001
(C$
million
s)
0%
10%
20%
30%
EB
ITD
A M
arg
in (
%)
$2,543 $2,779 $2,680
$4,040$3,988
28.1%29.1% 29.7%32.6%
25.8%
$0
$2,000
$4,000
$6,000
$8,000
1997 1998 1999 2000 2001
(C$
million
s)
0%
10%
20%
30%
40%
Gro
ss M
arg
in (
%)
4,065 4,035
5,584
7,780 7,983
3,693 3,746
4,709
6,505 6,679
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1997 1998 1999 2000 2001
(ton
s)
Melting Rolling
$175
$262$291
$312
$377
$0
$100
$200
$300
$400
$500
1997 1998 1999 2000 2001
(C$ m
illi
on
s)
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Gerdau AmeriSteel – Strong Sponsorship
Gerdau S.A. – Leverage Ratios
11999977 11999988 11999999 22000000 22000011
Total Debt / Total Capitalization 35.3% 38.7% 57.3% 56.4% 51.8%
Net Debt / Total Capitalization 23.6% 28.6% 50.9% 50.3% 44.9%
Total Debt / EBITDA 2.4x 2.6x 3.6x 3.1x 3.3x
Net Debt / EBITDA 1.4x 1.6x 2.8x 2.4x 2.5x
EBITDA / Net Financial Expenses1 n/a n/a n/a 3.9x 5.7x
1 Excludes monetary and exchange rate variations.
– 30 –
Gerdau AmeriSteel - Summary
Financial Rationale
Decreases Co-Steel’s leverage position
Improves profit margin and reduces earnings volatility
Creates significant cost synergies
Highly accretive to Co-Steel shareholders
Strategic Rationale
Creates a leading North American steel company
Complementary facilities create a leading long products player in North America
Improves product mix and reduces earnings volatility
Provides strong sponsorship of Gerdau SA
The transaction creates a better-positioned, financially stronger industry leader in Gerdau AmeriSteel
– 31 –
Gerdau AmeriSteel – Comparable Company Analysis1
On a pro forma basis, Gerdau AmeriSteel compares favourably with its industry peers
CapacityCapacity RevenuesRevenues
EBITDA MarginsEBITDA Margins Net Debt to EBITDANet Debt to EBITDA
1 Financial results for the last twelve months ending June 30, 2002.2 Pro forma financial results annualized for the six months ending June 30, 2002.3 Assumes US$615 million of incremental debt to finance purchase of Birmingham Steel plus the addition of US$70 million of EBITDA.4 Assumes US$175 million proceeds from June 17, 2002 equity offering filing are used to repay debt.
Flat rolled
15.6%
11.1%10.4%
7.8%
5.9%
0%
3%
6%
9%
12%
15%
18%
Steel Dynamics Nucor Gerdau AmeriSteel IPSCO Commercial Metals2
1.1x 1.2x
3.1x
3.8x
5.3x
0x
2x
4x
6x
Commercial Metals Nucor Steel Dynamics Gerdau AmeriSteel IPSCO3 4 2
$4.1
$2.6$2.4
$1.0$0.7
$0
$1
$2
$3
$4
$5
Nucor Gerdau AmeriSteel Commercial Metals IPSCO Steel Dynamics
($ b
illion
s)
2
7.9
6.1
10.0 3.52.3 2.2
0.7
0
5
10
15
20
25
Nucor Gerdau AmeriSteel IPSCO Commercial Metals Steel Dynamics
(mil
lio
ns o
f to
ns)
6.8
17.9
Enhancing Shareholder Value
— CONFIDENTIAL —
August 13, 2002