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Filed by Butler Manufacturing Company
Pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Butler Manufacturing Company
Commission File No.: 001-12335
The following is a transcript of the Butler Manufacturing Company ("Butler")
investor conference call to discuss Butler's fourth-quarter and year-end results
held on Tuesday, February 17, 2004.
* * * * * * * *
PRESENTATION
Operator
Operator: Good morning and welcome, ladies and gentlemen, to Butler
Manufacturing's fourth quarter conference call. At this time, I would like to
inform you that this conference is being recorded and that all participants are
in a listen only mode. At the request of the company, we will open the
conference up for questions and answers after the presentation. I will now turn
the conference over to Larry Miller, Chief Financial Officer. Please go ahead,
sir.
Larry Miller - Butler Manufacturing - CFO
Thank you and good morning, everyone. Thanks for joining us on the call. Let me
read our position regarding forward-looking statements. Statements in this
conversation concerning the company's business outlook for future economic
performance, together with other statements that are not historical facts, are
forward-looking statements as that term is defined under the federal securities
laws. Forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those stated in such
statements. Such risks and uncertainties that could cause actual results to
differ materially are reviewed in detail on page 16 of Butler's 2002 Annual
Report to shareholders. I'll turn the call over to John Holland. John?
John Holland - Butler Manufacturing - Chairman and CEO
Larry, thank you. Thank you all for joining us the day after a holiday. I know
that that made this a little bit more challenging in terms of the knowledge and
awareness of the conference call for the quarter and also the other announcement
we made Sunday on the acquisition by BlueScope Steel. First, I'm going to
comment on the quarter and then we'll come back and talk a little bit more about
the merger announcement.
Overall, the market for the year, FW Dodge market, was down about 3 percent in
non-residential construction. And that marked the fourth consecutive decrease in
non-residential construction in North America. The commercial segment was down 6
percent and the manufacturing segment was actually up 8 percent. But, as I
indicated in our release, it was from a very low base. But nonetheless, it was a
first positive signal of improvement in manufacturing structures in quite some
time.
Manufacturing capacity utilization remains a little over 73 percent, still at a
fairly low level, but we are seeing modest signs of improvement. And certainly
the overall economic signals appear to be poised for further improvement in 2004
and that's why we indicated we believe, with the changes we've made and the cost
reductions, that the company is on the path to a return to profitability in
2004.
Our fourth quarter sales were up 20 percent, obviously led by our very strong
business in China, which was up 98 percent. So obviously the majority of that
increase related to China. But it was also the second largest increase was in
our North American buildings business which was up 9 percent. The Metal Building
Manufacturing Association reported sales in the fourth quarter up about 5
percent. So good improvement in our North American buildings business on the top
line.
Gross profit was approximately $30 million for the quarter, compared to 29.4
million last year. The markets remain very competitive and obviously many of you
know the commodity costs are rising rapidly. And that's steel, aluminum, lumber,
copper, cement all going up. And we have certainly raised prices in our
buildings, Vistawall business, to try to recapture and deal with that. But it's
certainly a challenge going forward in '04.
SG&A continues to be very well-managed. We're keeping a tight lid on all
expenses. SG&A was actually down 6 percent overall and it was up significantly
in China, as you can imagine, based on a nearly 100 percent increase in sales.
Our domestic employment level was down 6 percent as we again continue to make
the adjustments we need to improve our results going forward.
I'll comment a little bit on the asset impairment. For the year the total, as
you see in the release, was 7.2 million. 4.8 of that was related to our Lester
business and 2.4 was related to our construction services. We provided an
impairment charge on leasehold improvements pending the planned closure of that
office as we combine our construction and North American buildings businesses in
the early part of '04. Part of Lester was a re-capture, if you recall, it was a
larger number on July as a result of not completing the sale in November. We did
recapture about 2.2 million, which is reflected in the fourth quarter. So the
net impairment charge is about $200,000 and that's offsetting the construction
services charge.
Interest expense in the quarter is higher. It's related to paying the default
rate. As you know, we announced in our October 30th release technical defaults
under our debt agreements. For the quarter, we had pre-tax earnings of 2.2
million versus a loss of 600,000 the prior year.
Another big unusual item is the tax adjustment of 24.7 million, establishing a
valuation reserve for deferred tax assets that were written off related to a
going concern qualification that we will receive upon filing our audited
financial statements later in the first quarter. This simply reflects the fact
that we have not been able to extend our debt agreements as we had intended to,
and obviously the realization of these tax assets under that scenario are
problematic. The backlog is up 21 percent to 319 million at the end of the year.
Our product backlog is up 17 percent and our construction backlog is up 33
percent.
Another factor, as we look at the momentum building in our business, or we
believe to be building, is our fourth quarter orders in '03 versus '02 were up
27 percent. So again, we see signs of the economy beginning to improve and come
through to investment decisions - admittedly at a low base and obviously it
still remains very competitive in the marketplace out there. And so we continue
to make progress and reduce our costs and certainly provide good quality
service.
There were a number of product additions. The R Steel [sp] product that we added
this year that that plant is now on line and we're very excited about what it
will do for our customers. Our Mexican facility is up and running, and obviously
all these are costs that we incurred in 2003 that should provide benefits in
2004.
Now, having provided a quick summary of the fourth quarter and 2003 results, I
think obviously the bigger news was the announcement on Sunday, the fact that
Butler had entered into a merger agreement with BlueScope Steel, based in
Melbourne, Australia.
I think all of you are aware of Butler's strategic options. When we announced
the default back in October on October 30th when we reported our third quarter
results, our Board and senior management also announced that we would explore
strategic options, which included raising private investment capital, asset
sales and the sale of the company. Needless to say, there was considerable
interest after that public announcement from parties in all of those categories.
And we began a very deliberate and open process to look at all of those
categories to solve Butler's financial challenges.
As it resulted, after numerous parties expressing interest, the Board and senior
management agreed that BlueScope presented the best opportunity among those that
were presented. We entered into an extensive due diligence period with that
firm, and obviously it culminated in the announcement Sunday in the US, which
was Monday in Australia - there is a 17-hour time difference between Kansas City
and Melbourne. And as a result, we will go forward to complete this merger
transaction. Our Board has approved it unanimously. We believe it's an excellent
fit for Butler and its shareholders.
I'll comment on the valuation of $22.50 a share. Our market closing price on
Friday was 22.10, so it may appear that there is not much of a premium but if
you look back prior to our announcement last October - and I wouldn't use the
point - but we actually closed at $16.98 on the 29th of October, the day prior
to our announcing the exploration of strategic options. So when you compare the
22.50 against that single point estimate, it's a 33 percent premium. But I think
if you go back and take a three-month average prior to that, which is probably a
little better than just a single estimate, it's a 47 percent premium to that
price. So obviously we think, given the time and cycle of where we're at, it's a
fair value for the company.
The strengths of BlueScope obviously are significant. It's a very large,
successful company, revenues of about $4 billion, net worth of approximately 3
billion, so tremendous financial strength that it brings to Butler. Also,
excellent brands and a great, a complimentary alignment in terms of our
geographies. Both Asia and North America are the two geographies that Butler and
BlueScope are targeting. Certainly in China it will make us the clear
pre-engineered building leader, combining BlueScope's premier buildings business
with Butlers and really provide dominance and scale in that market.
In North America, obviously Butler remains number one, the strongest brand in
the industry. And BlueScope's capabilities both in pre-engineered components as
well as their quell [sp] coating and painting capabilities also provide
additional dimensions for future growth for both businesses.
So we're quite excited about the cultural fit. We think there's a very close
alignment in our corporate cultures, obviously strong brands for both companies.
We believe they have done an extensive amount of due diligence and certainly
represent the best fit overall for Butler and offer a great opportunity for this
company to go forward.
In terms of kind of next steps, I think most of you are familiar with these
transactions, both companies being public, BlueScope is traded in the Australian
exchange and you can- they have an excellent web site where you can learn more
about their company. First, we must file a report with the Justice Department, a
Hart-Scott-Rodino report. It's basically for antitrust purposes but, as the
release indicated, BlueScope does not have any direct competitive operations in
the US, so we would expect that report to be filed shortly. And there shouldn't
be any problem in receiving government approval.
In addition, we've got to file a proxy because this transaction requires
approval of Butler's shareholders. We would expect that proxy to be filed yet
this month. And obviously the SEC has to review it prior to it being released.
And upon that, we would then schedule a meeting of Butler's shareholders, which
we expect to do in April, to hold a vote. It takes a majority of Butler's
shareholders to approve this transaction. Both the Board and senior management
are recommending that to shareholders. And those are the major things. Obviously
the merger agreement itself has the fairly typical conditions to close and that
all will be contained in our proxy statement so that we really won't comment on
any of the details until the proxy statement is available to all of our
shareholders and interested parties
As I said, I think we're quite excited about this, clearly. It's been a
difficult and challenging period for Butler in the non-res construction industry
and to be aligned with an outstanding firm like BlueScope Steel with their
financial strengths, brands and growth plans, it's an exciting day for our
shareholders and our employees and customers.
With that, I would like to open the call to any questions that anyone might
have.
QUESTION AND ANSWER
Operator
Thank you, sir. The question and answer session will begin at this time. If you
are using a speakerphone, please pick up the handset before pressing any
numbers. Should you have a question, please press star one on your pushbutton
telephone. If you wish to withdraw your question, please press star two. Your
question will be taken in order it is received. Please stand by for your first
question. Our first question comes from Ian Lapey with Third Avenue Management.
Please state your question.
Ian Lapey - Third Avenue Management
Good morning. I guess could you talk a little bit more about the process, I
guess how many - since there were a bunch of different strategic alternatives
that you were looking at, how many companies actually looked at Butler in terms
of a potential acquisition?
John Holland - Butler Manufacturing - Chairman, CEO
Good morning, Ian. Well first I think the proxy will contain a very detailed
description of the process, the number of people that signed confidentiality
agreements, the number of people that made proposals. It was a very open
process, obviously with our public announcement and using George K. Baum [sp] to
identify - George K. Baum being our financial advisers. And during that process
I think there was a number of parties interested, some who actually got to the
data room, met the qualifications. The thing that George K. Baum was able to do
is ensure financial wherewithal and capability to complete a transaction.
As you know, when we are in the technical default situation with our lenders,
obviously this was a part of that process, as you've seen in our payment
deferral amendment and some of the other things with dates that were in there in
terms of repayment of those notes. So the proxy will contain the very detailed
steps and I'm going to wait until that is out there for all parties to see how
the process was done. We believe this was a very open and very fair process.
Ian Lapey - Third Avenue Management
OK and where would you stand now in terms of potential other bids? Is there a
termination penalty in this agreement or could you just talk about that a bit?
John Holland - Butler Manufacturing - Chairman, CEO
Well I mean for the proxy, you're going to hear this a lot, but the proxy will
contain all that detail. Clearly, we're a public company, BlueScope is a public
company. We made our announcement. What happens between now and getting to the
shareholder vote remains to be seen. But our Board and we have advocated and
recommend this transaction with BlueScope.
Ian Lapey - Third Avenue Management
OK and then on the quarter, in the release I didn't see any balance sheet
information. Could you just sort of give maybe some of the highlights in terms
of debt levels and shareholder's equity and things like that?
Larry Miller - Butler Manufacturing - CFO
Hey, Ian, this is Larry Miller. The fourth quarter, we typically don't produce
the balance sheet or the cash flow statement until we issue our financial
statements with the SEC.
Ian Lapey - Third Avenue Management
OK. And then I guess what is the expected role of management going to be with
the combined company?
John Holland - Butler Manufacturing - Chairman, CEO
You know, at this stage it's obviously premature to know exactly what the role
would be. Obviously I think most of us would prefer to remain a part and be a
part of that transition but that's something that's not known at this point.
Ian Lapey - Third Avenue Management
OK and last question, can you comment at all - in the fourth quarter I guess you
said orders were up 27 percent. Has that sort of strength sort of continued into
2004 so far?
John Holland - Butler Manufacturing - Chairman, CEO
Not at that level, no. I don't think we've seen that. Obviously the winter
weather has had some effect but we continue to see good levels of quoting and
signs of improvement in the economy.
Ian Lapey - Third Avenue Management
OK, great. Thank you very much.
John Holland - Butler Manufacturing - Chairman, CEO
You're welcome.
Operator
The next question comes from John Braatz with Kansas City Capital. Please state
your question.
John Braatz - Kansas City Capital
Morning, John. I think most of my questions were answered. But in terms of the
activity levels going forward, is it in the manufacturing? I mean is it
manufacturing commercial area? Where are you seeing the strength and is it
across the board in terms of geographical areas?
John Holland - Butler Manufacturing - Chairman, CEO
Are you referring to our orders?
John Braatz - Kansas City Capital
Yes, yes, I'm sorry.
John Holland - Butler Manufacturing - Chairman, CEO
Well I'd say clearly we are seeing some pickup in the large building market,
which you know for Butler is where we've always been very strong. And our
builders are reporting a lot more activity in larger industrial type buildings.
So I guess I would characterize it as if this economic improvement remains as it
is and corporate profitability goes up and capacity utilization begins to
improve, then that should bode well for our business. It typically has. On the
other hand, we would say any pickup is gradual. That's the word I used in the
third quarter and certainly I would continue to use that word, we would see a
gradual improvement. And that's why we said in the release we do expect '04 to
see a return to profitability for the company.
John Braatz - Kansas City Capital
Lastly, John, when would you expect - or maybe this is something that you can't
answer - what some of the changes might be, the structural changes, management
changes and things like that that BlueScope might initiate. Is there a time
table that you are aware of?
John Holland - Butler Manufacturing - Chairman, CEO
Well I think if you listen to their web cast Sunday our time, Monday their time,
as Kirby Adams, their CEO, said, obviously there's not a huge amount of overlap
between the two businesses. But until they're in control, he said - I think he
used the term "presumptuous" - of them to really get too involved in what
changes they might want to make. So that's the best answer I can give you at
this point. We don't know.
John Braatz - Kansas City Capital
OK, thank you.
Operator
Thank you. As a reminder, ladies and gentlemen, if you wish to ask a question at
this time, please press star followed by one on your pushbutton telephones. The
next question comes again from Ian Lapey. Please state your question.
Ian Lapey - Third Avenue Management
Hi, a couple of other quick ones. It doesn't say specifically in the release, I
assume this is a cash - the 22.50 - is in cash, right?
John Holland - Butler Manufacturing - Chairman, CEO
Yes, I'm sorry, Ian, I should have said that. It is an all-cash merger at $22.50
a share.
Ian Lapey - Third Avenue Management
OK and what was the impact from the Lester Division in the quarter? I guess how
much in losses did that contribute and have you seen any pickup there at all?
John Holland - Butler Manufacturing - Chairman, CEO
Yeah what I would tell you is just Lester has clearly shown improvement, as we
got through their restructuring. And they've got nice momentum. Their backlog,
as they enter '04, is up substantially. And obviously the restructuring and the
work we've done over the last 18 months to two years in that business really has
put it on a sound basis. So it was not a negative in the fourth quarter at all.
In fact, it was a positive compared to the fourth quarter of '02. Still a
relatively small business and the strategic fit obviously in our view is still
not - it's still not a strategic fit for the company in terms of the business
it's in. All its competitors are small regional private companies, with the
exception of Morton. And even Morton is private but much larger than the other
competitors in the wood frame building business.
Ian Lapey - Third Avenue Management
OK and last thing, in terms of the Louisiana Pacific, has there been any update
in terms of when you would expect to receive that award from them and would the
merger have any impact on that?
John Holland - Butler Manufacturing - Chairman, CEO
Well first, obviously as you know, both - the award was bifurcated. Part when to
the Federal Ninth District in San Francisco and part is at the appellate level
in the state of Minnesota. As far as the state of Minnesota, we expect a ruling
by the appellate court in February. And obviously we would - our attorneys view
that we would expect a favorable ruling, or at least we would hope so. For
[unintelligible] sake, I'd say it's split about 20 million at the state level
and 10 at the federal level. And so whether we prevail or not, we expect to
prevail. It's likely that that might be appealed onto the state Supreme Court.
So the uncertainty of when that might be received or if that might be received,
while it was a consideration our Board made in terms of evaluating the merger
transaction, it's still highly uncertain. And even if we prevailed on all counts
and received both the federal and state funds immediately,
as you know, that 30 million simply would not address the 90 million that is now
current and due to our senior notes and the funding of our letters of credit.
The cash would help. Clearly it would also enable us to utilize those deferred
tax assets very quickly as well. But it's uncertain. We expect something at the
state level yet this month. The federal level, later this year would be our hope
but there's no real guarantee as to when they might rule out the Ninth Circuit.
Ian Lapey - Third Avenue Management
OK, great. Thank you.
John Holland - Butler Manufacturing - Chairman, CEO
You're welcome.
Operator
Thank you. As a final reminder, ladies and gentlemen, if you wish to ask a
question at this time, please press star, one on your pushbutton telephones.
Gentlemen, I am showing there are no further questions in queue at this time.
John Holland - Butler Manufacturing - Chairman, CEO
Very good. Well thank you. For those of you who are able to join our call, I
know it was a little bit of a challenge following a holiday but obviously the
importance of getting the announcement out and working with the folks in
Australia and the time difference is a challenge. But nonetheless, I know there
will be follow-up questions for Larry that he might be able to answer on the
financial results. And as we indicated, until the proxy is out for all parties
to review - and it will contain the details of the process and the merger
agreement - we really will not be able to comment on specific questions you
might have about the transaction.
Thank you all for joining the call today.
Operator
Ladies and gentlemen, if you wish to access the replay for this call, you may do
so by dialing 1-800-428-6051 or 973-709-2089 with an ID number of 338730. This
concludes our conference for today. Thank you all for participating and have a
nice day. All parties may now disconnect.
END
* * * * * * * *
In connection with Butler and BlueScope Steel Limited, an Australian corporation
("BlueScope"), entering into an Agreement and Plan of Merger, dated as of
February 15, 2004, pursuant to which BSL Acquisition Corporation, a wholly-owned
subsidiary of BlueScope, will merge with and into Butler (the "Merger"), and
Butler will become a wholly-owned subsidiary of BlueScope, Butler will be filing
a proxy statement and other relevant documents concerning the transaction with
the SEC. The proxy statement will be mailed to the stockholders of Butler.
BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE MERGER,
STOCKHOLDERS OF BUTLER ARE URGED TO READ THE PROXY STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER. Investors and security
holders can obtain free copies of the proxy statement and other documents when
they become available by contacting Shareholder Relations, Butler Manufacturing
Company, 1540 Genessee, Kansas City Missouri 64102 P.O. Box 419917 (Telephone:
(816) 968-3000). In addition, documents filed with the SEC by Butler will be
available free of charge at the SEC's web site at www.sec.gov. You may also read
and copy any reports, statements and other information filed by Butler at the
SEC public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 or
at the SEC's other public reference rooms. Please call the SEC at 1-800-SEC-0330
for further information on public reference rooms.
Butler and BlueScope and their respective executive officers and directors may
be deemed to be participants in the solicitation of proxies from the Butler
stockholders in favor of the Merger. Certain executive officers and directors of
Butler have interests in the merger, including, among others, change of control
payments, acceleration of and/or vesting of restricted stock, deferred
compensation and fees and stock options and their ownership of Butler's common
stock, and their interests will be described in the proxy statement when it
becomes available.
FORWARD-LOOKING STATEMENTS
Statements in this document concerning Butler's business outlook or future
economic performance; anticipated profitability, revenues, expenses or other
financial items, together with other statements that are not historical facts,
are "forward-looking statements" as that term is defined under the Federal
Securities Laws. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
stated in such statements. Such risks and uncertainties include, but are not
limited to, industry cyclicality, fluctuations in customer demand and order
pattern, the seasonal nature of the business, changes in pricing or other
actions by competitors, and general economic conditions, as well as other risks
detailed in Butler's 2002 Annual Report to Shareholders on page 16.