UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(Amendment No. 1)
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO __________
COMMISSION FILE NUMBER: 33-67532
SHEFFIELD STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 74-2191557
(State or other (I.R.S. Employer
jurisdiction of incorporation) identification No.)
220 NORTH JEFFERSON STREET
SAND SPRINGS, OK 74063
(Address of principal executive offices)
(918) 245-1335
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
At the date of this filing, there were 3,527,688 shares of the Registrant's
$.01 par value Common Stock outstanding. The aggregate market value of voting
stock held by nonaffiliates is unknown as the Registrant's stock is not traded
on an established public trading market.
Explanatory Note
This Amendment is being filed solely to correct a typographical error on
the Consolidated Condensed Statements of Operations and the first page of
Management's Discussion and Analysis of Financial Condition and Results of
Operations. The error was a misstatement of the gross profit line item. Our
original filing had $9,052 and it should have been $9,552. The change did not
impact any other reported financial results.
SHEFFIELD STEEL CORPORATION
FORM 10-Q/A
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
July 31, 2000 and April 30, 2000 3
Consolidated Condensed Statements of Operations -
Three months ended July 31, 2000 and 1999 4
Consolidated Condensed Statements of Cash Flows -
Three months ended July 31, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
2
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
July 31,
2000 April 30,
ASSETS Unaudited 2000
------ -------------- --------
Current assets:
Cash and cash equivalents $ 80 $ 79
Accounts receivable, less allowance for doubtful accounts of $568
at July 31, 2000 and $541 at April 30, 2000 22,078 25,320
Inventories 49,163 49,333
Other current assets 4,362 4,727
-------- --------
Total current assets 75,683 79,459
Property, plant and equipment, net 65,946 66,245
Intangible assets, net 9,094 9,346
Other assets 3,253 3,560
Deferred income tax asset, net 1,843 1,843
-------- --------
$155,819 160,453
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,607 $ 2,607
Accounts payable 13,594 20,722
Accrued interest payable 2,291 5,385
Accrued liabilities 6,873 6,701
-------- --------
Total current liabilities 25,365 35,415
Long-term debt, excluding current portion 138,671 130,135
Accrued post-retirement benefit costs 13,770 13,374
Other liabilities 1,171 742
-------- --------
Total liabilities 178,977 179,666
-------- --------
Stockholders' deficit:
Common stock 36 35
Additional paid-in capital - -
Accumulated deficit (20,951) (18,141)
-------- --------
(20,915) (18,106)
Less loans to stockholders 2,243 1,107
-------- --------
Total stockholders' deficit (23,158) (19,213)
-------- --------
$155,819 $160,453
======== ========
See accompanying notes to consolidated condensed financial statements.
3
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
July 31,
-------------------------------
2000 1999
------- -------
Sales $45,775 $42,939
Cost of sales 36,223 31,821
------- -------
Gross profit 9,552 11,118
Selling, general and administrative expense 3,688 4,098
Depreciation and amortization expense 2,104 2,084
Postretirement benefit expense other than pensions 646 646
Litigation settlement - (2,326)
------- -------
Operating income 3,114 6,616
Other expense:
Interest expense, net 4,113 3,698
Other - 133
------- -------
4,113 3,831
------- -------
Income (loss) from operations before
income taxes (999) 2,785
Income tax expense - -
------- -------
Net income (loss) $ (999) $ 2,785
======= =======
See accompanying notes to consolidated condensed financial statements.
4
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three Months Ended
July 31,
--------------------------------------
2000 1999
------ -------
Cash flows from operating activities:
Net income (loss) $ (999) $ 2,785
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 2,185 2,163
Loss on sale of assets held for sale - 118
Accrual of postretirement benefits other than pensions,
net of cash paid 396 395
Changes in assets and liabilities (5,537) (8,890)
------- -------
Net cash used in operating activities (3,955) (3,429)
------- -------
Cash flows from investing activities:
Capital expenditures (1,646) (1,797)
Proceeds from sale assets held for sale - 182
------- -------
Net cash used in investing activities (1,646) (1,615)
------- -------
Cash flows from financing activities:
Net increase in long-term debt 8,536 5,253
Other (2,934) -
------- -------
Net cash provided by financing activities 5,602 5,253
------- -------
Net increase in cash 1 209
Cash and cash equivalents at beginning of period 79 86
------- -------
Cash and cash equivalents at end of period $ 80 $ 295
======= =======
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the period for interest $ 7,126 $ 6,743
======= =======
Cash paid during the period for income taxes $ - $ 30
======= =======
Noncash item:
Increase in loans to stockholders $ 1,123 $ -
======= =======
See accompanying notes to consolidated condensed financial statements.
5
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
(IN THOUSANDS)
(UNAUDITED)
1) BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements of Sheffield Steel Corporation (the
Company, which may be referred to as we, us or our) include the accounts of its
divisions, Sheffield Steel-Sand Springs (Sand Springs), Sheffield Steel-Kansas
City (Kansas City), and Sheffield Steel-Joliet (Joliet) and its wholly owned
subsidiaries, Waddell's Rebar Fabricators, Inc. (Waddell), Wellington
Industries, Inc. (Wellington) and Sand Springs Railway Company (the Railway).
HMK Enterprises, Inc. (HMK) owns approximately 91% of our currently issued and
outstanding common stock. All material intercompany transactions and balances
have been eliminated in consolidation. Our primary business is the production
of concrete reinforcing bar, fence posts, and a range of hot rolled bar products
including rounds, flats and squares. Our products are sold throughout the
continental United States. We operate in a single operating segment providing
steel products and services to the steel manufacturing and fabricating industry.
These condensed consolidated interim financial statements have been prepared by
us without audit, according to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments that we believe were necessary
for a fair statement of the results for the interim periods. All adjustments
made were normal recurring accruals. We suggest that these interim financial
statements are read in conjunction with the financial statements and notes
contained in our Form 10-K for the year ended April 30, 2000. Operating results
for the three months ended July 31, 2000 are not necessarily indicative of the
results that we expect for the year ending April 30, 2001.
2) INVENTORIES
The components of inventories are as follows:
July 31,
2000 April 30,
(Unaudited) 2000
----------- ----
Raw materials and storeroom supplies $11,136 $11,419
Work in process 16,899 16,357
Finished goods 21,128 21,557
------- -------
$49,163 $49,333
======= =======
6
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
3) LONG-TERM DEBT
Long-term debt is comprised of the following:
- ---------------------------------------------
July 31,
2000 April 30,
(Unaudited) 2000
------------- ---------
First mortgage notes $110,000 $110,000
Revolving credit agreement 24,189 15,380
Railway term loan 2,000 2,000
Railway revolving credit agreement 148 92
Equipment notes 3,340 3,543
Notes payable 1,601 1,727
-------- --------
141,278 132,742
Less current portion 2,607 2,607
-------- --------
$138,671 $130,135
======== ========
On April 29, 2000, we amended our revolving credit agreement. The amendment
eliminates certain covenants if we maintain availability of above $10,000 and in
the event that availability falls below $10,000, it limits capital expenditures
and acquisitions and increases our interest rate 0.5%. The amendment also
extends the agreement until July 31, 2003.
4) LITIGATION SETTLEMENT
We were party to a lawsuit with several other steel manufacturers against
certain manufacturers of graphite electrodes related to price fixing within the
electrode industry. We recognized approximately $2,326 in the first quarter of
fiscal 2000 related to settlements reached with certain of the defendents.
7
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion should be read in conjunction with our consolidated
condensed financial statements and notes included in this Form 10-Q.
Results of Operations
The results of operations are dependent on the level of construction,
infrastructure spending, oil and gas, agribusiness, and general economic
activity in the U.S. Our sales are seasonal with the third fiscal quarter
generally being weaker than the rest of the year. The major cost components of
our products are steel scrap and other raw materials, energy, labor, warehousing
and handling, and freight costs.
The following table provides information regarding the historical results of
operations (in thousands):
THREE MONTHS ENDED JULY 31,
---------------------------------------------------------------------
2000 1999
------- ------
Operating Results: Net Sales % of Sales Net Sales % of Sales
---------------- -------------- -------------- -------------
Sales $45,775 100.0% $42,939 100.0%
Cost of sales 36,223 79.1% 31,821 74.1%
------- -------
Gross Profit 9,552 20.9% 11,118 25.9%
Selling and administrative 3,688 8.1% 4,098 9.5%
Depreciation and amortization 2,104 4.6% 2,084 4.9%
Postretirement benefit expense 646 1.4% 646 1.5%
Litigation settlement - - (2,326) (5.4%)
------- -------
Operating income 3,114 6.8% 6,616 15.4%
Interest expense, net 4,113 9.0% 3,698 8.6%
Other - 0.0% 133 0.3%
------- ------
Income (loss) from
operations before income (999) (2.2%) 2,785 6.5%
taxes
Income tax benefit - - - -
------- -------
Net income (loss) $ (999) (2.2%) $ 2,785 6.5%
======= =======
8
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
The following table provides information regarding the historical shipment
levels and average selling prices per ton:
Three Months Ended July 31,
----------------------------------------
2000 1999
-------- --------
Tons shipped:
Hot Rolled Bars 45,078 38,452
Rebar 48,387 50,898
Fabricated Products 18,941 17,573
-------- --------
Total finished products 112,406 106,923
Billets 12,093 8,393
-------- --------
Total tons shipped 124,499 115,316
======== ========
Average price per ton shipped $368 $372
Average production cost per ton $290 $276
THREE MONTHS ENDED JULY 31, 2000 AS COMPARED TO THREE MONTHS ENDED JULY 31, 1999
SALES. Sales for the first quarter of fiscal 2001 were $45.8 million.
Shipments increased in comparison to the same quarter in the prior year, while
pricing generally decreased as summarized below:
. In comparison to the first quarter of fiscal 2000, shipments of our hot
rolled bar products out of Sand Springs increased 70%. The Sand Springs
Rolling Mill's productivity rates increased over the prior year contributing
to increased sales volume. Joliet shipments decreased 5% due to market
conditions in the agricultural equipment industry. Pricing of hot rolled bar
products decreased approximately 3% due primarily to product mix.
. Rebar shipments decreased approximately 5% due to weather in our region which
postponed sales during the quarter. Rebar demand continues to be strong,
however pricing on twenty-foot and no-grade rebar is down slightly in
comparison to the prior year due to the continued impact of imports.
. Billet shipments increased due to favorable market conditions affecting our
primary billet customers.
. Steel scrap raw material costs have increased in comparison to the first
quarter of fiscal 2000 affecting cost of sales and billet pricing.
COST OF SALES AND EXPENSES. Average product costs increased to $290 in the
first quarter of fiscal 2001 from $276 in the first quarter of fiscal 2000 due
to increases in steel scrap raw material costs and higher costs associated with
finished goods product mix. Although not material in the first quarter, due to
natural gas costs increasing, we expect our gas and electric utility costs to
increase approximately $0.3 million per month for the foreseeable future. Lower
scrap steel costs should partially offset this added expense.
9
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Selling, general and administrative expenses decreased approximately $0.4
million over the first quarter of fiscal 2000, due to recruiting and severance
costs incurred in fiscal 2000.
During fiscal 1999, we were parties in a lawsuit with several other steel
manufacturers against certain graphite electrodes manufacturers related to price
fixing within the electrode industry. In the first quarter of fiscal 2000, we
recorded settlements of $2.3 million from different defendants.
Interest expense increased in comparison to the first fiscal quarter of the
prior year due to higher interest rates and the level of outstanding debt during
the quarter. In the past year, additions to debt were due to working capital
requirements, capital expenditures, and purchases of common stock.
Adding to the Sand Springs and Joliet certifications, during July 2000,
Wellington received ISO 9002 quality certification.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2000, we had long-term indebtedness of $141.3 million and
approximately $19.8 million of additional borrowing availability under our
revolving credit agreements. We continue to comply with all of our loan
agreements. Borrowings under our revolving credit agreements bear interest at a
floating rate. To the extent that interest rates increase, and to the extent
that amounts outstanding under the revolving credit agreements increase, there
will be corresponding increases in our interest obligations. In addition to
borrowings under the revolving credit agreements, we have historically used cash
flow from operations and equipment financing agreements to fund our investing
activities, including capital expenditures.
Cash flow used by operating activities was approximately $4.0 million for the
three month period ended July 31, 2000, as compared with cash flow used in
operating activities of approximately $3.4 million for the three month period
ended July 31, 1999. Cash used in operating activities was due to a decrease in
accounts payable partially offset by decreases in accounts receivable. In
addition, operating performance was unfavorable compared to the first quarter of
fiscal 2000 due to lower gross profit in the first quarter of fiscal 2001 and
$2.3 million of income related to the litigation settlement in fiscal 2000. Cash
used in investing activities in the three months ended July 31, 2000 was
approximately $1.6 million, consisting of capital expenditures to sustain or
improve existing operations, including improvements to the melt shop casting
machine in Sand Springs and preliminary engineering for a ladle arc furnace. For
the three month period ended July 31, 2000, cash provided by financing
activities consisted primarily of draws on the Revolving Credit Facility to fund
decreases in accounts payable and payments to repurchase common stock.
Earnings before interest and taxes (EBIT) ($3.1 million), depreciation and
amortization ($2.1 million), and the non-cash portion of the post-retirement
expense ($0.4 million) (EBITDA) was approximately $5.6 million for the quarter
ended July 31, 2000, compared to approximately $6.8 million for the same quarter
in the prior year, excluding the electrode settlement. We believe that EBITDA
is a valuable measure of our operating cash flow and we consider it an indicator
of our ability to meet interest payments and fund capital expenditures. EBITDA
does not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles and EBITDA does not necessarily indicate whether cash flow will be
sufficient for cash requirements.
10
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Our cash flow from operating activities and borrowings under our revolving
credit facilities are expected to be sufficient to fund capital improvements and
meet any near-term working capital requirements. We estimate that our annual
level of necessary maintenance capital expenditures are approximately $3
million. On a long-term basis, we have significant future debt service
obligations. Our ability to satisfy these obligations and to secure adequate
capital resources in the future will be dependent on our ability to generate
adequate operating cash flow. We expect that our cash flow from operations,
borrowing availability under the revolving credit facilities, and potential
refinancing of our First Mortgage Notes will be sufficient to fund the First
Mortgage Notes and other investing activities. This will be dependent on our
overall operating performance and is subject to general business, financial and
other factors affecting us and others in the domestic steel industry, as well as
prevailing economic conditions, certain of which are beyond our control. The
leveraged position we are in and the restrictive covenants we have in our bond
Indenture and the revolving credit facilities could significantly limit our
ability to withstand competitive pressures or adverse economic conditions.
NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION: AN INTERPRETATION OF APB OPINION NO.
25. Among other issues, Interpretation No. 44 clarifies the application of
Accounting Principles Board Opinion No. 25 (APB No. 25) regarding (a) the
definition of employee for purposes of applying APB No. 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
options in a business combination. The provisions of Interpretation No. 44
affecting us have been applied on a prospective basis effective July1, 2000.
There was no impact from the adoption of this interpretation in the quarter
ended July 31, 2000.
SEC Staff Accounting Bulletin No. 101, Revenue Recognition and Staff
Accounting Bulletin No. 101A. This guidance adds new Topic 13, Revenue
Recognition, to the SEC Codification of Staff Accounting Bulletins. We
understand that the SEC staff is preparing a document to address significant
implementation issues related to SAB 101. To the extent that SAB 101 ultimately
changes revenue recognition practices, we will adopt SAB 101 no later than the
fourth quarter of fiscal 2001 through a cumulative effect adjustment. We do not
anticipate that the adoption of this Bulletin will have a material impact on our
financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings are affected by changes in interest rates (primarily the prime
rate). At July 31, 2000, we had approximately $31.3 million of long-term debt
with variable rates. Therefore, we may have changes in interest expense due to
fluctuations of interest rates in the markets. Interest risk can be estimated
by measuring the impact of a 10% increase in interest rates. We would incur an
additional $280 thousand of interest expense per year on our variable rate
borrowing if our debt levels remained
11
approximately the same as at July 31, 2000. Because we experience changes in our
debt levels due to operating requirements or changes in the general economic
environment that we are unable to predict, this estimate assumes no changes in
our financial structure. The fair value of our First Mortgage Notes at July 31,
2000, based on the currently offered market price was $73.7 million versus a
carrying value of approximately $110 million.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any significant pending legal proceedings other than
litigation incidental to our business that we believe will not materially affect
our financial position or results of operations. Such claims against us are
ordinarily covered by insurance. We can give no assurance, however, that
insurance will be available in the future at reasonable rates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLERS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See exhibit index.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended July 31, 2000.
12
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q/A to be signed on its
behalf by the undersigned thereunto duly authorized.
SHEFFIELD STEEL CORPORATION
Date: September 22, 2000 /s/ James P. Nolan
--------------------- -------------------
James P. Nolan, President
and Chief Operating Officer
Date: September 22, 2000 /s/ Stephen R. Johnson
--------------------- -----------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
13
EXHIBIT INDEX
Exhibit No. Description Page No.
- ------------- ----------- --------
4.22 Tenth Amendment to Receivable and Inventory
Financing Agreement, dated April 29, 2000
between Sheffield Steel Corporation and Bank
of America, N.A. 15
14