UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(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, 1996
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 3,375,000 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.
1
SHEFFIELD STEEL CORPORATION
FORM 10-Q
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
July 31, 1996 and April 30, 1996 3
Consolidated Condensed Statements of Operations
for the three months ended July 31, 1996
and July 31, 1995 4
Consolidated Condensed Statements of Cash Flows
for the three months ended July 31, 1996 and
July 31, 1995 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit Index 13
2
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
July 31,
1996 April 30,
ASSETS Unaudited 1996
--------- ----
Current assets:
Cash and equivalents $ 18 46
Accounts receivable, less allowance
for doubtful accounts
of $733 and $658 at July 31, 1996
and April 30, 1996,
respectively 18,872 21,607
Inventories 42,780 40,321
Other current assets 3,610 3,630
-------- -------
Total current assets 65,280 65,604
Property, plant and equipment, net 67,539 68,461
Intangible assets, net 3,678 3,818
Other assets 3,545 3,509
Deferred income tax asset, net 1,942 1,790
-------- -------
Total assets $141,984 143,182
======== =======
LIABILITIES AND STOCKHOLDERS'EQUITY
Current liabilities:
Current portion of long-term debt 706 717
Accounts payable 18,228 20,495
Accrued interest payable 2,250 4,500
Accrued liabilities 5,756 6,328
-------- -------
Total current liabilities 26,940 32,040
Long-term debt, excluding current
portion,
less unamortized discount of $1,804
and $1,840
at July 31, 1996 and April 30, 100,572 96,324
1996, respectively
Other liabilities 8,986 8,433
-------- -------
Total liabilities 136,498 136,797
-------- -------
Stockholders' equity:
Common stock 34 34
Additional paid-in capital 3,591 3,591
Retained earnings 3,156 4,037
-------- -------
Total stockholders' equity 6,781 7,662
Less loans to stockholders 1,295 1,277
-------- -------
5,486 6,385
-------- -------
Total liabilities and
stockholders' equity $141,984 143,182
======== =======
See accompanying notes to consolidated condensed financial statements.
3
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Three Months Ended
July 31,
--------------------
1996 1995
---- ----
Sales $ 45,203 47,614
Cost of sales 37,547 39,492
---------- ---------
Gross profit 7,656 8,122
Selling, general and administrative
expense 3,227 3,020
Depreciation and amortization expense 1,696 1,685
Postretirement benefit expense 701 825
---------- ---------
Operating income 2,032 2,592
Interest expense 2,913 2,801
---------- ---------
Loss from operations before
income tax benefit (881) (209)
Income tax benefit - 82
---------- ---------
Net loss $ (881) (127)
========== =========
Net loss per common share $(.261) (.038)
========== =========
Dividends per common share $ 346
========== =========
Common shares outstanding 3,375,000 3,375,000
========== =========
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,
-------------------
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (881) (127)
Depreciation and amortization 1,732 1,685
Accrual of postretirement benefits
other than pensions, net of cash paid 501 744
Changes in assets and liabilities (4,523) (1,104)
------- ------
Net cash (used in) provided by
operations (3,171) 1,198
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Cash flows from investing activities -
Capital expenditures (634) (1,252)
------- ------
Cash flows from financing activities:
Net increase in long-term debt 4,201 1,796
Repurchase of Bond Warrants - (94)
Payments in respect of stock (424) (482)
appreciation rights
Dividends paid - (1,166)
------- ------
Net cash provided by financing
activities 3,777 54
------- ------
Net increase (decrease) in cash (28) -
Cash at beginning of period 46 26
------- ------
Cash at end of period $ 18 26
======= ======
Supplemental disclosure of cash flow
information
Cash paid during the period for:
Interest $ 5,127 5,051
======= ======
Income taxes $ 94
======= ======
See accompanying notes to consolidated condensed financial statements.
5
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 31, 1996 AND JULY 31, 1995
(UNAUDITED)
1) BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements of Sheffield Steel Corporation (the
Company) 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,
Sheffield Steel Corporation-Oklahoma City (Oklahoma City), and Sand Springs
Railway Company (the Railway). HMK Enterprises, Inc. (HMK) owns
approximately 95% of the currently issued and outstanding common stock. All
material intercompany transactions and balances have been eliminated in
consolidation. The Company's primary business is the production of concrete
reinforcing bar, merchant and special bar quality steel products, specialty
steel products, and fence posts. The Company's products are sold throughout
the continental United States .
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in
conjunction with the financial statements contained in the Company's Form
10-K, for the year ended April 30, 1996. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
quarter ended July 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending April 30, 1997.
2) NET LOSS PER SHARE OF COMMON STOCK
Loss per share of common stock is computed by dividing net loss applicable
to common stock by the weighted average number of common shares and
dilutive common stock equivalents outstanding each period. All options and
warrants were excluded from per-share computations since their effect on
loss per common share was anti-dilutive.
3) LONG-TERM DEBT
On July 31, 1996, the Railway amended its credit agreement with a bank. The
amendment divides the Railway's revolving credit agreement into two notes;
a $2 million term loan with $0.5 million principal payments each year with
the final payment on July 31, 2000, and a $1.5 million line of credit
maturing July 31, 1998. Substantially all of the other terms of the
original agreement remain in effect.
6
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
4) INVENTORIES
The components of inventories are as follows:
July 31,
1996 April 30,
Unaudited 1996
--------- ---------
Raw materials and storeroom
supplies $11,251 10,823
Work in process 20,051 15,640
Finished goods 11,478 13,858
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$42,780 40,321
======= ======
7
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
SALES. Sales for the Company for the three-month period ended July 31,
1996 were approximately $45.2 million as compared to sales of approximately
$47.6 million for the three-month period ended July 31, 1995, a decrease of
approximately $2.4 million or 5%. Shipments of product for the three months
ended July 31, 1996 decreased to 132,390 tons from 134,458 tons for the three
months ended July 31, 1995. The decrease in sales for the comparable three
months was primarily attributable to decreased shipments and decreased price
per ton of semi-finished steel (billets) as a result of weak market demand.
Shipments of rebar for the three months ended July 31, 1996 increased
as compared to the three months ended July 31, 1995 due to increased market
demand and increased production of rebar products. Shipments of MBQ Products
from Sand Springs also increased during the period due to increased rolling of
MBQ products, however, shipments from the Joliet Facility decreased due to
weaker market demand. Shipments of fabricated products for the three months
ended July 31, 1996 decreased slightly due primarily to decreased operating
hours at the Sand Springs fence post shop.
COST OF SALES. The cost of sales for the three months ended July 31,
1996 were approximately $37.5 million as compared to approximately $39.5
million for the three months ended July 31, 1995. Cost of sales decreased as
compared to the same quarter in prior year due to lower shipment volume. On an
average per-ton basis, cost of sales decreased from $294 per ton for the three
months ended July 31, 1995 to $284 per ton for the three months ended July 31,
1996 primarily due to improved mill performance.
GROSS PROFIT. Gross profit for the Company for the three months ended
July 31, 1996 was approximately $7.7 million as compared to a gross profit of
approximately $8.1 million for the three months ended July 31, 1995, a decrease
of approximately $0.4 million or 5%. Gross profit for the Company as a
percentage of sales for the three months ended July 31, 1996 was 16.9% as
compared to 17.1% for the three months ended July 31, 1995. The decrease is a
result of lower average selling prices due primarily to product mix and a
reduction in the differential between selling price and raw material costs.
8
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the Company for the three months ended July 31, 1996
was approximately $3.2 million as compared to approximately $3.0 million for
the three months ended July 31, 1995, an increase of approximately $.2 million
or 6.9%. The primary reason for the increase is additional selling
expenditures related to the expanded MBQ product line at Sand Springs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
approximately the same for the three months ended July 31, 1996, as compared to
the three months ended July 31, 1995.
OPERATING INCOME. Operating income for the Company for the three months
ended July 31, 1996 was approximately $2.0 as compared to approximately $2.6
million for the three months ended July 31, 1995, a decrease of approximately
$0.6 million or 21.6%. Operating income for the Company as a percentage of
sales for the three months ended July 31, 1996 was 4.5% as compared to 5.4% for
the three months ended July 31, 1995. This decrease was primarily due to the
decreased gross profit and additional selling expenditures as discussed above.
INTEREST EXPENSE. Interest expense for the Company for the three months
ended July 31, 1996 was approximately $2.9 million as compared to approximately
$2.8 million for the three months ended July 31, 1995. This increase was due
to increased borrowings under the Company's revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1996, the Company's long-term indebtedness was
approximately $100.6 million, excluding current portion, after giving effect to
an unamortized discount attributable to detachable stock warrants of
approximately $1.8 million. The Company had approximately $13.5 million of
borrowing availability at July 31, 1996 under its revolving credit agreements.
Cash flow used in operations was approximately $3.2 million for the three
month period ended July 31, 1996, as compared with cash flow provided by
operating activities of approximately $1.2 million for the three month period
ended July 31, 1995. Cash used in operating activities included approximately
$4.5 million for interest payments on the First Mortgage Notes. Cash used in
investing activities in the three months ended July 31, 1996 was approximately
$0.6 million, consisting principally of required replacement of plant
equipment. For the three month period ended July 31, 1996, cash used for
financing activities consisted of contractual payments to retired executives of
the Company in respect of their stock appreciation rights. An increase in
long-term debt of $4.2 million provided the cash for this and operating
activities as noted above.
The Company's cash flow from operating activities and borrowing under the
Revolving Credit Facility and Railway Credit Facility are expected to be
sufficient to fund the budget for capital improvements, and meet near-term
working capital requirements.
9
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
On a longer term basis, the Company has significant future debt service
obligations. The Company's ability to satisfy these obligations is dependent
on its ability to generate adequate operating cash flow. The Company expects
that its cash flow from operations and available borrowing will be sufficient
to fund the repayment of the long term debt and other investing activities.
The Company's future operating results are dependent on its overall operating
performance and are subject to general business, financial and other factors
affecting the Company and the domestic steel industry, as well as prevailing
economic conditions, certain of which are beyond the control of the Company.
CAPITAL EXPENDITURES
Capital expenditures for the three month period ended July 31, 1996 were
approximately $0.6 million, consisting primarily of normal capital projects
throughout the Company. The Company's cash flow from operating activities, and
borrowing under revolving credit facility are expected to be sufficient to meet
any near-term working capital requirements the Company may have and to fund
anticipated capital improvements.
10
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any significant pending legal proceedings
other than litigation incidental to its business which the Company believes
will not materially affect its financial position, results of operations or
liquidity. Such claims against the Company are ordinarily covered by
insurance. There can be no assurance, however, that insurance will be
available in the future at reasonable rates.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See Exhibit Index
A. Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended July 31, 1996.
11
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 to be signed on its behalf
by the undersigned thereunto duly authorized.
SHEFFIELD STEEL CORPORATION
Date: Sept. 13, 1996 /s/ Robert W. Ackerman
---------------------------------
Robert W. Ackerman, President
and Chief Executive Officer
Date: Sept. 13, 1996 /s/ Stephen R. Johnson
-----------------------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
12
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
10.29 Second Amendment to Real Estate Mortgage
and Security Agreement, dated July 31, 1996
between Sand Springs Railway Company and
Bank of Oklahoma, N.A. 14
10.30 Third Amendment to Real Estate Mortgage
and Security Agreement, dated July 31,
1996 between Sand Springs Railway
Company and Bank of Oklahoma, N.A. 19
10.31 Fourth Amendment to Restated Credit
Agreement, date July 31, 1996 between
Sand Springs Railway Company and Bank of
Oklahoma, N.A. 24
10.32 Promissory Note, date July 31, 1996,
executed by Sand Springs Railway Company
in the amount of $1.5 million in favor
of Bank of Oklahoma, N.A. 31
10.33 Promissory Note, date July 31, 1996,
executed by Sand Springs Railway Company
in the amount of $2 million in favor of
Bank of Oklahoma, N.A. 34
10.34 Real Time Pricing Program Agreement
dated June 1, 1996 between Sheffield
Steel Corporation and Public Service 37
13