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, 1997
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 3,324,125 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.
SHEFFIELD STEEL CORPORATION
FORM 10-Q
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
July 31, 1997 and April 30, 1997 3
Consolidated Condensed Statements of Operations
for the three months ended July 31, 1997
and July 31, 1996 4
Consolidated Condensed Statements of Cash Flows
for the three months ended July 31, 1997 and
July 31, 1996 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
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
Exhibit Index 14
2
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
July 31,
1997 April 30,
ASSETS Unaudited 1997
------ -------------- --------------
Current assets:
Cash and equivalents $ 18 15
Accounts receivable, less allowance for doubtful accounts
of $733 and $658 at July 31, 1997 and April 30, 1997,
respectively 19,740 20,856
Inventories 35,964 37,112
Other current assets 3,740 4,141
-------- -------
Total current assets 59,462 62,124
Property, plant and equipment, net 65,251 65,885
Intangible assets, net 3,200 3,314
Other assets 3,450 3,434
Deferred income tax asset, net 2,038 1,817
-------- -------
Total assets $133,401 136,574
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 696 936
Accounts payable 15,861 16,475
Accrued interest payable 2,250 4,500
Accrued liabilities 6,303 5,650
-------- -------
Total current liabilities 25,110 27,561
Long-term debt, excluding current portion,
less unamortized discount of $1,647 and $1,696
at July 31, 1997 and April 30, 1997, respectively 93,794 95,614
Other liabilities 11,597 11,243
-------- -------
Total liabilities 130,501 134,418
-------- -------
Stockholders' equity:
Common stock 34 34
Additional paid-in capital 2,536 2,536
Retained earnings 1,284 528
-------- -------
Total stockholders' equity 3,854 3,098
Less loans to stockholders 954 942
-------- -------
2,900 2,156
-------- -------
Total liabilities and stockholders' equity $133,401 136,574
======== =======
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,
----------------------------
1997 1996
---------- ---------
Sales $ 47,717 45,203
Cost of sales 38,309 37,547
---------- ---------
Gross profit 9,408 7,656
Selling, general and administrative expense 3,297 3,227
Depreciation and amortization expense 1,711 1,696
Postretirement benefit expense 688 701
---------- ---------
Operating income 3,712 2,032
Interest expense 2,957 2,913
---------- ---------
Net income (loss) $ 755 (881)
========== =========
Net income (loss) per common and common
equivalent share $ .220 (.261)
========== =========
Common and common equivalent shares outstanding 3,435,767 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,
------------------------
1997 1996
------- ------
Cash flows from operating activities:
Net income (loss) $ 755 (881)
Depreciation and amortization 1,760 1,732
Accrual of postretirement benefits other than pensions,
net of cash paid 438 501
Changes in assets and liabilities (118) (4,523)
------- ------
Net cash provided by (used in) operations 2,835 (3,171)
------- ------
Cash flows from investing activities -
Capital expenditures (963) (634)
------- ------
Cash flows from financing activities:
Net (decrease) increase in long-term debt (1,869) 4,201
Payments in respect of stock appreciation rights - (424)
------- ------
Net cash (used in) provided by financing activities (1,869) 3,777
------- ------
Net increase (decrease) in cash 3 (28)
Cash at beginning of period 15 46
------- ------
Cash at end of period $ 18 18
======= ======
Supplemental disclosure of cash flow information
------------------------------------------------
Cash paid during the period for interest $ 5,207 5,127
======= ======
See accompanying notes to consolidated condensed financial statements.
5
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
July 31, 1997 and July 31, 1996
(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, fence posts, and a range of hot rolled bar products
including rounds, flats and squares. The Company's products are sold
throughout the continental United States.
The accompanying unaudited condensed 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, 1997. 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, 1997 are not necessarily indicative of the results
that may be expected for the year ending April 30, 1998.
2) NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Income (loss) per share of common stock is computed by dividing net income
(loss) applicable to common stock by the weighted average number of common
shares and dilutive common stock equivalents outstanding each period.
Outstanding stock purchase warrants and stock options are common stock
equivalents but were excluded from per-share computations in fiscal 1997
since their effect on loss per common share was anti-dilutive.
3) LONG-TERM DEBT
On July 31, 1997, the Railway amended its credit agreement with a bank. The
amendment extends the Railway's revolving credit agreement to July 31,
1999. 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,
1997 April 30,
Unaudited 1997
----------- ---------
Raw materials and storeroom supplies $11,667 10,924
Work in process 12,450 10,978
Finished goods 11,847 15,210
------- ------
$35,964 37,112
======= ======
7
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
he following discussion should be read in conjunction with the
Consolidated Condensed Financial Statements of the Company and the notes thereto
elsewhere in this Form 10-Q.
This Quarterly Report on Form 10-Q may contain forward-looking statements
as that term is defined in the Private Securities Litigation Reform Act of 1995.
Such statements are based on management's current expectations and are subject
to a number of factors and uncertainties which could cause results to differ
materially from those described in the forward-looking statements. There can be
no assurance that actual results or business conditions will not differ
materially from those anticipated or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the size and timing of significant orders, as well as deferral of
orders, over which the Company has no control; the variation in the Company's
sales cycles from customer to customer; increased competition posed by other
mini-mill producers; changes in pricing policies by the Company and its
competitors; the need to secure or build manufacturing capacity in order to meet
demand for the Company's products; the Company's success in expanding its sales
programs and its ability to gain increased market acceptance for its existing
product lines; the ability to scale up and successfully produce its products;
the potential for significant quarterly variations in the mix of sales among the
Company's products; the gain or loss of significant customers; shortages in the
availability of raw materials from the Company's suppliers; fluctuations in
energy costs; the costs of environmental compliance and the impact of government
regulations; the Company's relationship with its work force; the restrictive
covenants and tests contained in the Company's debt instruments, which could
limit the Company's operating and financial flexibility; and general economic
conditions.
RESULTS OF OPERATIONS
Three month period ended July 31, 1997
- --------------------------------------
SALES. Sales for the Company for the three-month period ended July 31, 1997
were approximately $47.7 million as compared to sales of approximately $45.2
million for the three-month period ended July 31, 1996, an increase of
approximately $2.5 million or 6%. Shipments of product for the three months
ended July 31, 1997 increased to 132,797 tons from 132,390 tons for the three
months ended July 31, 1996. The increase in sales dollars and shipments for the
comparable three months was primarily attributable to increased production and
shipments of hot rolled bar products from the Sand Springs Facility. The
increase was partially offset by a decrease in shipments of semi-finished steel
as a result of weak market demand.
8
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Shipments of rebar for the three months ended July 31, 1997 increased 5.6%
as compared to the three months ended July 31, 1996 due to increased market
demand and increased production of rebar products. Shipments of fabricated
products for the three months ended July 31, 1997 increased slightly due
primarily to increased market demand of fabricated rebar produced by the Kansas
City Plant.
COST OF SALES. The cost of sales for the three months ended July 31, 1997
were approximately $38.3 million as compared to approximately $37.5 million for
the three months ended July 31, 1996. On an average per-ton basis, cost of sales
increased to $288 per ton for the three months ended July 31, 1997 from $284 per
ton for the three months ended July 31, 1996. Cost of sales increased as
compared to the same quarter in prior year due to shipment volume and a change
in product mix between hot rolled bar product and semi-finished steel.
GROSS PROFIT. Gross profit for the Company for the three months ended July
31, 1997 was approximately $9.4 million as compared to a gross profit of
approximately $7.7 million for the three months ended July 31, 1996, an increase
of approximately $1.8 million or 23%. Gross profit for the Company as a
percentage of sales for the three months ended July 31, 1997 was 19.7% as
compared to 16.9% for the three months ended July 31, 1996. The increase is a
result of higher average selling prices due primarily to product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the Company for the three months ended July 31, 1997
remained approximately the same as compared to the three months ended July 31,
1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
approximately the same for the three months ended July 31, 1997, as compared to
the three months ended July 31, 1996.
POSTRETIREMENT BENEFIT EXPENSE. Postretirement benefit expense decreased
slightly in the first quarter in comparison to the same quarter in the prior
year due to a slight change in the estimated fiscal 1998 expense as determined
by an independent actuary.
OPERATING INCOME. Operating income for the Company for the three months
ended July 31, 1997 was approximately $3.7 as compared to approximately $2.0
million for the three months ended July 31, 1996, an increase of approximately
$1.7 million or 83%. Operating income for the Company as a percentage of sales
for the three months ended July 31, 1997 was 7.8% as compared to 4.5% for the
three months ended July 31, 1996. This increase was primarily due to the
increased gross profit as discussed above.
9
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
INTEREST EXPENSE. Interest expense for the Company for the three months
ended July 31, 1997 was approximately $3.0 million as compared to approximately
$2.9 million for the three months ended July 31, 1996. This increase was due to
a slightly higher average interest rate as compared to the same period in the
prior year.
INCOME TAX. The Company has not recorded an expense or benefit for income
taxes due to the available net operating loss carryforwards that it can utilize
to reduce future federal regular income tax.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1997, the Company's long-term indebtedness was approximately
$93.8 million, excluding current portion, after giving effect to an unamortized
discount attributable to detachable stock warrants of approximately $1.6
million. The Company had approximately $17.1 million of borrowing availability
at July 31, 1997 under its revolving credit agreements.
Cash flow provided by operations was approximately $2.8 million for the
three month period ended July 31, 1997, as compared with cash flow used by
operating activities of approximately $3.2 million for the three month period
ended July 31, 1996. Accounts receivable decreased due to lower days sales
outstanding during the quarter. Inventories decreased due to strong shipments
and the annual rolling mill maintenance outages at the Sand Springs and Joliet
Facilities. The Company also made contractual interest payments of $4.5 million
related to the First Mortgage Notes consistent with the same period in the prior
year. Cash used in investing activities during the three months ended July 31,
1997 was approximately $1.0 million for capital expenditures. For the three
month period ended July 31, 1997, cash used in financing activities consisted of
principle payments on the revolving line of credit and equipment notes.
The Company's cash flow from operating activities and borrowings 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.
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.
10
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CAPITAL EXPENDITURES
Capital expenditures for the three month period ended July 31, 1997 were
approximately $1.0 million, consisting of approximately $0.3 million of mill
improvements and $0.7 million of required replacement of plant equipment. 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.
11
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
B. Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended July 31, 1997.
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 to be signed on its behalf
by the undersigned thereunto duly authorized.
SHEFFIELD STEEL CORPORATION
Date: Sept. 9, 1997 /s/ Robert W. Ackerman
------------------ ----------------------------------
Robert W. Ackerman, President
and Chief Executive Officer
Date: Sept. 9, 1997 /s/ Stephen R. Johnson
------------------ ----------------------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
13
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
Fifth Amendment to Restated Credit Agreement, date July 31, 1997 between
10.36 Sand Springs Railway Company and Bank of Oklahoma, N.A. 15
14