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 October 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 3,569,625 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 -
April 30, 1997 and October 31, 1997 3
Consolidated Condensed Statements of Operations -
Three months and six months ended
October 31, 1996 and October 31, 1997 4
Consolidated Condensed Statements of Cash Flows -
Six months ended October 31, 1996 and
October 31, 1997 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
2
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
October 31,
April 30, 1997
Assets 1997 Unaudited
------ ---- ---------
Current assets:
Cash and cash equivalents $ 15 741
Accounts receivable, less allowance for doubtful accounts of $658
and $808 at April 30, 1997 and October 31, 1997, respectively 20,856 19,383
Inventories 37,112 34,716
Other current assets 4,141 2,935
-------- --------
Total current assets 62,124 57,775
Property, plant and equipment, net 65,885 65,006
Intangible assets, net 3,314 4,450
Other assets 3,434 3,523
Deferred income tax asset, net 1,817 2,034
-------- --------
Total assets $136,574 132,788
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 936 1,717
Accounts payable 16,475 15,113
Accrued interest payable 4,500 4,500
Accrued liabilities 5,650 6,978
-------- --------
Total current liabilities 27,561 28,308
Long-term debt, excluding current portion, less unamortized discount
of $1,696 and $1,563 at April 30, 1997 and October 31, 1997, respectively 95,614 89,474
Accrued post-retirement benefit costs 9,095 9,971
Other liabilities 2,148 1,336
-------- --------
Total liabilities 134,418 129,089
-------- --------
Stockholders' equity:
Common stock 34 34
Additional paid-in capital 2,536 2,536
Retained earnings 528 2,095
-------- --------
Total stockholders' equity 3,098 4,665
Less loans to stockholders 942 966
-------- --------
2,156 3,699
-------- --------
Total liabilities and stockholders' equity $136,574 132,788
======== ========
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 Six Months Ended
October 31, October 31,
--------------------------- --------------------------
1996 1997 1996 1997
---- ---- ---- ----
Sales $ 44,722 46,464 89,925 94,181
Cost of sales 36,791 37,073 74,338 75,382
----------- ----------- ----------- -----------
Gross profit 7,931 9,391 15,587 18,799
Selling, general and administrative expense 3,268 3,334 6,495 6,631
Depreciation and amortization expense 1,731 1,749 3,427 3,460
Postretirement benefit expense other than pensions 776 685 1,477 1,373
----------- ----------- ----------- -----------
Operating income 2,156 3,623 4,188 7,335
Interest expense 2,941 2,811 5,854 5,768
----------- ----------- ----------- -----------
Net income (loss) $ (785) 812 (1,666) 1,567
=========== =========== =========== ===========
Net income (loss) per common and
common equivalent share $ (.23) .21 (.49) .41
=========== =========== =========== ===========
Common and common equivalent shares outstanding 3,375,000 3,840,767 3,375,000 3,840,767
=========== =========== =========== ===========
See accompanying notes to consolidated condensed financial statements.
4
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
October 31,
---------------------------
1996 1997
---- ----
Cash flows from operating activities:
Net income (loss) $(1,666) 1,567
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 3,499 3,593
Loss on retirement of assets - 81
Accrual of postretirement benefits other than pensions,
net of cash paid 1,002 876
Changes in assets and liabilities, net of effects
from acquisition of business 377 4,378
------ -------
Net cash provided by operations 3,212 10,495
------ -------
Cash flows from investing activities:
Capital expenditures (1,762) (1,849)
Acquisition of business, net of cash acquired - (2,317)
------ -------
Net cash used in investing activities (1,762) (4,166)
------ -------
Cash flows from financing activities:
Net decrease in long-term debt (1,054) (5,603)
Payments in respect of stock appreciation rights (424) -
------ -------
Net cash used in financing activities (1,478) (5,603)
------ -------
Net (decrease) increase in cash (28) 726
Cash and cash equivalents at beginning of period 46 15
------ -------
Cash and cash equivalents at end of period $ 18 741
====== =======
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the period for interest $ 5,782 5,635
====== =======
Noncash items related to stock repurchase:
Decrease in paid-in capital $ 1,055 -
====== =======
Increase in other liabilities $ 662 -
====== =======
Decrease in loans to stockholders $ 393 -
====== =======
See accompanying notes to consolidated condensed financial statements.
5
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
October 31, 1996 and 1995
(In thousands, except share data)
(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), Waddell's Rebar Fabricators, Inc.
(Waddell) since October 28, 1997, and Sand Springs Railway Company (the
Railway). HMK Enterprises, Inc. (HMK) owns approximately 96% 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 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 and six months ended October 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
Net 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. All
options and warrants were excluded from per-share computations for the three
month and six month periods ended October 31, 1996 since their effect on loss
per common share was anti-dilutive.
3) Inventories
The components of inventories are as follows:
October 31,
April 30, 1997
1997 (Unaudited)
---- -----------
Raw materials and storeroom supplies $ 10,924 12,792
Work in process 10,978 8,178
Finished goods 15,210 13,746
------ ------
$ 37,112 34,716
====== ======
6
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
4) Long-term Debt
Effective November 26, 1997, the Company offered $110,000,000 of 11 1/2% First
Mortgage Notes to institutional investors pursuant to Rule 144A of the
Securities Act of 1933, as amended. The proceeds from the offering will
primarily be used to redeem the Company's $75 million outstanding principal
amount of First Mortgage Notes due 2001, to pay dividends to stockholders and to
pay down outstanding indebtedness under the Company's revolving credit
facilities. As a result of the offering, the Company anticipates it will
recognize an extraordinary loss of approximately $8.1 million in the third
fiscal quarter related to extinguishment of debt.
On October 1, 1997, the Company entered into an agreement with an equipment
financing company whereby the Company may request advances totaling $4.0 million
through July 31, 1998, based on satisfactory documentation of the collateral to
be financed. In accordance with the agreement, the Company must maintain a
letter of credit in an amount equal to 25% of each advance which will be reduced
subject to the Company meeting certain ratio and earnings requirements. At
October 31, 1997, there were no outstanding advances related to this agreement.
6) Acquisition
On October 28, 1997, the Company acquired all of the outstanding capital stock
of Waddell's Rebar Fabricators. The purchase price of the stock was $3,040
subject to certain post-closing adjustments and potential performance related
payments. The Company incurred approximately $2,000 in debt related to this
acquisition. The acquisition notes mature quarterly over a four year period and
bear interest at NationsBank prime rate minus 1/2 of one percent.
The acquisition was accounted for using the purchase method of accounting. The
fair value of tangible assets acquired and liabilities assumed was $3,861 and
$812, respectively. In addition, the Company recorded $1,362 as excess of cost
over net assets acquired (goodwill) which is being amortized over 40 years on a
straight-line basis.
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 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 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.
On October 28, 1997, the Company acquired all of the outstanding
capital stock of Waddell's Rebar Fabricators, Inc. (Waddell). The acquisition
price consisted of $1,040,000 in cash, subject to post-closing adjustments
and performance related contingency payments, and secured, subordinated
promissory notes in an aggregate principal amount of $2 million. The notes
mature quarterly over a four year period and bear interest at the NationsBank
prime rate minus 1/2 of one percent. The notes are secured by the capital
stock of Waddell. Waddell is a rebar fabricator located in Independence,
Missouri which specializes in smaller volume, higher value added construction
contracts. Management believes that Waddell will complement the Kansas City
Facility's operations.
Recent Developments
On November 26, 1997, the Company priced an aggregate of $110,000,000
of First Mortgage Notes (the "First Mortgage Notes") in a private offering
(the "Offering") to institutional investors. The Offering will be made under
Rule 144A of the Securities Act of 1933, as amended. The net proceeds of the
Offering will be applied as follows: (i) $79.5 million to redeem, at a
redemption price of 106%, the 12% First Mortgage Notes due 2001 (the "2001
Notes"); (ii) $16 million to repay amounts under the Company's credit
facilities which currently bear interest at a rate of prime plus 0.50% (or
9.0% as of November 1, 1997); (iii) $10 million to pay dividends to the
Company's shareholders; and (iv) the remainder, if any, for general corporate
purposes, including ongoing capital expenditures.
8
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Results of Operations
Three Months Ended October 31, 1997 As Compared To Three Months Ended October
31, 1996
Sales. Sales for the Company for the three month period ended October
31, 1997 were approximately $46.5 million as compared to sales of
approximately $44.7 million for the three month period ended October 31,
1996, an increase of approximately $1.7 million or 3.9%. Shipping levels
decreased 3.3% to 121,859 tons from 126,005 tons and the average price per
ton shipped increased to $381 from $355. The decrease in tons shipped and the
increase in average selling price is primarily due to a change in product
mix. The Company is implementing its business strategy to produce and sell
higher value added finished products instead of producing and selling billets
to third parties.
Hot Rolled Bar Products. Shipments for the three month period ended
October 31, 1997 were 48,774 tons compared to 42,258 tons for the three month
period ended October 31, 1996, an increase of 6,516 tons or 15.4%. The
increase reflects continued improvements in operations at the Sand Springs
Facility and implementation of the Company's business strategy to improve
finished goods product mix. Sales of hot rolled bar products from the Joliet
Facility also increased due to improved market conditions. The average price
per ton of hot rolled bar products for the three month period ended October
31, 1997 increased to $459 from $441, reflecting an increase in sales prices
at both the Sand Springs Facility and the Joliet Facility.
Rebar. Rebar shipments for the three month period ended October 31,
1997 were 55,571 tons compared to 48,808 tons for the three month period
ended October 31, 1996, an increase of 6,763 or 13.9%. This increase was
primarily a result of the continued improvements in operations at the Sand
Springs Facility and general market strength in the construction industry.
The average price per ton of rebar was unchanged at $296 for the three month
periods ended October 31, 1997 and 1996.
Fabricated Products. Shipments of fabricated products for the three
month period ended October 31, 1997 were 13,086 tons compared to 14,576 tons
for the three month period ended October 31, 1996, a decrease of 1,490 tons
or 10.2%. The decrease in shipments was primarily due to production
difficulties at the Sand Springs fence post shop which have since been
resolved. The average price per ton for the three month period ended October
31, 1997 increased to $454 from $451. The increase in average price per ton
was primarily due to product mix with prices improving in the rebar
fabricating market and prices decreasing in the fence post line of business.
Billets. Shipments of billets to third parties for the three month
period ended October 31, 1997 were 4,428 tons compared to 20,363 tons for the
three month period ended October 31, 1996, a decrease of 15,935 tons or
78.3%. This decrease was due to the Company's implementation of its business
strategy to utilize billets internally to produce higher value added finished
products instead of selling the billets to third parties. In addition, the
Company further curtailed billet sales to third parties during this quarter
in order to perform certain maintenance procedures in the melt shop without
jeopardizing mill production.
Cost of Sales. The cost of sales for the three months ended October
31, 1997 were approximately $37.1 million as compared to approximately $36.8
million for the three months ended October 31, 1996. On an average per ton
basis, cost of sales increased to $304 per ton for the three months ended
October 31, 1997 from $292 per ton for the three months ended October 31,
9
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
1996. In the three months ended October 31, 1997, billet shipments decreased
and rebar and hot rolled bar product shipments increased resulting in an
increase in average cost per ton.
Gross Profit. Gross profit for the Company for the three months ended
October 31, 1997 was approximately $9.4 million as compared to gross profit
of approximately $7.9 million for the three months ended October 31, 1997, an
increase of approximately $1.5 million or 18.4%. Gross profit for the Company
as a percentage of sales for the three months ended October 31, 1997 was
20.2% as compared to 17.7% for the three months ended October 31, 1996. The
increase is a result of higher average selling prices due primarily to a more
favorable product mix.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the Company for the three months ended October 31,
1997 remained approximately the same as compared to the three months ended
October 31, 1996.
Depreciation and Amortization. Depreciation and amortization remained
approximately the same for the three months ended October 31, 1997, as
compared to the three months ended October 31, 1996.
Post-retirement Benefit Expense. Post-retirement benefit expense
remained approximately the same for the three month period ended October 31,
1997, as compared to the three months ended October 31, 1996.
Operating Income. Operating income for the Company for the three
months ended October 31, 1997 was approximately $3.6 million as compared to
approximately $2.2 million for the three months ended October 31, 1996, an
increase of approximately $1.5 million or 68.0%. Operating income for the
Company as a percentage of sales for the three months ended October 31, 1997
was 7.8% as compared to 4.8% for the three months ended October 31, 1996.
This increase was primarily due to the increased gross profit as discussed
above.
Interest Expense. Interest expense for the Company for the three
months ended October 31, 1997 was approximately $2.8 million as compared to
approximately $2.9 million for the three months ended October 31, 1996. This
decrease was due to a slightly lower average interest rate as compared to the
same period in the prior year.
Six Months Ended October 31, 1997 As Compared To Six Months Ended October 31,
1996
Sales. Sales for the Company for the six month period ended October
31, 1997 were approximately $94.2 million as compared to sales of
approximately $89.9 million for the six month period ended October 31, 1996,
an increase of approximately $4.3 million or 4.7%. Shipping levels decreased
1.4% to 254,656 ton from 258,395 tons and the average price per ton shipped
increased to $370 from $348. The decrease in tons shipped and the increase in
average selling price is primarily due to a change in product mix. The
Company is implementing its business strategy to produce and sell higher
value added finished products instead selling billets to third parties.
Hot Rolled Bar Products. Shipments for the six month period ended
October 31, 1997 were 93,828 tons compared to 80,736 tons for the six month
period ended October 31, 1996, an increase of 13,092 tons or 16.2%. Shipments
from the Sand Springs Facility for the six month period ended October 31,
1997 increased 35.6% over the same period in the previous year due to
continued
10
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
improvements in operations at the Sand springs Facility and implementation of
the Company's business strategy to improve finished goods product mix.
Shipments of hot rolled bar products from the Joliet Facility also increased
reflecting strong market conditions. The average price per ton of hot rolled
bar products for the six month period ended October 31, 1997 increased to
$449 per ton compared to $441 per ton for the six month period ended October
31, 1996, reflecting improved selling prices at both the Sand Springs
Facility and the Joliet Facility.
Rebar. Rebar shipments for the six month period ended October 31,
1997 were 112,122 tons compared to 102,364 tons for the six month period
ended October 31, 1996, an increase of 9,758 tons or 9.5%. This increase was
primarily a result of the continued improvements in operations at the Sand
Springs Facility and general market strength in the construction industry.
The average price per ton of rebar for the six month period ended October 31,
1997 increased to $296 from $291. The increase in average price per ton is
attributable to improved market conditions.
Fabricated Products. Shipments of fabricated products for the six
month period ended October 31, 1997 were 27,911 tons compared to 28,175 tons
for the six month period ended October 31, 1996, a decrease of 264 tons or
.9%. The average price per ton for fabricated products for the six months
ended October 31, 1997 decreased to $456 from $458. The decrease in shipments
and average selling prices is attributable to production difficulties at the
Sand Springs fence post shop which have since been resolved.
Billets. Shipments of billets to third parties for the six month
period ended October 31, 1997 were 20,795 tons compared to 47,120 tons for
the six month period ended October 31, 1996, a decrease of 26,325 or 55.9%.
This decrease was due to the Company's implementation of its business
strategy to utilize more billets internally to produce higher value added
finished products instead of selling the billets to third parties. The
average price per ton for billets for the six month period ended October 31,
1997 increased to $227 from $215. The increase in average price per ton is
attributable to improved product mix.
Cost of Sales. The cost of sales for the six month period ended
October 31, 1997 were approximately $75.4 million as compared to
approximately $74.3 million for the six month period ended October 31, 1996.
On an average per ton basis, cost of sales increased to $296 per ton for the
six months ended October 31, 1997 from $288 per ton for the six months ended
October 31, 1996. In the six month period ended October 31, 1997, billet
shipments decreased and rebar and hot rolled bar product increased resulting
in the increase in average cost per ton.
Gross Profit. Gross profit for the Company for the six month period
ended October 31, 1997 was approximately $18.8 million as compared to
approximately $15.6 million for the six month period ended October 31, 1996,
an increase of approximately $3.3 million or 21.0%. Gross profit for the
Company as a percentage of sales for the six month period ended October 31,
1997 was 20.0% as compared to 17.3% for the six month period ended October
31, 1996. The increase is a result of higher average selling prices due
primarily to a more favorable product mix.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the Company for the six month period ended October
31, 1997 was approximately $6.6 million as compared to approximately $6.5
million for the six months ended October 31, 1996. The slight increase was
primarily due to additional selling expenses.
11
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Depreciation and Amortization. Depreciation and amortization remained
approximately the same for the six month period ended October 31, 1997, as
compared to the six month period ended October 31, 1996.
Post-retirement Benefit Expense. Post-retirement benefit expense
remained approximately the same for the six month period ended October 31,
1997 as compared to the six month period ended October 31, 1996.
Operating Income. Operating income for the Company for the six month
period ended October 31, 1997 was approximately $7.3 million as compared to
approximately $4.2 million for six month period ended October 31, 1996, an
increase of approximately $3.1 million or 75.1%. Operating income for the
Company as a percentage of sales for the six months ended October 31, 1997
was 7.8% as compared to 4.7% for the six months ended October 31, 1996.
This increase was primarily due to the increased gross profit as discussed
above.
Interest Expense. Interest expense remained approximately the same
for the six month period ended October 31, 1997 compared to the six month
period ended October 31, 1996.
Liquidity and Capital Resources
As of October 31, 1997, the Company's long-term indebtedness was
approximately $91.2 million, after giving effect to an unamortized discount
attributable to detachable stock warrants of approximately $1.6 million. The
Company had approximately $21 million of borrowing availability at October
31, 1997 under its revolving credit agreements and approximately $4 million
available under the equipment financing agreement.
Cash flow provided by operations was approximately $10.5 million for
the six month period ended October 31, 1997, as compared with cash flow
provided by operations of approximately $3.2 million for the six month period
ended October 31, 1996. The increase in cash provided by operations was
primarily due to reducing accounts receivable and inventories as well as
improved operating results. Cash used in investing activities in the three
months ended October 31, 1997 was approximately $4.2 million, consisting of
required replacement of plant equipment and the purchase of Waddell. For the
six month period ended October 31, 1997, cash used for financing activities
consisted primarily of payments on the revolving credit facility.
The Company's cash flow from operations and borrowings under the
Revolving Credit Facility, the Railway Credit Facility, and equipment
financing agreements 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 cash flow from operations. The
Company expects that its cash flow from operations and available borrowings
under its revolving credit facilities and equipment financing agreements 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
12
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
industry, as well as prevailing economic conditions, certain of which are
beyond the control of the Company.
Capital Expenditures
Capital expenditures for the six month period ended October 31, 1997
were approximately $1.8 million. Primarily all of the expenditures consisted
of normal capital projects required or deemed economically feasible,
throughout the Company. The Company's cash flow from operations and
borrowings under its revolving credit facilities and equipment financing
agreements are expected to be sufficient to meet any near-term working
capital requirements the Company may have and to fund anticipated capital
improvements. The Company expects to incur capital expenditures of
approximately $8.5 million if fiscal 1998, which includes the shear line
project in the Sand Springs rolling mill.
13
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLERS
At the Annual Meeting of Stockholders held on August 27, 1997, for
which proxies for the meeting were solicited pursuant to Regulation 14A of
the Securities Exchange Act of 1934, the stockholders of the Company
unanimously elected Steven E. Karol, Robert W. Ackerman, Dale S. Okonow,
Howard H. Stevenson, John D. Lefler and Jane M. Karol to serve as members of
the Board of Directors for a period of one year.
At the Annual Meeting of Stockholders, the stockholders also
unanimously approved the reappointment of KPMG Peat Marwick LLP as
independent auditors.
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 second quarter ended October 31,
1997.
14
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: Dec. 12, 1997 /s/ Robert W. Ackerman
----------------- -----------------------------------
Robert W. Ackerman, President
and Chief Executive Officer
Date: Dec. 12, 1997 /s/ Stephen R. Johnson
----------------- -----------------------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
15
Exhibit Index
Exhibit No. Description Page No.
- ----------- ----------- --------
10.37 Security Agreement between Sheffield Steel Corporation and Heller
Financial, Inc. dated October 3, 1997. 17
Stock Purchase Agreement between Sheffield Steel Corporation,
Waddell's Rebar Fabricators, Inc. and the Stockholders of Waddell's
10.38 Rebar Fabricators, Inc. dated October 27, 1997. 31