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 January 31, 1998
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 3,570,125 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 -
April 30, 1997 and January 31, 1998 3
Consolidated Condensed Statements of Operations -
Three months and nine months ended
January 31, 1997 and January 31, 1998 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended January 31, 1997 and
January 31, 1998 5
Notes to Consolidated Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
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)
January 31,
April 30, 1998
Assets 1997 Unaudited
------ ---- ---------
Current assets:
Cash and cash equivalents $ 15 1,076
Accounts receivable, less allowance for doubtful accounts of $658
and $873 at April 30, 1997 and January 31, 1998, respectively 20,856 18,199
Inventories 37,112 36,932
Other current assets 4,141 2,757
-------- -------
Total current assets 62,124 58,964
Property, plant and equipment, net 65,885 65,754
Intangible assets, net 3,314 8,791
Other assets 3,434 3,463
Deferred income tax asset 1,817 2,054
-------- -------
Total assets $136,574 139,026
======== =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 936 1,711
Accounts payable 16,475 13,334
Accrued interest payable 4,500 1,972
Accrued liabilities 5,650 7,846
-------- -------
Total current liabilities 27,561 24,863
Long-term debt, excluding current portion, less unamortized discount
of $1,696 at April 30, 1997 95,614 117,430
Accrued post-retirement benefit costs 9,095 10,409
Other liabilities 2,148 1,291
-------- -------
Total liabilities 134,418 153,993
-------- -------
Stockholders' equity (deficit):
Common stock 34 36
Additional paid-in capital 2,536 2,536
Retained earnings (accumulated deficit) 528 (16,552)
-------- -------
Total stockholders' equity (deficit) 3,098 (13,980)
Less loans to stockholders 942 987
-------- -------
2,156 (14,967)
-------- -------
Total liabilities and stockholders' equity (deficit) $136,574 139,026
======== =======
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 Nine Months Ended
January 31, January 31,
------------------ -----------------
1997 1998 1997 1998
---- ---- ---- ----
Sales $ 34,909 42,413 124,835 136,594
Cost of sales 29,374 34,046 103,713 109,428
------ ------ ------- -------
Gross profit 5,535 8,367 21,122 27,166
Selling, general and administrative expense 2,928 3,461 9,422 10,092
Depreciation and amortization expense 1,698 1,860 5,126 5,320
Postretirement benefit expense other than pensions 642 639 2,119 2,012
------ ------ ------- -------
Operating income 267 2,407 4,455 9,742
Other expense:
Interest expense, net (2,956) (2,955) (8,810) (8,723)
Other - (76) - (76)
------ ------ ------- -------
(2,956) (3,031) (8,810) (8,799)
Income (loss) before extraordinary item (2,689) (624) (4,355) 943
Extraordinary item - loss on retirement of debt - (8,023) - (8,023)
------ ------ ------- -------
Net loss $ (2,689) (8,647) (4,355) (7,080)
====== ====== ======= =======
Basic earnings (loss) per share:
Income (loss) before extraordinary item $ (.80) ( .18) (1.29) .28
Extraordinary item - loss on retirement of debt - (2.31) - (2.38)
------ ------ ------- -------
Net loss $ (.80) (2.49) (1.29) (2.10)
====== ====== ======= =======
Diluted earnings (loss) per share:
Income (loss) before extraordinary item $ (.80) (.18) (1.29) .26
Extraordinary item - loss on retirement of debt - (2.31) - (2.19)
------ ------ ------- -------
Net loss $ (.80) (2.49) (1.29) (1.93)
====== ====== ======= =======
See accompanying notes to consolidated condensed financial statements.
4
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
January 31,
--------------------------
1997 1998
---- ----
Cash flows from operating activities:
Net income (loss) $ (4,355) (7,080)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 5,234 5,481
Loss on retirement of assets - 81
Accrual of postretirement benefits other than pensions,
net of cash paid 1,403 1,314
Non-cash portion of extraordinary item - 2,995
Changes in assets and liabilities, net of effects of
acquisition of business (5,824) 59
------- -------
Net cash (used in) provided by operations (3,542) 2,850
------- -------
Cash flows from investing activities:
Capital expenditures (2,964) (4,271)
Acquisition of business, net of cash acquired - (2,414)
------- -------
Net cash used in investing activities (2,964) (6,685)
------- -------
Cash flows from financing activities:
Net increase in long-term debt 6,902 20,784
Payment of debt issuance costs - (5,888)
Payment of dividends - (10,000)
Payments in respect of stock appreciation rights (424) -
------- -------
Net cash provided by financing activities 6,478 4,896
------- -------
Net (decrease) increase in cash and cash equivalents (28) 1,061
Cash and cash equivalents at beginning of period 46 15
------- -------
Cash and cash equivalents at end of period $ 18 1,076
======= =======
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the period for interest $ 11,060 11,881
======= ======
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 90% 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 nine months ended January 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending April 30, 1998.
2) Earnings Per Share
Effective January 31, 1998, the Company adopted the guidelines established by
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share".
All references in the financial statements to earnings per share amounts have
been restated to conform with the requirements of SFAS No. 128. All options
and warrants were excluded from computations for loss before extraordinary item
for the three month periods ended January 31, 1997 and 1998 and the nine month
period ended January 31, 1997, since their effect on loss per share was anti-
dilutive. The following information reconciles the number of shares used to
compute basic earnings per share to those used to compute diluted earnings per
share. The numerator amounts for each period presented are as shown on the
consolidated condensed statements of operations.
Three Months Ended Nine Months Ended
January 31, January 31,
1997 1998 1997 1998
--------- --------- --------- ---------
Weighted average number of shares outstanding 3,375,000 3,468,326 3,375,000 3,372,359
Effect of dilutive securities:
Stock Options - - - 253,393
Warrants - - - 84,999
--------- --------- --------- ---------
Weighted average number of shares and
dilutive potential shares outstanding 3,375,000 3,468,326 3,375,000 3,662,767
========= ========= ========= =========
6
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
3) Inventories
The components of inventories are as follows:
January 31,
April 30, 1998
1997 (Unaudited)
---- -----------
Raw materials and storeroom supplies $10,924 11,549
Work in process 10,978 8,443
Finished goods 15,210 16,940
------- ------
$37,112 36,932
======= ======
4) Long-term Debt
Effective November 26, 1997, the Company offered $110,000,000 of 11 1/2% First
Mortgage Notes due 2005 to institutional investors pursuant to Rule 144A of the
Securities Act of 1933, as amended. The proceeds from the offering were used
primarily to redeem the Company's $75 million outstanding principal amount of
First Mortgage Notes due 2001 (2001 Notes), to pay dividends to stockholders and
to pay down outstanding indebtedness under the Company's revolving credit
facilities. On January 28, 1998, the Company made an offer to exchange the
aforementioned First Mortgage Notes for New First Mortgage Notes which are
identical in all material respects except that the New First Mortgage Notes have
been registered under the Securities Act of 1933, as amended.
Interest on the New First Mortgage Notes is payable semi-annually on June 1 and
December 1 of each year at the rate of 11.5% per annum. The New First Mortgage
Notes are secured by a first priority lien on substantially all existing and
future real property and equipment. The Company is subject to certain covenants
including certain limitations on additional indebtedness and restricted
payments.
5) Extraordinary Item
The extraordinary loss of $8.0 million relates to the Company's First Mortgage
Note offering completed during the third fiscal quarter. The extraordinary
charge relates primarily to a redemption premium, unamortized discount and debt
issue costs associated with the 2001 Notes.
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 $3,137
subject to certain 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 $1,459 as excess of cost
over net assets acquired (goodwill) which is being amortized over 40 years on a
straight-line basis.
7
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.
Acquisition
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 $1,137,000 in cash, subject to 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.
First Mortgage Note Offering
On November 26, 1997, the Company offered 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 was made under Rule 144A of
the Securities Act of 1933, as amended. The net proceeds from the offering were
used primarily 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.
On January 28, 1998, the Company made an offer to exchange (the Exchange Offer)
the aforementioned First Mortgage Notes for New First Mortgage Notes which are
identical in all material respects except that the New First Mortgage Notes have
been registered under the Securities Act of 1933, as amended. The Exchange Offer
expires on March 18, 1998.
8
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Results of Operations
Three Months Ended January 31, 1998 As Compared To Three Months Ended January
31, 1997
Sales. Sales for the Company for the three month period ended January 31,
1998 were approximately $42.4 million as compared to sales of approximately
$34.9 million for the three month period ended January 31, 1997, an increase of
approximately $7.5 million or 21.5%. Shipping levels increased 17.4% to
109,119 tons from 92,909 tons and the average price per ton shipped increased
to $389 from $376. The increase in tons shipped and the increase in average
selling price is due to both strong market demand and to an improved product
mix compared to the same quarter in the prior year. 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
January 31, 1998 were 44,657 tons compared to 41,506 tons for the three month
period ended January 31, 1997, an increase of 3,151 tons or 7.6%. The increase
was primarily a result of strong sales of hot rolled bar products at the Joliet
Facility. The average price per ton of hot rolled bar products for the three
month period ended January 31, 1998 increased to $463 from $428, 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 January 31, 1998
were 46,931 tons compared to 32,920 tons for the three month period ended
January 31, 1997, an increase of 14,011 or 42.6%. This increase was primarily
a result of favorable weather conditions and general market strength in the
construction industry in the south and southwest. The average price per ton of
rebar for the three month period ended January 31, 1998 decreased slightly to
$297 from $299.
Fabricated Products. Shipments of fabricated products for the three month
period ended January 31, 1998 were 12,772 tons compared to 10,563 tons for the
three month period ended January 31, 1997, an increase of 2,209 tons or 20.9%.
The increase in shipments was due to both strong markets combined with
production improvements in the Sand Springs fence post shop and additional
shipments due to the purchase of Waddell on October 28, 1997. The average
price per ton for the three month period ended January 31, 1998 increased to
$466 from $458. The increase in average price per ton was primarily due to
improved product mix and pricing at the Kansas City Facility and the
acquisition of Waddell.
Billets. Shipments of billets to third parties for the three month period
ended January 31, 1998 were 4,759 tons compared to 7,920 tons for the three
month period ended January 31, 1997, a decrease of 3,161 tons or 39.9%. 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.
Cost of Sales. The cost of sales for the three month period ended January
31, 1998 were approximately $34.0 million as compared to approximately $29.4
million for the three month period ended January 31, 1997. On an average per
ton basis, cost of sales decreased to $312 per ton for the three month period
ended January 31, 1998 from $316 per ton for the three month period ended
January 31, 1997. The decrease in cost per ton is a result of lower conversion
costs per ton, specifically utility costs, and production improvements at the
Sand Springs rolling mill relative to the same period in the prior year.
9
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Gross Profit. Gross profit for the Company for the three month period
ended January 31, 1998 was approximately $8.4 million as compared to gross
profit of approximately $5.5 million for the three month period ended January
31, 1997, an increase of approximately $2.8 million or 51.2%. Gross profit for
the Company as a percentage of sales for the three months ended January 31, 1998
was 19.7% as compared to 15.9% for the three months ended January 31, 1997. The
increase is primarily the result of higher average selling prices, a more
favorable product mix, and lower production costs.
Selling, General and Administrative Expense. Selling, general and
administrative expense for the Company for the three month period ended January
31, 1998 was $3.5 million, an increase of $0.5 million from the three month
period ended January 31, 1997. The increase is a result of the acquisition of
Waddell, slightly higher insurance expense, and additional expenses related to
employee team training.
Depreciation and Amortization. Depreciation and amortization for the
three month period ended January 31, 1998 increased to $1.9 million from $1.7
million for the three month period ended January 31, 1997. The increase is due
to increased intangible assets associated with the acquisition of Waddell and
debt issuance costs and depreciation expense increases at the Sand Springs
Facility due to capital expenditures.
Post-retirement Benefit Expense. Post-retirement benefit expense remained
approximately the same for the three month period ended January 31, 1998, as
compared to the three month period ended January 31, 1997.
Operating Income. Operating income for the Company for the three month
period ended January 31, 1998 was approximately $2.4 million as compared to
approximately $0.3 million for the three month period ended January 31, 1997,
an increase of approximately $2.1 million. Operating income for the Company as
a percentage of sales for the three month period ended January 31, 1998 was
5.7% as compared to .76% for the three month period ended January 31, 1997.
This increase was primarily due to the increased gross profit offset by
slightly higher operating expenses, as discussed above.
Interest Expense. Interest expense for the Company remained approximately
the same for the three month period ended January 31, 1998 , as compared to
the three month period ended January 31, 1997.
Nine Months Ended January 31, 1998 As Compared To Nine Months Ended January 31,
1997
Sales. Sales for the Company for the nine month period ended January 31,
1998 were approximately $136.6 million as compared to sales of approximately
$124.8 million for the nine month period ended January 31, 1997, an increase
of approximately $11.8 million or 9.4%. Shipping levels increased 3.5% to
363,775 tons from 351,304 tons and the average price per ton shipped increased
to $375 from $355. The increase in tons shipped and the increase in average
selling price is a result of strong market demand, improved product mix and
increased production at the Sand Springs Facility and the Joliet Facility. The
Company is implementing its business
10
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
strategy to produce and sell higher value added finished products instead
selling billets to third parties.
Hot Rolled Bar Products. Shipments for the nine month period ended
January 31, 1998 were 138,485 tons compared to 122,242 tons for the nine month
period ended January 31, 1997, an increase of 16,243 tons or 13.3%. Shipments
from the Sand Springs Facility for the nine month period ended January 31, 1998
increased 23.9% over the same period in the previous year due to continued
improvements in the Sand Springs mill operations and favorable market
conditions. 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 nine month period ended January 31, 1998
increased to $454 per ton compared to $436 per ton for the nine month period
ended January 31, 1997, reflecting improved selling prices at both the Sand
Springs Facility and the Joliet Facility.
Rebar. Rebar shipments for the nine month period ended January 31, 1998
were 159,053 tons compared to 135,284 tons for the nine month period ended
January 31, 1997, an increase of 23,769 tons or 17.6%. This increase was
primarily a result of general market strength in the construction industry and
favorable weather conditions. The average price per ton of rebar for the nine
month period ended January 31, 1998 increased to $296 from $293. The increase
in average price per ton is attributable to improved market conditions.
Fabricated Products. Shipments of fabricated products for the nine month
period ended January 31, 1998 were 40,683 tons compared to 38,738 tons for the
nine month period ended January 31, 1997, an increase of 1,945 tons or 5.0%.
The average price per ton for fabricated products for the nine months ended
January 31, 1998 increased to $459 from $458. The slight increase in shipments
and average selling prices is attributable to the purchase of Waddell and
improved market conditions in the Kansas City area.
Billets. Shipments of billets to third parties for the nine month period
ended January 31, 1998 were 25,554 tons compared to 55,040 tons for the nine
month period ended January 31, 1997, a decrease of 29,486 or 53.6%. 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 nine month period ended January 31, 1998 increased to $228 from
$217 as a result of product mix.
Cost of Sales. The cost of sales for the nine month period ended January
31, 1998 were approximately $109.4 million as compared to approximately $103.7
million for the nine month period ended January 31, 1997. On an average per
ton basis, cost of sales increased to $301 per ton for the nine months ended
January 31, 1998 from $295 per ton for the nine months ended January 31, 1997.
In the nine month period ended January 31, 1998, 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 nine month period ended
January 31, 1998 was approximately $27.2 million as compared to approximately
$21.1 million for the nine month period ended January 31, 1997, an increase of
approximately $6.0 million or 28.6%. Gross profit for the Company as a
percentage of sales for the nine month period ended January 31, 1998 was 19.9%
as compared to 16.9% for the nine month period ended January 31, 1997. The
increase is a result of higher average selling prices due primarily to a more
favorable product mix.
11
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Selling, General and Administrative Expense. Selling, general and
administrative expense for the Company for the nine month period ended January
31, 1998 was approximately $10.1 million as compared to approximately $9.4
million for the nine months ended January 31, 1997. The increase is a result
of the acquisition of Waddell, slightly higher insurance and selling expenses,
and additional expenses related to employee team training.
Depreciation and Amortization. Depreciation and amortization for the
Company for the nine month period ended January 31, 1998 increased to $5.3
million from $5.1 million for the nine month period ended January 31, 1997.
The increase is due to increased intangible assets associated with the
acquisition of Waddell and debt issuance costs and depreciation expense
increases at the Sand Springs Facility due to capital expenditures.
Post-retirement Benefit Expense. Post-retirement benefit expense remained
approximately the same for the nine month period ended January 31, 1998 as
compared to the nine month period ended January 31, 1997.
Operating Income. Operating income for the Company for the nine month
period ended January 31, 1998 was approximately $9.7 million as compared to
approximately $4.5 million for nine month period ended January 31, 1997, an
increase of approximately $5.3 million or 118.7%. Operating income for the
Company as a percentage of sales for the nine months ended January 31, 1998 was
7.1% as compared to 3.6% for the nine months ended January 31, 1997. This
increase was primarily due to the increased gross profit offset by slightly
higher operating expenses, as discussed above.
Interest Expense. Interest expense remained approximately the same for
the nine month period ended January 31, 1998 compared to the nine month period
ended January 31, 1997.
Liquidity and Capital Resources
As of January 31, 1998, the Company's long-term indebtedness, including
current portion, was approximately $119.1 million. The Company had
approximately $25 million of borrowing availability at January 31, 1998 under
its revolving credit agreements and approximately $4 million available under an
equipment financing agreement.
Cash flow provided by operations before extraordinary item was
approximately $2.9 million for the nine month period ended January 31, 1998, as
compared with cash flow used in operations of approximately $3.5 million for
the nine month period ended January 31, 1997. The increase in cash provided by
operations was primarily due to improved operating results. Cash used in
investing activities in the nine months ended January 31, 1998 was
approximately $6.7 million, consisting of required replacement of plant
equipment, payments on the cooling bed and shear-line project at the Sand
Springs Facility (Shear Line Project) and the purchase of Waddell. For the
nine month period ended January 31, 1998, cash provided by financing activities
consisted of proceeds from the First Mortgage Note offering. Cash used in
financing activities included payment of offering costs, payments on the
revolving credit facility, payment of the 2001 Notes, and payment of dividends.
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.
12
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 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 industry, as
well as prevailing economic conditions, certain of which are beyond the control
of the Company.
Capital Expenditures
Capital expenditures for the nine month period ended January 31, 1998 were
approximately $4.3 million, consisting of normal capital projects required or
deemed economically feasible, throughout the Company and approximately $1.3
million related to the Shear Line Project. 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 million in fiscal 1998, which includes the Shear Line Project
at the Sand Springs rolling mill.
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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 HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
None.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended January 31,
1998.
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: March. 12, 1998 /s/ Robert W. Ackerman
------------------- ----------------------------------
Robert W. Ackerman, President
and Chief Executive Officer
Date: March 12, 1998 /s/ Stephen R. Johnson
------------------ ----------------------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
15