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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended October 31, 2000
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission file number 0-21556
NORTHWESTERN STEEL AND WIRE COMPANY
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(Exact name of registrant as specified in its charter)
Illinois 36-1562920
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 Wallace Street, Sterling, Illinois 61081
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 815/625-2500
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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
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Number of shares of common stock outstanding as of December 20, 2000:
Common Stock 24,905,424 shares
(includes 420,601 treasury shares)
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
October 31,
-----------------------------------
2000 1999
(Unaudited)
(in thousands of dollars except per
share data and tonnage data)
Net sales $84,796 $87,131
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Cost and operating expenses:
Cost of goods sold (excluding depreciation) 83,871 86,545
Depreciation 3,626 3,264
Selling and administrative 2,472 3,408
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Total cost and operating expenses 89,969 93,217
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Operating loss (5,173) (6,086)
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Other income and expenses:
Interest expense 3,880 3,308
Interest and other income (2) (1,282)
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Total other income and expenses 3,878 2,026
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Loss before income taxes (9,051) (8,112)
Benefit for income taxes -- --
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Net loss $(9,051) $(8,112)
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Basic net loss per share $ (0.37) $(0.33)
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Net tons shipped 262,801 284,493
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The accompanying notes are an integral part
of the unaudited consolidated financial statements
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NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
October 31, July 31,
2000 2000
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ASSETS
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 307 $ 1,250
Receivables, less allowance of $1,419 and $
1,441 respectively 31,681 33,245
Income tax receivable 51 266
Other assets 4,327 3,387
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36,366 38,148
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Inventories, at lower of cost or market:
Finished products 28,497 28,031
Semi-finished products 9,448 10,562
Raw materials and supplies 3,867 6,382
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41,812 44,975
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Total current assets 78,178 83,123
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PLANT AND EQUIPMENT, at cost 343,725 341,309
Accumulated depreciation 190,139 186,513
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Net plant and equipment 153,586 154,796
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DEFERRED FINANCING COST 877 1,049
OTHER ASSETS 22,821 20,878
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Total assets $ 255,462 $ 259,846
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 36,074 $ 33,368
Accrued expenses 30,043 28,043
Current portion of long term debt 115,047 115,012
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Total current liabilities 181,164 176,423
LONG TERM DEBT 33,783 34,236
OTHER LONG TERM LIABILITIES 85,997 85,618
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Total liabilities 300,944 296,277
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, par value $1 per share:
- Authorized - 1,000,000 shares
- Issued - none -- --
Common stock, par value $.01 per share:
- Authorized - 75,000,000 shares
- Issued - 24,905,424 shares 123,973 123,973
Retained deficit (164,130) (155,079)
Minimum pension liability - -
Treasury shares, at cost; 420,601 shares (5,325) (5,325)
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Total shareholders' equity (45,482) (36,431)
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Total liabilities and shareholders' equity $ 255,462 $ 259,846
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The accompanying notes are an integral part
of the unaudited consolidated financial statements
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NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
October 31,
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2000 1999
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(Unaudited)
(In thousands of dollars)
Cash Flows From Operations:
Net loss $ (9,051) $ (8,112)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities
Depreciation 3,626 3,264
Loss on sale of plant and equipment -- (995)
Amortization of deferred financing costs and debt discount 893 279
Income tax receivable 215 --
Decrease (Increase) in receivables 1,564 (4,667)
Decrease (increase) in inventories 3,164 (3,790)
(Increase) decrease in other current assets (940) 1,003
Increase in other long term assets (1,943) (3,812)
Increase in accounts payable and accrued expenses 321 11,510
Increase in other long term liabilities 381 616
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Net cash used in operations (1,770) (4,704)
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Cash Flows From Investing Activities:
Capital expenditures (2,412) (8,093)
Proceeds from sale of plant and equipment -- 2,195
Decrease in restricted cash -- 2,060
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Net cash used in investing activities (2,412) (3,838)
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Cash Flows From Financing Activities:
Payments of long term debt (35,372) (19,626)
Payments for deferred financing fees (659) (891)
Proceeds from issuance of long term debt and revolver loans 34,920 --
Cash overdraft 4,350 --
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Net cash provided by (used in) financing activities 3,239 (20,517)
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(Decrease) provided by in cash and cash equivalents (943) (29,059)
Cash and Cash Equivalents:
Beginning of period 1,250 39,415
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End of period $ 307 $ 10,356
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Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During the Period For:
Interest $ 979 $ 189
Income taxes (215) -
The accompanying notes are an integral part
of the unaudited consolidated financial statements
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NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts are in thousands except share data)
1. These consolidated financial statements included herein should be read
together with the fiscal 2000 audited financial statements and notes included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
2. The Consolidated Financial Statements as of October 31, 2000 and July 31,
2000 and for the three month periods ended October 31, 2000 and 1999 have not
been audited. However, the Company believes the information reflects all
adjustments which, in the opinion of management, are necessary to present fairly
the results shown for the periods indicated. Management believes all adjustments
were of a normal recurring nature, except those noted below.
3. Basic net loss per share amounts, as presented on the Consolidated
Statements of Operations, are based on the weighted average actual shares
outstanding of 24,484,823 for the three months ended October 31, 2000 and 1999.
Only basic net loss per share was presented for each period since the impact for
options issued pursuant to the various Company stock option plans is
anti-dilutive.
4. An income tax provision or benefit is recorded by estimating the annual
effective income tax rate and applying that rate to pretax income or loss. No
tax benefit was recorded for the three months ended October 31, 2000 and 1999.
5. Effective October 5, 1999 the Company entered into a new revolving credit
facility ("New Credit Facility") for $65,000 with Fleet Capital Corporation. As
of October 31, 2000, the Borrowing Base was equal to $48,850 with borrowings of
$33,112. The amount which the Company could borrow was reduced by $10,188 in
letters of credit and a $5,000 hold-back, leaving $550 available to borrow on
October 31, 2000. At October 31, 2000, the Company was in compliance with its
bank covenants. The Company is required to submit weekly Borrowing Base
Certificates when availability falls below $20,000. Most recently, the weekly
Borrowing Base Certificates have been required to be adjusted on a daily basis
to reflect the impact of prior day collections and sales in order to determine
the daily borrowing capacity. As of December 12, 2000, Fleet Capital Corporation
reduced the amount of the hold-back from $5,000 to $3,000. On December 19, 2000,
the Borrowing Base was equal to $40,598 with borrowings of $26,962. The amount
which the Company could borrow was reduced by $10,188 in letters of credit and
$3,000 hold-back, leaving the Company with $448 available to borrow as of
December 19, 2000. At December 19, 2000, the Company was in compliance with its
bank covenants. As the Borrowing Base Certificates are adjusted on a daily basis
to reflect the impact of prior day collections and sales, the availability on
the revolving line of credit may change in the near term.
6. The Company currently has $115 million of senior notes scheduled to be
redeemed on June 15, 2001 (the "Senior Notes"). The Company failed to make its
interest payment of $5.5 million to the holders of the Senior Notes on December
15, 2000. The failure to pay interest will cause a default under the Senior
Notes indenture agreement unless cured in 30 days from the date due.
The Company, as described in its most recent annual report on Form 10-K,
has been trying to implement its strategic plan to modernize its facilities
while at the same time has been experiencing a
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liquidity shortage largely caused by steel market conditions. Also stated in the
Form 10-K, the Company has attempted to enroll the assistance of its critical
vendors to continue to ship goods on credit terms while taking secured notes in
return for past amounts due. While several of the Company's vendors expressed a
willingness to help, there were not a sufficient number for the Company to
continue to operate at the current mill's capacity.
As a result the Company filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court for
the Northern District of Illinois, located in Rockford, Illinois on December 19,
2000. The Company expects to continue to operate in the ordinary course during
the reorganization proceeding and file a reorganization plan shortly. It is
anticipated that such plan will include a substantial restructuring of the
Company's balance sheet. While the Company recognizes that a successful
reorganization will require negotiations with all of its major constituencies,
including its bondholders, lenders and union, the Company anticipates that its
plan will have the support of those constituencies. Accordingly, the Company
hopes to emerge from Chapter 11 by June 2001. As a result of the Chapter 11
filing, the Company has also terminated its exchange and consent solicitation
relating to its Senior Notes.
In order to continue to operate the mill Fleet Capital Corporation has
agreed, subject to the Bankruptcy Court's approval, to release the current
hold-back of $3,000 for debtor-in-possession financing and to increase the
amount available under the Credit Facility by an additional $2,000 on
February 1, 2001, subject to the Company satisfying certain conditions. In
addition, the Company is still seeking additional loans from the State of
Illinois and a junior secured lender in the combined amounts of $6,000 to
$20,000.
The Company continues to believes that constructing the new mill is
necessary for its long term viability and plans to continue to seek financing in
order to take advantage of the government guarantee. Continued adverse steel
market conditions and the bank loan market's concerns over the specific terms of
the Steel Loan Guarantee have prevented the completion to this date of any
financing to any steel producer under the Steel Loan Guarantee Program.
Nevertheless, recent changes in the regulations under the Guarantee Program have
encouraged the Company to continue to seek a financing transaction under that
federal program. However in order to take advantage of the Steel Loan Guarantee
Program the Company will have to file a new application due to the change in its
circumstances since it filed the application which was approved in August 2000.
With the continued support of the Company's employees, suppliers, customers
and creditors, the Company believes that it can emerge from Chapter 11 in a
short time as a financially stable competitor in its market.
7. The Company is subject to a broad range of federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and/or hazardous wastes and the
remediation of contamination associated with releases of hazardous substances.
Primarily because the scrap melting process produces dust that contains low
levels of lead and cadmium, the Company is classified, in the same manner as
other similar steel mills in its industry, as a generator of hazardous waste.
The Company has been cited by the U. S. Environmental Protection Agency
("USEPA") for alleged violations of the 1990 Clean Air Act ("CAA") and other
requirements at its Sterling furnace operations. The Company settled this claim
on November 16, 2000. The agreement requires the Company to pay a civil penalty
of approximately $435 and achieve and maintain compliance with the CAA through
capital expenditures that the Company has submitted and subsequently completed
as of
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October 31, 2000 totaling $12,630. Upon execution of the consent decree by
USEPA, which occurred on October 8, 2000, the Company was required to idle #6
furnace. The #7 furnace is permitted by the Illinois Environmental Protection
Agency ("IEPA") to operate, but is currently idle. The recently installed #8
furnace is currently operating on a construction permit from the IEPA that
expires in April 2001. After completion of testing to be performed in the next
few months, the Company anticipates that #8 furnace will be permitted under the
Company's existing Title V permit.
Based on continuing review of applicable regulatory requirements by the
Company's internal environmental compliance manager and advice from independent
consultants, the Company believes that it is currently in substantial compliance
with applicable environmental requirements, except as noted in the Company's
fiscal 2000 Annual Report on Form 10-K for Commitments and Contingencies.
8. The Company is currently a party of an OSHA complaint from August 1998
regarding potential overloading of a crane. The Company has taken corrective
action and a hearing was held in November 1999 seeking a resolution of the
complaint. The case has been resolved, resulting in a settlement of
approximately $300 in fines payable over the following three fiscal years. As of
October 31, 2000, this settlement has been fully reserved for in the financial
statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included as Item 7 of Part II of the Company's Annual Report on Form 10-K for
the year ended July 31, 2000.
FORWARD LOOKING INFORMATION
Except for historical information, matters discussed in this Item 2 contain
forward-looking information and describe the Company's belief concerning future
performance, business conditions and outlook based on currently available
information. The Company has identified these "forward-looking" statements by
words such as "anticipates", "expects", "believes", "estimates", and "appears"
and similar expressions. Risk and uncertainties which could cause actual results
of performance to differ materially from those expressed herein including the
following: a significant downturn in the domestic steel industry generally;
unanticipated material problems directly affecting the Company; volumes of
production and product shipments; changes in product mix and pricing; costs of
scrap steel and other raw material inputs; changes in domestic manufacturing
capacity; the level of non-residential construction and overall economic growth
in the United States; the level of imported products in the Company's markets;
changes in legislative or regulatory requirements; the ability to have the new
furnace become fully operational and to perform in accordance with
specifications; the need to modernize or replace the Company's exiting rolling
mills; the need to have vendors continue to supply the Company with goods and
services during the bankruptcy proceeding; the ability to have the Company's
reorganization plan approved; and the Company's ability to improve its current
liquidity shortage. The Company assumes no obligation to update the information
contained herein.
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RESULTS OF OPERATIONS
Net sales for the Company were $84.8 million on shipments of 262,801 net
tons for the three months ended October 31, 2000, compared to $87.1 million on
shipments of 284,493 net tons for the three months ended October 31, 1999.
The Company recorded a net loss for the quarter of $9.1 million, or $.37
per share. In the first quarter of the prior year, the Company recorded a net
loss of $8.1 million, or $.33 per share, which included expenses of
approximately $1.0 million, or $.04 per share associated with the anticipated
new mill construction.
Tons shipped in the quarter decreased approximately 8% compared to the
prior year period. The Company's bar and structural product volume decreased
approximately 5% while the Company's rod & wire product volume declined by
approximately 12% in comparison to the first quarter shipments of the prior
fiscal year. All of the Company's product lines have been experiencing intense
pressure from imports.
Pricing of the Company's bars and structural products, overall, were
approximately 9% stronger than the first quarter of the prior year. However,
recently announced price decreases of approximately 5% for bars and structurals
combined will be eroding the gains made in the last year. During the first
quarter of fiscal 2001, the Company continued to see elevated import levels of
foreign steel in its rod markets. The import presence has negatively impacted
product shipments and pricing for rods shipped during the three months ended
October 31, 2000. Pricing for the Company's rod products remained depressed and
are approximately the same as last year's first fiscal quarter.
Cost of goods sold, excluding depreciation, as a percentage of net sales
for the three-month period ended October 31, 2000 decreased to 98.9% compared to
the prior year at 99.3%. During the first quarter of the prior year, the Company
recorded expenses related to the new mill of $1,042. On September 4, 2000, the
transformer for #8 furnace failed, causing the Company to run short of
semi-finished steel production. The Company subsequently requested and received
permission from the IEPA to re-start #6 furnace for the period from September
11, 2000, until October 8, 2000. The Company started up #7 furnace on September
16, 2000, to supplement #6 furnace during the outage on #8 furnace. The Company
has a spare transformer for #8 furnace, which was installed and #8 re-started on
October 14, 2000. Due to the furnace issues previously discussed, the Company
was forced to reduce operations during September, despite the purchase of 10,000
tons of semi-finished billets.
Depreciation expense increased for the first quarter of fiscal 2001 with
expenses of $3.6 million in comparison to the prior year's first quarter expense
of $3.3 million. The increase for the current quarter is due primarily to the
completion of #8 furnace in February 2000.
For the quarter ended October 31, 2000, selling and administrative expense
was $2.5 million compared to $3.4 million in the prior fiscal year period The
decrease for the current three month period is due primarily to decreased
professional fees related to the efforts by the Company to restructure its
existing $115 million senior notes.
The operating loss recorded for the quarter ended October 31, 2000 was $5.2
million compared to a $6.1 million loss in the prior year. The
quarter-to-quarter change resulted primarily from the decreased professional
fees related to the efforts by the Company to restructure its existing senior
notes.
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Interest expense was $3.9 million for the quarter ended October 31, 2000
compared to $3.3 million in the prior fiscal year period, primarily due to
increased borrowings on the New Credit Facility.
No tax benefit was recorded for the three months ended October 31, 2000,
and October 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Funds for the Company's operational needs have been provided from
internally generated cash and borrowings against the New Credit Facility. As of
October 31, 2000, total liquidity, comprising cash, cash equivalents and funds
available under the Company's credit facility, was $.9 million compared to $4.6
million at July 31, 2000. The decrease in liquidity primarily resulted from a
decrease in operating margins.
The Company used cash in operations of $1.8 million in the first three
months of fiscal 2001 compared to operations using cash of $4.7 million in the
prior year period. The change from the prior year is largely attributable to
reduced working capital requirements resulting from decreases in inventory and
receivables.
Net cash used in investing activities amounted to $2.4 million in the first
three months of fiscal 2001 compared to $3.8 million in the prior year period.
The decrease is largely attributable to a reduction in capital spending as the
Company spent significant funds on engineering for its new structural rolling
mill and a new #8 furnace in the three months ended October 31, 1999.
Net cash from financing activities for the three months ended October 31,
2000 was $3.2 million. This was significantly higher than the prior year period,
primarily due to increased borrowings in the first quarter of fiscal 2001. In
addition, in the prior year quarter, the Company paid down $19.6 million on the
old revolving credit loan with Chase at the time of the completion of the new
revolving line with Fleet Bank.
On October 5, 1999 the Company entered into a new revolving credit facility
("Credit Facility") for $65 million with Fleet Capital Corporation. As of
October 31, 2000, the Borrowing Base was equal to $48.9 million, with borrowings
of $33.1 million. The amount which the Company could borrow was reduced by $10.1
million in letters of credit and a $5.0 million hold-back, leaving $.6 million
available to borrow on October 31, 2000. At October 31, 2000, the Company was in
compliance with its bank covenants. The Company is required to submit weekly
Borrowing Base Certificates when availability falls below $20.0 million. Most
recently, the weekly Borrowing Base Certificates are adjusted on a daily basis
to reflect the impact of prior day collections and sales in order to determine
borrowing capacity on a daily basis. As of December 12, 2000, Fleet Capital
Corporation reduced the amount of the hold-back from $5.0 million to $3.0
million. On December 19, 2000, the Borrowing Base was equal to $40.6 million
with borrowings of $27.0 million. The amount which the Company could borrow was
reduced by $10.2 million in letters of credit and $3.0 million hold-back,
leaving the Company with $.4 million available to borrow. At December 19, 2000,
the Company was in compliance with its bank covenants. As the Borrowing Base
Certificates are adjusted on a daily basis to reflect the impact of prior day
collections and sales, the availability on the revolving line of credit may
change in the near term.
The Company currently has $115 million of senior notes scheduled to be
redeemed on June 15, 2001 (the "Senior Notes"). The Company failed to make its
interest payment of $5.5 million to the
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holders of the Senior Notes on December 15, 2000. The failure to pay interest
will cause a default under the Senior Notes indenture agreement unless cured in
30 days from the date due.
The Company, as described in its most recent annual report on Form 10-K,
has been trying to implement its strategic plan to modernize its facilities
while at the same time has been experiencing a liquidity shortage largely caused
by steel market conditions. Also stated in the Form 10-K, the Company has
attempted to enroll the assistance of its critical vendors to continue to ship
goods on credit terms while taking secured notes in return for past amounts due.
While several of the Company's vendors expressed a willingness to help, there
were not a sufficient number for the Company to continue to operate at the
current mill's capacity.
As a result the Company filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court for
the Northern District of Illinois, located in Rockford, Illinois on December 19,
2000. The Company expects to continue to operate in the ordinary course during
the reorganization proceeding and file a reorganization plan shortly. It is
anticipated that such plan will include a substantial restructuring of the
Company's balance sheet. While the Company recognizes that a successful
reorganization will require negotiations with all of its major constituencies,
including its bondholders, lenders and union, the Company anticipates that its
plan will have the support of those constituencies. Accordingly, the Company
hopes to emerge from Chapter 11 by June 2001. As a result of the Chapter 11
filing, the Company has also terminated its exchange and consent solicitation
relating to its Senior Notes.
In order to continue to operate the mill Fleet Capital Corporation has
agreed, subject to the Bankruptcy Court's approval, to release the current
hold-back of $3.0 million for debtor-in-possession financing and to increase the
amount available under the Credit Facility by an additional $2.0 million on
February 1, 2001, subject to the Company satisfying certain conditions. In
addition, the Company is still seeking additional loans from the State of
Illinois and a junior secured lender in the combined amounts of $6.0 million to
$20.0 million.
The Company continues to believes that constructing the new mill is
necessary for its long term viability and plans to continue to seek financing in
order to take advantage of the government guarantee. Continued adverse steel
market conditions and the bank loan market's concerns over the specific terms of
the Steel Loan Guarantee have prevented the completion to this date of any
financing to any steel producer under the Steel Loan Guarantee Program.
Nevertheless, recent changes in the regulations under the Guarantee Program have
encouraged the Company to continue to seek a financing transaction under that
federal program. However in order to take advantage of the Steel Loan Guarantee
Program the Company will have to file a new application due to the change in its
circumstances since it filed the application which was approved in August 2000.
With the continued support of the Company's employees, suppliers, customers
and creditors, the Company believes that it can emerge from Chapter 11 in a
short time as a financially stable competitor in its market.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 in the Notes to the Consolidated Financial Statements.
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Item 3. Defaults Upon Senior Securities
The Company failed to make its interest payment of $5.5 million to the
holders of the Senior Notes on December 15, 2000. The failure to pay interest
will cause a default under the Senior Notes indenture agreement unless cured in
30 days from the date due.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 - Financial Data Schedule
99.1 - Press Release dated December 20, 2000
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWESTERN STEEL AND WIRE COMPANY
By: /s/ Thomas M. Vercillo
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Thomas M. Vercillo
Vice President and Chief Financial Officer
(Principal Financial Officer)
December 20, 2000
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EXHIBIT INDEX
Exhibit No. Description
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27.1 Financial Data Schedule
99.1 Press Release dated December 20, 2000
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