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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1996
/ / TRANSITION REPORT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4288
NORTHWESTERN STEEL AND WIRE COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS
(State or other jurisdiction of
incorporation or organization)
121 WALLACE STREET
STERLING, ILLINOIS
(Address of principal executive offices)
36-1562920
(I.R.S. Employer
Identification No.)
61081
(Zip Code)
Registrant's telephone number, including area code 815/625-2500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
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None
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
9 1/2% Senior Notes due 2001
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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 and 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K of any amendment to this Form 10-K. /X/
State the aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant: $80,844,000
Number of shares of Common Stock, par value $0.01 per share, outstanding as
of October 16, 1996: 24,881,529
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PART I
ITEM 1. BUSINESS
GENERAL
Founded in 1879, the Company is a major mini-mill producer of structural
steel products and rod and wire products. In contrast to integrated mills which
produce steel from coke and iron ore through the use of blast furnaces and basic
oxygen furnaces, mini-mills use electric arc furnaces to melt steel scrap and
cast the resulting molten steel into long strands of various shapes in a
continuous casting process. The Company's steel products include wide flange
beams, light structural shapes and merchant bars. The Company's rod and wire
products include nails, concrete reinforcing mesh, residential and agricultural
fencing and a wide range of other wire products.
The Company pioneered the use of electric arc furnaces for steelmaking,
installing its first electric arc furnace in 1936. The Company's three 400-ton
electric arc furnaces are among the world's largest, providing the Company with
considerable economies of scale in its steel scrap melting operations.
The Company's operations are located in Sterling and neighboring Rock
Falls, Illinois (the "Sterling Operations"); Houston, Texas (the "Houston
Facility"); and Hickman, Kentucky (the "Kentucky Facility"). The Sterling
Operations consist primarily of a melt shop with three 400-ton electric arc
furnaces with an annual scrap melting capacity in excess of 2.4 million tons,
two ladle metallurgical furnaces, three continuous casters, three rolling and
finishing mills and the Company's nail and wire operations. The Houston Facility
consists of a wide flange beam rolling and finishing mill. The Kentucky Facility
is the Company's newest operation which produces concrete reinforcing mesh. The
Company's continuous casters have sufficient capacity to cast semi-finished
steel for all of the Company's rolling and finishing mills.
OPERATIONS
The Company's operations constitute one line of business with several
classes of products. Operations are divided into the Steel Division and the Rod
and Wire Products Division.
The Steel Division produces raw steel using the electric arc furnace
process. Semi-finished steel is made by continuously casting into billets,
blooms and beam blanks.
Finished products are rolled from the semi-finished steel through a series
of reduction mill processes. Such products include wide flange beams, channel
and angle products and merchant bar and bar shapes, which are sold nationally to
steel fabricators, distributors and original equipment manufacturers, including
industrial and agricultural machinery manufacturers. The Company sells its
output principally through Company personnel and independent sales agents to
customers located throughout the United States. In addition, semi-finished
products are sold to other steel producers.
The Rod and Wire Products Division produces rods for use in drawing to
various wire gauges to produce nails, fence and a wide range of other fabricated
wire products for shipments to hardware jobbers, agricultural cooperatives and
the construction industry.
CUSTOMERS AND MARKETS
Structural steel products are used in a variety of commercial, industrial
and residential construction applications, as well as infrastructure projects,
such as roads and bridges, and public sector construction, such as schools and
hospitals. In construction applications, structural steel products are used as
beams, columns and girders which form the support structure of a building. In
infrastructure construction, structural forms are combined to form bridge
trusses and vertical highway supports. Original equipment manufacturers use
light structural shapes in the fabrication of heavy equipment.
Approximately one-half of the Company's steel rod production is utilized in
the manufacture of the Company's rod and wire products, while the remaining
one-half of the Company's rod production is sold to other manufacturers of rod
and wire products. The Company sells its rod and wire products largely to
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hardware jobbers, agricultural cooperatives, hardware and other retailers
serving the do-it-yourself market and the construction industry in the upper
Midwest region of the United States. Manufacturers' wire is sold directly to
manufacturers of a variety of products, such as fan guards, automotive door
rods, shopping carts and dishwasher baskets. The Company believes that it is the
largest single-site manufacturer of nails in the United States.
The Company addresses the needs of its markets through enhanced customer
focus achieved through a variety of initiatives. These initiatives include
dedicated market sector sales groups, customer-direct computer access, on-time
delivery improvement programs and customer-friendly production cycles.
CAPITAL IMPROVEMENTS
Over the years, the Company has improved many of its steel manufacturing
operations. At the Sterling Operations, capital improvements have included the
modernization of the 12 bar mill into a high-speed rod mill and the
modernization of the 14 rolling mill. Melt shop improvements at the Sterling
Operations have included construction and installation of a billet caster, a
bloom caster and a beam blank caster which permits the Company to continuously
cast 100% of its product. Other melt shop improvements have included the
installation of a second ladle metallurgical station, low impedance arms,
upgraded transformer and ladle transfer cars.
In the last three years the Company has invested approximately $95 million
in capital improvements. Projects placed in service during that time include a
second ladle metallurgical station to eliminate production bottlenecks, a
state-of-the-art high voltage transformer that reduces the time needed to
produce a ton of steel, improved furnace controls, a twin line high-speed
reinforcing mesh facility (the Kentucky Facility), an in-line rod gauging system
to improve quality, an electrical system upgrade at the Houston Facility to
increase mill throughput, a mechanical nail galvanizing facility and a
healthcare clinic to help control rising health care costs. The Company believes
that these improvements have enabled it to lower its cost for both its
structural steel products and rod and wire products.
RAW MATERIALS
The Company's major raw material is steel scrap, which is generated
principally from industrial, automotive, demolition and railroad sources and is
purchased by the Company in the open market through a number of scrap brokers
and dealers or by direct purchase. The cost of scrap is subject to market forces
including demand by other steel producers for comparable grades of scrap. The
cost of scrap to the Company can vary significantly, and product prices
generally cannot be adjusted in the short-term to recover large increases in
steel scrap costs. Over longer periods of time, however, product prices and
scrap prices have tended to move in the same direction.
The long term demand for ferrous scrap and its importance to the domestic
steel industry can be expected to increase as steelmakers continue to expand
scrap-based electric furnace capacity with additions to or replacements of
existing integrated facilities. For the foreseeable future, however, the Company
believes that supplies of scrap grades used in its operations will continue to
be available in sufficient quantities.
ENERGY
Steelmaking is an electricity-intensive industry. Historically, the Company
has been adequately supplied with electricity and does not anticipate any
curtailment in its operations resulting from energy shortages. The Company's
second largest source of energy is natural gas. Historically, the Company has
been adequately supplied with natural gas and an adequate supply is expected to
be available in the future.
COMPETITION
The Company competes with a number of domestic and foreign mini-mill and
integrated steel producers. In the structural steel market, the Company believes
its principal competitors are Bethlehem Steel Corporation, an integrated steel
producer, and Chaparral Steel Co. and Nucor-Yamato Steel Company, both
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of whom use an electric arc furnace-based steelmaking process. The Company has
attempted to differentiate itself from its mini-mill competitors by taking
advantage of its ability to supply "cut to length" quantities and higher value
added services to the steel fabricator market. Integrated producers generally
operate at a competitive disadvantage to domestic mini-mill producers because of
less efficient production techniques and higher labor costs. A relatively weak
dollar and high shipping costs had reduced foreign exports of structural steel
products to the United States in the past several years. More recently, a
strengthening dollar and relatively strong U.S. construction market compared to
other world markets has led to higher levels of imported steel products.
According to the American Iron and Steel Institute, ("AISI"), the size of
the U.S. structural steel market was approximately 6.3 million tons in calendar
1995. Because of their cost disadvantage, domestic integrated producers have
reduced their structural steel production. This supply has been replaced by
domestic mini-mills and imported steel products. Although integrated producers
have been reducing their production levels, the Company believes that the market
for structural steel products will increase, as the use of structural steel is
expanding in various construction applications, replacing traditional materials
such as concrete, because of the flexibility and strength of steel products and
structural steel's speed of installation and resistance to earthquake damage.
Based on information published by the AISI, the Company believes that its share
of shipments by domestic mills in the U.S. structural steel market was
approximately 16% for fiscal 1996. Within the market for wide flange beams, the
Company believes its share of domestic mill shipments in the U.S. market was
approximately 24% for fiscal 1996, based on information published by the AISI.
The market for rod and wire products in which the Company competes is
generally confined to the upper Midwest region of the United States in which the
Sterling Operations are located. This confinement results from the relatively
high freight costs as compared to product values. The Company's competitors in
the rod market include G.S.T., CF&I Steel L.P. ("CF&I"), Keystone Steel & Wire
Co. ("Keystone") and North Star Steel Co. The Company's competitors in the wire
market include Bekaert Corp., CF&I, Keystone, Insteel Industries, Inc., and
Oklahoma Steel Corp.
BACKLOG
As of September 30, 1996, order backlog, all of which is expected to be
filled in fiscal 1997, totaled approximately $63 million compared with
approximately $96 million as of September 30, 1995. The decrease in order
backlog is primarily in the Company's large structural products. The Company
believes that the decrease in order backlog reflects shorter lead times as
supply and demand were more balanced as compared to tight market conditions in
the prior year. In addition, the uncertainty of production and shipping
schedules related to labor negotiations in late July 1996, resulted in lower
order levels for large structural products.
SALES BY DIVISION
During the fiscal years ended July 31, 1996, 1995 and 1994 no single
customer accounted for more than 10% of total dollar net sales. Sales to the
Company's ten largest customers accounted for approximately 22% of total net
sales in fiscal 1996. Total foreign sales accounted for approximately 2% of
total fiscal 1996 net sales.
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For the fiscal years indicated below, the approximate percentage of net
sales contributed by each class of similar products is as follows:
1996 1995 1994
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Steel Division
Structural.......................................... 59.3% 52.5% 52.1%
Merchant bar........................................ 8.2 11.8 9.9
Semi-finished....................................... 5.0 3.7 6.7
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72.5 68.0 68.7
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Rod and Wire Products Division
Wire Products....................................... 17.7 20.0 21.8
Rod................................................. 9.8 12.0 9.5
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27.5 32.0 31.3
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Total............................................ 100.0% 100.0% 100.0%
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EMPLOYEES
As of July 31, 1996, there were approximately 2,300 active employees of the
Company, approximately 2,000 of which are members of five collective bargaining
units. The majority are members of two local unions affiliated with the United
Steelworkers of America ("USWA"), and the remainder represented by one local
union affiliated with the United Plant Guard Workers of America and one local
union affiliated with the International Brotherhood of Teamsters. The Company is
party to collective bargaining agreements with the USWA with respect to
employees in Sterling and Rock Falls, Illinois, and Houston, Texas, which
agreements expire on August 1, 2000. Certain employees at the Hickman, Kentucky
facility are also represented by the USWA. The two remaining bargaining units
are party to collective bargaining agreements with the Company, each of which
expires in fiscal 1997.
Through the ESOP and defined contribution savings plans, employees of the
Company currently own approximately 17% of the outstanding Common Stock.
ENVIRONMENTAL COMPLIANCE
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 melting process at the Sterling Operations produces dust
that contains 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.
Based on continuing review of applicable regulatory requirements by the
Company's internal environmental compliance officer and advice from independent
consultants, the Company believes that it is currently in substantial compliance
with applicable environmental requirements, except as described below.
Nevertheless, as is the case with steel producers in general, if a release of
hazardous substances located on the Company's property occurs, the Company may
be held liable and may be required to pay the cost of remedying the condition.
The amount of any such liability and remedial cost could be material. During
fiscal 1997 the Company is anticipating capital expenditures of approximately
$2.3 million for environmental controls consisting of an upgrade to the
particulate emission collection system, Phase II of the landfill expansion and
equipment upgrades for waste water discharge treatment.
The Company possesses air emission permits for all major operations. New
rules to be adopted under amendments to the 1990 Clean Air Act ("CAA") may
impose significantly stricter air emissions standards on the Company. The
Company has applied for an air permit under Title V of the CAA. Because
regulations applicable to the Company's operations have not yet been promulgated
under the CAA, the Company cannot
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at this time determine the cost to comply with the new regulations. Because
these standards will also apply to the Company's domestic competitors, they
should not materially affect the Company's competitive position.
The Company has been cited by the United States Environmental Protection
Agency (USEPA) for alleged violations of clean air standards and other
requirements at it Sterling furnace operations. As part of its ongoing
environmental compliance program, the Company will make a capital expenditure of
approximately $1.3 million in fiscal 1997 to upgrade the particulate emission
collection system in the furnace area. The Company is also studying additional
alternatives to improve emission control and address issues raised by the USEPA.
The cost of further remedial steps and potential penalties imposed by the USEPA,
if any, cannot be determined at this time.
The Resource Conservation and Recovery Act ("RCRA") regulates the disposal
of emission control sludge/dust from electric arc furnaces ("K061"), a waste
stream generated in significant quantities at the Sterling Operations. The
Company is complying with RCRA with respect to K061 by using a third party to
chemically stabilize this waste before its disposal. Fiscal 1996 expenses in
connection with such services were approximately $4.5 million. This chemical
stabilization process allows the Company to use the fully permitted hazardous
waste landfill at the Sterling Operations for disposal of the stabilized K061.
In 1994, the Company received a modification to its Part B RCRA permit from
the Illinois EPA to allow an expansion to its hazardous waste landfill. Phase II
of the expansion will be conducted during fiscal 1997. The Company also operates
an on-site non-hazardous waste landfill. The Company expects to close this
landfill site in fiscal 1998. The Company has established reserves for landfill
closure costs.
The Company has occasionally exceeded the limits of its wastewater
discharge permit at its Sterling Operations. The Company believes that modified
operating procedures and certain equipment upgrades should eliminate the waste
water discharge concerns of the State of Illinois and the EPA.
The Company has been identified by the Illinois Environmental Protection
Agency (IEPA) as one of eighteen potentially responsible parties for costs
associated with a third party owned disposal site. The IEPA is likely to seek
compensation from the Company as an alleged waste generator for recovery of past
costs and future remediation of the waste site. Under Illinois law, the
Company's share of liability can be limited to its proportionate share based
upon causation of the total cost of the site. Based on data available, the
Company's share will be a smaller fraction of the total site clean up costs,
however no determination of total cost for remediation can be made at this time.
PATENTS AND TRADEMARKS
The Company holds no patents, trademarks, licenses, franchises or
concessions of material importance to its business.
ENTERPRISE ZONE DESIGNATION
In 1988, the Company's property was designated to be within an Illinois
Enterprise Zone ("Enterprise Zone") by the Illinois Department of Commerce and
Community Affairs. The primary benefit to the Company of operating within an
Enterprise Zone is the receipt of a state utility tax exemption on gas and
electricity as well as an exemption on the Illinois Commerce Commission's
administrative charge on these utilities. The Company has been able to
demonstrate sufficient capital spending and thus is entitled to the utility tax
exemption through July 31, 1998. This utility tax exemption is expected to save
the Company approximately $2.0 million to $2.5 million per year through July 31,
1998.
An additional benefit to the Company of operating within the Enterprise
Zone is the receipt of a state sales tax exemption on the purchase of consumable
manufacturing supplies. Eligibility for the sales tax exemption was contingent
upon the Company making a $40 million investment that causes the retention of
2,000 full time jobs in Illinois. The Company has been able to demonstrate
sufficient capital spending and thus is entitled to the sales tax exemption
through June 30, 2000. This sales tax exemption is expected to save the Company
approximately $300,000 to $400,000 per year through June 30, 2000.
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ITEM 2. PROPERTIES
The executive offices of the Company and its steel producing facilities,
designated as Plants 1, 2, 3, 5, and 6, are located on approximately 596 acres
of land along the Rock River in Sterling, Illinois, and Plant 4 is on 8 acres of
land located directly across the river in Rock Falls, Illinois. The Houston
Facility is located on approximately 180 acres of land in Houston, Texas. The
Kentucky Facility is located on approximately 60 acres of land in Hickman,
Kentucky.
Plant 1, comprising 641,081 square feet of floor space, consists of a wire
mill with equipment for drawing, galvanizing and annealing wire, and machinery
for manufacturing fence, netting, nails and other wire products.
Located in Plant 2 are liquid metal producing facilities, with 2,400,000
tons annual capacity, consisting of three 400-ton electric furnaces. Also
located at Plant 2 is a six-strand bloom continuous caster, an eight-strand
billet continuous caster and a three-strand jumbo beam caster having a combined
annual capacity of 2,500,000 tons, and a 12 rod train having an annual capacity
of 400,000 tons. At present, this plant comprises 961,318 square feet of floor
space.
Plant 3 consists of a 24 structural mill, with a total annual capacity of
440,000 tons. The plant comprises approximately 900,000 square feet of floor
space.
Manufacturing facilities for the production of welded wire products are
located at the Rock Falls Plant 4, which consists of 397,880 square feet.
The 14 merchant bar mill, comprising 434,740 square feet and having an
annual capacity of 400,000 tons, is located at Plant 5.
Plant 6 consists of 48,304 square feet of floor space and is currently
idle.
The Houston Facility consists of a wide flange structural mill and
comprises approximately 860,000 square feet of floor space. The total annual
capacity of the mill is 600,000 tons. The Houston Facility consists generally of
a 48 wide flange beam finishing mill, a barge dock, and the corresponding real
property on which these structures are located.
The Kentucky Facility consists of a manufacturing facility for the
production of concrete reinforcing mesh. The facility comprises approximately
192,000 square feet of floor space and has an annual capacity of 80,000 net
tons.
All buildings are owned by the Company and are of steel, brick or concrete
construction. The Company believes that its plants and equipment are in good
operating condition.
Pursuant to the Company's existing credit facility, the Company has granted
mortgages on all of the Company's real estate and security interests in its
other assets, including equipment and fixtures.
ITEM 3. LEGAL PROCEEDINGS
In September 1996, the Company and the Illinois Industrial Commission (The
"Commission") reached agreement regarding the amount of security to be posted by
the Company to maintain the Company's self-insurance workers' compensation
status. The Company will post $2 million in security in October 1996, and each
year thereafter, subject to adjustment for annual changes in estimated
liability, over a four year phase-in period, at the end of which the Company is
scheduled to comply with the then current security requirement of the
Commission. Total security requirements at July 1996 approximate $7.1 million.
The Company will utilize letters of credit available under its Revolving Credit
Agreement to meet its security obligations.
The Company is not a party to any other significant pending legal
proceedings not covered by insurance, other than routine litigation incidental
to its business which the Company believes will not materially affect its
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
At October 16, 1996, 24,461,385 shares of Common Stock were issued and
outstanding and held by 1,200 registered holders.
The Company does not expect to pay dividends on the Common Stock during the
foreseeable future. The Company's Senior Credit Facility prohibits the payment
of any dividends. The indenture relating to the 9 1/2% Senior Notes due 2001 of
the Company also restricts the payment of dividends.
MARKET PRICE AND CASH DIVIDENDS
The following table presents the high and low market price by quarter for
the last two fiscal years.
QUARTER ENDED HIGH LOW
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Fiscal 1996
October 31,........................................ $10 1/8 $6 1/2
January 31,........................................ 9 1/8 6 7/8
April 30,.......................................... 9 1/8 5 7/8
July 31,........................................... 6 7/8 5
Fiscal 1995
October 31,........................................ $9 5/8 $6
January 31,........................................ 7 7/8 5 1/2
April 28,.......................................... 7 5/8 5 3/4
July 31,........................................... 10 1/4 5 7/8
As of October 16, 1996 the closing price of Common Stock on The Nasdaq
Stock Market (under the symbol NWSW) was $5 1/8. Since the initial public
offering of June 12, 1993, there have been no dividends paid on the Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED JULY 31,
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1996 1995 1994 1993 1992
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(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $661,069 $638,420 $603,609 $539,210 $470,049
Cost of goods sold (excluding
depreciation)............................ 588,774 563,325 540,701 484,122 435,953
Selling and administrative expenses........ 11,920 11,334 10,882 11,608 6,884
Operating profit........................... 35,587 40,718 29,821 21,554 5,130
Interest expense........................... 18,583 19,674 19,221 23,200 27,745
Income (loss) before income taxes,
extraordinary item and cumulative effect
of accounting change..................... 17,167 21,178 10,730 (1,522) (22,372)
Net income (loss).......................... $ 20,670(1) $ 26,978(2) $ 10,010 $(47,695)(4) $(22,372)
Income (loss) per share before
extraordinary item and cumulative effect
of accounting change..................... $ 0.83 $ 1.07 $ 0.40 $ (0.08) $ (1.72)
Net income (loss) per common share......... 0.83(1) 1.07(2) 0.40 (2.62)(4) (1.72)
OTHER DATA:
Capital expenditures....................... $ 36,269 $ 35,573 $ 22,930 $ 12,271 $ 7,119
EBITDA(3).................................. $ 60,375 $ 64,883 $ 53,148 $ 44,603 $ 28,334
Total Tons Shipped (000's)................. 1,668 1,662 1,632 1,577 1,363
Active employees........................... 2,339 2,380 2,517 2,500 2,696
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AT JULY 31,
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1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Current assets............................. $190,279 $186,045 $168,999 $144,247 $101,799
Plant and equipment -- net................. 241,189 229,708 217,178 216,515 226,170
Other assets............................... 11,050 5,655 7,999 10,896 11,853
-------- -------- -------- -------- --------
Total assets............................... $442,518 $421,408 $394,176 $371,658 $339,822
======== ======== ======== ======== ========
Current liabilities........................ $105,742 $ 96,641 $ 90,082 $ 80,889 $107,371
Long term debt............................. 153,646 162,110 166,942 164,234 199,551
Other long term liabilities................ 77,114 75,042 79,246 64,043 22,567
Deferred income taxes...................... -- 4,744 7,402 7,602 --
Shareholders' equity....................... 106,016 82,871 50,504 54,890 10,333
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity................................... $442,518 $421,408 $394,176 $371,658 $339,822
======== ======== ======== ======== ========
Working capital............................ $ 84,537 $ 89,404 $ 78,917 $ 63,358 $ (5,572)
======== ======== ======== ======== ========
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Notes for Summary of Selected Financial Data
(1) Net income included a $10.4 million or $.42 per share tax benefit due to
recognition of certain deferred tax assets which are now more likely than
not to be realized.
(2) Net income included a $10.6 million or $.42 per share tax benefit due to
recognition of certain deferred tax assets which are now more likely than
not to be realized.
(3) EBITDA is defined as operating profit plus depreciation and amortization.
The Company believes EBITDA provides additional information for determining
its ability to meet debt service requirements. EBITDA does not represent net
income or cash flow from operations as determined by generally accepted
accounting principles, and is not necessarily an indication of whether cash
flow will be sufficient to fund cash requirements.
(4) Net income included extraordinary loss of $6.4 million or $.35 per share
related to early extinguishment of debt and cumulative effect of accounting
change of $39.8 million or $2.19 per share related to adoption of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET SALES
Net sales for fiscal 1996 were $661.1 million, an increase of $22.6 million
or 4% from fiscal 1995. Revenues increased in fiscal 1996 as medium and heavy
structural products benefited from continuing strength in non-residential
construction markets and low levels of imported structural steel products.
However, import levels for such products began to increase late in the fiscal
year. Medium and heavy structural products represented 50% of revenue in 1996,
with selling prices 14% higher compared to the prior year. Volume and prices for
products in the wire, rod and small structural markets declined in 1996 due to
reduced demand. Semi-finished steel sales were higher in 1996 compared to the
prior year period, however, selling prices and margins are lower in this product
group than the Company's value-added finished products.
Net sales for fiscal 1995 increased by $34.8 million or 6% from fiscal
1994. The 6% increase in fiscal 1995 net sales resulted from several price
increases during the fiscal year on many of the Company's products, together
with a 2% increase in steel shipments. Many of the price increases resulted from
improved market conditions. Pricing of the Company's principal product,
structural steel, improved with increased demand and the announced reduction in
capacity by a major competitor.
COST OF GOODS SOLD
Cost of goods sold (excluding depreciation) as a percentage of net sales
increased from 88% in fiscal 1995 to 89% in fiscal 1996. Despite an overall
increase in selling prices, the cost of goods sold as a percentage of
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sales increased due to increases in the Company's principal raw material, steel
scrap, as well as higher other non-scrap related material costs. These cost
increases were partially offset through improved operating rates, increased
selling prices and changes in product mix through the first nine months of
fiscal 1996. However, during the final quarter of 1996, cost of goods sold as a
percentage of sales increased to almost 91% due to the impact associated with
labor negotiations and a potential work stoppage. Lower margins were also
realized in the fourth quarter due to higher costs and changes in product mix.
Total volume shipped during this period was maintained primarily through
increased levels of semi-finished sales. The uncertainty of production and
shipping schedules related to labor negotiations resulted in lower orders and
shipments of large structural products. Due to this temporary reduction in order
flow, the production schedules for structural products were impacted, resulting
in decreased operating rates and increased costs. The reduced order level at the
end of fiscal 1996 will continue to impact earnings into fiscal 1997.
Despite higher prices for steel scrap in fiscal 1995, cost of goods sold
(excluding depreciation) as a percentage of net sales decreased from 90%
experienced in fiscal 1994 to 88% for fiscal 1995. This resulted from a
combination of improved operating efficiencies and increased selling prices.
Improved Sterling Operations operating efficiencies resulted from increased
capacity utilization and workforce reductions. Record production levels were
achieved in semi-finished products from the Company's primary facility and rod
products from the 120 Mill. These record production levels were achieved while
remaining on plan to reduce the Company's hourly and salaried workforce by 20%
from fiscal 1993 to fiscal 1996. Continued improvements in production costs at
the Houston Facility resulted from increased yield and operating rates. As a
result of these increases, the Houston Facility achieved record production
levels in fiscal 1995. Selling prices improved from increased market demand in
conjunction with emphasis on higher value-added products and customer service.
DEPRECIATION
Capital expenditure spending levels during fiscal 1996 and 1995 represent
an increase of more than twice the prior two year period. Depreciation expense
increased $1.7 million in 1996 compared to the prior year as a result of this
higher spending level.
Fiscal 1995 depreciation expense was $23.0 million compared to $22.2
million for 1994 when the Company embarked on an increased capital expenditure
program.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were $11.9 million in fiscal 1996
compared to $11.3 million in the prior year. The increase resulted primarily
from increased professional fees related to labor negotiations and other legal
matters, as well as settlement of non-income related tax matters. During fiscal
1995, the Company settled a wrongful death action for which previously
established reserves were not required as the losses arising from the complaint
were covered by the Company's insurance carriers.
Selling and administrative expenses increased from $10.9 million in fiscal
1994 to $11.3 million in fiscal 1995. The increase resulted primarily from an
increase in management incentive program expense. These incentives are based on
the Company's achieved versus planned profitability for the fiscal year.
OPERATING PROFIT
Operating profit decreased almost 13% in fiscal 1996 compared to fiscal
1995 due primarily to the impact of labor negotiations and a potential work
stoppage. Through the first three quarters of fiscal 1996, operating profit was
virtually unchanged from the same period in the prior year. During the final
quarter of 1996, operating profit was down 43% compared to the same period in
1995.
Operating profit increased 37% in fiscal 1995 to $40.7 million from $29.8
million in fiscal 1994. These increases were a result of cost reductions due
principally to increased capacity utilization and workforce reductions. Also
contributing to the improvement was revenue growth. Increased revenue resulted
from
10
11
improved market demand, product penetration and emphasis on higher value-added
products and customer service.
INTEREST EXPENSE
Interest expense was $18.6 million for 1996 which represents a $1.1 million
decrease compared to the prior year. The decrease in interest expense is
primarily due to the effect of capitalizing interest on major capital projects.
Interest expense increased from $19.2 million in fiscal 1994 to $19.7
million for fiscal 1995. The additional interest expense resulted primarily from
the increase in interest rates on the Company's variable rate debt.
INCOME TAXES
The fiscal 1996 and 1995 provisions for income taxes include $10.4 million
and $10.6 million, respectively, in tax benefits associated with the recognition
of certain deferred tax assets which are now more likely than not to be
realized. Excluding these benefits, the current portion of the tax provisions
for fiscal 1996 and 1995 were $4.0 million and $4.8 million, respectively. The
effective tax rate in fiscal 1997 is expected to approximate 40%.
NET INCOME
Net income of $20.7 million or $.83 per share in fiscal 1996 compares to
net income of $27.0 million or $1.07 per share in the prior year.
Net income in fiscal 1995 was $27.0 million or $1.07 per share compared to
$10.0 million or $.40 per share in fiscal 1994. Excluding the tax benefit for
deferred tax assets of $10.6 million or $.42 per share, as described above, net
income increased 64% in fiscal 1995 compared to the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The financial position of the Company has improved. The Company achieved
cash flow from operations of $35.5 million, which represents the Company's
eleventh consecutive year of positive cash flow from operations. Additionally
the Company generated earnings for the third consecutive year. As of July 31,
1996, the Company had cash on hand of approximately $5.6 million and
approximately $89 million available under its revolving credit facility. The
Company's current ratio was 1.8:1 at July 31, 1996 compared to 1.9:1 at July 31,
1995. The consolidated debt-to-equity ratio improved to 1.5:1 at July 31, 1996
compared to 2.0:1 at July 31, 1995. The Company's improved financial condition
has provided it with flexibility to better manage inventory levels that, when
combined with the Company's enhanced product line, has enabled it to better
serve its customers' needs.
In April 1996, the Company and its lenders amended its revolving credit
facility, thereby improving liquidity. The new credit facility increased
borrowing capacity to $100 million from $65 million, the maturity date was
extended to April 2001 and the new credit facility increasing borrowing capacity
provides for borrowing options at reduced interest rates from the prior
agreement.
On a longer term basis, the Company has significant future debt service
obligations. The Company's ability to satisfy these obligations and to secure
adequate capital resources in the future will be dependent on its ability to
generate adequate cash flow. The Company expects that its cash flow from
operations, available borrowings and access to the capital markets will be
sufficient to fund future debt service.
CAPITAL EXPENDITURES
Among the most important aspects of the Company's planning system is the
identification of needs for capital expenditures. The system incorporates
selective allocation of funds to projects that will lower operating costs
through technological improvements and/or increase capacity and maintain
equipment and facilities.
11
12
The Company assesses likely market, technological and other business changes in
coming years and develops plans to ensure that it will be responsive to such
changes.
In view of the increased level of operations and resulting improved
profitability, but more importantly due to the generation of adequate cash flow,
the Company was able to maintain capital expenditures levels of approximately
$36 million during fiscal 1996 and 1995. Capital expenditures for fiscal 1994
were approximately $23 million. This plan continues to be based upon internally
generated funds and maintaining debt generally at existing levels. The Company
is now poised to more effectively compete, grow and provide improvements in the
quality and cost of our products as well as customer service.
ACCOUNTING STANDARDS
Statement of Financial Accounting ("SFAS") Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" (SFAS 121), was issued in March 1995. SFAS 121 requires recognition of
impairment losses on long-lived assets as well as the accounting for long-lived
assets that are expected to be disposed of in future periods. SFAS 121 becomes
effective in 1997. The effect on the Company of adoption of this statement
cannot be determined at this time. The Company applies the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" for its stock-based compensation programs and intends to adopt the
disclosure provisions of SFAS No. 123, "Accounting for Stock Based
Compensation," beginning in 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Financial statements and supplementary data of the Company are included in
this Annual Report of Form 10-K beginning on page F-1 and are listed in Item 14
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
to the caption "Directors and Executive Officers of the Registrant" in the
Company's definitive Proxy Statement relating to its 1996 Annual Meeting of
Shareholders. With the exception of the information specifically incorporated by
reference, said definitive Proxy Statement is not deemed to be filed as part of
this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the caption "Executive Compensation" in the Company's definitive Proxy
Statement relating to its 1996 Annual Meeting of Shareholders. With the
exception of the information specifically incorporated by reference, said
definitive Proxy Statement is not deemed to be filed as part of this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the caption "Security Ownership of Certain Beneficial Owners and Management"
in the Company's definitive Proxy Statement relating to its 1996 Annual Meeting
of Shareholders. With the exception of the information specifically incorporated
by reference, said definitive Proxy Statement is not deemed to be filed as part
of this report.
12
13
ITEM 13. CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to the caption "Certain Transactions and Related Transactions" in the Company's
definitive Proxy Statement relating to its 1996 Annual Meeting of Shareholders.
With the exception of the information specifically incorporated by reference,
said definitive Proxy Statement is not deemed to be filed as part of this
report.
13
14
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF NORTHWESTERN STEEL AND WIRE COMPANY
We have audited the accompanying consolidated balance sheets of
Northwestern Steel and Wire Company and Subsidiaries as of July 31, 1996 and
1995 and the related consolidated statements of shareholders' equity, operations
and cash flows for each of the three years in the period ended July 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Northwestern
Steel and Wire Company and Subsidiaries as of July 31, 1996 and 1995 and the
consolidated results of their operations and cash flows for each of the three
years in the period ended July 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
September 12, 1996
F-1
15
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31,
--------------------
1996 1995
-------- --------
(DOLLAR AMOUNTS IN
THOUSANDS
EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 5,558 $ 14,275
Receivables, less allowances of $825 and $1,000, respectively......... 68,004 58,878
Inventories........................................................... 98,401 90,577
Deferred income taxes................................................. 11,517 15,344
Other assets.......................................................... 6,799 6,971
-------- --------
Total current assets............................................... 190,279 186,045
PLANT AND EQUIPMENT, at cost, less accumulated depreciation of $166,206
and $141,321, respectively............................................ 241,189 229,708
DEFERRED INCOME TAXES................................................... 6,616 --
DEFERRED FINANCING COSTS................................................ 4,434 5,655
-------- --------
Total assets....................................................... $442,518.. $421,408
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $ 75,470 $ 66,441
Accrued expenses...................................................... 22,768 23,810
Current portion of long term debt..................................... 7,504 6,390
-------- --------
Total current liabilities.......................................... 105,742 96,641
LONG TERM DEBT.......................................................... 153,646 162,110
DEFERRED INCOME TAXES................................................... -- 4,744
OTHER LONG TERM LIABILITIES............................................. 77,114 75,042
-------- --------
336,502 338,537
-------- --------
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 -- 24,858,842 and 24,809,842 shares, respectively........ 123,786 123,609
Retained (deficit) earnings........................................... (5,051) (25,721)
Minimum pension liability............................................. (7,395) (9,693)
Treasury shares, at cost; 420,144 shares of common stock.............. (5,324) (5,324)
-------- --------
Total shareholders' equity......................................... 106,016 82,871
-------- --------
Total liabilities and shareholders' equity......................... $442,518 $421,408
======== ========
The accompanying notes are an integral part of the consolidated financial
statements
F-2
16
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK
$.01 PAR VALUE RETAINED TREASURY SHARE TOTAL
--------------------- EARNINGS ----------------- SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) OTHER SHARES AMOUNT EQUITY
---------- -------- -------- -------- ------- ------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
Balance at July 31, 1993... 24,631,955 $122,942 $(62,709) 420,014 $(5,343) $ 54,890
Net income................. 10,010 10,010
Treasury shares............ (21) 20 (1)
Options exercised.......... 83,067 332 332
Cost from prior year stock
issuance................. (155) (155)
Establishment of minimum
pension liability........ $(14,572) (14,572)
---------- -------- -------- -------- ------- ------- --------
Balance at July 31, 1994... 24,715,022 123,098 (52,699) (14,572) 420,014 (5,323) 50,504
Net income................. 26,978 26,978
Treasury shares............ 130 (1) (1)
Options exercised.......... 94,820 361 361
Contributed capital........ 150 150
Change in minimum pension
liability................ 4,879 4,879
---------- -------- -------- -------- ------- ------- --------
Balance at July 31, 1995... 24,809,842 123,609 (25,721) (9,693) 420,144 (5,324) 82,871
Net income................. 20,670 20,670
Options exercised.......... 49,000 177 177
Change in minimum pension
liability................ 2,298 2,298
---------- -------- -------- -------- ------- ------- --------
Balance at July 31, 1996... 24,858,842 $123,786 $ (5,051) $ (7,395) 420,144 $(5,324) $ 106,016
========== ======== ======== ======== ======= ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
17
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE
YEARS ENDED JULY 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
Net sales..................................................... $661,069 $638,420 $603,609
-------- -------- --------
Cost and operating expenses:
Cost of goods sold (excluding depreciation)................. 588,774 563,325 540,701
Depreciation................................................ 24,788 23,043 22,205
Selling and administrative.................................. 11,920 11,334 10,882
-------- -------- --------
Total cost and operating expenses........................ 625,482 597,702 573,788
-------- -------- --------
Operating profit.............................................. 35,587 40,718 29,821
-------- -------- --------
Other income and expenses:
Interest expense............................................ 18,583 19,674 19,221
Interest and other income................................... (163) (134) (130)
-------- -------- --------
Total other income and expenses.......................... 18,420 19,540 19,091
-------- -------- --------
Income before income taxes.................................... 17,167 21,178 10,730
(Benefit) provision for income taxes.......................... (3,503) (5,800) 720
-------- -------- --------
Net income.................................................... $ 20,670 $ 26,978 $ 10,010
======== ======== ========
Net income per share.......................................... $ 0.83 $ 1.07 $ 0.40
======== ======== ========
Net tons shipped.............................................. 1,668 1,662 1,632
======== ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
18
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31,
----------------------------------
1996 1995 1994
--------- --------- --------
(IN THOUSANDS)
Cash Flow From Operations:
Net income................................................ $ 20,670 $ 26,978 $ 10,010
Depreciation.............................................. 24,788 23,043 22,205
Loss on sale of plant and equipment....................... -- -- 14
Amortization of deferred financing costs and debt
discount............................................... 2,029 2,176 2,294
Amortization of organizational and pre-operating costs.... -- 1,122 1,122
Deferred income tax benefit............................... (7,533) (10,600) --
Increase in receivables................................... (9,126) (1,602) (3,247)
Increase in inventories................................... (7,824) (5,895) (8,960)
Decrease (increase) in other current assets............... 172 (149) (1,701)
Increase in accounts payable and accrued expenses......... 7,987 258 9,190
Increase in other long term liabilities................... 4,370 676 631
Deferred interest due at maturity......................... -- 15 2,147
--------- --------- --------
Net cash provided by operations............................. 35,533 36,022 33,705
--------- --------- --------
Cash Flows From Investing Activities:
Capital expenditures...................................... (36,269) (35,573) (22,930)
Proceeds from sale of plant and equipment................. -- -- 48
--------- --------- --------
Net cash used in investing activities....................... (36,269) (35,573) (22,882)
--------- --------- --------
Cash Flows From Financing Activities:
Payments of long term debt................................ (252,658) (165,246) (97,645)
Proceeds from issuance of long term debt.................. 244,500 165,745 97,689
Exercise of stock options................................. 177 511 332
Other..................................................... -- (1) (155)
--------- --------- --------
Net cash (used in) provided by financing activities......... (7,981) 1,009 221
--------- --------- --------
(Decrease) increase in cash and cash equivalents.......... (8,717) 1,458 11,044
Cash and Cash Equivalents:
Beginning of period....................................... 14,275 12,817 1,773
--------- --------- --------
End of period............................................. $ 5,558 $ 14,275 $ 12,817
========= ========= ========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest.................................................. $ 17,591 $ 17,716 $ 14,859
Income taxes paid......................................... 5,301 6,184 1,380
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
19
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Founded in 1879, the Company is a major mini-mill producer of structural
steel components which include wide flange beams, channels, angles and merchant
bar, as well as rod and wire products which include nails, fencing, concrete
reinforcing mesh and other fabricated wire products. Structural products are
used in a wide variety of commercial, industrial and residential construction
applications, while rod and wire products are marketed to the construction and
agricultural industries, retail "do-it-yourself" outlets, distributors and other
wire manufacturers. The majority of employees are covered by collective
bargaining agreements.
CONSOLIDATION
The consolidated financial statements include accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
CONCENTRATION OF CREDIT RISK
The Company grants credit to its customers in the normal course of
business. Credit limits, on-going credit evaluation and account monitoring
procedures are utilized to minimize the risk of loss. Collateral is generally
not required.
INVENTORIES AND PRODUCTION COSTS
Inventories are valued at the lower of cost or market. Cost is determined
on a monthly moving average method and includes materials, labor and certain
components of conversion overhead.
PLANT AND EQUIPMENT
Plant and equipment is carried at cost and depreciated when placed in
service based on methods and rates designed to amortize the cost over the
estimated useful lives (generally 40 years for buildings, 12 and 18 years for
mill machinery and 3 to 20 years for all other equipment). Depreciation is
computed principally on the straight line method for financial reporting
purposes while accelerated methods and straight line methods are used for income
tax purposes. When properties are retired or otherwise disposed of, the related
cost and accumulated depreciation are removed from the respective accounts and
any profit or loss on disposition is reflected in income.
NET INCOME PER SHARE
Net income per share is based upon the average number of common and common
equivalent shares outstanding.
BENEFITS FOR RETIRED EMPLOYEES
The Company provides pension benefits to substantially all hourly and
salaried employees under noncontributory plans. The pension costs are funded by
the Company in accordance with the requirements of ERISA. The Company also
provides post-retirement welfare benefits (life insurance and medical) to
substantially all its retired employees. These benefits are accounted for in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 87 and
SFAS No. 106.
F-6
20
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and other liquid instruments
purchased with an original maturity of three months or less.
USE OF ESTIMATES
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year end and
the reported amounts of revenues and expenses during the year. Actual results
could differ from these estimates.
NEW ACCOUNTING STANDARDS
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" for its stock-based
compensation programs and intends to adopt the disclosure provisions of SFAS No.
123, "Accounting for Stock Based Compensation," beginning in 1997.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", becomes effective in 1997. The effect on
the Company of adoption of this statement cannot be determined at this time.
EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company's noncontributory defined benefit plans cover the majority of
employees and provide pension benefits that are generally based on years of
credited service and employee compensation during the years preceding
retirement. Plan assets include primarily equity and fixed income securities.
The Company also sponsors defined contribution savings plans that cover the
majority of employees. The Company contributes up to 5% of eligible
compensation.
A non-cash increase to shareholders' equity of $2.3 million during fiscal
1996 resulted primarily from pension plan asset changes due to investment
experience and pension payouts.
Actuarial present value of benefit obligations:
1996 1995
-------------------- --------------------
HOURLY SALARIED HOURLY SALARIED
PLAN PLAN PLAN PLAN
-------- -------- -------- --------
Vested benefit obligation............................. $157,029 $ 51,249 $155,939 $ 51,810
======== ======= ======== =======
Accumulated benefit obligation........................ $167,436 $ 53,593 $166,458 $ 54,465
======== ======= ======== =======
Projected benefit obligation.......................... $177,267 $ 58,462 $176,305 $ 58,302
Plan assets at fair value............................. 160,365 57,021 155,922 56,635
-------- ------- -------- -------
Plan assets less than projected benefit obligation (16,902) (1,441) (20,383) (1,667)
Unrecognized net loss................................. 17,226 7,214 19,540 7,654
Adjustment required to recognize minimum liability.... (7,395) -- (9,693) --
-------- ------- -------- -------
Pension (liability) asset............................. $ (7,071) $ 5,773 $(10,536) $ 5,987
======== ======= ======== =======
F-7
21
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
A summary of the components of net periodic expense for the defined benefit
and contribution plans for the three years ended July 31 follows:
1996 1995 1994
-------- -------- --------
Defined benefit plans:
Service cost of current period............................ $ 3,774 $ 3,569 $ 4,004
Interest cost on projected benefit obligation............. 17,928 17,944 17,075
Actual return on plan assets.............................. (18,915) (12,633) (4,401)
Net amortization and deferral............................. 673 (2,683) (11,045)
-------- -------- --------
Net pension expense....................................... 3,460 6,197 5,633
Defined contribution plans.................................. 3,828 3,684 3,493
-------- -------- --------
Total expense............................................... $ 7,288 $ 9,881 $ 9,126
======== ======== ========
Assumptions:
Discount rate............................................... 7.91% 7.91% 8.45%
Rate of future compensation increase........................ 3.50% 3.50% 3.50%
Long term return on assets.................................. 9.00% 9.00% 9.00%
POSTRETIREMENT HEALTHCARE AND LIFE INSURANCE BENEFITS
The postretirement benefit expense includes the following components:
1996 1995 1994
------ ------ ------
Service cost...................................................... $ 912 $1,074 $1,177
Interest cost on accumulated benefit obligation................... 5,370 5,329 4,754
Net amortization and deferral..................................... (291) (348) --
------- ------- ------
$5,991 $6,055 $5,931
======= ======= ======
The Company continues to fund benefit costs on a cash basis, with retirees
paying a portion of the costs. The amounts paid for such benefits were $4.4
million, $5.4 million and $5.1 million for the fiscal years ended July 31, 1996,
1995 and 1994, respectively. The status of the Company's postretirement benefit
obligation at July 31, 1996 and 1995 was:
1996 1995
------- -------
Retirees and surviving spouses............................ $45,224 $39,266
Fully eligible active plan participants................... 10,650 8,986
Other active employees.................................... 17,453 21,205
------- -------
73,327 69,457
Unrecognized amounts...................................... (5,435) (3,188)
------- -------
Post-retirement benefit obligation........................ $67,892 $66,269
======= =======
The actuarial assumptions used to determine 1996 and 1995 costs and benefit
obligations include a discount rate of 7.91% in both years. The assumed health
care cost trend rate in 1996 was 7.3% for pre-65 retirees and 6.7% for post-65
retirees declining to an ultimate rate of 4.6% over a 10-year period for both
populations. The assumed health care cost trend rate used in 1995 was 7.7% for
pre-65 retirees and 7.0% for post-65 retirees declining to an ultimate rate of
4.1% over a 10-year period for both populations.
F-8
22
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
If the health care cost trend rate assumptions were increased by 1% each
year, the accumulated postretirement benefit obligation as of July 31, 1996,
would be increased by $10,484 and the net periodic post retirement benefit cost
for the year then ended would be increased by $921.
INCOME TAXES
As of July 31, 1996, the Company has approximately $27.5 million of net
operating loss carryforwards which expire in 2006 and 2007. As a result of an
"ownership change" in fiscal 1993, as defined by Section 382 of the Internal
Revenue Code of 1986, as amended, the loss carryforwards of the Company are
subject to an annual limitation of approximately $2 million.
The Company also has investment tax credit and alternative minimum tax
credit carryforwards of approximately $2,996 and $1,486, respectively. The
ability to utilize the investment tax credit carryforwards are subject to yearly
limitations under Internal Revenue Code Section 382.
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities for which
income tax effects will be realized in future years. Deferred tax benefits of
approximately $10,400 and $10,600 were recorded in fiscal years 1996 and 1995,
respectively, as the result of a reduction in the recorded valuation allowance.
The basis for the reduction is the determination that the future profitability
of the Company will more likely than not allow realization of certain deferred
tax assets. The Company continues to record a valuation allowance with respect
to the future tax benefits of certain investment tax credits and net operating
loss carryforwards. This valuation allowance results from the uncertainty of the
future tax benefits ultimate realization due to restrictions placed on their
usage and the anticipated years in which they are expected to reverse.
The types of temporary differences resulting from the difference between
the tax bases of assets and liabilities and their financial reporting amounts
that give rise to the deferred tax liabilities and the deferred tax assets and
their approximate tax effects are as follows:
1996 1995
TEMPORARY TAX TEMPORARY TAX
DIFFERENCE EFFECT DIFFERENCE EFFECT
---------- ------- ---------- --------
Retirement costs..................................... $ 58,106 $22,662 $ 58,921 $ 22,979
Net operating loss................................... 27,462 10,710 29,432 11,479
Employee compensation................................ 20,058 7,823 19,669 7,671
ITC and AMT carryforwards............................ 4,482 4,482 5,146 5,146
Other................................................ 8,122 3,168 8,311 3,241
-------- ------- -------- --------
Subtotal........................................ 118,230 48,845 121,479 50,516
Less: valuation allowance............................ (8,418) (5,110) (31,678) (15,509)
-------- ------- -------- --------
Total deferred tax asset............................. $ 109,812 $43,735 $ 89,801 $ 35,007
======== ======= ======== ========
Property, plant and equipment........................ $ 65,645 $25,602 $ 62,582 $ 24,407
-------- ------- -------- --------
Total deferred tax liability......................... $ 65,645 $25,602 $ 62,582 $ 24,407
======== ======= ======== ========
Net deferred tax asset............................... $ 44,167 $18,133 $ 27,219 $ 10,600
======== ======= ======== ========
F-9
23
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The (benefit) provision for income taxes consists of the following:
1996 1995 1994
------- -------- ----
Current............................................. $ 4,030 $ 4,800 $720
Deferred............................................ (7,533) (10,600) --
------- -------- ----
Total income tax (benefit) provision................ $(3,503) $ (5,800) $720
======= ======== ====
The (benefit) provision for income taxes on income differs from expected
tax expense computed by applying the federal corporate rate as follows:
1996 1995 1994
-------- -------- -------
Taxes computed at statutory rate................. $ 6,008 $ 7,200 $ 3,648
Utilization of net operating loss carryforward... -- (3,274) (3,809)
Current benefit of deferred tax asset............ (10,399) (10,600) --
Other............................................ 888 874 881
-------- -------- -------
Total income tax (benefit) provision............. $ (3,503) $ (5,800) $ 720
======== ======== =======
The deferred tax benefit results from temporary differences in the
recognition of certain items of revenue and expense for tax and financial
reporting purposes. The source of these differences and tax effect of each were
as follows:
1996 1995
------- -------
Utilization of NOL carryforward............................ $ (769) $(3,743)
ITC and AMT credit carryforwards........................... (664) (343)
Difference in tax and book asset bases..................... (1,196) 658
Change in valuation allowance for deferred tax asset....... 10,399 14,075
Other changes in assets and liabilities, net............... (237) (47)
------- -------
Deferred tax benefit....................................... $ 7,533 $10,600
======= =======
DEBT AND CREDIT ARRANGEMENTS
Long term debt consists of the following obligations at July 31, 1996 and
1995:
1996 1995
-------- --------
Senior Credit Facility:
Rollover Term Loan..................................... $ 35,615 $ 41,912
Revolving Credit Loans................................. 8,000 --
Deferred Financing Fee................................... -- 7,673
9.5% Senior Notes due 2001, net of discount.............. 114,518 114,419
Other notes payable (average rates of 5.9% and 6.2%,
respectively).......................................... 3,017 4,496
-------- --------
161,150 168,500
Less Current Portion..................................... 7,504 6,390
-------- --------
$153,646 $162,110
======== ========
Market value of total debt............................... $159,437 $170,093
======== ========
F-10
24
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
On April 30, 1996, the Company and its lenders entered into an amended
Senior Credit Facility (the "Facility"), which comprises the Rollover Term Loan
and Revolving Credit Loans, each of which are described below. The Facility
extends to April 2001, unless certain financial conditions are not met at July
31, 1999, in which case the Facility expires on that date. In connection with
the amended Facility, the Company agreed to pay fees which had been deferred
from previous transactions.
The Rollover Term Loan is being repaid in varying quarterly installments,
with final maturity on July 31, 1999 and bears interest at a fixed annual rate
of 13.07%. The Company generally may not prepay the Rollover Term Loan without
penalty, except to the extent defined in the Facility. No such prepayments were
required at July 31, 1996 and 1995.
The Revolving Credit Loans outstanding at July 31, 1996 bear interest at
7.5%. At the option of the Company, any borrowings of Revolving Credit Loans
bear interest at (a) the prime rate plus applicable margin, or (b) the LIBO rate
plus applicable margin. Revolving Credit Loans are available up to $100 million,
subject to certain borrowing base criteria. At July 31, 1996 approximately $89.0
million of borrowing capacity was available.
The Facility contains various covenants, including covenants prohibiting or
limiting the incurrence of additional indebtedness, the granting of liens or
guarantees, sales of assets, and capital expenditures, as well as financial
covenants requiring maintenance of a specified current ratio, a fixed charge
coverage ratio and a leverage ratio. Loans under the Facility are collateralized
by a lien on substantially all of the Company's assets, and all loans are
cross-collateralized.
The Facility lenders receive a quarterly commitment fee of 1/2% per annum
based on the average unused amount of the commitment.
At July 31, 1996, $114,518 (net of unamortized discount of $482) of Senior
Notes were outstanding. The Senior Notes bear interest at the rate of 9.5% per
annum, payable semi-annually on June 15 and December 15. The Company will be
required to redeem on June 15, 2001 the aggregate principal amount of the Senior
Notes plus accrued and unpaid interest. The Senior Notes may not be redeemed
prior to June 15, 1997. On or after June 15, 1997, the Company may, at its
option, redeem the Senior Notes in whole or in part at a premium plus accrued
and unpaid interest. On or after June 15, 1999, the Company may redeem in whole
or in part the Senior Notes at the aggregate principal amount plus accrued and
unpaid interest.
The Senior Notes are unsecured obligations of the Company. They are senior
to all subordinated indebtedness of the Company, and rank pari passu with all
other existing and future senior indebtedness of the Company and contain various
covenants equal to or less restrictive than the Facility. Upon the occurrence of
a change in control, the holders will have the option to cause the Company to
repurchase all or a portion of the outstanding Senior Notes at 101% of the
principal amount.
Annual maturities of long term debt for the years subsequent to fiscal 1996
are: 1997 - $7,504; 1998 - $7,959; 1999 - $21,805; 2000 - $557; 2001 - $122,626;
and thereafter - $699.
The Company estimated the market value of its total debt by utilizing a
discounted cash flow methodology.
F-11
25
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
SUPPLEMENTAL BALANCE SHEET DATA
The following balance sheet information is provided as of July 31:
1996 1995
-------- --------
INVENTORIES:
Raw materials and supplies............................... $ 22,746 $ 21,907
Semi-finished products................................... 36,832 33,839
Finished products........................................ 38,823 34,831
-------- --------
$ 98,401 $ 90,577
======== ========
PLANT AND EQUIPMENT:
Land..................................................... $ 5,952 $ 5,651
Buildings................................................ 38,958 31,833
Machinery and equipment.................................. 361,458 318,627
Construction in progress................................. 1,027 14,918
-------- --------
Total.................................................. 407,395 371,029
Less accumulated depreciation............................ 166,206 141,321
-------- --------
Net plant and equipment................................ $241,189 $229,708
======== ========
ACCRUED EXPENSES:
Salaries and wages....................................... $ 11,920 $ 12,609
Other employment costs................................... 8,181 7,738
Other accrued expenses................................... 2,667 3,463
-------- --------
$ 22,768 $ 23,810
======== ========
OTHER LONG TERM LIABILITIES:
Postretirement welfare benefits.......................... $ 62,892 $ 61,269
Other long term liabilities.............................. 14,222 13,773
-------- --------
$ 77,114 $ 75,042
======== ========
STOCK OPTION PLANS
The Company has two active stock option plans and two plans under which no
further awards may be made, all approved by shareholders.
Under the 1994 Long Term Incentive Plan, 1,250,000 shares of common stock
are reserved for issuance to key employees and other key individuals who perform
services for the Company. Stock options, stock appreciation rights and
restricted stock may be granted by the Board of Directors at not less than the
fair market value on the date of grant, and such grants generally expire ten
years from the date of grant. At July 31, 1996, shares available for future
grants were 679,492.
Under the 1994 Director Stock Plan, 50,000 shares are reserved for issuance
of non-qualified stock options to directors who are not employees of the Company
or affiliates of Kohlberg & Co., L.P. Each eligible director is awarded 2,500
stock options at the first meeting of the Board of Directors following the
annual meeting of shareholders. Each award is at the fair market value on the
date of grant and expire not less than five years, nor more than ten years from
the grant date.
An aggregate of 1,400,000 shares had been reserved for the Management Stock
Option Plan and the Employee Stock Purchase and Option Plan. Options generally
expire ten years from the date of grant. No further awards may be granted under
either Plan.
F-12
26
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Activity for common shares under option for the years ended July 31, 1996
and 1995 were as follows:
NUMBER OF AVERAGE
SHARES PRICE
--------- -------
Outstanding, August 1, 1994............................... 1,131,903 $4.84
Granted................................................. 135,000 6.08
Exercised............................................... (94,820) 4.00
Canceled................................................ (112,690) 4.24
--------- -----
Outstanding, July 31, 1995................................ 1,059,393 $5.14
Granted................................................. 350,000 8.14
Exercised............................................... (49,000) 4.00
Canceled................................................ (33,168) 6.47
--------- -----
Outstanding, July 31, 1996................................ 1,327,225 $5.94
========= =====
Exercisable, July 31, 1996................................ 795,775 $5.00
========= =====
COMMITMENTS AND CONTINGENCIES
There are various claims and legal proceedings arising in the normal course
of business pending against or involving the Company wherein monetary damages
are sought. These claims and proceedings are generally covered by insurance, and
it is management's opinion that the Company's liability, if any, under such
claims or proceedings would not materially affect its financial position or
results of operations.
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 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 identified by the Illinois Environmental Protection
Agency (IEPA) as one of eighteen potentially responsible parties for costs
associated with a third party owned disposal site. The IEPA is likely to seek
compensation from the Company as an alleged waste generator for recovery of past
costs and future remediation of the waste site. Under Illinois law, the
Company's share of liability can be limited to its proportionate share based
upon causation of the total cost of the site. Based on data available, the
Company's share will be a smaller fraction of the total site clean up costs,
however no determination of total cost for remediation can be made at this time.
The Company has been cited by the United States Environmental Protection
Agency (USEPA) for alleged violations of clean air standards and other
requirements at its Sterling furnace operations. As part of its ongoing
environmental compliance program, the Company will make a capital expenditure of
approximately $1.3 million in fiscal 1997 to upgrade the particulate emission
collection system in the furnace area. The Company is also studying additional
alternatives to improve emission control and address issues raised by the USEPA.
The cost of further remedial steps and potential penalties imposed by the USEPA,
if any, cannot be determined at this time.
DESCRIPTION OF LEASING ARRANGEMENTS
The Company has entered into various operating leases for transportation
equipment (principally over-the-road tractors and trailers for shipment of a
portion of the Company's products) and other equipment. The majority of the
transportation equipment leases expire during fiscal 1999.
F-13
27
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The future minimum rental payments required for the noncancelable lease
term of the operating leases as of July 31, 1996, were as follows:
Fiscal year ending July 31:
1997....................................................... $1,716
1998....................................................... 926
1999....................................................... 218
2000....................................................... 68
2001....................................................... 13
Remaining years............................................ 10
------
Total minimum future lease payments........................ $2,951
======
Rental expense under operating leases for the years ended July 31, 1996,
1995 and 1994 was approximately $2,318; $2,364; and $4,300, respectively.
SUBSEQUENT EVENT
On August 27, 1996, four year labor agreements covering the majority of
hourly employees were ratified. Under one such agreement, higher retirement
payments are required under the Company's defined benefit plan for hourly
employees. Using the same assumptions described in the Employee Benefit Plans
Note to Financial Statements, the accumulated benefit obligation would increase
by $17,250; the unfunded prior service cost would increase by 12,594; and
therefore, the minimum pension liability recorded in Shareholders' Equity would
increase by $4,656. Annual pension expense will not change significantly due to
negotiated reductions in benefit levels in the hourly defined contribution plan.
To improve the liquidity of common stock held by participants in the ESOP,
the Company has agreed to seek termination of the ESOP and distribute such
shares to participants. Distribution is subject to, among other things,
favorable determination by the Internal Revenue Service as to the ESOP
termination. No timetable has yet been established.
F-14
28
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
---------------------------------------------------------
1996 OCTOBER JANUARY APRIL JULY FULL YEAR
- ------------------------------------------ -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales................................. $160,912 $149,175 $173,183 $177,799 $661,069
Gross profit(1)........................... 19,724 16,958 19,033 16,580 72,295
Net income(2)............................. 4,682 2,504 3,558 9,926 20,670
Per common share data:
Net income(2)........................... $ 0.19 $ 0.10 $ 0.14 $ 0.40 $0.83
Stock price range-
High................................. 10.125 9.125 9.125 6.875 10.125
Low.................................. 6.5 6.875 5.875 5 5
Close................................ 7.5 9 6.75 5.125 5.125
Tons Shipped.............................. 398,488 376,242 438,621 454,428 1,667,779
1995 OCTOBER JANUARY APRIL JULY FULL YEAR
- ------------------------------------------ -------- -------- -------- -------- ---------
Net sales................................. $153,546 $145,818 $166,594 $172,462 $638,420
Gross profit(1)........................... 19,196 16,943 18,432 20,524 75,095
Net income(3)............................. 4,261 2,215 3,428 17,074 26,978
Per common share data:
Net income(3)........................... $ 0.17 $ 0.09 $ 0.14 $ 0.67 $1.07
Stock price range-
High................................. 9.625 7.875 7.625 10.25 10.25
Low.................................. 6 5.5 5.75 5.875 5.5
Close................................ 6.125 7.25 5.875 10 10
Tons Shipped.............................. 415,675 388,257 422,734 435,358 1,662,024
The common stock of Northwestern Steel and Wire Company is traded on the
Nasdaq-National Market (Trading symbol NWSW).
- -------------------------
Notes:
(1) Gross profit is defined as net sales less cost of goods sold excluding
depreciation.
(2) For the quarter ended July 31, 1996, net income included an $8.8 million
($.35 per share) tax benefit associated with the recognition of certain
deferred tax assets which are now more likely than not to be realized. For
the full year, the tax benefits recognized were $10.4 million ($.42 per
share).
(3) For the quarter and year ended July 31, 1995, net income included a $10.6
million ($.42 per share) tax benefit associated with the recognition of
certain deferred tax assets which are now more likely than not to be
realized.
F-15
29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Northwestern Steel and Wire Company
Our report on the consolidated financial statements of Northwestern Steel
and Wire Company and Subsidiaries is included on page F-1 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index included in Item 14
of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
September 12, 1996
F-16
30
SCHEDULE II
NORTHWESTERN STEEL AND WIRE COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1996, 1995 AND 1994
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------------------------------------------------- ---------- -------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
Allowance for doubtful accounts:
FOR THE YEAR ENDED JULY 31, 1996................... $1,000 $163 $ (338) $ 825
====== ==== ===== ======
FOR THE YEAR ENDED JULY 31, 1995................... $1,000 $ 57 $ (57) $1,000
====== ==== ===== ======
FOR THE YEAR ENDED JULY 31, 1994................... $1,000 $ 91 $ (91) $1,000
====== ==== ===== ======
Inventory valuation allowance:
FOR THE YEAR ENDED JULY 31, 1996................... $ 334 $459 $ -- $ 793
====== ==== ===== ======
FOR THE YEAR ENDED JULY 31, 1995................... $ 690 $ -- $ (356) $ 334
====== ==== ===== ======
FOR THE YEAR ENDED JULY 31, 1994................... $ 809 $ -- $ (119) $ 690
====== ==== ===== ======
F-17
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedule
PAGE
----
1. Report of Independent Accountants................................................ F-1
Consolidated Balance Sheets as of July 31, 1996 and 1995......................... F-2
Consolidated Statements of Shareholders' Equity for the years ended July 31,
1996, 1995 and 1994.............................................................. F-3
Consolidated Statements of Operations for the years ended July 31, 1996, 1995 and
1994............................................................................. F-4
Consolidated Statements of Cash Flows for the years ended July 31, 1996, 1995 and
1994............................................................................. F-5
Notes to Financial Statements (Including Quarterly Financial Data)............... F-6
2. Financial Statements Schedules:
Report of Independent Accountants................................................ F-16
Schedule II -- Valuation and Qualifying Accounts for the years ended July 31,
1996, 1995 and 1994.............................................................. F-17
3. (a) See Index to Exhibits on pages 20 through 21.
(b) Exhibit 11.1 Computation of Income Per Share
(c) Exhibit 24. Consent of Independent Accountants
(d) No reports on Form 8-K were filed during the last fiscal quarter of the
period covered by this report.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 24th day of
October 1996.
NORTHWESTERN STEEL AND WIRE
COMPANY
By: /s/ ROBERT N. GURNITZ
------------------------------------
Robert N. Gurnitz
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Company and in the
capacities indicated on the 24th day of October, 1996.
SIGNATURES
/s/ ROBERT N. GURNITZ
------------------------------------------------------
Robert N. Gurnitz
Chairman of the Board
Chief Executive Officer
Principal Executive Officer
and Director
/s/ TIMOTHY J. BONDY
------------------------------------------------------
Timothy J. Bondy
Vice President, Chief Financial Officer
Secretary and Treasurer
Principal Financial Officer
/s/ THOMAS M. VERCILLO
------------------------------------------------------
Thomas M. Vercillo
Controller
Principal Accounting Officer
/s/ WILLIAM F. ANDREWS
------------------------------------------------------
William F. Andrews
Director
/s/ WARNER C. FRAZIER
------------------------------------------------------
Warner C. Frazier
Director
/s/ DARIUS W. GASKINS, JR.
------------------------------------------------------
Darius W. Gaskins, Jr.
Director
/s/ JAMES A. KOHLBERG
------------------------------------------------------
James A. Kohlberg
Director
/s/ CHRISTOPHER LACOVARA
------------------------------------------------------
Christopher Lacovara
Director
/s/ ALBERT G. PASTINO
------------------------------------------------------
Albert G. Pastino
Director
/s/ GEORGE W. PECK, IV
------------------------------------------------------
George W. Peck, IV
Director
/s/ RICHARD F. WILLIAMS
------------------------------------------------------
Richard F. Williams
Director
33
EXHIBIT INDEX
EXHIBIT INCORPORATED BY REFERENCE
NUMBER DESCRIPTION TO OTHER DOCUMENT
- ------ ----------------------------------------- -----------------------------------------
2.1 Stock Purchase Agreement dated as of July Current Report on Form 8-K dated July 27,
27, 1992 between the Company and KNSW 1992, File No. 1-4288, Exhibit 2.1
3.1 Second Amended and Restated Articles of Annual Report on Form 10-K for the fiscal
Incorporation of the Company dated as of year ended July 31, 1992, File No.
August 12, 1992 1-4288, Exhibit 3.1
3.2 Amended and Restated By-Laws of the Annual Report on Form 10-K for the fiscal
Company year ended July 31, 1992, File No.
1-4288, Exhibit 3.2
3.3 Amended and Restated By-Laws of the
Company
4.1 Amended and Restated Credit Agreement Annual Report on Form 10-K for the fiscal
dated as of August 16, 1988 As Amended year ended July 31, 1996, File No. 1-4288
and Restated as of April 30, 1996
4.2 Form of Indenture dated as of 1993, Registration Statement No. 33-60766,
between the Company and Continental Bank, Exhibit 4.38
National Association, as Trustee
(including form of Senior Note)
4.3 Northwestern Steel and Wire Company Rule 13e-3 Transaction Statement, File
Employee Stock Ownership Plan No. 5-10871, Exhibit 17(c)(vii)
4.4 Amendment No. 1 to ESOP dated March 29, Annual Report on Form 10-K for the fiscal
1990 year ended July 31, 1992, File No.
1-4288, Exhibit 19.1
4.5 Amendment No. 2 to ESOP effective as of Annual Report on Form 10-K for the fiscal
August 1, 1990 year ended July 31, 1992, File No.
1-4288, Exhibit 19.2
4.6 Amendment No. 3 to ESOP effective as of Annual Report on Form 10-K for the fiscal
January 1, 1992 year ended July 31, 1992, File No.
1-4288, Exhibit 19.3
4.7 Amendment No. 4 to the ESOP effective as Annual Report on Form 10-K for the fiscal
of August 12, 1992 year ended July 31, 1992, File No.
1-4288, Exhibit 4.27
4.8 Amendment No. 5 to the ESOP effective Annual Report on Form 10-K for the fiscal
April 29, 1995 year ended July 31, 1995, File No. 1-4288
4.9 Amendment No. 6 to the ESOP effective Annual Report on Form 10-K for the fiscal
July 26, 1995 year ended July 31, 1995, File No. 1-4288
10.1 Employment Agreement between Robert N. Annual Report on Form 10-Q for the
Gurnitz and the Company dated as of quarter ended January 31, 1995, File No.
October 31, 1994 1-4288, Exhibit 10.1
10.2 Form of Indemnification Agreements dated Annual Report on Form 10-K for the fiscal
April, 1992 between the Company and its year ended July 31, 1992, File No.
directors 1-4288, Exhibit 10.16
20
34
EXHIBIT INCORPORATED BY REFERENCE
NUMBER DESCRIPTION TO OTHER DOCUMENT
- ------ ----------------------------------------- -----------------------------------------
10.3 Form of Indemnification Agreements dated Annual Report on Form 10-K for the fiscal
May 29, 1992 between the Company and year ended July 31, 1992, File No.
members of the Administrative Committee 1-4288, Exhibit 10.17
of the ESOP
10.4 Form of Amendments of Indemnification Annual Report on Form 10-K for the fiscal
Agreements dated as of July 23, 1992 year ended July 31, 1992, File No.
between the Company and members of the 1-4288, Exhibit 10.18
Administrative Committee of the ESOP
10.5 Form of Deferred Compensation Agreement Annual Report on Form 10-K for the fiscal
year ended July 31, 1989, File No.
1-4288, Exhibit 10.5
10.6 Northwestern Steel and Wire Company Annual Report on Form 10-K for the fiscal
Management Stock Option Plan effective year ended July 31, 1992, File No.
August 12, 1992 1-4288, Exhibit 10.20
10.7 Form of Management Stock Option Agreement Annual Report on Form 10-K for the fiscal
dated as of August 12, 1992 year ended July 31, 1992, File No.
1-4288, Exhibit 10.21
10.8 Fee Agreement dated as of August 12, 1992 Annual Report on Form 10-K for the fiscal
between the Company and Kohlberg year ended July 31, 1992, File No.
1-4288, Exhibit 10.22
10.9 1994 Long Term Incentive Plan Registration Statement on Form S-8 and
Form S-3, No. 33-53471, Exhibit 4(d)
10.10 1994 Director Stock Option Plan Registration Statement on Form S-8 and
Form S-3, No. 33-53471, Exhibit 4(e)
11.1 Computation of Income per share
22.1 The Company has three subsidiaries:
Northwestern Steel and Wire Company
(formerly H/N Steel Company, Inc.), a
Texas corporation, Northwestern Steel and
Wire Company, a Delaware corporation, and
Northwestern Steel and Wire Company --
Kentucky, a Delaware corporation
24 Consent of Coopers & Lybrand L.L.P.
21