<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1994
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[ ] 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
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NORTHWESTERN STEEL AND WIRE COMPANY
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(Exact name of registrant as specified in its charter)
Illinois 36-1562920
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 Wallace Street
Sterling, Illinois 61081
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 815/625-2500
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
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Title of Each Class On Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 no par value
9 1/2% Senior Notes due 2001
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
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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: $103,888,272
Number of shares of Common Stock, par value $0.01 per share, outstanding as of
October 20, 1994: 24,778,902
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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") and Houston, Texas (the "Houston
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, 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 Company's continuous casters
have sufficient capacity to cast semi-finished steel for all of the Company's
rolling and finishing mills. The Company believes that its large and low-cost
steel scrap melting capacity and its ability to satisfy all of the rod
requirements of its Rod and Wire Products operations from its rod production
give it a strategic cost advantage over its competitors.
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 products are then continuously cast into billets, blooms and beam
blanks.
Finished products are rolled from the semi-finished steel through a series of
reduction mill processes. Such products
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include structural wide flange beams, channels 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.
The Company has two wholly-owned subsidiaries: (i) Northwestern Steel and
Wire Company, a Texas corporation ("NSW-Texas"), which operates the Houston
Facility, as described above; and (ii) Northwestern Steel and Wire Company, a
Delaware corporation ("NSW-Delaware"), which provides administrative services to
the Company and NSW-Texas for which it receives payment from the Company and
NSW-Texas. The administrative services performed by NSW-Delaware include the
sales, finance, human resources and purchasing functions of the Company as well
as the management of the Company's operating facilities and the leased fleet
operation. All salaried individuals, as well as the leased fleet drivers of the
Company, are employees of NSW-Delaware.
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 two-thirds of the Company's steel rod production is utilized in
the manufacture of the Company's rod and wire products, while the remaining one-
third 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 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.
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CAPITAL IMPROVEMENTS
Over the last decade, 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 of both an 8-strand billet caster
and a 6-strand bloom caster. Combined with the installation of beam blank
casting technology, these improvements permit the Company to continuously cast
100% of its product at a significantly lower cost by eliminating ingot teeming
and reheating and blooming mill operations. Other melt shop improvements have
included the purchase and installation of a new ladle refining furnace, low
impedance arms, and ladle transfer cars. The Company believes that these
improvements have enabled it to lower its cost for both its structural steel
products and rod and wire products.
In 1989, the Company acquired the Houston Facility for approximately $33
million and has since invested approximately $43 million in capital
improvements. As part of the Houston Facility's refurbishment, all mechanical
and electrical components in its mill were completely reconditioned and brought
to operable condition. In 1991, the Company also installed a jumbo beam blank
continuous caster at the Sterling Operations to produce near shape beam blanks
for the Houston Facility.
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. 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 will continue to be available in
sufficient quantities.
ENERGY
Steelmaking is an electricity-intensive industry. Historically, the Company
has been adequately supplied with
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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 Corporation, both
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 produce small quantities and concentrating its
efforts on the higher value-added 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. The
relative weakness of the U.S. dollar to foreign currencies coupled with high
shipping costs has reduced foreign exports of structural steel products to the
United States when compared to the prior decade. However, the Company has seen
foreign exports increase in fiscal 1994 when compared to fiscal 1993.
According to the American Iron and Steel Institute, ("AISI"), the size of the
U.S. structural steel market was approximately 5.5 million tons in calendar
1993. Because of their cost disadvantage, domestic integrated producers have
reduced their structural steel production and foreign integrated producers have
reduced their structural steel exports to the United States. This supply has
been replaced by domestic mini-mills. 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 as a result 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 16.0% for fiscal 1994. Within the market for wide flange beams,
which tend to be the most profitable of the Company's structural steel products,
the Company believes its share of shipments in the U.S. market by domestic mills
was 25.1% for fiscal 1994 based on information published by the AISI.
The market for rod and wire products in which the Company competes is
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 Armco Inc., CF&I Steel L.P. ("CF&I"),
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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, 1994, order backlog, all of which is expected to be
filled in fiscal 1995, totaled approximately $67 million compared with
approximately $74 million as of September 30, 1993. The Company believes that
the reduction in order backlog reflects the Company's more timely fulfillment of
its customer's orders.
SALES BY DIVISION
During the fiscal years ended July 31, 1994 and 1993, no single customer
accounted for more than 10% of total dollar net sales. Sales to the Company's
ten largest customers accounted for approximately $130.1 million, or
approximately 22% of total net sales in fiscal 1994. Total foreign sales
accounted for approximately $7.3 million, or approximately 1% of total fiscal
1994 net sales.
For the fiscal years indicated below, the approximate percentage of net sales
contributed by each class of similar products is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
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Steel Division
<S> <C> <C> <C>
Structural 52.1% 51.6% 47.8%
Merchant bar 9.9 7.1 7.5
Semi-finished 6.7 7.9 6.9
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68.7 66.6 62.2
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Rod and Wire Products Division
Wire Products 21.8 23.7 27.0
Rod 9.5 9.7 10.8
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31.3 33.4 37.8
----- ----- -----
Total 100.0% 100.0% 100.0%
----- ----- -----
</TABLE>
EMPLOYEES
As of July 31, 1994, there were approximately 2,517 active employees of the
Company. Approximately 2,123 of the Company's employees are represented by
five collective bargaining units, with approximately 2,071 represented by three
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 a party to a collective bargaining
agreement with the USWA with respect to Locals 63 and 3720 covering
approximately 1,842 of the Company's employees in Sterling and Rock Falls,
Illinois which expires on August 1, 1996. The Company is a party
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to two collective bargaining agreements, with the USWA with respect to 229
employees at the Houston Facility, one of which expires on June 30, 1995 and the
other August 1, 1996. The two remaining bargaining units are party to
collective bargaining agreements with the Company covering a total of
approximately 52 employees, each of which agreements expires in fiscal 1997.
Through the ESOP, various stock ownership plans and direct ownership,
employees of the Company currently own approximately 19% of the outstanding
Common Stock. In addition, pursuant to the Company's profit sharing plan, 5% of
the Company's free cash flow (as defined therein) will be paid to eligible
hourly employees in profit sharing. The Company provides similar benefits for
eligible salaried employees covering 1.02% of the Company's free cash flow.
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 and does not anticipate the need to
make substantial expenditures for environmental control measures during fiscal
1995. 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.
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 chemically stabilizing this waste
before its disposal. Conversion Systems, Inc. has been chemically stabilizing
the K061 for the Company. Annual expenses in connection with such services are
approximately $3.5 million per year. 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.
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In March of 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 I of the expansion took place during the summer of 1994 at a
cost of approximately $1.5 million. Phase II of the expansion may be conducted
during FY95 and its cost is expected to be less than $500,000. At July 31,
1994, the Company had approximately $2,150,000 in a trust fund designated for
landfill closure costs. The Company also operates an on-site non-hazardous
waste landfill. The Company expects to close this landfill in fiscal 1997.
Regulations regarding steel and foundry non-hazardous landfills were finalized
in September 1994. At this time, the Company is determining the cost of closing
this landfill which the Company currently estimates may be as much as $2
million.
A closed, pre-RCRA landfill at the Sterling Operations was used from 1974 to
1980. In 1992, the United States Environmental Protection Agency agreed with a
Corrective Measures Study submitted by the Company and allowed continued
groundwater monitoring at the site. The Company currently estimates the cost of
this monitoring to be minimal; however, should the monitoring indicate a more
serious problem, these corrective measures could be material.
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 estimates
that costs to implement equipment upgrades will be approximately $500,000 and
will likely be incurred in fiscal 1995 and 1996.
The Houston Facility sporadically exceeds the limits of its wastewater
permit, always due to high metal concentrations in city intake water. The
Company intends to discuss the possibility of intake credits with the local
environmental agencies. If additional control equipment is necessary, the
Company believes its cost will not be material.
The Company possesses air emission permits for all major operations. Recent
review of operations in connection with other requirements revealed certain
operations which may require permits or permit modifications. The Company is in
the process of applying for such permits or permit modifications.
New rules to be adopted under amendments to the 1990 Clean Air Act ("CAA")
may impose significantly stricter air emissions standards on the Company.
Because regulations applicable to the Company's operations have not yet been
promulgated under the CAA, the Company cannot 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.
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Before it was purchased by the Company in 1989, the Houston Facility was part
of the Armco Houston Works (the "AHW"). The AHW is now closed, but is listed on
CERCLIS, the EPA's list of suspected hazardous substance release sites. The
EPA's concern appears to be related to a part of the AHW not purchased by the
Company and the Company has not received any claims or notices related to the
CERCLIS listing.
PATENTS AND TRADEMARKS
The Company holds no patents, trademarks, licenses, franchises or concessions
of material importance to its business.
ENTERPRISE ZONE DESIGNATION
Effective March 30, 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 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, 1995. This sales tax exemption is expected to save the
Company approximately $300,000 to $400,000 per year through June 30, 1995.
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.
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.
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Located in Plant 2 are liquid metal producing facilities, with 2,400,000 net
tons annual capacity, consisting of three 400- ton electric furnaces, which are
equipped with modern effluent controls. 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 net
tons, and a 12" rod train having an annual capacity of 400,000 net 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 net 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 net 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 net 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.
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.
During fiscal 1994, the Company's primary steelmaking facilities operated at
approximately 81% of capacity. The Company's finishing facilities operated at
approximately 80% of capacity.
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
The Company is seeking a declaratory judgment in the Circuit Court of Cook
County, Illinois that certain provisions of the state's revised workers'
compensation regulations are unconstitutional. The effect of the revised
regulations is to require the Company to increase the amount of security posted
by the Company from $200,000 to $8.8 million to maintain the Company's self-
insurance workers' compensation privilege. Upon
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the posting of a $400,000 bond, the Company obtained a temporary restraining
order which effectively restrains the imposition of this increased security
requirement and the ability of the Illinois Industrial Commission (the
"Industrial Commission") to terminate the Company's self-insurer status, pending
further order of The Circuit Court of Cook County. If the Company is
unsuccessful in its challenge to the Industrial Commission's actions or
regulations and is unable to post the required bond, the Company would be
required under the Illinois law to obtain insurance for its workers'
compensation claims. Insurance would likely be much more expensive than the
Company's self-insurance plan or may be unavailable and obtaining a letter of
credit under the Senior Credit Facility would reduce the Company's borrowing
capacity.
A wrongful death action against the Company is pending in the 113th Judicial
District Court of Harris County, Texas. The action stems from the death of an
employee at the Company's Houston Facility. Defense of this action is currently
being provided by the Company's insurers. The Company's insurance carriers will
not make a determination regarding coverage until this action is settled;
however, the Company believes that losses arising from the complaint, if any,
will be covered by the Company's insurance carriers. The Company has not
provided an accrual for these losses as the outcome cannot be predicted at this
time.
The Company is not a party to any other significant pending legal proceedings
other than routine litigation incidental to its business which the Company
believes will not materially affect its financial position or results of
operations.
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ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
At October 20, 1994, 24,358,959 shares of Common Stock were issued and
outstanding and held by 1,393 registered holders.
The Company does not expect to pay dividends on the Common Stock during the
foreseeable future. The Amended By-Laws (as hereinafter defined) of the Company
permit the payment of dividends, but 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 three fiscal years.
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ------ ------
<S> <C> <C>
1994
----
October 29, 9 1/4 9
January 31, 12 1/4 11 7/8
April 29, 9 1/2 8 7/8
July 29, 9 1/4 9
1993
----
October 31, * *
January 31, * *
April 30, * *
July 31, 9 1/8 7 1/4
</TABLE>
As of October 20, 1994 the closing price of Common Stock on The Nasdaq Stock
Market (under the symbol NWSW) was $6.50. Since the initial public offering of
June 12, 1993, there have been no dividends paid on the Common Stock.
*Not Applicable
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands of dollars except per share data and tonnage and active employee data)
Fiscal Years Ended July 31,
----------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $603,609 $539,210 $470,049 $477,429 $464,365
Cost of goods sold (excluding depreciation) 540,701 484,122 435,953 440,227 398,407
Selling and administrative expenses 10,882 11,608 6,884 12,348 16,418
Operating profit 29,821 21,554 5,130 5,598 32,891
Interest expense 19,221 23,200 27,745 27,498 18,952
Income (loss) before extraordinary
item and cumulative effect 10,730 (1,522) (22,372) (19,751) (10,316)
Net income (loss) 10,010 (47,695) (22,372) (19,751) (10,316)
Income (loss) per share before
extraordinary item and cumulative effect $ 0.40 $ (0.08) $ (1.72) $ (1.53) $ (0.80)
Net income (loss) per common share 0.40 (2.62) (1.72) (1.53) (0.80)
Other Data:
Capital expenditures $ 22,930 $ 12,271 $ 7,119 $ 26,063 $ 68,825
EBITDA (1) 53,148 44,603 28,334 25,976 49,540
Total Tons Shipped 1,632 1,577 1,363 1,355 1,274
Active employees 2,517 2,500 2,696 2,800 2,846
At July 31,
----------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Balance Sheet Data:
Current assets $168,999 $144,247 $101,799 $ 93,450 $116,406
Plant and equipment - net 217,178 216,515 226,170 241,133 233,025
Other assets 7,999 10,896 11,853 8,316 10,455
-------- -------- -------- -------- --------
Total assets $394,176 $371,658 $339,822 $342,899 $359,886
======== ======== ======== ======== ========
Current liabilities $ 90,082 $ 80,889 $107,371 $ 52,344 $ 64,389
Long term debt 166,942 164,234 199,551 228,383 214,354
Deferred employee obligations 79,246 64,043 22,567 32,864 36,035
Deferred income taxes 7,402 7,602 - - -
Stockholders' equity 50,504 54,890 10,333 29,308 45,108
Total liabilities and shareholders' equity -------- -------- -------- -------- --------
$394,176 $371,658 $339,822 $342,899 $359,886
======== ======== ======== ======== ========
Working capital $ 78,917 $ 63,358 $ (5,572) $ 41,106 $ 52,017
======== ======== ======== ======== ========
</TABLE>
Notes for Summary of Selected Financial Data
- --------------------------------------------
(1) 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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET SALES
Net sales for fiscal 1994 increased by $64.4 million or 12% from fiscal 1993.
The 12% increase in fiscal 1994 net sales resulted from several price increases
during the fiscal year on many of the Company's products, together with a 3%
increase in steel shipments. Many of the price increases resulted from the
continued escalation of the Company's principal raw material, steel scrap;
however, the Company experienced pricing strength above raw material price
increases in some of its product lines. Pricing of structural products, the
Company's principal market, remains competitive due to a relatively flat market
and excess industry capacity.
Net sales for fiscal 1993 increased $69.2 million or 15% from fiscal year
1992, primarily from the volume increase in net tons shipped of structural steel
products at the Company's Houston Facility. A portion of this increase was also
a result of strong levels of shipments in rod and wire products.
COST OF GOODS SOLD
The pricing on the Company's principal raw material, steel scrap, continued
to escalate to record levels, up 24% compared to fiscal 1993. Despite this,
cost of goods sold (excluding depreciation) as a percentage of net sales
remained unchanged at 90% in fiscal 1994 compared to fiscal 1993. This resulted
from a combination of improved operating efficiencies and increased selling
prices. While the pricing of steel scrap moderated during the most recent
fourth quarter, the Company is now experiencing renewed scrap pricing pressures
in the marketplace.
Excluding the effects of scrap, the Company continued to improve operating
margins in fiscal 1994. Continued improvements in production costs at the
Houston Facility resulted from increased yield and improved operating rates.
Also contributing to production cost reductions were improvements in the
Sterling Operations, primarily lower steelmaking costs resulting from record
levels of semi-finished production.
The cost of goods sold as a percentage of net sales decreased from 93% in
fiscal 1992 to 90% in fiscal 1993 due to production cost improvements at the
Houston Facility and lower steelmaking costs at the Sterling Operations.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses decreased from $11.6 million in fiscal
1993 to $10.9 million in fiscal 1994, primarily as a result of a $1.0 million
reduction in management incentive program expense. These incentives are based
on the Company's achieved versus
14
<PAGE>
planned profitability for the fiscal year.
Selling and administrative expenses were $11.6 million in fiscal 1993
compared to $6.9 in fiscal 1992. During fiscal 1992 selling and administrative
expenses were unusually low due to a reduction in the valuation price for stock
appreciation rights vesting during fiscal 1992 as well as a reduction in the
valuation price for all outstanding stock appreciation rights.
OPERATING PROFIT
Operating profit increased 38% in fiscal 1994 to $29.8 million from $21.6
million in fiscal 1993. The fiscal 1993 operating profit increased $16.5
million from fiscal 1992, when the operating profit was $5.1 million. These
increases were as a result of cost reductions due principally to increased
capacity utilization and workforce reductions, in conjunction with revenue
growth through market penetration, higher value-added products and customer
service.
INTEREST EXPENSE
During late fiscal 1993, the Company significantly reduced its borrowing
levels with the cash proceeds from an initial public offering of senior notes
and Common Stock. As a result of reduced borrowing levels, interest expense in
fiscal 1994 decreased $4.0 million to $19.2 million from $23.2 million in fiscal
1993. During early fiscal 1993, the Company significantly reduced its borrowing
levels with the cash proceeds from a private placement. As a result of reduced
borrowing levels, interest expense decreased $4.5 million to $23.2 million in
fiscal 1993 from $27.7 million in fiscal 1992.
NET INCOME
Fiscal 1994 net income of $10.0 million or $.40 per share compares to a
fiscal 1993 net loss before extraordinary item and cumulative effect of
accounting change of $1.5 million or $.08 per share. In fiscal 1994, the
Company achieved its first profitable year since fiscal 1990 as a result of the
various factors described above.
Fiscal 1993 net loss before extraordinary item and cumulative effect of
accounting change of $1.5 million or $.08 per share compares to a fiscal 1992
net loss of $22.4 million or $1.72 per share.
LIQUIDITY AND CAPITAL RESOURCES
The financial position of the Company continues to improve as discussed
below. The Company achieved positive cash flow from operations for the ninth
consecutive year and returned to profitability in fiscal 1994. As of July 31,
1994, the Company had cash on hand of approximately $12.8 million and
approximately $64.9 million available under its revolving credit facility. The
Company's current ratio continues to improve, increasing to 1.9:1 at July 31,
1994, compared to 1.8:1 at July 31, 1993. The consolidated debt-to-equity ratio
remained unchanged at 3:1 at July 31, 1994 and 1993. This increased financial
and operating flexibility has enabled the Company to better manage inventory
levels that, when combined with the Company's enhanced product line, have
enabled it to better serve its customers' needs.
15
<PAGE>
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 and available borrowings 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. The Company assesses likely market, technological and
other business changes in coming years and develops plans to ensure that it will
be on the leading edge of such advances.
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 increase capital expenditures to approximately $23
million during fiscal 1994 compared with $12 million in fiscal 1993 and $7
million in fiscal 1992. Consistent with the philosophy of maintaining
efficient, low cost production facilities, the Company has announced plans to
embark on an aggressive capital investment program of approximately $50 million
during fiscal 1995. This plan is based upon internally generated funds with
debt remaining at existing levels. With the continuing strengthening of our
Company, we are now poised to effectively grow, compete and provide improvements
in the quality and cost of our products as well as customer service.
ACCOUNTING STANDARDS
Statement of Financial Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112), was issued in November 1992. SFAS 112
establishes standards of financial accounting and reporting for the estimated
costs of benefits provided by an employer to former or inactive employees after
employment but before retirement. The Company will adopt SFAS 112 during fiscal
1995; at the present time the Company has not determined the detailed effect of
SFAS 112; however, preliminary indications are that the impact would not be
material.
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.
16
<PAGE>
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
DIRECTORS
The following table sets forth as of October 20, 1994 the directors of the
Company, their ages, the years during which they became directors and their
principal occupations. Unless otherwise indicated, each has held the occupation
listed for more than the past five years. All directors will continue in office
until their successors are elected at the 1994 Annual Meeting or until their
prior resignation, death or removal.
Name Age Position
- ---- --- --------------------------------
Robert N. Gurnitz (1) 55 Chairman of the Board, President
and Chief Executive Officer
William F. Andrews (2)(3) 63 Director
Kim G. Davis (1) 40 Director
Darius W. Gaskins, Jr. (2)(3)(4) 55 Director
James A. Kohlberg 36 Director
Jerome Kohlberg Jr. 69 Director
Christopher Lacovara (1)(4) 30 Director
George W. Peck, IV (2)(3) 62 Director
Richard F. Williams (4) 53 Director
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Pension Committee
17
<PAGE>
William F. Andrews. Mr. Andrews has been a Director of the Company since
1994. He is a consultant with the investment banking firm Investor International
(U.S.), Inc. (formerly known as Providentia, Inc.). Mr. Andrews is also
Chairman and Chief Executive Officer of Amdura Corp., a specialty manufacturer
of products for the overhead lifting and waste recycling and disposal markets,
and Chairman of Utica Corporation, a manufacturer of precision-forged turbine
airfoils for both aircraft and land-based engines. From 1990 to 1992, Mr.
Andrews was President and Chief Executive Officer of UNR Industries, Inc., a
diversified manufacturer of steel products. Prior to 1990, Mr. Andrews was
President of Massey Investment Company. Mr. Andrews is also a director of
Harley-Davidson, Inc., Navistar, Inc, Southern New England Telephone Company,
Corrections Corporation of America, Johnson Controls, Inc., Katy Industries and
MB Communications.
Kim G. Davis. Mr. Davis has been a Director of the Company since August
1992. He has been a principal of Kohlberg & Co., L.P. ("Kohlberg") since 1988.
Mr. Davis is also a director of ABC Rail Products Corporation, a manufacturer of
replacement parts and original equipment for the freight railroad and transit
industries ("ABC"), ABT Building Products Corporation, a specialty building
products manufacturer ("ABT") and Welbilt Corporation, a manufacturer of
commercial and consumer food service equipment ("Welbilt").
Darius W. Gaskins, Jr. Mr. Gaskins has been a Director since 1994. He has
been a partner of Carlisle, Fauth & Gaskins, Inc., a management and economics
consulting firm since 1993, and a partner of High Street Associates, Inc., an
investment partnership, since 1991. From 1989 through 1991, Mr. Gaskins was
visiting professor at the John F. Kennedy School of Government at Harvard
University. Mr. Gaskins is also a director of UNR, Inc., a manufacturer of
steel tubing and Leaseway Corp.
Robert N. Gurnitz. Mr. Gurnitz has been President and Chief Executive
Officer and Director of the Company since 1991. In January 1994, Mr. Gurnitz
was elected Chairman of the Board. From 1988 through 1990, Mr. Gurnitz was
President and Chief Operating Officer of Webcraft Technologies, Inc. From 1985
through 1988, Mr. Gurnitz was President of Bethlehem Steel's Shape and Rail
Products Division. Prior to that position, Mr. Gurnitz spent 19 years with
Rockwell International, where he headed a number of their worldwide
transportation components businesses.
James A. Kohlberg. Mr. Kohlberg has been a Director of the Company since
August 1992. Mr. Kohlberg has been a principal of Kohlberg since 1987. From
1984 to 1987, he was an associate with Kohlberg Kravis Roberts & Co. Mr.
Kohlberg is also a director of ABC, ABT and Welbilt.
18
<PAGE>
Jerome Kohlberg Jr. Mr. Kohlberg has been a Director of the Company since
August 1992. Mr. Kohlberg has been a principal of Kohlberg since 1987. From
1976 to 1987, he was a principal of Kohlberg Kravis Roberts & Co. Mr. Kohlberg
is also a director of ABT. Mr. Kohlberg is the father of James A. Kohlberg.
Christopher Lacovara. Mr. Lacovara has been a Director of the Company since
August 1992. Mr. Lacovara has been an associate of Kohlberg since 1988. From
1987 through 1988, Mr. Lacovara was an associate of Lazard Freres & Co. Mr.
Lacovara is also a director of ABC and Welbilt.
George W. Peck, IV. Mr. Peck has been a Director of the Company since August
1992. Mr. Peck has been a principal of Kohlberg since 1987. From 1963 to 1987,
he was a director and Vice President of Canny, Bowen, Inc., an executive
recruiting firm. Mr. Peck is also a director of ABC, ABT and Welbilt.
Richard F. Williams. Mr. Williams has been a Director of the Company since
1994. He retired as an electrician from the Company in December 1992 after more
than 30 years of service. Currently, Mr. Williams manages OMNI Investment
Company.
Pursuant to the By-Laws of the Company, the Board of Directors has determined
that the number of directors constituting the full Board of Directors shall be
nine. Proxies are solicited in favor of the nominees named on the following
pages and it is intended that the proxies will be voted for the nine nominees.
In the event that any of the nominees should become unable or unwilling to serve
as a director, it is intended that the proxies will be voted for the election of
such other person, if any, as shall be designated by the Board of Directors. It
is not anticipated that any of the nominees will be unable or unwilling to serve
as a director. Each director to be elected will serve until the next Annual
Meeting of Shareholders or until a successor is elected and shall qualify.
INFORMATION REGARDING NOMINEES FOR ELECTION OF DIRECTORS
It is anticipated that at the 1994 Annual Meeting of Shareholders, Messrs.
Andrews, Davis, Gaskins, Gurnitz, Kohlberg, Kohlberg, Lacovara and Peck will be
nominated for reelection to the Board of Directors. One additional person to be
designated by the participants in the Company's ESOP shall also be nominated.
EXECUTIVE OFFICERS
The following table sets forth as of October 20, 1994, the executive officers
of the Company, their ages, offices and the years during which they assumed
their offices.
19
<PAGE>
Robert N. Gurnitz (55) Chairman of the Board, President
and Chief Executive Officer (1994)
President and Chief Executive
Officer (1991)
Edward G. Maris (58) Senior Vice President, Chief
Financial Officer (1990)
Vice President - Finance,
Secretary and Treasurer (1987)
Controller (1986)
Richard D. Way (53) Senior Vice President - Sterling
Operations (1994)
Vice President - Steel
Operations (1994)
Kenneth J. Burnett (50) Vice President of Operations -
Houston (1994)
Vice President of Operations -
Steel Division (1990)
Manager, Engineering and
Services (1985)
William H. Hillpot (42) Vice President Materials Management
and Business Development (1994)
Vice President - Business
Development (1993)
Robert W. Martin (49) Vice President - Scrap/Utilities
Procurement and Environmental
Affairs (1994)
Vice President - Purchasing
(1992)
John C. Meyer (55) Vice President - Human Resources
(1992)
David C. Oberbillig (50) Vice President, Sales - Wire
Products Division (1987)
Manager of Sales, Wire Products
Division (1984)
Each of the executive officers named in the preceding table has been
employed by the Company in an executive or managerial capacity for at least
five years except as follows:
Robert N. Gurnitz was elected President and Chief Executive Officer of the
Company effective January 1, 1991 and Chairman of the Board in 1994. Prior to
his appointment, he was associated with Webcraft Technologies, Inc. as
President and Chief Operating Officer from 1988 through 1990. Prior to that
time, Mr. Gurnitz was President of Bethlehem Steel's Shape and Rail Products
Division.
20
<PAGE>
William H. Hillpot joined the Company in 1993 as Vice President - Business
Development and was appointed Vice President - Materials Management and
Business Development in July 1994. From 1991 to 1992, he was Vice President -
Materials and Information Management of Armco Steel Company, L.P. Prior to
that time, Mr. Hillpot was Manager - Materials and Semi-Finished Sales at
Bethlehem Steel.
John C. Meyer joined the Company as Vice President - Human Resources in
January 1992. Prior to that time, he was associated with Republic Engineered
Steels as Vice President - Human Resources from May 1989 through January 1992.
From 1986 through 1989, Mr. Meyer was General Manager of Employee Relations
for LTV Steel.
Richard D. Way joined the Company in January 1994 as Vice President of
Operations - Steel Division and in July 1994 he was appointed to the position
of Senior Vice President - Sterling Operations. Prior to that time, Mr. Way
was Senior Vice President, Manufacturing, as well as General Manager, Aluminum
Division at Shieldalloy Metallurgical Company.
OTHER SIGNIFICANT EMPLOYEES
The following table sets forth the other significant employees of the
Company, their ages, positions with the Company, and the years during which
they assumed such positions.
Raymond P. Bauer (46) Manager, General Sales -
Steel Division (1991)
Richard C. Bennett (64) General Manager of Operations
Wire Products Division (1991)
General Superintendent - 12" Mill
(1985)
Vernus L. Johnson (62) Manager, Fabricator Sales -
Steel Division (1991)
Manager, Sales (1978)
Thomas M. Vercillo (39) Manager of Corporate Accounting
(1991) Manager of Accounting (1988)
Financial Analyst (1985)
DIRECTOR AND OFFICER SECURITIES REPORTS
The federal securities laws require the Company's directors and officers,
and persons who own more than ten percent of the Company's Common Stock, to
file with the Securities and Exchange Commission, the Nasdaq National Market
and the Secretary of the Company initial reports of ownership and reports of
changes in ownership of the Common Stock of the Company.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written
21
<PAGE>
representations that no other reports were required, during the fiscal year
ended July 31, 1994, all the Company's officers, directors and greater-than-
ten-percent beneficial owners made all required filings.
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table discloses, for the fiscal
years indicated, individual compensation information on Mr. Gurnitz and the four
other most highly compensated executive officers in fiscal 1994 who were serving
as executive officers at the end of fiscal 1994.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- -------------------
AWARDS PAYOUTS
--------- -------
OTHER ANNUAL OPTIONS/ LTIP
FISCAL SALARY BONUS COMPENSATION SARS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR $ $(1) ($) (#)(2) ($)(3)
- ----------------------------- ------ -------- -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Gurnitz 1994 289,997 0 32,619 (4) 50,000 0
Chairman of the Board, 1993 273,332 344,109 39,372 (4) 375,000 580,000
President and Chief 1992 250,000 0 61,595 (4) 0 0
Executive Officer
Edward G. Maris 1994 130,000 0 5,200 (5) 5,000 0
Senior Vice President, 1993 130,000 79,595 2,600 (5) 15,000 439,496
Chief Financial Officer 1992 130,000 43,200 0 0 55,230
Kenneth J. Burnett 1994 105,430 0 25,272 (6) 6,000 0
Vice President Operations - 1993 105,111 79,595 2,603 (5) 75,000 0
Houston 1992 99,010 0 0 0 0
John C. Meyer (7) 1994 130,000 0 13,421 (8) 5,000 0
Vice President - Human 1993 130,000 79,595 53,871 (8) 20,000 200,000
Resources 1992 61,389 19,231 5,697 (9) 50,000 0
David C. Oberbillig 1994 110,000 0 5,500 (5) 5,000 0
Vice President, Sales - 1993 110,000 65,123 2,750 (5) 5,000 299,184
Wire Products Division 1992 110,000 37,440 0 (5) 0 81,032
</TABLE>
23
<PAGE>
(1) All of the fiscal 1993 bonus was accrued in fiscal 1993 and paid in fiscal
1994. 25% of the fiscal 1992 bonus was accrued in fiscal 1992 and paid in
fiscal 1993, except for Mr. Meyer of which $10,769 was paid in fiscal 1992
and $8,462 of which was paid in fiscal 1993.
(2) The closing price of the Common Stock on July 29, 1994 (the last business
day of the fiscal 1994) was $9.25. The number and fair market value of the
restricted Common Stock held by each of the named executives on July 29,
1994 was: Mr. Gurnitz 109,091 shares, $1,009,092; Mr. Maris 78,505 shares,
$726,171; Mr. Burnett 3,750 shares, $34,688; Mr. Meyer 33,649 shares,
$311,253; and Mr. Oberbillig 54,859 shares, $507,446.
(3) Represents the value of cash and stock distributed on a deferred basis
under the Northwestern Steel and Wire Company Stock Appreciation Rights
Plan.
(4) Includes reimbursement of moving expenses, retirement annuity, life
insurance, 401(k) contributions made by the Company and car allowance.
Moving expenses accounted for $5,682, $12,564 and $42,595 of the amount
shown for fiscal years ended July 31, 1994, 1993 and 1992, respectively.
Retirement annuity expenses accounted for $15,000 of the amount shown for
each of the fiscal years ended July 31, 1994, 1993 and 1992.
(5) Entire amount represents 401(k) contributions made by the Company.
(6) Includes reimbursement of moving expenses and 401(k) contributions made by
the Company. Moving expenses accounted for $20,000 for fiscal year ended
July 31, 1994.
(7) Mr. Meyer was hired effective February 10, 1992.
(8) Includes reimbursement of moving expenses and 401(k) contributions made by
the Company. Moving expenses accounted for $8,871 and $51,273 of the
amount shown for fiscal years ended July 31, 1994 and 1993, respectively.
(9) Entire amount represents reimbursement of moving expenses.
24
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table discloses, for Mr. Gurnitz and the other named
executives, information regarding stock options and warrants granted during
fiscal 1994 pursuant to the Company's 1994 Long Term Incentive Plan.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
------------------------------------------- ------------------
NUMBER % OF TOTAL EXERCISE
OF OPTIONS OR BASE
OPTIONS GRANTED TO PRICE
GRANTED EMPLOYEES IN (PER EXPIRATION
NAME (1) FISCAL YEAR SHARE) DATE 5% 10%
- ---- ------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Gurnitz 50,000 36.4% $9.00 4/25/2004 $283,000 $717,000
Edward G. Maris 5,000 3.6 9.00 4/25/2004 28,300 71,700
Kenneth J. Burnett 6,000 4.4 9.00 4/25/2004 33,960 86,040
John C. Meyer 5,000 3.6 9.00 4/25/2004 28,300 71,700
David C. Oberbillig 5,000 3.6 9.00 4/25/2004 28,300 71,700
</TABLE>
(1) One-third of each option grant becomes exercisable on each of April 25,
1995, April 25, 1996 and April 25, 1997.
(2) Amounts reflect certain assumed rates of appreciation set forth in the
Securities and Exchange Commission's executive compensation disclosure
rules. Actual gains, if any, on stock option exercises depend on future
performance of the Common Stock and overall market conditions. Fair market
value per share on the date of grant was $9.00 per share.
25
<PAGE>
OPTION EXERCISES AND FISCAL YEAR END VALUES FOR THE FISCAL YEAR ENDED JULY 31,
1994 (1)
The following table shows information regarding the exercise of stock
options during fiscal 1994 by Mr. Gurnitz and the other named executives and the
number and value of any unexercised stock options held by them as of July 31,
1994:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT OPTIONS/SARS AT
ON VALUE FY-END (#) FY-END ($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------- -------- -------- --------------------- --------------------
<S> <C> <C> <C> <C>
Robert N. Gurnitz 0 0 262,500 / 162,500 $1,378,125 /603,125
Edward G. Maris 0 0 10,500 / 9,500 55,125 / 24,875
Kenneth J. Burnett 0 0 52,500 / 28,500 275,625 /119,625
John C. Meyer 0 0 14,000 / 11,000 73,500 / 32,750
David C. Oberbillig 0 0 3,500 / 6,500 18,375 / 9,125
</TABLE>
[FN]
(1) The closing price of the Common Stock on July 29, 1994 (the last business
day of fiscal 1994) was $9.25.
EMPLOYMENT AGREEMENT
The Company has entered into an amended and restated employment
agreement (the "Gurnitz Agreement") with Robert N. Gurnitz for a term through
January 1, 1996, and indefinitely thereafter on the terms set out therein. The
Gurnitz Agreement establishes an annual base salary of not less than $305,000
per year plus an annual target bonus of not less than $195,700 per year. The
amount of the bonus actually earned each year, if any, will be based on the
Company's performance. The Gurnitz Agreement provides for the establishment of
a nonqualified supplemental executive retirement plan which provides the
additional benefits which would have been payable to Mr. Gurnitz under the
Northwestern Steel and Wire Company's Pension Plan B and 401(k) Salary Deferral
Plan if not for the limits imposed by the Internal Revenue Code (subject to
certain limitations set out in the Internal Revenue Code and the plans
themselves) and credits Mr. Gurnitz with an additional 1.5 years of service
(reflective of his prior industrial service) up to age 65 for each year of
service, beginning July 22, 1994. In addition, the Gurnitz Agreement requires
the Company to continue to purchase a standard disability income policy for Mr.
Gurnitz and to continue to pay Mr. Gurnitz in cash such amounts as are required
to pay the annual premiums on a life insurance policy on the life of Mr. Gurnitz
in the amount of $1,000,000 and to continue to
26
<PAGE>
provide for certain other fringe benefits commensurate with Mr. Gurnitz's
position as Chairman, President and Chief Executive Officer of the Company. The
Gurnitz Agreement further provides that in the event Mr. Gurnitz's employment is
terminated by the Company other than for cause or disability, or by Mr. Gurnitz
for good reason (as such terms are defined in the Gurnitz Agreement), Mr.
Gurnitz will be entitled to receive a single lump sum cash payment and to
continue to participate in the employee benefit arrangements of the Company as
are in effect at the time of his termination. The lump sum payment would equal
the sum of (i) Mr. Gurnitz's annual base salary as then in effect and (ii) Mr.
Gurnitz's annual target bonus as then in effect, and his participation in
Company benefit arrangements would continue through the first anniversary of the
date of his termination. If Mr. Gurnitz's employment is terminated by the
Company for any reason or by Mr. Gurnitz for good cause, in either case within
two years of a change in control (as defined in the Gurnitz Agreement), Mr.
Gurnitz will be entitled to receive a single lump sum cash payment equal to
twice the aggregate of Mr. Gurnitz's annual base salary and target bonus as then
in effect. The Gurnitz Agreement also provides that Mr. Gurnitz is subject to a
two year covenant not to compete upon termination of Mr. Gurnitz's employment
unless such termination is by the Company without cause or within two years of a
change in control or by the resignation of Mr. Gurnitz with good reason.
The Company entered into an employment arrangement (the "Meyer
Arrangement") with John C. Meyer on an at will basis commencing on February 10,
1992 at an annual base salary of $130,000. The Meyer Arrangement provides that,
in the event the Company terminates Mr. Meyer's employment other than for cause
or disability, Mr. Meyer will continue to receive his base salary and benefits
for a period of 12 months following such termination. The Meyer Arrangement
also provides that Mr. Meyer may participate in the benefit plans offered by the
Company from time to time during such period. The Meyer Arrangement also
provides that Mr. Meyer is subject to a one year covenant not to compete upon
termination of Mr. Meyer's employment except if his employment is terminated by
the Company without cause.
PENSION PLAN
The Company maintains a pension plan for all eligible employees. A
participant who retires on or after turning 65 and has completed at least five
years of service will qualify for an annual pension equal to 1.1% of the
participant's average earnings for each year of service not in excess of 30
years and 1.2% of the participant's final average earnings for each year of
service in excess of 30 years. Final average earnings are based on total
compensation (exclusive of certain cost-of-living adjustments) during the
participant's highest five consecutive years in the participant's last 15 years
of service. A deferred vested pension benefit normally commencing at age 65 is
provided for any employee who does not qualify for retirement under the plan but
has completed at least five years of service.
27
<PAGE>
Years of service for purposes of the plan with respect to the officers
named in the Summary Compensation Table are as follows: Mr. Gurnitz, 3 years;
Mr. Maris, 8 years; Mr. Burnett, 31 years; Mr. Meyer, 2 years; and Mr.
Oberbillig, 27 years.
The following table shows the projected annual pension benefits
payable, under the pension plan at the normal retirement age of 65:
<TABLE>
<CAPTION>
ANNUAL NORMAL PENSION BENEFITS
FOR YEARS OF SERVICE SHOWN (1)
AVERAGE ANNUAL 5 YEARS 10 YEARS 20 YEARS 30 YEARS 40 YEARS 50 YEARS
PENSION EARNINGS
- ---------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 2,750 $ 5,500 $11,000 $16,500 $22,500 $28,500
100,000 5,500 11,000 22,000 33,000 45,000 57,000
150,000 8,250 16,500 33,000 49,500 67,500 85,500
200,000 8,250 16,500 33,000 49,500 67,500 85,500
250,000 8,250 16,500 33,000 49,500 67,500 85,500
300,000 8,250 16,500 33,000 49,500 67,500 85,500
350,000 8,250 16,500 33,000 49,500 67,500 85,500
400,000 8,250 16,500 33,000 49,500 67,500 85,500
</TABLE>
[FN]
(1) Normal pension benefits are formula based and are not subject to a social
security offset. With exceptions not applicable to any of the officers named in
the above compensation table, Sections 401(a)(17) and 415 of the Internal
Revenue Code limit the annual pension earnings that can be considered under the
plan to $150,000 and the annual benefits to $118,800 for benefit accrual and
retirement after December 31, 1993.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1994, the Compensation Committee of the Board of
Directors was composed of William F. Andrews, Darius W. Gaskins, Jr.
and George W. Peck IV.
28
<PAGE>
REPORT OF COMPENSATION COMMITTEE
This Report outlines the Company's management compensation philosophy and
reviews the compensation decisions made in fiscal 1994 regarding Mr. Gurnitz and
the other named executives.
MANAGEMENT COMPENSATION PHILOSOPHY
To advance the interests of its shareholders, the Company has based its
management compensation decisions on three principles.
First, base salaries should be sufficient to attract and retain qualified
management talent, without exceeding competitive practice at similar companies
in the steelmaking and related industries.
Second, annual incentive programs should provide opportunity for significant
increases in compensation, based on meeting or exceeding pre-determined
performance targets.
Third, a substantial portion of total compensation opportunity should reflect
performance on behalf of the Company's shareholders, as measured by increases in
the Company's stock price.
CRITERIA USED FOR MAKING COMPENSATION DECISIONS IN FISCAL 1994
This section describes the criteria used by the Compensation Committee
regarding compensation decisions affecting Mr. Gurnitz and the named executives.
Base Salary
In April 1994, an independent compensation consulting firm conducted a study
of competitive compensation levels for the Company's key executives. Following
this study, the Compensation Committee approved salary midpoints for each
executive position, which were based on the executive positions' size adjusted
median competitive base salaries. The Committee then approved adjustments for
selected executives. As part of these actions, the Committee increased Mr.
Gurnitz's annual salary from $285,000 to $305,000, which reduced the gap between
it and the salary midpoint, and thus brought it closer to size adjusted median
competitive practice for the industry.
Annual Incentive Program
In December 1993, the Compensation Committee approved the fiscal 1994
incentive program for Mr. Gurnitz and other key executives (including the named
executives). Target awards ranged from 20% of base salary midpoint to 50% of
base salary midpoint (for Mr. Gurnitz). Awards were calculated by formula, based
exclusively on the Company's adjusted operating income performance as compared
to
29
<PAGE>
the Company's business plan. The chart below summarizes the payout formula:
% of Adjusted % of
Operating Plan Target Award
Achieved Earned
-------------- ------------
[S] [C]
Less than 85% 0%
85% 50%
100% 100%
125% 150%
150% 200%
Despite an increase in fiscal 1994 of 38% in operating profit, the Company
achieved less than 85% of its adjusted operating income plan. As a result, Mr.
Gurnitz and the other named executives earned no annual incentive award for
fiscal 1994.
Long Term Incentive Program
In an effort to further increase the alignment of interests between key
employees and shareholders, the 1994 Long Term Incentive Program was approved at
the Annual Meeting of the Shareholders on January 20, 1994. On April 25, 1994,
50,000 stock options were awarded to Mr. Gurnitz and an aggregate of 21,000
stock options were awarded to the other named executives. All of these options
were granted at an exercise price of $9.00 per share which was determined to be
the fair market value of the Common Stock on the date of the grant. In
determining the size of the grants to Mr. Gurnitz and the other named
executives, the Committee considered median competitive practice and each
executive's contribution to the Company's financial performance, as well as the
motivational impact of the award on each individual's future efforts to increase
shareholder value. In addition, in the case of Mr. Gurnitz's grant, the
Committee provided an award below median competitive practice in order to make
more options available to other grantees.
Retirement Arrangements for Mr. Gurnitz
At its meeting on July 22, 1994, the Committee approved the retirement
compensation arrangement for Mr. Gurnitz as described in the employment
agreements. In approving this arrangement, the Committee had three objectives -
first, to enable Mr. Gurnitz, upon reaching normal retirement age of 65, to
receive a full pension from all sources, including retirement programs of
previous employers; second, to provide Mr. Gurnitz with a pension benefit at age
65 that would be consistent with competitive practice for other Chief Executive
Officers in the industry; and third, to safeguard shareholders' interests by
providing such benefits only if Mr. Gurnitz continued to serve as the Company's
Chief Executive Officer for the next several years.
Compensation Committee Members as of July 31, 1994
- --------------------------------------------------
William F. Andrews Darius W. Gaskins, Jr. George W. Peck IV
30
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested on
June 11, 1993 (the first day of public trading of the Common Stock) in the
Common Stock of the Company, the S&P 400 Index and the S&P Steel Index. The
return of the Standard & Poor's indices is calculated assuming reinvestment of
dividends during the period presented. The Company has not paid any dividends.
The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG NORTHWESTERN
STEEL AND WIRE, S&P 400 INDEX AND S&P STEEL INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Northwestern S&P Steel S&P 400
Date Steel & Wire Index Industrials
-------- ------------ --------- -----------
<S> <C> <C> <C>
06/11/93 $100.000 $100.000 $100.000
07/30/93 103.125 88.652 98.387
12/31/93 125.000 109.128 104.649
07/29/94 115.625 119.490 103.513
</TABLE>
31
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding beneficial
ownership of Common Stock as of October 20, 1994, by each person or entity known
to the Company who owns of record or beneficially five percent or more of the
Common Stock, by each named executive officer and director nominee and all
executive officers and director nominees as a group.
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING
NAME OF COMMON STOCK COMMON STOCK
- --------------------------------------- ---------------- -------------
KNSW Acquisition Company, L.P. (1) 8,687,000 34.3%
United National Bank, as Trustee (2) 4,033,926 15.9
William F. Andrews 2,000 *
Kenneth J. Burnett (4) 63,750 *
Kim G. Davis (3) 8,687,000 34.3
Darius W. Gaskins, Jr. 15,000 *
Robert N. Gurnitz (4) 409,091 1.6
James A. Kohlberg (3) 8,687,000 34.3
Jerome Kohlberg Jr. 8,687,000 34.3
Christopher Lacovara 0 0
Edward G. Maris (4) 90,505 *
John C. Meyer (4) 49,649 *
David C. Oberbillig (4) 58,859 *
George W. Peck IV (3) 8,687,000 34.3
Richard F. Williams 340 *
All executive officers and director 9,485,892 37.4
nominees as a group (16 persons) (4)
* Less than 1%.
(1) KNSW Acquisition Company, L.P. ("KNSW") owns directly 8,687,000 shares of
Common Stock. Kohlberg Associates, L.P., a Delaware limited partnership
("Associates"), is the general partner of KNSW. Kohlberg & Kohlberg,
George W. Peck IV and Kim G. Davis are the general partners of Associates.
Jerome Kohlberg Jr. and James A. Kohlberg are general partners of Kohlberg
& Kohlberg. KNSW has agreed to use its reasonable best efforts to cause at
least one designee of the ESOP to be nominated to the Board of Directors.
Messrs. Kohlberg, Kohlberg, Peck and Davis may be deemed to share voting
and dispositive power as to all shares of Common Stock owned by KNSW.
Messrs. Kohlberg, Kohlberg, Peck and Davis disclaim beneficial ownership
with respect to such shares. The address for KNSW is c/o Kohlberg & Co.,
111 Radio Circle, Mt. Kisco, NY 10549.
(2) United National Bank is the trustee of the ESOP.
(3) Includes the 8,687,000 shares of Common Stock owned by KNSW. See Note 1.
(4) Includes shares issuable pursuant to options which may be exercised within
60 days after October 20, 1994.
32
<PAGE>
ITEM 13. CERTAIN TRANSACTIONS AND RELATED TRANSACTIONS
In August 1992, the Company sold to KNSW 8,687,000 shares of Common Stock at
$4.00 per share (the "1992 Investment"), which represented at such time
approximately 52% of the outstanding Common Stock, giving KNSW effective voting
control of the Company and control of the Board of Directors. As a result of
the Company's initial public offering of Common Stock in June 1993, KNSW's
interest has been diluted to approximately 34.2%. KNSW is an affiliate of
Kohlberg & Co., L.P. ("Kohlberg"). At the time of the 1992 Investment, the
Company and Kohlberg entered into a fee agreement (the "Fee Agreement") pursuant
to which Kohlberg was reimbursed for certain costs in connection with placing
the investment and agreed to provide such advisory and management services to
the Company and its subsidiaries as the Board of Directors reasonably requests.
Deferred at the time of the 1992 Investment, a fee of $2.0 million related to
the 1992 Investment was paid by the Company to Kohlberg on August 12, 1993. In
addition, beginning on August 12, 1992, in consideration for ongoing advisory
and management services, the Company pays Kohlberg a fee of $43,435 per fiscal
quarter at the beginning of each quarter. The Fee Agreement provides that
Kohlberg, but not the Company, may terminate the Fee Agreement at any time. The
Fee Agreement will terminate automatically on the earlier of the end of the
fiscal year in which KNSW's percentage interest in the outstanding Common Stock
is less than 25% and the tenth anniversary of the Fee Agreement. The Fee
Agreement provides that, without the consent of a majority of the Company's
directors not nominated by affiliates of Kohlberg, Kohlberg will not be paid any
other fees by the Company. The Fee Agreement also provides that the Company
will indemnify Kohlberg and its affiliates and their respective partners,
officers, directors, stockholders, agents and employees against any third party
claims arising from the Fee Agreement and the services provided thereunder, the
1992 Investment or their equity interest in the Company.
Pursuant to the terms of the ESOP, the Company is obligated to pay certain
fees and expenses of the ESOP, which for the year ended July 31, 1994 aggregated
$81,844.
KNSW has agreed to use its reasonable best efforts to cause at least one
designee of the ESOP to be nominated for election to the Board of Directors for
so long as the ESOP holds 5% or more of the outstanding Common Stock on a fully-
diluted basis. The nominee for the 1994 Annual Meeting of Shareholders has not
been determined.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Report of Independent Accountants F-1
Consolidated Balance Sheets as of July 31,
1994 and 1993 F-2
Consolidated Statements of Stockholders'
Equity for the years July 31, 1994, 1993
and 1992 F-3
Consolidated Statements of Operations
for the years ended July 31, 1994, 1993
and 1992 F-4
Consolidated Statements of Cash Flows
for the years ended July 31, 1994,
1993 and 1992 F-5
Notes to Financial Statements F-6
2. Financial Statements Schedules:
Report of Independent Accountants F-22
Schedule V - Property, Plant and Equipment
for the years ended July 31, 1994, 1993
and 1992 F-23
Schedule VI - Accumulated Depreciation,
Depletion and Amortization of Property,
Plant and Equipment for the years ended
July 31, 1994, 1993 and 1992 F-24
Schedule VIII - Valuation and Qualifying
Accounts for the years ended July 31, 1994,
1993 and 1992 F-25
Schedule X - Supplementary Income Statement
Information for the years ended July 31, 1994,
1993 and 1992 F-26
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
3. (a) See Index to Exhibits on pages 38 through 42.
(b) Exhibit 11 No reports on Form 8-K were filed during the last
Fiscal Quarter of the period covered by this report.
(c) Exhibit 24
</TABLE>
35
<PAGE>
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, 1994 and
1993 and the related consolidated statements of stockholders' equity, operations
and cash flows for each of the three years in the period ended July 31, 1994.
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, 1994 and
1993 and the consolidated results of their operations and cash flows for each of
the three years in the period ended July 31, 1994 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
September 16, 1994
F-1
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED BALANCE SHEETS
(dollar amounts in thousands except share data)
<TABLE>
<CAPTION>
As of July 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,817 $ 1,773
Receivables, less allowances of $1,000 57,276 54,029
Inventories 84,682 75,722
Deferred income taxes 7,402 7,602
Other assets 6,822 5,121
-------- --------
Total current assets 168,999 144,247
PLANT AND EQUIPMENT, at cost, less accumulated
depreciation of $118,278 and $96,117, respectively 217,178 216,515
DEFERRED FINANCING COSTS 6,877 8,652
ORGANIZATIONAL AND PRE-OPERATING COSTS 1,122 2,244
-------- --------
Total assets $394,176 $371,658
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 67,112 $ 53,857
Accrued expenses 22,880 26,945
Current portion of long term debt 90 87
-------- --------
Total current liabilities 90,082 80,889
LONG TERM DEBT 166,942 164,234
DEFERRED EMPLOYEE BENEFIT OBLIGATIONS 79,246 64,043
DEFERRED INCOME TAXES 7,402 7,602
-------- --------
343,672 316,768
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per share; outstanding
24,715,022 and 24,631,955 shares, respectively 123,098 122,942
Retained earnings (deficit) (52,699) (62,709)
Minimum pension liability (14,572) -
Treasury shares, at cost; 420,014 shares (5,323) (5,343)
-------- --------
Total shareholders' equity 50,504 54,890
-------- --------
Total liabilities and shareholders' equity $394,176 $371,658
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-2
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Common Stock
$.01 Par Value $.01 Par Value $.01 Par Value Retained
--------------------- --------------------- --------------------- Earnings
Shares Amount Shares Amount Shares Amount (Deficit)
-------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 31, 1991 4,410,125 $ 25,000 3,305,667 $ 10,706 $ 7,358
Net loss (22,372)
Treasury shares
SARs distributed 39,487 553
ESOP compen-
sation earned
---------- --------- ---------- --------- ---------- --------- ---------
Balance at
July 31, 1992 4,410,125 25,000 3,345,154 11,259 (15,014)
Net loss (47,695)
Treasury shares
Shares converted (4,410,125) (25,000) (3,345,154) (11,259) 7,755,279 $ 36,259
Shares sold-
1992 Investment 8,750,000 29,225
SARs distributed
1992 Investment 425,481 1,702
SARs distributed 14,750 59
Shares sold to
employees 199,752 799
Options exercised 33,278 133
ESOP compen-
sation earned
Shares sold-
Recapitalization 7,392,680 54,279
ESOP compen-
sation earned-
Recapitalization
SARS distributed-
Recapitalization 60,735 486
---------- --------- ---------- --------- ---------- --------- ---------
Balance at
July 31, 1993 - - 24,631,955 122,942 (62,709)
Net income 10,010
Adjustment to
cost of
treasury shares (21)
Options exercised 83,067 332
Cost from prior year
stock issuance (155)
Establishment
of minimum
pension liability
---------- --------- ---------- --------- ---------- --------- ---------
Balance at
July 31, 1994 $ - $ - 24,715,022 $123,098 $(52,699)
========== ========= ========== ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Treasury Shares Total
--------------------- Stockholders'
Other Shares Amount Equity
--------- ------- -------- -------------
<S> <C> <C> <C> <C>
Balance at
July 31, 1991 $(10,891) 98,014 $(2,865) $ 29,308
Net loss (22,372)
Treasury shares 71,177 (1,002) (1,002)
SARs distributed 553
ESOP compen-
sation earned 3,846 3,846
--------- ------- -------- ----------
Balance at
July 31, 1992 (7,045) 169,191 (3,867) 10,333
Net loss (47,695)
Treasury shares 250,823 (1,476) (1,476)
Shares converted 0
Shares sold-
1992 Investment 29,225
SARs distributed
1992 Investment 1,702
SARs distributed 59
Shares sold to
employees 799
Options exercised 133
ESOP compen-
sation earned 3,846 3,846
Shares sold-
Recapitalization 54,279
ESOP compen-
sation earned-
Recapitalization 3,199 3,199
SARS distributed-
Recapitalization 486
--------- ------- -------- ----------
Balance at
July 31, 1993 - 420,014 (5,343) 54,890
Net income 10,010
Adjustment to
cost of
treasury shares 20 (1)
Options exercised 332
Cost from prior year
stock issuance (155)
Establishment
of minimum
pension liability (14,572) (14,572)
--------- ------- -------- ----------
Balance at
July 31, 1994 $(14,572) 420,014 $(5,323) $ 50,504
========= ======= ======== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-3
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
<TABLE>
<CAPTION>
For the
Years Ended July 31,
----------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 603,609 $ 539,210 $ 470,049
--------- --------- ---------
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 540,701 484,122 435,953
Depreciation 22,205 21,926 22,082
Selling and administrative 10,882 11,608 6,884
--------- --------- ---------
Total cost and operating expenses 573,788 517,656 464,919
--------- --------- ---------
Operating profit 29,821 21,554 5,130
--------- --------- ---------
Other income and expenses:
Interest expense 19,221 23,200 27,745
Interest and other income (130) (124) (243)
--------- --------- ---------
Total other income and expenses 19,091 23,076 27,502
--------- --------- ---------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change 10,730 (1,522) (22,372)
Provision for income taxes 720 - -
--------- --------- ---------
Income (loss) before extraordinary
item and cumulative effect of
accounting change 10,010 (1,522) (22,372)
Extraordinary loss related to early
retirement of debt - (6,395) -
Cumulative effect of accounting change - (39,778) -
--------- --------- ---------
Net income (loss) $ 10,010 $ (47,695) $ (22,372)
========= ========= =========
Income (loss) before extraordinary
item and cumulative effect of
accounting change per share $ 0.40 $ (0.08) $ (1.72)
Extraordinary item related to
early retirement of debt per share - (0.35) -
Cumulative effect of accounting
change per share - (2.19) -
--------- --------- ---------
Net income (loss) per share $ 0.40 $ (2.62) $ (1.72)
========= ========= =========
Net tons shipped 1,632 1,577 1,363
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-4
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended July 31,
----------------------------------------------------
1994 1993 1992
-------- --------- ---------
<S> <C> <C> <C>
Cash Flow From Operations:
Net income (loss) $ 10,010 $ (47,695) $ (22,372)
Extraordinary item related to early retirement of debt - 6,395 -
Cumulative effect of accounting change - 39,778 -
Depreciation 22,205 21,926 22,082
Loss on sale of plant and equipment 14 - -
Amortization of deferred financing costs and debt discount 2,294 1,690 1,549
Amortization of organizational and pre-operating costs 1,122 1,123 1,122
Increase in receivables (3,247) (8,355) (5,939)
Increase in inventories (8,960) (26,437) (755)
(Increase) decrease in other current assets (1,701) 919 1,271
Increase (decrease) in deferred employee benefits 631 3,545 (4,383)
Increase in accounts payable and accrued expenses 9,190 3,752 19,332
Deferred interest due at maturity 2,147 2,709 763
Unearned ESOP compensation - 7,045 3,846
-------- --------- ---------
Net cash provided by operations 33,705 6,395 16,516
-------- --------- ---------
Cash Flows Used in Investing Activities:
Capital expenditures (22,930) (12,271) (7,119)
Proceeds from sale of plant and equipment 48 - -
-------- --------- ---------
Net Cash Used in Investing Activities (22,882) (12,271) (7,119)
-------- --------- ---------
Cash Flows From Financing Activities:
Payment of long term debt and
repayment on revolver loans (97,645) (343,163) (234,779)
Purchase of treasury shares - (1,476) (1,002)
Payment of ESOP debt - (9,930) (2,885)
Issuance of long term debt and
borrowings under revolver loans 97,689 282,239 230,932
Proceeds from issuance of Common Stock 332 95,073 -
Costs related to the issuance of Common Stock (155) (8,637) -
Payment of deferred financing costs - (4,173) (1,208)
Payment of prepayment penalty - (3,084) -
-------- --------- ---------
Net Cash Provided by (Used in) Financing Activities 221 6,849 (8,942)
-------- --------- ---------
Increase in cash and cash equivalents 11,044 973 455
Cash and Cash Equivalents:
Beginning of period 1,773 800 345
-------- --------- ---------
End of period $ 12,817 $ 1,773 $ 800
======== ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 14,859 $ 20,670 $ 22,551
Income taxes paid 1,380 159 13
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
F-5
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO FINANCIAL STATEMENTS
Northwestern Steel and Wire Company (the "Company") operates in one
business segment as an electric arc furnace producer of a comprehensive line of
carbon steel products consisting primarily of structural shapes, bar and bar
shapes, rods, wire and fabricated wire products.
The Company's outstanding indebtedness had increased significantly as a
result of the leveraged buyout transaction in August 1988 (the "Acquisition")
and the subsequent acquisition and refurbishment of the Houston Facility. In
August 1992, an affiliate of Kohlberg & Co., a New York merchant banking firm
("Kohlberg"), purchased approximately 52% of the Company's Common Stock (the
"1992 Investment"). In June 1993, the Company effected a recapitalization (the
"Recapitalization") which included a Common Stock Offering and a concurrent Note
Offering (collectively, the "Offerings").
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND POLICIES
CONSOLIDATION
The Company has two wholly-owned subsidiaries, Northwestern Steel and
Wire Company (a Delaware corporation) which performs the sales, management and
other administrative services and Northwestern Steel and Wire Company (a Texas
corporation) which operates the Houston rolling mill. 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, a substantial portion of whom
are located in the Midwest, 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.
F-6
<PAGE>
PLANT AND EQUIPMENT
Plant and equipment is carried at cost and includes expenditures for new
facilities and those which substantially increase the useful lives of existing
plant and equipment. 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.
The Company provides for depreciation of plant and equipment commencing
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 a 3 to 20 year range for all otherequipment).
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.
DEFERRED FINANCING COSTS
The Company defers direct costs of debt financing and amortizes such
costs over the life of the loan arrangement.
ORGANIZATIONAL AND PRE-OPERATING COSTS
The Company defers organizational and pre-operating costs incurred prior
to the opening of a new facility and amortizes such costs over 5 years, starting
with the first shipments of product to customers.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" for the
years ended July 31, 1994 and 1993. The adoption of SFAS No. 109 for the year
ended July 31, 1993 did not have a material effect upon the Company's financial
position or net income. Prior years' financial statements were not restated to
apply the provisions of SFAS No. 109. Income taxes are accounted for in
accordance with Accounting Principles Board Opinion, ("APB") No. 11 for the year
ended July 31, 1992.
NET INCOME PER SHARE
Per share amounts are based on the average shares outstanding of
25,185,389, 18,170,143, and 13,014,589 for each of the three years in the period
ended July 31, 1994. Average shares outstanding for the year ended July 31,
1994 include the dilutive impact of shares issuable pursuant to the Company's
stock option plans. The average shares outstanding for the
F-7
<PAGE>
years ended July 31, 1993 and 1992 include the dilutive impact of shares issued
pursuant to the 1992 Investment and the dilutive impact of shares issuable
pursuant to the Management Stock Option Plan and the Employee Stock Purchase and
Option Plan, such shares being issued or issuable and such options granted
within one year prior to the initial public offering.
In accordance with Accounting Principles Board Opinion No. 15, net income
per share for the fiscal year ended July 31, 1994 is $.41 as compared to a net
loss of $2.72 and $2.78 for each of the two years in the period ended July 31,
1993. These per share amounts are based upon average shares outstanding of
24,679,249, 17,564,000 and 8,051,089 for each of the three years in the period
ended July 31, 1994.
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 estimated costs
of the pension benefits are recognized based on annual cost determinations
performed by the Company's independent actuarial firm.
The Company also provides postretirement 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. 106 for the years ended July 31, 1994 and 1993. Effective August
1, 1992, the Company adopted SFAS No. 106. Upon adoption, the Company elected
to record the transition obligation as a one-time charge against earnings,
rather than amortize it over a number of years. This charge was $39.8 million
or $2.19 per share and represents the actuarially computed present value of
estimated future benefits to current retirees plus that portion of benefits
earned to date by active employees. The plan is unfunded and the Company pays
for benefits on a current basis. The estimated costs of the postretirement
benefits are recognized based on annual cost determinations performed by the
Company's independent actuarial firm.
At the date of the Acquisition, the Company recorded a liability for the
actuarially determined vested portion of these postretirement benefits for all
retired and currently eligible to retire employees. Prior to 1993, the Company
recorded an expense charge to maintain the discounted liability at a balance
sufficient to provide the vested benefits to those remaining retirees who were
in the August 16, 1988 population.
F-8
<PAGE>
CASH FLOWS
Cash and cash equivalents include cash on hand, amounts due from banks,
and other liquid instruments purchased with an original maturity of three months
or less.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation. The reclassifications did not affect net operating
results.
2. EMPLOYEE BENEFIT PLANS
The provisions of SFAS No. 87 and SFAS No. 106 require the adjustment to
the discount rate in line with current and expected to be available interest
rates on high quality fixed-income instruments. Due to the recent trend in
long-term interest rates, the Company reduced its assumed discount rate from
9% to 8.45% for fiscal 1994. In addition, the Company has also reduced its
expected rate of increase in future compensation levels from 5% to 3.5% for its
pension plans and reduced its ultimate trend rate for postretirement benefits
from 5.1% to 4.6%.
The effect of the pension plan changes was a non-cash charge to
shareholders' equity of $14,572,000 during fiscal 1994. Unlike SFAS No. 87, the
changes described under SFAS No. 106 do not result in a charge to shareholders'
equity.
The aggregate cost to the Company of the hourly and salaried pension
plans retirement benefits for the three years ended July 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- -------
(In thousands)
<S> <C> <C> <C>
Benefits earned during
the period (service
cost) $ 4,004 $ 3,331 $ 3,359
Interest cost on projected
benefit obligation 17,075 17,822 17,119
Return on plan
assets - actual ( 4,401) (12,896) (15,917)
Net amortization
and deferral (11,045) (4,166) (601)
-------- ------- -------
Net pension cost $ 5,633 $ 4,091 $ 3,960
======== ======== =======
</TABLE>
Deferred gains and losses are amortized over the average remaining future
service periods (approximately 15 years).
F-9
<PAGE>
The Company's pension plan assets include principally equity and fixed
income securities. The following table presents a reconciliation of the funded
status of the pension plans to the amounts included as accrued expenses and
deferred employee benefit obligations in the accompanying balance sheets at July
31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
--------------------- --------------------
Hourly Salaried Hourly Salaried
Plan Plan Plan Plan
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
(In thousands)
Actuarial present value
of benefit obligations:
Accumulated benefit
obligations(including
vested benefits of
$143,359 for 1994 and
$131,924 for 1993 for
the Hourly Plan and
$47,506 for 1994 and
$44,279 for 1993 for
the Salaried Plan) $152,854 $49,906 $141,720 $46,707
Effect of increase in
compensation 13,065 4,206 13,703 4,759
-------- ------- -------- -------
Projected benefit
obligation 165,919 54,112 155,423 51,466
Plan assets at
fair value 136,829 51,380 142,616 53,640
-------- ------- -------- -------
Plan assets (less than)
in excess of projected
benefit obligation (29,090) (2,732) (12,807) 2,174
Unrecognized net loss 27,637 8,709 12,405 4,419
Adjustment required to
recognize minimum
liability (14,572) - - -
--------- ------- -------- -------
Pension (liability)
asset $(16,025) $ 5,977 $(402) 6,593
======== ======= ======== =======
</TABLE>
Significant assumptions used in determining plan benefit obligations at
the end of July 31, 1994 and 1993 include a discount rate of 8.45% and 9%,
respectively, and a rate of projected compensation increase of 3.5% and 5% for
1994 and 1993, respectively. The assumed long-term rate of return on plan
assets for determining net pension costs was 9% for 1994 and 1993.
F-10
<PAGE>
Summary information on the Company's postretirement plan other than
pensions is as follows:
<TABLE>
<CAPTION>
Financial Status of Plan:
Accumulated postretirement benefit
obligation (APBO) as of July 31: 1994 1993
--------- ---------
<S> <C> <C>
(In thousands)
Retirees $(36,095) $(35,274)
Fully eligible active plan participants ( 7,555) (10,487)
Other active plan participants (21,606) (19,135)
-------- --------
(65,256) (64,896)
Less plan assets at fair value 0 0
-------- --------
Funded status (65,256) (64,896)
Unrecognized net (gain)/loss ( 213) 254
-------- --------
Unfunded accrued cost $(65,469) $(64,642)
======== ========
The components of net periodic postretirement benefit cost for the two years
ended July 31 were as follows:
1994 1993
-------- --------
(In thousands)
Service cost, benefits attributed to
employee service during the year $1,177 $1,052
Interest cost on accumulated post-
retirement benefit obligation 4,754 5,532
------ ------
Net periodic postretirement benefit cost $5,931 $6,584
====== ======
</TABLE>
The discount rate used in determining the APBO was 8.45% and 9% at
July 31, 1994 and 1993, respectively. The assumed health care cost trend rate
used in measuring the accumulated postretirement benefit obligation was 8.6% in
1994 for pre-65 retirees and 7.7% 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 measuring the accumulated postretirement benefit
obligation was 9% in 1993 for pre-65 retirees and 8% for post-65 retirees
declining to an ultimate rate of 5.1% over a 10-year period for both
populations.
If the health care cost trend rate assumptions were increased by 1% each
year, the APBO as of July 31, 1994, would be increased by $8,280,000 and the
aggregate of the service and interest cost components of net periodic post
retirement benefit cost for the year then ended would be increased by
$884,000.
For the fiscal year ended July 31, 1992, expense was $4.1 million under
previous accounting practices. The amounts paid for such benefits were $5.1
million, $5.4 million and $3.9 million for fiscal years ended July 31, 1994,
1993 and 1992, respectively.
F-11
<PAGE>
3. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Federal $ 720 $ - $ -
State - - -
----- ----- -----
$ 720 $ - $ -
----- ----- -----
</TABLE>
The current provision reflects alternative minimum tax for which a
deferred tax asset was not recognized.
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 (in thousands):
<TABLE>
<CAPTION>
1994 1993
Temporary Tax Temporary Tax
Difference Effect Difference Effect
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Trade accounts receivable $ 1,000 $ 390 $ 1,000 $ 390
Inventories 4,080 1,591 2,959 1,154
Intangible assets 3,655 1,425 3,657 1,426
Employee compensation 20,052 7,820 19,965 7,786
Other accrued liabilities 566 221 1,012 395
Retirement costs 57,670 22,491 58,918 22,978
ITC and AMT carryforwards 5,489 5,489 4,769 4,769
Net operating loss 39,032 15,222 52,178 20,349
-------- -------- -------- --------
Subtotal 131,544 54,649 144,458 59,247
Less: valuation
allowance (67,276) (29,584) (75,720) (32,439)
-------- -------- -------- --------
Total deferred tax asset $ 64,268 $ 25,065 $ 68,738 $ 26,808
-------- -------- -------- --------
Property, plant and
equipment $ 64,268 $ 25,065 $ 68,738 $ 26,808
-------- -------- -------- --------
Total deferred tax
liability $ 64,268 $ 25,065 $ 68,738 $ 26,808
-------- -------- -------- --------
Net deferred tax asset/
liability $ 0 $ 0 $ 0 $ 0
-------- -------- -------- --------
</TABLE>
The Company has recorded a valuation allowance with respect to the future
tax benefits and the net operating loss reflected as a deferred tax asset due
to the uncertainty of their ultimate realization.
As of July 31, 1994, the Company had tax net operating loss carryforwards
of approximately $39,032,000. These net operating loss carryforwards are
available to offset future
F-12
<PAGE>
taxable income, if any, through the indicated years: $14,791,000 in 2006,
$20,238,000 in 2007, and $4,003,000 in 2008. The utilization of approximately
$35,402,000 of tax loss carryforwards is limited to approximately $1,900,000
each year as a result of an "ownership change" (as defined by Section 382 of
the Internal Revenue Code of 1986, as amended), which occurred in fiscal 1993.
The Company also has investment tax credit and alternative minimum tax
credit carryforwards of approximately $3,000,000 and $2,489,000. The ability
to utilize such investment tax credit carryforwards and $1,769,000 of the
alternative minimum tax credit carryforwards are subject to yearly limitations
under Internal Revenue Code Section 382.
<TABLE>
<CAPTION>
4. DEBT AND CREDIT ARRANGEMENTS
Interest
1994 1993 Rate
-------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Credit Agreement:
Rollover Term Loan $ 44,503 $ 42,356 13.1%
Revolver Loan - - 8.75% Variable
Deferred Financing Fee 6,818 6,397 8.44% Variable
9.5% Senior Notes due
2001, net of discount 114,320 114,221 9.5%
Other notes payable 1,391 1,347 3.0%
-------- --------
167,032 164,321
Less Current Portion 90 87
-------- --------
$166,942 $164,234
======== ========
Market value of total debt $ $181,253
========
</TABLE>
Chemical Bank and certain other lenders provided financing (as so
amended, the "Senior Credit Facility") to the Company in the form of four
facilities: (i) a standby term loan in the amount of $70 million; (ii) an
ESOP term loan in the amount of approximately $22 million; (iii) a rollover
term loan in the amount of $50 million; and (iv) a revolving credit loan
providing available borrowings up to $65 million. The revolving credit loan
has a final maturity on May 9, 1997, but may be renewed on an annual basis
thereafter with the unanimous approval of Chemical Bank and any other
participating lenders. The interest rates indicated above are as of July 31,
1994.
The Senior Credit 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
F-13
<PAGE>
consolidated interest expense coverage ratio, a fixed charge coverage ratio
and a leverage ratio.
The rollover term loan is required to be repaid in quarterly installments
beginning October 31, 1995, with final maturity on April 30, 1999. The Senior
Credit Facility provides that the rollover term loan bears interest at a fixed
annual rate of 13.07%, provided, that, through July 31, 1994, interest on the
term loan is required to be paid at a floating annual rate equal to the
Alternate Base Rate (as defined in the Senior Credit Facility) plus 1.5% and,
provided further, that the difference between interest accrued at the fixed
annual rate of 13.07% and interest paid as described above will be deferred
monthly in arrears and added to the principal of the rollover term loan. Such
deferred interest bears interest which is required to be paid monthly in
arrears at a floating rate equal to the Alternate Base Rate plus 1.5%, and the
deferred interest added to principal is required to be paid in full on the
date of the final installment of principal of the rollover term loan. The
Company is also required to prepay the rollover term loans to the extent of
Excess Cash Flow (as defined in the Senior Credit Facility).
The loans under the Senior Credit Facility are collateralized by a lien
on substantially all of the Company's assets, and all loans are cross-
collateralized. The revolving credit loan under the Senior Credit Facility
will be available to the extent that the Company satisfies certain borrowing
base criteria. At July 31, 1994 there were no borrowings under the revolver
loan and $64.8 million was available to the Company.
In connection with the Senior Credit Facility, the Company had previously
agreed to pay Chemical Bank a fee of $5 million, which was to be deferred
until the Houston Facility began to earn revenue (as described) and which
would be payable thereafter in accordance with a formula. As a result of an
amendment to the Senior Credit Facility in September 1991, the terms of the $5
million fee were modified to provide that the entire fee became due and
payable immediately, but that Chemical Bank would defer payment until the
principal amount of all loans under the Senior Credit Facility has been paid
in full. The deferred fee bears interest at the adjusted LIBOR for the
interest period then in effect plus 4% compounded monthly, with the payment of
interest also being deferred until such principal amount has been paid in
full.
Pursuant to the Senior Credit Facility, Chemical Bank receives a $200,000
annual administration fee and the lenders receive a quarterly commitment fee
of 1/2% per annum based on the average unused amount of the commitment of the
lenders under the Senior Credit Facility.
F-14
<PAGE>
In consideration for the September 1991 amendment to the Senior Credit
Facility, the Company agreed to pay Chemical Bank approximately $238,000 which
is deferred until the principal amount of all loans under the Senior Credit
Facility has been paid in full.
At July 31, 1994, $114,320,000 (net of unamortized discount of $680,000)
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 will be
senior to all subordinated indebtedness of the Company and rank pari passu
with all other existing and future senior indebtedness of the Company. 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.
The Senior Notes contain certain restrictive covenants that, among other
things, will limit the ability of the Company to incur additional
indebtedness, create liens, issue preferred stock of subsidiaries, pay
dividends, repurchase capital stock, make certain other restricted payments,
engage in transactions with affiliates, sell assets, engage in sale and
leaseback transactions and engage in mergers and consolidation.
Annual maturities of long term debt for the years subsequent to fiscal
1994 are; 1995, $90,000; 1996, $6,833,000; 1997, $8,025,000; 1998, $8,028,000;
1999, $28,824,000 and thereafter of $115,232,000.
The Company estimated the market value of its total debt by utilizing a
discounted cash flow methodology.
F-15
<PAGE>
5. SUPPLEMENTAL BALANCE SHEET DATA
The following balance sheet information is provided as of July 31,:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
(In thousands)
<S> <C> <C>
INVENTORIES:
Raw materials and supplies $ 19,330 $ 16,902
Semi-finished products 25,633 19,828
Finished products 39,719 38,992
-------- --------
$ 84,682 $ 75,722
======== ========
PLANT AND EQUIPMENT:
Land $ 5,559 $ 5,522
Buildings 29,511 29,206
Machinery and equipment 296,734 277,671
Construction in progress 3,652 233
-------- --------
Total 335,456 312,632
Less accumulated depreciation 118,278 96,117
-------- --------
Net plant and equipment $217,178 $216,515
======== ========
ACCRUED EXPENSES:
Salaries and wages $ 11,291 $ 12,386
Pensions (6,385) (6,104)
Postretirement welfare benefits 5,000 5,000
Other employment costs 7,667 7,953
Accrued interest 1,530 1,957
Taxes other than income 2,393 2,687
Insurance and other 1,384 3,066
-------- --------
$ 22,880 $ 26,945
======== ========
DEFERRED EMPLOYEE BENEFIT OBLIGATIONS:
Postretirement welfare benefits $ 60,469 $ 59,642
Supplemental unemployment benefits 1,058 1,078
Deferred minimum pension liability 14,572 -
Workers' compensation 3,000 3,000
Other benefit plan 147 323
-------- --------
$ 79,246 $ 64,043
======== ========
</TABLE>
F-16
<PAGE>
6. 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.
The future minimum rental payments required for the noncancelable lease
term of the operating leases as of July 31, 1994, were as follows:
Fiscal year ending July 31:
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
1995 $ 3,172
1996 3,028
1997 2,646
1998 2,041
1999 1,491
Remaining years 12,898
-------
Total minimum future
lease payments $25,276
=======
</TABLE>
Rental expense under operating leases for the years ended July 31, 1994,
1993 and 1992 was approximately $4,300,000; $4,603,000; and $4,327,000,
respectively.
7. STOCKHOLDERS' EQUITY
The Company's authorized shares are as follows:
Common Stock ..................... 75,000,000
Preferred Stock .................. 1,000,000
The Company established an ESOP in 1988 which borrowed $25,000,000 from
the Company (which borrowed an identical amount in the form of the ESOP term
loan under the Senior Credit Facility) to fund the ESOP's purchase of
4,410,125 shares of Class A Common Stock (which after the 1992 Investment
became Common Stock). The Company committed to make contributions to the ESOP
to enable it to repay the loan from the Company. As the contributions were
made, an equal amount of unearned ESOP compensation was charged to expense.
Effective with the Recapitalization, the Company paid the final balance of the
contributions to the ESOP. With this payment and the allocation of all
remaining shares to ESOP participants, the unamortized balance of the unearned
ESOP compensation of $3.2 million was charged to fiscal 1993 expense.
F-17
<PAGE>
Prior to the 1992 Investment on August 12, 1992, outside investors and
senior management held 3,345,154 shares of Class B Common Stock which were
reclassified in connection with the 1992 Investment into shares of Common
Stock. On August 12, 1992, the Company sold 8,687,000 newly-issued shares of
its Common Stock to Kohlberg. Simultaneously with the consummation of the
sale, certain members of the Company's management purchased an aggregate of
63,000 newly-issued shares of Common Stock. In addition, the rights of members
of senior management to receive shares of Common Stock pursuant to the
Company's stock appreciation rights plan became fully vested with a grant
price of zero. Accordingly, 425,481 shares of Common Stock (valued at
approximately $1,702,000) were distributed and cash was paid totaling
approximately $877,000 to the holders of the rights.
As of August 12, 1992, after the sale and distribution of Common Stock
aggregating 9,175,481 shares, as discussed above, stockholders' equity was
increased by $30,927,000, net of $5,775,000 of related costs of which
$2,000,000 was paid on August 12, 1993.
The Company established a Management Stock Option Plan and reserved
900,000 shares of Common Stock for future grants at fair market value at the
date of grant to certain members of senior management. Options to purchase an
aggregate of 765,750 shares of Common Stock at an exercise price of $4.00 per
share and 37,500 shares of Common Stock at an exercise price of $9.88 per
share remain outstanding under the Management Stock Option Plan. At July 31,
1994, 549,750 exercisable options were outstanding. The remaining options
granted will vest based upon the continued employment of the employees. The
options granted pursuant to the Management Stock Option Plan expire on the
earlier of ten years from date of grant or one year from the date of the
employee's termination. The Company also approved the establishment of an
Employee Stock Purchase and Option Plan, subject to applicable securities law
requirements, for certain salaried and hourly employees which provides
participants with a one-time opportunity to purchase up to 200,000 shares of
Common Stock at $4.00 per share and the granting of options to purchase a
total of 300,000 shares of Common Stock at an exercise price of $4.00 per
share, plus subject to certain restrictions, those remaining shares not
purchased at the time of the one-time purchase opportunity.
As of July 31, 1994, certain salaried and hourly employees purchased
114,595 shares of Common Stock pursuant to the Employee Stock Purchase and
Option Plan at an exercise price of $4.00 per share. Options to purchase
185,653 shares of Common Stock at an exercise price of $4.00 per share remain
outstanding under the Employee Stock Purchase and Option Plan.
F-18
<PAGE>
Two-thirds of the options granted pursuant to the Employee Stock Purchase and
Option Plan expired on September 30, 1994. The remainder expire on the
earlier of August 12, 2002 or one year from the date of the employee's
termination.
Effective with the Recapitalization on June 11, 1993, the Company sold
7,000,000 shares of Common Stock. Stockholders' equity increased by
$51,358,000, net of $4,642,000 of related costs. Within 30 days of the
Initial Public Offering, the underwriters exercised their option to purchase
up to an additional 15% of the Common Stock Offering on the same terms. After
this sale and distribution of Common Stock aggregating 392,680 shares,
stockholders' equity was increased by $2,921,000, net of $220,000 of related
costs.
During fiscal 1994, the Company approved the establishment of the 1994
Long-Term Incentive Plan (the "1994 Plan") and reserved 1,250,000 shares of
Common Stock for issuance under the 1994 Plan. The 1994 Plan provides for the
granting to key employees and other key individuals who perform services for
the Company stock options, stock appreciation rights and restricted stock that
the Board of Directors or a duly appointed committee thereof deems to be
consistent with the purposes of the 1994 Plan. Options to purchase 137,000
shares of Common Stock at an exercise price of $9.00 per share are outstanding
at July 31, 1994.
The Company also approved the establishment of the 1994 Director Stock
Plan ("the 1994 Director Plan") and reserved 50,000 shares of Common Stock for
issuance under the 1994 Director Plan. The 1994 Director Plan provides solely
for the award of non-qualified stock options to Directors who are not
employees of the Company or affiliates of Kohlberg & Co., L.P. Each eligible
director will be awarded 2,500 stock options upon such director's election or
reelection to the Board of Directors. Each such award will be at fair market
value on the date of the grant. Options become exercisable six months after
the date of the grant and generally expire five years following the date of
the grant. Options to purchase an aggregate of 7,500 shares of Common Stock
at an exercise price of $11.25 per share are outstanding.
There are no Shares of Preferred Stock outstanding.
The Company entered into a fee agreement with Kohlberg at the time of the
closing of the sale of the Common Stock to Kohlberg pursuant to the Stock
Purchase Agreement. Under the Fee Agreement, Kohlberg will provide such
advisory and management services to the Company and its subsidiaries as the
Board of Directors reasonably requests. The Company paid Kohlberg a fee of
$2,000,000 on August 12, 1993. In addition, in consideration of the services
being provided, the Company
F-19
<PAGE>
pays Kohlberg a fee of $43,435 per quarter at the beginning of each quarter.
Kohlberg, but not the Company, will be able to terminate the Fee Agreement at
any time, and it will terminate automatically on the earlier of either the end
of the fiscal year in which Kohlberg's percentage interest in the outstanding
Common Stock falls below 25% or the tenth anniversary of the 1992 Investment.
The Company paid management fees of $75,000 and $36,000 to certain former
Class B Stockholders for the fiscal years ended July 31, 1993 and 1992,
respectively. No such fees were incurred in fiscal 1994.
8. COMMITMENTS AND CONTINGENCIES
At July 31, 1994, the Company has commitments for capital expenditures of
approximately $23,111,000. The major expenditures committed to include
approximately $6,700,000 for improvements to the primary facility and
$5,600,000 for a new mesh facility for our wire products group.
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.
A wrongful death action against the Company is pending in the 113th
Judicial District Court of Harris County, Texas. The action stems from the
death of an employee at the Company's Houston Facility. Defense of this
action is currently being provided by the Company's insurers. The Company's
insurance carriers will not make a determination regarding coverage until this
action is settled; however, the Company believes that losses arising from the
complaint, if any, will be covered by the Company's insurance carriers. The
Company has not provided an accrual for these losses as the outcome cannot be
predicted at this time.
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.
F-20
<PAGE>
The Company believes that it is currently in substantial compliance with
applicable environmental requirements and does not anticipate the need to make
substantial expenditures for environmental control measures during fiscal
1995. Nevertheless, as is the case with steel producers in general, if a
release of hazardous substances located on the Company's property or used in
general in the conduct of the Company's business 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.
9. QUARTERLY SALES AND EARNINGS DATA (Unaudited)
The following information is for the years ended July 31, 1994 and 1993:
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------
October January April July Total for
31 31 30 31 the Year
-------- -------- -------- -------- ---------
(In thousands of dollars except per share data)
<S> <C> <C> <C> <C> <C> <C>
1994
----
Net sales $156,043 $140,247 $150,356 $156,963 $603,609
Gross profit (1) 16,845 14,841 13,716 17,506 62,908
Net income 3,242 1,671 1,660 3,437 $ 10,010
Net income per share $ .13 $ .07 $ .06 $ .14 $ .40
1993
----
Net sales $130,660 $115,829 $141,923 $150,798 $539,210
Gross profit 13,859 13,061 15,777 12,391 55,088
Income (loss) before
extraordinary item and
cumulative effect of
accounting change (493) (481) 2,017 (2,565) (1,522)
Extraordinary items (2) (6,395) (6,395)
Cumulative effect of
accounting change (39,778) (39,778)
Net income (loss) (40,271) (481) 2,017 (8,960) (47,695)
Income (loss) before
extraordinary item and
cumulative effect of
accounting change
per share $ (.02) $ (.03) $ .11 $ (.15) $ (.09)
Extraordinary item
per share $ ( .34) $ (.34)
Cumulative effect of
accounting change
per share $ (2.19) $ (2.19)
Net income (loss)
per share $ (2.21) $ (.03) $ .11 $ (.49) $ (2.62)
</TABLE>
Notes:
(1) Gross profit is defined here as net sales less cost of
goods sold excluding depreciation.
(2) As a result of the Recapitalization, the Company recorded
an extraordinary loss related to the early retirement of
debt.
F-21
<PAGE>
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 schedules listed in the index included
in Item 14 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information required to
be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
September 16, 1994
F-22
<PAGE>
Schedule V
NORTHWESTERN STEEL AND WIRE COMPANY
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JULY 31, 1994, 1993 AND 1992
(In thousands of dollars)
<TABLE>
<CAPTION>
Balance at Balance
Beginning Additions Sales And at Close
Classification of Period at Cost Retirements Other of Period
- --------------------------- ---------- --------- ----------- ----- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
JULY 31, 1994
Land $ 5,522 $ 37 $ - $ - $ 5,559
Buildings 29,206 142 163 29,511
Machinery and equipment 277,671 18,969 (106) 200 296,734
Construction in progress 233 3,782 (363) 3,652
-------- ------- ----- ----- --------
$312,632 $22,930 $(106) 0 $335,456
======== ======= ===== ===== ========
FOR THE YEAR ENDED
JULY 31, 1993
Land $ 5,522 $ - $ - $ - $ 5,522
Buildings 29,030 176 29,206
Machinery and equipment 265,981 11,862 (172) 277,671
Construction in progress - 233 233
-------- ------- ----- ----- --------
$300,533 $12,271 $(172) - $312,632
======== ======= ===== ===== ========
FOR THE YEAR ENDED
JULY 31, 1992
Land $ 5,524 $ - $ (2) $ - $ 5,522
Buildings 28,980 50 29,030
Machinery and equipment 258,360 7,071 550 265,981
Construction in progress 550 (550) -
-------- ------- ----- ----- --------
$293,414 $ 7,121 $ (2) $ - $300,533
======== ======= ===== ===== ========
</TABLE>
F-23
<PAGE>
Schedule VI
NORTHWESTERN STEEL AND WIRE COMPANY
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION, AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JULY 31, 1994, 1993 AND 1992
(In thousands of dollars)
<TABLE>
<CAPTION>
Balance at Charged Retirements, Balance
Beginning To Costs and Renewals and at Close
Classification of Period Expenses Replacements of Period
- --------------------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED
JULY 31, 1994
Buildings $ 4,905 $ 1,041 $ - $ 5,946
Machinery and equipment 91,212 21,164 (44) 112,332
---------- ---------- ----------- ----------
$ 96,117 $ 22,205 $ (44) $ 118,278
========== ========== =========== ==========
FOR THE YEAR ENDED
JULY 31, 1993
Buildings $ 3,866 $ 1,039 $ - $ 4,905
Machinery and equipment 70,497 20,887 (172) 91,212
---------- ---------- ----------- ----------
$ 74,363 $ 21,926 $ (172) $ 96,117
========== ========== =========== ==========
FOR THE YEAR ENDED
JULY 31, 1992
Buildings $ 2,795 $ 1,071 $ - $ 3,866
Machinery and equipment 49,486 21,011 70,497
---------- ---------- ----------- ----------
$ 52,281 $ 22,082 $ - $ 74,363
========== ========== =========== ==========
</TABLE>
F-24
<PAGE>
SCHEDULE VIII
NORTHWESTERN STEEL AND WIRE COMPANY
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1994, 1993 AND 1992
(In thousands of dollars)
<TABLE>
<CAPTION>
Charged
Balance At To Costs Balance at
Beginning and End of
Description of Period Expenses Deductions Period
- --------------------------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
FOR THE YEAR
ENDED JULY 31, 1994 $ 1,000 $ 91 $ (91) $ 1,000
========== ========== =========== ==========
FOR THE YEAR
ENDED JULY 31, 1993 $ 1,500 $ 135 $ (635) $ 1,000
========== ========== =========== ==========
FOR THE YEAR
ENDED JULY 31, 1992 $ 1,000 $ 788 $ (288) $ 1,500
========== ========== =========== ==========
Inventory valuation allowance:
FOR THE YEAR
ENDED JULY 31, 1994 $ 809 $ - $ (119) $ 690
========== ========== =========== ==========
FOR THE YEAR
ENDED JULY 31, 1993 $ 665 $ 144 $ - $ 809
========== ========== =========== ==========
FOR THE YEAR
ENDED JULY 31, 1992 $ 1,982 $ - $ (1,317) $ 665
========== ========== =========== ==========
</TABLE>
F-25
<PAGE>
SCHEDULE X
NORTHWESTERN STEEL AND WIRE COMPANY
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED JULY 31, 1994, 1993 AND 1992
(In thousands of dollars)
<TABLE>
<CAPTION>
Description Charged to Costs and Expenses
- ---------------------------------- --------------------------------------
1994 1993 1992
---------- --------- --------
<S> <C> <C> <C>
Maintenance and repairs $58,921 $56,458 $49,158
Taxes, other than income taxes:
Payroll taxes 8,798 7,621 6,946
Other state and local taxes 2,864 2,637 2,011
</TABLE>
NOTE: Royalty expense, advertising costs and
depreciation and amortization of intangible
assets during the years ended July 31, 1994,
1993 and 1992 were not significant.
F-26
<PAGE>
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.
NORTHWESTERN STEEL AND WIRE COMPANY
By:/s/ Robert N. Gurnitz
------------------------
Robert N. Gurnitz
Chairman of the Board,
President and Chief Executive
Officer
Date: October 25, 1994
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 and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Robert N. Gurnitz Chairman of the Board,
--------------------- President, Chief
Robert N. Gurnitz Executive Officer,
Principal Executive
Officer and Director
October 25, 1994
/s/ Edward G. Maris Senior Vice President
------------------- Chief Financial Officer,
Edward G. Maris Secretary and Treasurer,
Principal Financial
and Accounting Officer
October 25, 1994
/s/ William F. Andrews
----------------------
William F. Andrews Director October 25, 1994
/s/ Kim G. Davis
----------------
Kim G. Davis Director October 25, 1994
/s/ Darius W. Gaskins, Jr.
--------------------------
Darius W. Gaskins, Jr. Director October 25, 1994
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
/s/ James A. Kohlberg Director October 25, 1994
---------------------
James A. Kohlberg
/s/ Jerome Kohlberg Jr.
-----------------------
Jerome Kohlberg Jr. Director October 25, 1994
/s/ Christopher Lacovara Director October 25, 1994
------------------------
Christopher Lacovara
/s/ George W. Peck, IV Director October 25, 1994
----------------------
George W. Peck, IV
/s/ Richard F. Williams Director October 25, 1994
-----------------------
Richard F. Williams
</TABLE>
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT INCORPORATED BY REFERENCE
NUMBER DESCRIPTION TO OTHER DOCUMENT
- ------- ----------- -------------------------
<C> <S> <C>
2.1 Stock Purchase Agreement Current Report on Form 8-K dated
dated as of July 27, 1992 July 27, 1992, File No. 1-4288,
between the Company and Exhibit 2.1
KNSW
2.2 Management Subscription Current Report on Form 8-K dated
Agreement dated as of July August 12, 1992, File No. 1-4288,
27, 1992 between the Exhibit 2.3
Company and the management
investors named therein
(the "Management
Investors")
3.1 Second Amended and Annual Report on Form 10-K for the
Restated Articles of fiscal year ended July 31, 1992,
Incorporation of the File No. 1-4288, Exhibit 3.1
Company dated as of August
12, 1992
3.2 Amended and Restated Annual Report on Form 10-K for the
By-Laws of the Company fiscal year ended July 31, 1992,
File No. 1-4288, Exhibit 3.2
4.1 Articles Four through See Exhibit 3.1 above
Eight and Eleven of the
Second Amended and
Restated Articles of
Incorporation of the
Company dated as of August
12, 1992
4.2 Articles II, VII, IX and See Exhibit 3.2 above
XIII of the amended and
Restated By-Laws of the
Company
4.3 Management Subscription See Exhibit 2.2 above
Agreement dated as of July
27, 1992 between the
Company and Management
Investors
4.6 Fourth Amendment dated as Quarterly Report on Form 10-Q for
of March 2, 1994 to the the quarterly period ended April
Amended and Restated 30, 1994. File No. 1-4288,
Credit Agreement Exhibit 4.1
4.4 Amended and Restated Current Report on Form 8-K dated
Credit Agreement dated as August 12, 1992, File No. 1-4288,
of August 16, 1988, as Exhibit 2.4
amended and restated as of
July 27, 1992, among the
Company (as successor, by
merger, to NW Acquisition
Corporation), Northwestern
Steel and Wire Company
(formerly known as H/N
Steel Company, Inc.), the
Lenders named therein and
Chemical Bank, as Agent
(the "Amended and Restated
Credit Agreement")
4.5 Revolving Credit Note Annual Report on Form 10-K for the
dated June 22, 1989 from fiscal year ended July 31, 1989,
the Company and H/N Steel File No. 1-4288, Exhibit 19.1
Company, Inc. to Chemical
Bank as agent under the
Amended and Restated
Credit Agreement
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
4.6 Rollover Term Note dated Annual Report on Form 10-K for the
June 22, 1989 from the fiscal year ended July 31, 1989,
Company and H/N Steel File No. 1-4288, Exhibit 19.2
Company, Inc. to Chemical
Bank as agent under the
Amended and Restated
Credit Agreement
4.9 Form of Revolving Credit Annual Report on Form 10-K for the
Notes dated June 22, 1989 fiscal year ended July 31, 1992,
as amended as of July 27, File No. 1-4288, Exhibit 4.11
1992 from the Company and
Northwestern Steel and
Wire Company (formerly H/N
Steel Company, Inc.), a
Texas corporation, to
lenders under the Amended
and Restated Credit
Agreement
4.10 Form of Rollover Term Annual Report on Form 10-K for the
Notes dated June 22, 1989 fiscal year ended July 31, 1992,
as amended as of July 27, File No. 1-4288, Exhibit 4.12
1992 from Northwestern
Steel and Wire Company and
Northwestern Steel and
Wire Company (formerly H/N
Steel Company, Inc.), a
Texas corporation, to
lenders under the Amended
and Restated Credit
Agreement
4.13 Mortgage, Security Annual Report on Form 10-K for the
Agreement and Assignment fiscal year ended July 31, 1989,
of Rents dated as of File No. 1-4288, Exhibit 19.5
August 16, 1988 from the
Company to Chemical Bank
as collateral agent
4.14 Agreement of Modification Annual Report on Form 10-K for the
of Mortgage, Security fiscal year ended July 31, 1989,
Agreement and Assignment File No. 1-4288, Exhibit 19.6
of Rents dated as of June
21, 1989 between the
Company and Chemical Bank
as collateral agent
4.15 Deed of Trust, Security Annual Report on Form 10-K for the
Agreement and Assignment fiscal year ended July 31, 1989,
of Leases and Rents dated File No. 1-4288, Exhibit 19.7
as of June 21, 1989 from
H/N Steel Company, Inc. to
David W. Hannah, Jr. as
Trustee for the benefit of
Chemical Bank as
collateral agent
4.16 Amended and Restated Annual Report on Form 10-K for the
Security Agreement dated fiscal year ended July 31, 1989,
as of August 16, 1989 File No. 1-4288, Exhibit 19.8
among the Company, H/N
Steel Company, Inc. and
Chemical Bank as
collateral agent
4.17 Second Amendment dated as Annual Report on Form 10-K for the
of August 12, 1992 to fiscal year ended July 31, 1992,
Mortgage, Security File No. 1-4288, Exhibit 4.19
Agreement and Assignment
of Rents dated as of
August 16, 1988 and
amended as of June 21,
1989 from the Company to
Chemical Bank collateral
agent
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
4.18 Amendment dated as of Annual Report on Form 10-K for the
August 12, 1992 to Deed of fiscal year ended July 31, 1992,
Trust, Security Agreement File No. 1-4288, Exhibit 4.20
and Assignment of Rents
and Leases dated as of
June 21, 1989 from
Northwestern Steel and
Wire Company (formerly H/N
Steel Company, Inc.), a
Texas corporation, to
David W. Hannah, Jr. as
Trustee for the benefit of
Chemical Bank as
collateral agent
4.19 Collateral Assignment of Annual Report on Form 10-K for the
and Ratification of fiscal year ended July 31, 1992,
Security Interest in File No. 1-4288, Exhibit 4.21
Intellectual property
Rights dated as of August
12, 1992 by and among the
Company, Northwestern
Steel and Wire Company
(formerly known as H/N
Steel Company, Inc.), a
Texas corporation, and
Chemical Bank as
collateral agent
4.20 Pledge Agreement dated as Annual Report on Form 10-K for the
of June 21, 1989 between fiscal year ended July 31, 1989,
the Company and Chemical File No. 1-4288, Exhibit 19.9
Bank as collateral agent
4.21 Amended and Restated Annual report on Form 10-K for the
Lockbox Agreement dated as fiscal year ended July 31, 1989,
of June 21, 1989 between File No. 1-4288, Exhibit 19.10
the Company, H/N Steel
Company, Inc. and Chemical
Bank as collateral agent
for certain lenders under
the Amended and Restated
Credit Agreement and
American National Bank and
Trust Company of Chicago
4.22 Collateral Assignment Annual Report on Form 10-K for the
dated as of June 21, 1989 fiscal year ended July 31, 1989.
between H/N Steel Company file No. 1-4288, Exhibit 19-11
and Chemical Bank as
collateral agent
4.23 Guarantee Agreement dated Annual Report on Form 10-K for the
as of September 25, 1990 fiscal year ended July 31, 1990,
between Northwestern Steel File No. 1-4288, Exhibit 4.24
and Wire Company, a
Delaware corporation, and
the lenders named in the
Amended and Restated
Credit Agreement
4.24 Second Amendment to Registration Statement No.
Amended and Restated 33-60716, Exhibit 4.37
Credit Agreement dated as
of April 15, 1993
4.25 Form of Indenture dated as Registration Statement No.
of 1993, between the 33-60766, Exhibit 4.38
Company and Continental
Bank, National
Association, as Trustee
(including form of Senior
Note)
4.26 Northwestern Steel and Rule 13e-3 Transaction Statement,
Wire Company Employee File No. 5-10871, Exhibit
Stock Ownership Plan 17(c)(vii)
4.27 Amendment No. 1 to ESOP Annual Report on Form 10-K for the
dated March 29, 1990 fiscal year ended July 31, 1992,
File No. 1-4288, Exhibit 19.1
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
4.28 Amendment No. 2 to ESOP Annual Report on Form 10-K for the
effective as of August 1, fiscal year ended July 31, 1992,
1990 File No. 1-4288, Exhibit 19.2
4.29 Amendment No. 3 to ESOP Annual Report on Form 10-K for the
effective as of January 1, fiscal year ended July 31, 1992,
1992 File No. 1-4288, Exhibit 19.3
4.30 Amendment No. 4 to the Annual Report on Form 10-K for the
Northwestern Steel and fiscal year ended July 31, 1992,
Wire Company Employee File No. 1-4288, Exhibit 4.27
Stock Ownership Plan
effective as of August 12,
1992
10.1 Employment Agreement Annual Report on Form 10-K for the
between Robert N. Gurnitz fiscal year ended July 31, 1991,
and the Company dated as File No. 1-4288, Exhibit 10.1
of November 29, 1990
10.2 Employment Agreement Annual Report on Form 10-K for the
between John C. Meyer and fiscal year ended July 31, 1992,
the Company effective File No. 1-4288, Exhibit 10.2
February 10,1992
10.3 Form of Employment Annual Report on Form 10-K for the
Agreement between certain fiscal year ended July 31, 1988,
members of Senior File No. 1-4288, Exhibit 10.3
Management and the Company
dated as of August 16, 1988
10.6 Amendment to Employment Annual Report on Form 10-K for the
Agreement between Edward fiscal year ended July 31, 1991,
G. Maris and the Company File No. 1-4288, Exhibit 10.5
dated as of August 12, 1991
10.8 Amendment to Employment Annual Report on Form 10-K for the
Agreement between David C. fiscal year ended July 31, 1991,
Oberbillig and the Company File No. 1-4288, Exhibit 10.7
dated as of August 13, 1991
10.9 Amendment to Employment Annual Report on Form 10-K for the
Agreement between Robert fiscal year ended July 31, 1991,
W. Martin and the Company File No. 1-4288, Exhibit 10.8
dated as of August 9, 1991
10.12 Amendment to Employment Annual Report on Form 10-K for the
Agreement between Gerald fiscal year ended July 31, 1991,
T. Shinville and the File No. 1-4288, Exhibit 10.11
Company dated as of August
14, 1991
10.15 Indemnification Agreement Annual Report on Form 10-K for the
between former directors fiscal year ended July 31, 1988,
of the Company and the File No. 1-4288, Exhibit 10.3
Company dated as of August
16, 1988
10.16 Form of Indemnification Annual Report on Form 10-K for the
Agreements dated April, fiscal year ended July 31, 1992,
1992 between the Company File No. 1-4288, Exhibit 10.16
and its directors
10.17 Form of Indemnification Annual Report on Form 10-K for the
Agreements dated May 29, fiscal year ended July 31, 1992,
1992 between the Company File No. 1-4288, Exhibit 10.17
and members of the
Administrative Committee
of the ESOP
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
10.18 Form of Amendments of Annual Report on Form 10-K for the
Indemnification Agreements fiscal year ended July 31, 1992,
dated as of July 23, 1992 File No. 1-4288, Exhibit 10.18
between the Company and
members of the
Administrative Committee
of the ESOP
10.19 Form of Deferred Annual Report on Form 10-K for the
Compensation Agreement fiscal year ended July 31, 1989,
File No. 1-4288, Exhibit 10.5
10.20 Northwestern Steel and Annual Report on Form 10-K for the
Wire Company Management fiscal year ended July 31, 1992,
Stock Option Plan File No. 1-4288, Exhibit 10.20
effective August 12, 1992
10.21 Form of Management Stock Annual Report on Form 10-K for the
Option Agreement dated as fiscal year ended July 31, 1992,
of August 12, 1992 File No. 1-4288, Exhibit 10.21
10.22 Fee Agreement dated as of Annual Report on Form 10-K for the
August 12, 1992 between fiscal year ended July 31, 1992,
the Company and Kohlberg File No. 1-4288, Exhibit 10.22
10.23 1994 Long Term Incentive Registration Statement on Form
Plan S-8 and Form S-3, No. 33-53471,
Exhibit 4(d)
10.24 1994 Director Stock Option Registration Statement on Form S-8
Plan and Form S-3, No. 33-53471,
Exhibit 4(e)
11.1 Computation of Income
(Loss) per share
22.1 The Company has two
subsidiaries:
Northwestern Steel and
Wire Company (formerly H/N
Steel Company, Inc.), a
Texas corporation, and
Northwestern Steel and
Wire Company, a Delaware
corporation
24 Consent of Coopers &
Lybrand
</TABLE>
42
<PAGE>
COMPUTATION OF INCOME (LOSS)
PER SHARE
Exhibit 11.1
<TABLE>
<CAPTION>
Years Ended July 31,
----------------------------------------------
1994 1993 1992
----------- ------------- -------------
<S> <C> <C> <C>
Income (loss) before extraordinary credit
and cumulative effect of accounting change $ 10,010 $ (1,522,000) $ (22,372,000)
Extraordinary loss related to early retirement
of debt - (6,395,000) -
Cumulative effect of accounting change - (39,778,000)
----------- ------------- -------------
Net income (loss) $ 10,010 $ (47,695,000) $ (22,372,000)
=========== ============= =============
Weighted average shares outstanding 24,679,249 17,564,000 8,051,089
Dilutive impact of shares issuable pursuant
to the Management Stock Option Plan
and Employee Stock Purchase and Option
Plan, such shares being issued or
issuable and such options granted
within one year of the proposed initial
public offering 535,000 620,000
Dilutive impact of shares issued pursuant
to the 1992 Investment, such shares
being issued within one year of the
proposed initial public offering - 4,343,500
Net additional shares outstanding assuming
dilutive stock options exercised and proceeds
used to purchase treasury stock at average
market price 506,140 71,143 -
----------- ------------- -------------
Shares outstanding for net income ( loss)
per share calculation 25,185,389 18,170,143 13,014,589
=========== ============= =============
Income (loss) before extraordinary item and
cumulative effect of accounting change per
share $ 0.40 $ (0.08) $ (1.72)
Extraordinary loss related to early
retirement for debt per share - (0.35) -
Cumulative effect of accounting change
per share - (2.19) -
----------- ------------- -------------
Net income (loss) per share $ 0.40 $ (2.62) $ (1.72)
=========== ============= =============
</TABLE>
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Northwestern Steel and Wire Company on Form S-8 (File No.
33-56412, 33-67788 and 33-53471) of our reports dated September 16, 1994 on
our audits of the consolidated financial statements and financial statement
schedules of Northwestern Steel and Wire Company as of July 31, 1994 and 1993
and for the years ended July 31, 1994, 1993 and 1992, which report is included
in this annual report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
October 27, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jul-31-1994
<PERIOD-END> Jul-31-1994
<CASH> 12,871
<SECURITIES> 0
<RECEIVABLES> 58,276
<ALLOWANCES> 1,000
<INVENTORY> 84,682
<CURRENT-ASSETS> 168,999
<PP&E> 335,456
<DEPRECIATION> 118,278
<TOTAL-ASSETS> 394,176
<CURRENT-LIABILITIES> 90,082
<BONDS> 0
<COMMON> 123,098
0
0
<OTHER-SE> (72,594)
<TOTAL-LIABILITY-AND-EQUITY> 394,176
<SALES> 603,609
<TOTAL-REVENUES> 603,609
<CGS> 540,701
<TOTAL-COSTS> 573,788
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,221
<INCOME-PRETAX> 10,730
<INCOME-TAX> 720
<INCOME-CONTINUING> 10,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,010
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
