<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended April 30, 1994
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ___________
Commission file number 1-4288
NORTHWESTERN STEEL AND WIRE COMPANY
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-1562920
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 Wallace Street, Sterling, Illinois 61081
- - --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 815/625-2500
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
Number of shares of common stock outstanding as of June 7, 1994:
Common Stock 24,307,706 shares
(includes 420,014 treasury shares)
Page 1 of 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, July 31,
1994 1993
--------- ---------
(In Thousands of Dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,236 $ 1,773
Receivables, less allowance of $1,000 63,416 54,029
Deferred income taxes 7,602 7,602
Other assets 6,079 5,121
-------- --------
78,333 68,525
-------- --------
Inventories, at lower of cost or market:
Finished products 42,908 38,992
Semi-finished products 27,692 19,828
Raw materials and supplies 17,966 16,902
-------- --------
88,566 75,722
-------- --------
Total current assets 166,899 144,247
-------- --------
PLANT AND EQUIPMENT, at cost 327,318 312,632
Accumulated depreciation 112,400 96,117
-------- --------
Net plant and equipment 214,918 216,515
-------- --------
DEFERRED FINANCING COSTS 7,528 8,652
ORGANIZATIONAL AND PRE-OPERATING COSTS 1,403 2,244
-------- --------
Total assets $390,748 $371,658
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 58,251 $ 53,857
Accrued expenses 24,594 26,945
Current portion of long term debt 87 87
-------- --------
Total current liabilities 82,932 80,889
LONG TERM DEBT 173,089 164,234
DEFERRED EMPLOYEE BENEFIT OBLIGATIONS 80,622 64,043
DEFERRED INCOME TAXES 7,602 7,602
-------- --------
Total liabilities 344,245 316,768
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY
Common stock, par value $.01 per share;
outstanding 24,708,721 and 24,631,955 shares, respectively 123,076 122,942
Retained earnings (deficit) (56,136) (62,709)
Minimum pension liability (15,114) -
Treasury shares, at cost; 420,014 shares of Common Stock (5,323) (5,343)
-------- --------
Total shareholders' equity 46,503 54,890
-------- --------
Total liabilities and shareholders' equity $390,748 $371,658
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
-2-
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
--------------------- -------------------------
1994 1993 1994 1993
(In thousands of dollars except per share data and tonnage data)
<S> <C> <C> <C> <C>
Net sales $150,356 $141,923 $ 446,646 $ 388,412
-------- -------- ---------- ----------
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 136,640 126,146 401,244 345,715
Depreciation 5,549 5,438 16,324 16,299
Selling and administrative 2,587 2,749 7,682 8,139
-------- -------- ---------- ----------
Total cost and operating expenses 144,776 134,333 425,250 370,153
-------- -------- ---------- ----------
Operating profit 5,580 7,590 21,396 18,259
-------- -------- ---------- ----------
Other income and expenses:
Interest expense 4,645 5,589 14,134 17,253
Interest and other income (3) (16) (123) (37)
-------- -------- ---------- ----------
Total other income and expenses 4,642 5,573 14,011 17,216
-------- -------- ---------- ----------
Income before income taxes and
cumulative effect of accounting change 938 2,017 7,385 1,043
Provision for income taxes (722) - 812 -
-------- -------- ---------- ----------
Income before cumulative effect of
accounting change 1,660 2,017 6,573 1,043
Cumulative effect of accounting change (Note 7) - - - (39,778)
-------- -------- ---------- ----------
Net income (loss) $ 1,660 $ 2,017 $ 6,573 $ (38,735)
======== ======== ========== ==========
Income before cumulative effect
of accounting change per share $ 0.06 $ 0.11 $ 0.26 $ 0.06
Cumulative effect of accounting change
per share - - - (2.19)
-------- -------- ---------- ----------
Net income (loss) per share $ 0.06 $ 0.11 $ 0.26 $ (2.13)
======== ======== ========== ==========
Net tons shipped 392,346 401,668 $1,218,640 $1,134,631
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
-3-
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
April 30,
---------------------------
1994 1993
--------- ---------
(In thousands of dollars)
<S> <C> <C>
Cash Flow From Operations:
Net income (loss) $ 6,573 $(38,735)
Cumulative effect of accounting change - 39,778
Depreciation 16,324 16,299
Loss on sale of fixed asset 11 -
Amortization of deferred financing costs and debt discount 1,513 1,351
Amortization of organizational and pre-operating costs 841 842
Increase in receivables (9,387) (4,746)
Increase in inventories (12,844) (27,043)
(Increase) decrease in other current assets (958) 1,051
Increase in deferred employee benefits 1,466 3,667
Increase in accounts payable and accrued expenses 2,043 7,468
Deferred interest due at maturity 1,191 2,062
Unearned ESOP compensation - 2,885
-------- --------
Net cash provided by operations 6,773 4,879
-------- --------
Cash Flows Used in Investing Activities:
Capital expenditures (14,755) (6,572)
Loss on sale 17 -
-------- --------
Net cash used in investing activities (14,738) (6,572)
-------- --------
Cash Flows From Financing Activities:
Payment of long term debt (51,315) (29,528)
Purchase of treasury shares - (694)
Issuance of long term debt 58,589 -
Proceeds from issuance of Common Stock 307 35,819
Costs related to the issuance of Common Stock (153) (3,775)
Payment of deferred financing costs - (87)
-------- --------
Net cash provided by financing activities 7,428 1,735
-------- --------
Increase (decrease) in cash and cash items (537) 42
Cash and Cash Equivalents:
Beginning of period 1,773 800
-------- --------
End of period $ 1,236 $ 842
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 14,067 $ 14,781
Income taxes paid $ 840 $ 99
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
-4-
<PAGE>
NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) COMPANY STRUCTURE
The consolidated financial statements include accounts of the Company
and its wholly-owned subsidiaries. The Company has two wholly-owned
subsidiaries: (i) Northwestern Steel and Wire Company, a Texas corporation
("NSW - Texas"), which operates the Company's Houston rolling and finishing
mill; 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. All significant
intercompany accounts and transactions have been eliminated. The Company
operates in one business segment, producing steel and steel products.
(2) INTERIM ACCOUNTING POLICIES
The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, the Company believes that the
disclosures are adequate to make the information included herein not misleading.
The consolidated financial statements included herein should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1993.
In the opinion of management, the unaudited consolidated financial
statements of the Company included herein contain all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial position
of the Company as of April 30, 1994, the results of operations for the three
month and nine month periods ended April 30, 1994 and 1993 and cash flows for
the nine months ended April 30, 1994 and 1993. The results of operations for
such interim periods are not necessarily indicative of the results for the full
year. The balance sheet as of July 31, 1993 has been derived from the Company's
audited historical financial statements.
(3) EMPLOYEE BENEFITS
As a result of the trend of declining long-term interest rates, the
Company remeasured its pension and postretirement benefits obligations as of
January 31, 1994.
The requirements of SFAS No. 87 and SFAS No. 106 to adjust the
discount rate in line with current and expected to be available interest rates
on high quality fixed-income instruments resulted in a decision by the Company
to reduce its assumed discount rate from 9% to 7.46%. In addition, the Company
also reduced its expected rate of
5
<PAGE>
increase in future compensation levels from 5% to 3.5% effective January 31,
1994 for its pension plans and reduced its ultimate trend rate for
postretirement benefits from 5.1% to 3.6%.
The effect of the pension plan changes was a non-cash charge to
shareholders' equity of $15,114,000 at January 31, 1994. The impact of the
change in assumptions under both SFAS No. 87 and SFAS No. 106 will not have a
material effect on the results of operations for the balance of the year.
Unlike SFAS No. 87, the changes described under SFAS No. 106 did not
result in a charge to shareholders' equity at January 31, 1994.
(4) SHAREHOLDERS' EQUITY
As of April 30, 1994 certain salaried and hourly employees purchased
108,544 shares of Common Stock pursuant to the exercise of options granted on
August 12, 1992 under the Employee Stock Purchase and Option Plan at an exercise
price of $4.00 per share. Options to purchase 191,704 shares of Common Stock at
an exercise price of $4.00 per share remain outstanding under the Employee Stock
Purchase and Option Plan. Additionally, options granted on August 12, 1992
under the Management Stock Option Plan aggregate 775,000 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.
At the Annual Meeting of Shareholders on January 20, 1994, the Company
established 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.
The Company also approved the establishment of the 1994 Director Stock
Option 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.
(5) NET INCOME PER SHARE
6
<PAGE>
Per share amounts, as presented on the Consolidated Statements of
Income, are based on the average shares outstanding of 25,258,998 for the three
and nine months ended April 30, 1994 and 18,170,143 for the three and nine
months ended April 30, 1993, respectively. The average shares outstanding for
each period include the dilutive impact of shares issuable pursuant to the
Company's Management Stock Option Plan, the Employee Stock Purchase and Option
Plan, the 1994 Plan and the 1994 Director Plan. Options under the 1994 Plan and
the 1994 Director Plan are not currently exercisable.
(6) DEBT AND CREDIT ARRANGEMENTS
Long-term debt at April 30, 1994, consisted of the following:
<TABLE>
<CAPTION>
Principal Interest
Amount Rate
--------- --------
(In Thousands)
<S> <C> <C>
Amended and Restated Credit Agreement
Rollover Term Loan $ 43,547 13.1%
Revolver Loan 7,200 8.3%
Deferred Financing Fee 6,713 7.1%
9.5% Senior Notes due 2001,
Net of Discount 114,295 9.5%
Other notes payable 1,421 3.0%
--------
173,176
Less current portion (87)
--------
$173,089
========
</TABLE>
Pursuant to the Senior Credit Facility, Chemical Bank and certain
other lenders provided financing to the Company in the form of two remaining
facilities: (i) a rollover term loan in the amount of $50 million and (ii) 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 April
30, 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 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
7
<PAGE>
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 loan 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 and its subsidiaries 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 April 30, 1994 additional borrowings of
approximately $57,800,000 under the revolving credit facility were 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 LIBO Rate 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.
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 April 30, 1994, $114,295,000 (net of unamortized discount of
$705,000) of Senior Notes were outstanding. The Senior Notes earn 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.
8
<PAGE>
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 (as defined), 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.
(7) BENEFITS FOR RETIRED EMPLOYEES
The provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," were adopted by the Company
effective August 1, 1992. This pronouncement requires accrual accounting for
these benefits rather than the general practice of cash-basis accounting. The
Company had recorded a liability for the then vested portion of these
postretirement benefits as of August 16, 1988 for the then current retirees and
those eligible to retire as of that date. Upon adoption of SFAS No. 106 on
August 1, 1992, the Company elected to record the balance of the transition
obligation as a one-time charge against earnings, rather than amortize it over a
number of years. This additional 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 estimated costs of postretirement benefits are recognized
based on an annual cost determination performed by the Company's independent
actuarial firm.
Because the decision to adopt the new rules was not made until the
fourth quarter of fiscal 1993, it was necessary to restate previously reported
financial information for the first three quarters of the fiscal year. The
adoption of this pronouncement resulted in no tax effect. The first quarter of
fiscal 1993 was also adjusted to reflect the cumulative effect of the accounting
change as discussed above.
(8) INCOME TAX
The Company estimates that annual income taxes will be incurred, thus
the allocation of income tax to interim periods is required. The Company
recorded an income tax provision by estimating the annual effective income tax
rate and applied that rate to pretax income.
The effective income tax rate for the nine months ended April 30, 1994
was 11%, which was lower than the estimated effective tax rate applied in
preceding quarters. The lower effective tax rate reflects the latest estimate
of the Company's tax position for the year ended July 31, 1994.
9
<PAGE>
(9) COMMITMENTS AND CONTINGENCIES
At April 30, 1994, the Company had commitments for capital
expenditures of approximately $14,300,000.
There are various claims and legal proceedings arising in the normal
course of business pending against or involving the Company wherein monetary
damages are sought. These claims and proceedings are generally covered by
insurance and it is management's opinion that the Company's liability, if any,
under such claims or proceedings would not materially affect its financial
position or results of operations.
The Company is subject to a broad range of federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and/or hazardous wastes and the
remediation of contamination associated with releases of hazardous substances.
Primarily because the melting process at the Company's Sterling
facility produces dust that contains lead and cadmium, the Company is
classified, in the same manner as other similar steel mills in its industry, as
a generator of hazardous waste.
The Company 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
1994. 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.
The Company has been sued in a wrongful death action stemming from the
death of an employee who sustained an injury at the Houston facility. The
Company has insurance for claims of this type, however the amount of the loss
cannot be presently determined.
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations included as Item 7 of Part II of the Company's Annual Report on Form
10-K for the year ended July 31, 1993.
Results of Operations
- - ---------------------
10
<PAGE>
Net sales for the Company were $446.6 million on shipments of
1,218,640 net tons for the nine months ended April 30, 1994, compared to $388.4
million on shipments of 1,134,631 net tons for the nine months ended April 30,
1993.
Steel shipments (tons) increased 7% in the nine-month period ended
April 30, 1994 compared to the same period in the prior year. Volume (tons) for
structural products increased 10% in the current year period compared to the
same period in the prior year due to modest improvements in the Company's
principal market, steel construction, together with continuing gains in market
share resulting from ongoing improvements in shipping, and on-time delivery.
Shipments of rod and wire products decreased 4% for the nine months ended April
30, 1994 compared to the same period in the prior year. The decrease in
shipments of rod and wire products resulted from a now corrected mechanical
breakdown at the rod mill during the month of February, coupled with unusually
harsh weather during the months of January and February. Due to increases in
steelmaking for the nine months ended April 30, 1994, the Company was able to
increase the shipments of semi-finished steel 23% for the nine months ended
April 30, 1994, compared to the nine months ended April 30, 1993.
Pricing on the Company's principal raw material, steel scrap,
continued to escalate to record levels. These escalating costs led to several
price increases during the nine months ended April 30, 1994 to the Company's
customers. Due to these price increases, together with the steel shipment
increase, the Company's net sales increased $58.2 million or 15% for the nine-
month period ended April 30, 1994 compared to the same period in the prior year.
Net sales for the third fiscal quarter ended April 30, 1994 amounted
to $150.4 million, an increase of 6% from the comparable quarter when net sales
were $141.9 million. Due to severe winter weather conditions continuing during
the first month of the quarter, together with a now corrected mechanical
breakdown at the Company's rod mill, which restricted production and shipments,
volume (tons) for the quarter ended April 30, 1994 was 392,346 net tons, a
decrease of 2% from the comparative quarter in the prior year.
Cost of goods sold, excluding depreciation, as a percentage of net
sales for the nine-month period ended April 30, 1994, increased to 90% compared
to 89% for the same period in the prior year. This was principally due to the
escalation in scrap cost in the nine months ended April 30, 1994, up 29%
compared to the same period ended April 30, 1993.
Selling and administrative expense was $7.7 million for the nine
months ended April 30, 1994 compared to $8.1 million for the nine months ended
April 30, 1993. The reduction in selling and administrative expense is primarily
due to decreased expenditures for professional fees. For the quarter ended April
30, 1994, selling and administrative expense remained relatively unchanged at
$2.6 million compared to $2.7 million for the prior year quarter.
11
<PAGE>
Interest expense decreased $3.2 million from $17.3 million for the
nine-month period ended April 30, 1993 to $14.1 million for the comparable
quarter in the current year. For the quarter ended April 30, 1994, interest
expense declined $1.0 million to $4.6 million compared to $5.6 million for the
quarter ended April 30, 1993. The reduction in interest expense is principally
the result of reduced levels of borrowings.
The provision for income tax decreased $.7 million during the quarter
ended April 30, 1994. This decrease in the provision for income tax is due to
the lower effective tax rate reflecting the latest estimate of the Company's tax
position for the year ended July 31, 1994.
The cumulative effect of accounting change significantly increased the
net loss for the nine months ended April 30, 1993. The cumulative effect of the
accounting change was the result of adopting SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." 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.
For the foregoing reasons, the net income for the nine months ended
April 30, 1994 was $6.6 million or $0.26 per share, compared with a net loss of
$38.7 million or $2.13 per share. For the quarter ended April 30, 1994, net
income was $1.7 million or $0.06 per share, compared to $2.0 million or $0.11
per share for the quarter ended April 30, 1993.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Funds for the Company's operational needs have been provided
--------
from internally generated cash and through utilization of the Senior Credit
Facility. As of April 30, 1994, the Company's consolidated total debt
aggregated approximately $173.2 million (net of unamortized discount on the
Senior Notes), of which approximately $173.1 million was classified as long term
debt. The consolidated debt-to-equity ratio increased to 4:1 at April 30, 1994
compared to 3:1 at July 31, 1993 after giving effect to the $15.1 million non-
cash charge to equity for the minimum pension liability as described in Footnote
3. As of April 30, 1994, the Company had cash on hand of approximately $1.3
million and approximately $57.8 million available for borrowing under its
existing revolving credit facility. The Company's current ratio continues to
improve, increasing to 2.0:1 at April 30, 1994 compared to 1.8:1 at July 31,
1993. This increased financial and operating flexibility has enabled the
Company to better manage inventory levels which, when combined with the
Company's enhanced product line, have enabled it to better serve its customers'
needs.
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
12
<PAGE>
will be dependent on its ability to generate adequate operating cash flow. The
Company expects that its cash flow from operations and available borrowings will
be sufficient to fund the repayment of the Senior Notes, other investing
activities and other required debt amortization through the maturity of the
Senior Notes. This will be dependent on its overall operating performance and
be subject to general business, financial and other factors affecting the
Company and the domestic steel industry, as well as prevailing economic
conditions, certain of which are beyond the control of the Company.
As reported in the Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1993 in "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 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.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
ITEM 5. Other Information
-----------------
On May 4, 1994 the Company filed Registration Statements on Form S-8
and Form S-3 covering an aggregate of 1,690,000 shares of the Company's Common
Stock. The shares have been authorized and reserved for issuance by the Company
and may be sold upon the exercise of options which previously have been granted
and/or may be granted to certain persons under the Company's Management Stock
Option Plan, 1994 Long-Term Incentive Plan and 1994 Director Stock Option Plan.
13
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 11 - Computation of Income Per Share
(b) Exhibits -
4.l Fourth Amendment dated as of March 2, 1994 to the Credit Agreement
dated as of August 16, 1988, as amended and restated as of July
27, 1992, and as further amended among the Company, Northwestern
Steel and Wire Company, a Texas corporation, the lenders party
thereto and Chemical Bank, as Agent for the lenders.
(c) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the quarter ended April 30, 1994.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHWESTERN STEEL AND WIRE COMPANY
By /s/ E. G. Maris .
----------------------------------
E. G. Maris, Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
Date: June , 1994
15
<PAGE>
EXHIBIT INDEX
Prior Filing
or Sequential
Exhibit No. Description Page Number .
- - ----------- ----------- -------------
4.1 Fourth Amendment dated as of 17
March 2, 1994 to the Credit Agreement
dated as of August 16, 1988, as
amended and restated as of
July 27, 1992, and as further
amended among the Company,
Northwestern Steel and Wire Company,
a Texas corporation, the lenders
party thereto and Chemical Bank,
as Agent for the lenders.
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
NORTHWESTERN STEEL AND WIRE COMPANY
Computation of Income Per Share
Three Months Ended Nine Months Ended
April 30, April 30,
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Income (loss) before cumulative effect
of accounting change $1,660,000 $2,017,000 $6,573,000 $ 1,043,000
Cumulative effect of accounting change - - - (39,778,000)
---------- ---------- ---------- ------------
Net income (loss) $1,660,000 $2,017,000 $6,573,000 $(38,735,000)
========== ========== ========== ============
Weighted average shares outstanding 24,668,674 17,564,000 24,668,674 17,564,000
Dilutive impact of shares issuable pursuant
to the Management Stock Option Plan
and Employee Purchase and Option
Plan, such shares being issued or
issuable and such options granted
within one year of the initial
public offering - 535,000 - 535,000
Net additional shares outstanding assuming
dilutive stock options exercised and
proceeds used to purchase treasury stock
at average market price 590,324 71,143 590,324 71,143
---------- ---------- ---------- ------------
Shares outstanding for net income (loss)
per share calculation 25,258,998 18,170,143 25,258,998 18,170,143
========== ========== ========== ============
Income (loss) before cumulative
effect of accounting change per share $ 0.06 $ 0.11 $ 0.26 $ 0.06
Cumulative effect of accounting change
per share - - - (2.19)
---------- ---------- ---------- ------------
Net income (loss) per share $ 0.06 $ 0.11 $ 0.26 $ (2.13)
========== ========== ========== ============
</TABLE>
<PAGE>
FOURTH AMENDMENT dated as of March 2, 1994, to the Credit Agreement dated
as of August 16, 1988, as amended and restated as of July 27, 1992, and as
further amended prior to the date hereof (the "Credit Agreement"), among
Northwestern Steel and Wire Company, an Illinois corporation ("NWS"),
Northwestern Steel and Wire Company (formerly known as H/N Steel Company,
Inc.), a Texas corporation and a direct, wholly-owned subsidiary of NWS
("NWS/Texas" and, together with NWS, the "Borrowers"), the lenders party
thereto (the "Lenders") and Chemical Bank, as Agent for the Lenders (the
"Agent").
The Borrowers have requested, subject to the terms and conditions set forth
herein, that the Lenders approve the amendment to the Credit Agreement set forth
in Section 1 of this Agreement. Accordingly, the Borrowers, the undersigned
Lenders and the Agent agree as follows:
SECTION 1. Amendment to Article I of Credit Agreement. The definition of the
-------------------------------------------
term "Adjusted Stockholders' Equity" appearing in Article I of the Credit
Agreement is hereby amended by adding at the end of the proviso to such
definition the words "or changes in actuarial calculations resulting from
Financial Accounting Standard Nos. 87 and 106".
SECTION 2. Representations and Warranties. The Borrowers jointly and severally
-------------------------------
represent and warrant to each of the Lenders that, after giving effect to this
Agreement:
(a) as of the date hereof, there exists no Event of Default of event which,
with notice, lapse of time or both, would constitute an Event of Default;
(b) all representations and warranties contained in the Credit Agreement and
the other Loan Documents are true and correct in all material respects on and as
of the date hereof except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true and correct
in all material respects on and as of such earlier date; and
<PAGE>
(c) as of the date hereof, the Borrowers have performed all obligations to be
performed on their part as set forth in the Credit Agreement and the other Loan
Documents.
SECTION 3. Conditions of Effectiveness. This Agreement shall become effective
----------------------------
upon receipt by the Agent (or its counsel) of counterparts of this Agreement
which, when taken together, bear the signatures of each Borrower and the
Required Lenders.
SECTION 4. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
---------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
SECTION 6. Agreement. Except as expressly amended hereby, the Credit Agreement
----------
shall continue in full force and effect in accordance with the provisions
thereof on the date hereof.
SECTION 7. Expenses. The Borrowers shall pay all reasonable out-of-pocket
---------
expenses incurred by the Agent or any Lender in connection with this Agreement.
SECTION 8. Headings. The headings of this Agreement are for the purposes of
---------
reference only and shall not limit or otherwise affect the meaning hereof.
<PAGE>
SECTION 9. Capitalized Terms. Unless otherwise specified, capitalized terms
------------------
used herein shall have the respective meanings assigned thereto in the Credit
Agreement.
IN WITNESS WHEREOF, the Borrowers, the Agent and the undersigned Lenders have
caused this Agreement to be duly executed by their duly authorized officers, all
as of the date first above written.
NORTHWESTERN STEEL AND WIRE
COMPANY, an Illinois
corporation,
by /s/ Edward G. Maris
------------------------
Name: Edward G. Maris
Title: SR. V.P./CFO
NORTHWESTERN STEEL AND WIRE
COMPANY, a Texas corporation,
by /s/ Edward G. Maris
------------------------
Name: Edward G. Maris
Title: SR. V.P./CFO
CHEMICAL BANK, in its capacity
as a Lender and as Agent,
by
------------------------
Name:
Title:
MARINE MIDLAND BUSINESS LOANS,
INC.,
by
------------------------
Name:
Title:
<PAGE>
SECTION 9. Capitalized Terms. Unless otherwise specified, capitalized terms
------------------
used herein shall have the respective meanings assigned thereto in the Credit
Agreement.
IN WITNESS WHEREOF, the Borrowers, the Agent and the undersigned Lenders have
caused this Agreement to be duly executed by their duly authorized officers, all
as of the date first above written.
NORTHWESTERN STEEL AND WIRE
COMPANY, an Illinois
corporation,
by
------------------------
Name:
Title:
NORTHWESTERN STEEL AND WIRE
COMPANY, a Texas corporation,
by
------------------------
Name:
Title:
CHEMICAL BANK, in its capacity
as a Lender and as Agent,
by /s/ Theodore L. Parker
------------------------
Name: Theodore L. Parker
Title: Vice President
MARINE MIDLAND BUSINESS LOANS,
INC.,
by
------------------------
Name:
Title:
<PAGE>
SECTION 9. Capitalized Terms. Unless otherwise specified, capitalized terms
------------------
used herein shall have the respective meanings assigned thereto in the Credit
Agreement.
IN WITNESS WHEREOF, the Borrowers, the Agent and the undersigned Lenders have
caused this Agreement to be duly executed by their duly authorized officers, all
as of the date first above written.
NORTHWESTERN STEEL AND WIRE
COMPANY, an Illinois
corporation,
by
------------------------
Name:
Title:
NORTHWESTERN STEEL AND WIRE
COMPANY, a Texas corporation,
by
------------------------
Name:
Title:
CHEMICAL BANK, in its capacity
as a Lender and as Agent,
by
------------------------
Name:
Title:
MARINE MIDLAND BUSINESS LOANS,
INC.,
by /s/ Janice J. Yong
------------------------
Name: Janice J. Yong
Title: Adm. Vice Pres.
<PAGE>
WELLS FARGO BANK, N.A.,
by /s/ Laila Partridge
------------------------
Name: Laila Partridge
Title: Vice President
MITSUI NEVITT CAPITAL CORP.,
by
------------------------
Name:
Title:
THE TRAVELERS INSURANCE
COMPANY,
by
------------------------
Name:
Title:
THE TRAVELERS INDEMNITY
COMPANY,
by
------------------------
Name:
Title:
THE PHOENIX INSURANCE COMPANY,
by
------------------------
Name:
Title:
<PAGE>
WELLS FARGO BANK, N.A.,
by
------------------------
Name:
Title:
MITSUI NEVITT CAPITAL CORP.,
by /s/ Chris Dawsgioris
------------------------
Name: Chris Dawsgioris
Title: Vice President
THE TRAVELERS INSURANCE
COMPANY,
by
------------------------
Name:
Title:
THE TRAVELERS INDEMNITY
COMPANY,
by
------------------------
Name:
Title:
THE PHOENIX INSURANCE COMPANY,
by
------------------------
Name:
Title:
<PAGE>
WELLS FARGO BANK, N.A.,
by
------------------------
Name:
Title:
MITSUI NEVITT CAPITAL CORP.,
by
------------------------
Name:
Title:
THE TRAVELERS INSURANCE
COMPANY,
by /s/ John W. Petchler
------------------------
Name: John W. Petchler
Title: Second Vice President
THE TRAVELERS INDEMNITY
COMPANY,
by /s/ John W. Petchler
------------------------
Name: John W. Petchler
Title: Second Vice President
THE PHOENIX INSURANCE COMPANY,
by /s/ John W. Petchler
------------------------
Name: John W. Petchler
Title: Second Vice President
<PAGE>
THE TRAVELERS INSURANCE
COMPANY (AS TO SEPARATE
ACCOUNT D),
by /s/ John W. Petchler
------------------------------
Name: JOHN W. PETCHLER
Title: Second Vice President
HELLER FINANCIAL, INC.,
by
------------------------------
Name:
Title:
<PAGE>
THE TRAVELERS INSURANCE
COMPANY (AS TO SEPARATE
ACCOUNT D),
by
------------------------
Name:
Title:
HELLER FINANCIAL, INC.,
by /s/ Albert M. Ricestro
------------------------
Name: Albert M. Ricestro
Title: S.V.P.
