<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended October 31, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-21556
NORTHWESTERN STEEL AND WIRE COMPANY
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(Exact name of registrant as specified in its charter)
Illinois 36-1562920
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 Wallace Street, Sterling, Illinois 61081
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 815/625-2500
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 December 9, 1997:
Common Stock 24,903,424 shares
(includes 420,144 treasury shares)
Page 1 of 9
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------------------------------
1997 1996
(Unaudited)
(in thousands of dollars except per
share data and tonnage data)
<S> <C> <C>
Net sales $ 138,925 $ 145,218
---------- ----------
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 119,050 134,691
Depreciation 4,543 6,466
Selling and administrative 3,142 2,728
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Total cost and operating expenses 126,735 143,885
---------- ----------
Operating profit 12,190 1,333
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Other income and expenses:
Interest expense 4,380 4,729
Interest and other income (5,161) (32)
---------- ----------
Total other income and expenses (781) 4,697
---------- ----------
Income (loss) before income taxes 12,971 (3,364)
Provision (benefit) for income taxes 5,201 (1,359)
---------- ----------
Net income (loss) $ 7,770 $ (2,005)
========== ==========
Net income (loss) per share $ 0.32 $ (0.08)
========== ==========
Net tons shipped 366,639 376,553
========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements
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<PAGE> 3
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
<TABLE>
<CAPTION>
October 31, July 31,
1997 1997
---- ----
ASSETS
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 431 $ 4,078
Receivables, less allowance of $1,375 56,693 67,228
Income tax receivable 8,158 8,158
Deferred income taxes 8,241 13,442
Other assets 3,321 4,596
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76,844 97,502
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Inventories, at lower of cost or market:
Finished products 37,866 37,295
Semi-finished products 28,305 23,912
Raw materials and supplies 16,961 25,501
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83,132 86,708
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Total current assets 159,976 184,210
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PLANT AND EQUIPMENT, at cost 308,770 306,663
Accumulated depreciation 153,202 148,659
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Net plant and equipment 155,568 158,004
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DEFERRED INCOME TAXES 31,886 31,886
DEFERRED FINANCING COST 2,906 3,212
OTHER ASSETS 5,968 5,968
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Total assets $ 356,304 $ 383,280
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,061 $ 43,405
Accrued expenses 33,758 35,084
Current portion of long term debt 10,147 8,018
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Total current liabilities 74,966 86,507
LONG TERM DEBT 139,468 163,450
OTHER LONG TERM LIABILITIES 83,629 82,852
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Total liabilities 298,063 332,809
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, par value $1 per share:
- Authorized - 1,000,000 shares
- Issued - none - -
Common stock, par value $.01 per share:
- Authorized - 75,000,000 shares
- Issued - 24,903,424 123,966 123,966
Retained (deficit) earnings (60,401) (68,171)
Treasury shares, at cost; 420,144 shares of common stock (5,324) (5,324)
---------- ----------
Total shareholders' equity 58,241 50,471
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Total liabilities and shareholders' equity $ 356,304 $ 383,280
========== ==========
</TABLE>
The accompanying notes are an integral part
of the unaudited consolidated financial statements
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<PAGE> 4
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
October 31,
--------------------------
1997 1996
---- ----
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
Cash Flows From Operations:
Net income (loss) $ 7,770 $ (2,005)
Depreciation 4,543 6,466
Amortization of deferred financing costs and debt discount 329 331
Deferred income tax benefit 5,201 -
Decrease in receivables 10,535 12,135
Decrease (increase) in inventories 3,576 (24,512)
Decrease in other current assets 1,275 135
Increase in other assets - (13,456)
Decrease in accounts payable and accrued expenses (14,705) (14,702)
Increase in other long term liabilities 777 14,312
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Net cash provided by (used in) operations 19,301 (21,296)
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Cash Flows From Investing Activities:
Capital expenditures (2,107) (5,381)
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Net cash used in investing activities (2,107) (5,381)
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Cash Flows From Financing Activities:
Payments of long term debt (56,876) (73,768)
Proceeds from issuance of long term debt and revolver loans 35,000 92,100
Cash overdraft 1,035 3,000
Exercise of stock options - 59
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Net cash (used in) provided by financing activities (20,841) 21,391
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Decrease in cash and cash equivalents (3,647) (5,286)
Cash and Cash Equivalents:
Beginning of period 4,078 5,558
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End of period $ 431 $ 272
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 1,801 $ 1,607
Income taxes - -
</TABLE>
The accompanying notes are an integral part
of the unaudited consolidated financial statements
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NORTHWESTERN STEEL AND WIRE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts are in thousands except share data)
1. These consolidated financial statements included herein should be read
together with the fiscal 1997 audited financial statements and notes included
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
2. The Consolidated Financial Statements for the three month periods ended
October 31, 1997 and 1996 have not been audited. However, the Company believes
the information reflects all adjustments which, in the opinion of management,
are necessary to present fairly the results shown for the periods indicated.
Management believes all adjustments were of a normal recurring nature.
3. Net income (loss) per share amounts, as presented on the Consolidated
Statements of Operations, are based on the average shares outstanding of
24,483,280 and 25,070,637 for the three months ended October 31, 1997 and 1996,
respectively. Options issued pursuant to the various Company stock option plans
were not materially dilutive.
4. An income tax provision or benefit is recorded by estimating the annual
effective income tax rate and applying that rate to pretax income or loss. The
effective income tax rate was approximately 40% for the three months ended
October 31, 1997 and 1996, which approximates the combined Federal and State
statutory rates.
5. The Company is subject to a broad range of federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and/or hazardous wastes and the
remediation of contamination associated with releases of hazardous substances.
Primarily because the scrap melting process produces dust that contains low
levels of lead and cadmium, the Company is classified, in the same manner as
other similar steel mills in its industry, as a generator of hazardous waste.
On October 22, 1997, the Company was notified by the U.S. Department of
Justice ("DOJ") that it intended to file suit against the Company for alleged
violations of the 1990 Clean Air Act. The Company has met with representatives
of the U.S. Environmental Protection Agency ("USEPA") and DOJ. While the
Company does not admit to any significant violations, it is currently
developing a plan of action to address issues raised in the Notice of
Violation, which it expects to submit to the USEPA no later than January 2,
1998. Among various alternatives under consideration, capital expenditures of
under $5 million would be required. However, the Company cannot
reasonably estimate the extent of civil penalties, nor the likelihood of
agreement with the USEPA and DOJ.
Based on continuing review of applicable regulatory requirements by the
Company's internal environmental compliance manager and advice from independent
consultants, the Company believes that it is
5
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currently in substantial compliance with applicable environmental requirements,
except as noted in the Company's fiscal 1997 Annual Report on Form 10-K for
Commitments and Contingencies.
6. In accordance with Statement of Financial Accounting Standard No. 128
"Earnings Per Share" (SFAS 128), the Company will implement the requirements of
SFAS 128 at the end of the second quarter of fiscal 1998. The Company has
calculated earnings per share using both the basic and diluted methods, which
amounts will not differ materially from earnings per share as currently
reported.
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, 1997.
FORWARD LOOKING INFORMATION
Except for historical information, matters discussed in this Item 2
contain forward looking information and describe the Company's belief
concerning future business conditions and the outlook for the Company based on
currently available information. The Company has identified these "forward
looking" statements by words such as "should", "lead to", "expects",
"anticipates" and similar expressions. Risks and uncertainties which could
cause the Company's actual results or performance to differ materially from
those expressed in these statements include the following: volumes of
production and product shipments; changes in product mix and pricing; costs of
scrap steel and other raw material inputs; changes in domestic manufacturing
capacity; the level of non-residential construction and overall economic growth
in the United States; changes in legislative, regulatory or industrial
requirements; and the level of imported products in the Company's markets. The
Company assumes no obligation to update the information contained herein.
RESULTS OF OPERATIONS
Net sales for the Company were $138.9 million on shipments of 366,639 net
tons for the three months ended October 31, 1997, compared to $145.2
million on shipments of 376,553 net tons for the three months ended October 31,
1996. For the first quarter ended October 31, 1997, net income for the period
rose to $7.8 million, or $0.32 per share, compared to a net loss of $2.0
million or $0.08 per share, in the prior year period. The first quarter of
fiscal 1998 includes net income of $3.1 million, or $0.12 per share, in
settlement of previously disputed property tax payments made in prior years.
Tons shipped in the quarter decreased approximately 3% compared to the
prior year period which included results from the Houston rolling mill which
was closed in the fourth quarter last year.
6
<PAGE> 7
Excluding the Houston rolling mill volume, tons shipped increased over
23% compared to the prior year period when operations were affected by reduced
business levels related to uncertainties surrounding labor negotiations.
Demand for the Company's structural products and wire rod was strong throughout
the quarter.
Pricing for light structurals, wire rod and semi-finished were all higher
than the year ago period, although pricing for medium and heavy structurals
were lower than the prior year. Price increases have been announced across
most of the Company's light, medium and heavy structural product lines, which
should benefit the second quarter and be fully implemented by the third
quarter.
Cost of goods sold, excluding depreciation, as a percentage of net sales
for the three-month period ended October 31, 1997 decreased significantly to
85.7% compared to the prior year at 92.8%. The decrease resulted primarily
from increased operating efficiencies in the furnace operations and finishing
mills, lower costs for the Company's principal raw material, steel scrap, and
higher pricing levels for the products noted above. However the cost of steel
scrap has moved higher recently which will offset some of the benefit of higher
selling prices.
Depreciation expense decreased almost $2.0 million from $6.5 million in
the first quarter of fiscal 1997 to $4.5 million in the current year's first
quarter. This decrease was due primarily to the impact of the closure of the
Houston rolling mill in the fourth quarter last year.
For the quarter ended October 31, 1997, selling and administrative expense
was $3.1 million compared to $2.7 million in the prior fiscal year period. The
increase is due primarily to somewhat higher compensation expense.
Interest expense was $4.4 million for the quarter ended October 31, 1997
compared to $4.7 million in the prior fiscal year period. The decrease in
interest expense is primarily due to the effect of almost $40 million in
reduced inventory levels which served to lower revolving credit borrowings.
The provision for income taxes was $5.2 million for the three months ended
October 31, 1997 as a result of the improved earnings. This compared to a
benefit for income taxes of $1.4 million due to the net loss incurred for same
period in the prior year. The Company will pay very little in cash taxes
during fiscal 1998 due to utilization of tax loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Funds for the Company's operational needs have been provided
from internally generated cash and through utilization of the Company's credit
facility. As of October 31, 1997, total liquidity, comprising cash, cash
equivalents and funds available under the Company's credit facility, was $68.6
million compared to $50.4 million
7
<PAGE> 8
at July 31, 1997. The Company generated cash from operations of $19.3
million in the first quarter of fiscal 1998 compared to a use of cash of $21.3
million in the prior year period. The increase is attributable to increased
operating profits and a net reduction in working capital (primarily reduced
inventory levels). The working capital ratio was unchanged at 2.1 to 1 at
October 31, 1997 and 1996.
Net cash used in investing activities amounted to $2.1 million in the
first quarter of fiscal 1998 compared to $5.4 million in the prior year period.
Due to the decreased earnings in the prior year, the Company reduced capital
expenditure commitments which carried into the first quarter of fiscal 1998.
The Company currently anticipates capital expenditures for fiscal 1998 to range
from $18 to $22 million.
The Company has recently developed plans to upgrade its information
systems. Through a combination of converting existing software code and
implementing new package software systems, the Company expects its information
systems to be "Year 2000" compliant by mid-1999. The Company expects to spend
$3 - 4 million over the next eighteen months on "Year 2000" projects,
capitalizing and amortizing newly acquired software which replace existing
systems. Such amounts are expected to be included with regular capital
expenditure appropriations.
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 are dependent on its ability to
generate adequate cash flow. This will be dependent on the Company's overall
operating performance and be subject to general business, financial,
competitive and other factors affecting the Company and the domestic steel
industry, certain of which are beyond the control of the Company.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of (Loss) Income Per Share
(b) Exhibit 27 - Financial Data Schedule
(c) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the quarter ended October 31, 1997.
8
<PAGE> 9
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/ T. J. Bondy .
---------------------------------
Timothy J. Bondy
Vice President, and
Chief Financial Officer
(Principal Financial Officer)
December 12, 1997
9
<PAGE> 1
EXHIBIT 11
NORTHWESTERN STEEL AND WIRE COMPANY
Computation of Income Per Share
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Net income (loss) $ 7,770,000 $(2,005,000)
=========== ===========
Weighted average shares outstanding 24,483,280 $24,864,265
Net additional shares outstanding assuming
dilutive stock options exercised and proceeds used
to purchase treasury stock at average market price - 206,372
----------- -----------
Shares outstanding for net (loss)
income per share calculation 24,483,280 25,070,637
=========== ===========
Net (loss) income per share $ 0.32 $ (0.08)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 431
<SECURITIES> 0
<RECEIVABLES> 58,068
<ALLOWANCES> 1,375
<INVENTORY> 83,132
<CURRENT-ASSETS> 159,976
<PP&E> 308,770
<DEPRECIATION> 153,202
<TOTAL-ASSETS> 358,304
<CURRENT-LIABILITIES> 74,966
<BONDS> 0
0
0
<COMMON> 123,966
<OTHER-SE> (65,725)
<TOTAL-LIABILITY-AND-EQUITY> 356,304
<SALES> 138,925
<TOTAL-REVENUES> 144,126
<CGS> 119,050
<TOTAL-COSTS> 126,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,380
<INCOME-PRETAX> 12,971
<INCOME-TAX> 5,201
<INCOME-CONTINUING> 7,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,770
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
