<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 January 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 ___________
Commission file number 0-21556
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 March 10, 1997:
Common Stock 24,929,160 shares
(includes 420,144 treasury shares)
Page 1 of 9
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
--------------------------------- -------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
(Unaudited)
(in thousands of dollars except per share data and tonnage data)
Net sales $ 143,706 $ 149,175 $ 288,924 $ 310,087
----------- ---------- ---------- ----------
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 132,974 132,217 267,665 273,405
Depreciation 6,525 6,123 12,991 11,990
Selling and administrative 2,637 2,746 5,365 5,392
----------- ----------- ---------- ----------
Total cost and operating expenses 142,136 141,086 286,021 290,787
----------- ----------- ---------- ----------
Operating profit 1,570 8,089 2,903 19,300
----------- ----------- ---------- ----------
Other income and expenses:
Interest expense 5249 4,538 9,978 9,083
Interest and other income (13) (23) (45) (45)
----------- ----------- ---------- ----------
Total other income and expenses 5,236 4,515 9,933 9,038
----------- ----------- ---------- ----------
(Loss) income before income taxes (3,666) 3,574 (7,030) 10,262
(Benefit) provision for income taxes (1,481) 1,070 (2,840) 3,076
----------- ----------- ---------- ----------
Net (loss) income $ (2,185) $ 2,504 $ (4,190) 7,186
=========== =========== =========== ==========
Net (loss) income per share $ (0.09) $ 0.10 $ (0.17) $ 0.29
=========== =========== =========== ==========
Net tons shipped 374,108 376,242 750,661 774,730
=========== =========== =========== ==========
</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>
January 31, July 31,
1997 1996
ASSETS ------------- -------------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 653 $ 5,558
Receivables, less allowance of $825 53,854 68,004
Deferred income taxes 11,517 11,517
Other assets 5,217 6,799
------------- -------------
71,241 91,878
------------- -------------
Inventories, at lower of cost or market:
Finished products 52,685 38,823
Semi-finished products 44,832 36,832
Raw materials and supplies 24,054 22,746
------------- -------------
121,571 98,401
------------- -------------
Total current assets 192,812 190,279
------------- -------------
PLANT AND EQUIPMENT, at cost 418,746 407,395
Accumulated depreciation 179,197 166,206
------------- -------------
Net plant and equipment 239,549 241,189
------------- -------------
DEFERRED INCOME TAXES 6,616 6,616
DEFERRED FINANCING COST 3,823 4,434
OTHER ASSETS 13,456 -
------------- -------------
Total assets $ 456,256 $ 442,518
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 45,364 $ 75,470
Accrued expenses 21,091 22,768
Current portion of long term debt 7,609 7,504
------------- -------------
Total current liabilities 74,064 105,742
LONG TERM DEBT 188,191 153,646
OTHER LONG TERM LIABILITIES 96,650 77,114
------------- -------------
Total liabilities 358,905 336,502
------------- -------------
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 - 24,872,924 and 24,858,842 shares, respectively 123,966 123,786
Retained (deficit) earnings (9,240) (5,051)
Minimum pension liability (12,051) (7,395)
Treasury shares, at cost; 420,144 shares of common stock (5,324) (5,324)
------------- -------------
Total shareholders' equity 97,351 106,016
------------- -------------
Total liabilities and shareholders' equity $ 456,256 $ 442,518
============= =============
</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 Six Months Ended
January 31,
--------------------------
1997 1996
----------- ------------
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
Cash Flow From Operations:
Net (loss)income $ (4,190) $ 7,186
Depreciation 12,991 11,990
Amortization of deferred financing costs and debt discount 660 1,140
Decrease in receivables 14,150 3,984
Increase in inventories (23,170) (23,069)
Decrease in other current assets 1,582 1,759
Increase in other assets (13,456) -
Decrease in accounts payable and accrued expenses (31,783) (6,888)
Increase in other long term liabilities 14,880 907
--------- ----------
Net cash used in operations (28,336) (2,991)
--------- ----------
Cash Flows From Investing Activities:
Capital expenditures (11,351) (24,540)
--------- ----------
Net cash used in investing activities (11,351) (24,540)
--------- ----------
Cash Flows From Financing Activities:
Payments of long term debt (l67,098) (96,522)
Proceeds from issuance of long term debt and
revolver loans 201,700 111,000
Exercise of stock options 180 188
--------- ----------
Net cash provided by financing activities 34,782 14,666
--------- ----------
Decrease in cash and cash equivalents (4,905) (12,865)
Cash and Cash Equivalents:
Beginning of period 5,558 14,275
--------- ---------
End of period $ 653 $ 1,410
========= ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 9,042 $ 8,695
Income taxes 120 2,500
</TABLE>
The accompanying notes are an integral part
of the unaudited consolidated financial statements
-4-
<PAGE> 5
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 1996 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 and six month
periods ended January 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 (loss) income per share amounts, as presented on the Consolidated
Statements of Operations, are based on the average shares outstanding of
24,870,869 and 24,820,053 for the three months and six months ended January 31,
1997 and 1996, respectively. Options issued pursuant to the various Company
stock option plans were not material.
4. An income tax benefit or provision is recorded by estimating the annual
effective income tax rate and applying that rate to pretax loss or income. The
effective income tax rate for the first six months of fiscal 1997 was 40.4%,
which approximates the combined Federal and State statutory rate. The
effective income tax rate for the six months ended January 31, 1996 of 30%
varied from the statutory rates due to the estimated realization of net
operating loss carryforwards.
5. As a result of amendments to a defined benefit retirement plan, the
accumulated benefit obligation for that plan increased by $17,250; the unfunded
prior service cost increased by $12,594 and is reflected in Other Assets; and
the minimum pension liability recorded in Shareholders' Equity increased by
$4,656. Annual pension expense did not change significantly due to reductions
in benefit levels in a defined contribution plan.
6. The Company is subject to a broad range of federal, state and local
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and/or hazardous wastes and the
remediation of contamination associated with releases of hazardous substances.
Primarily because the scrap melting process produces dust that contains lead
and cadmium, the Company is classified, in the same manner as other similar
steel mills in its industry, as a generator of hazardous waste.
Based on continuing review of applicable regulatory requirements by the
Company's internal environmental compliance manager and advice from independent
consultants, the Company believes that it is currently in substantial
compliance with applicable environmental requirements, except as noted in the
Company's fiscal 1996 Annual Report on Form 10-K for Commitments and
Contingencies.
5
<PAGE> 6
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, 1996.
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 "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; 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.
RESULTS OF OPERATIONS
Net sales for the Company were $143.7 million on shipments of 374,108 net
tons for the three months ended January 31, 1997, compared to $149.2 million on
shipments of 376,242 net tons for the three months ended January 31, 1996. The
net loss for the three months ended January 31, 1997 was $2.2 million resulting
in a loss of $0.09 per share. Earnings were $2.5 million or $0.10 per share
for the prior year second quarter.
Tons shipped in the quarter decreased by less than 1% compared to the
prior year period. However, the mix of products sold contributed to the lower
than expected performance in the second quarter. Principal among those factors
was a decline of more than 15% from the prior year in shipments of medium and
large structural products, which generally account for approximately fifty
percent of the Company's business, at slightly lower selling prices. This
decline resulted, in part, to the residual impact of the uncertainties
surrounding last summer's labor negotiations, which were successfully concluded
on July 31, 1996. The Company experienced good volume gains in its wire, rod,
small structural and semi-finished businesses. However, average selling prices
for these product groups were all below prior year second quarter levels.
The volumes in the medium and heavy structurals business mirrored a
general downturn in industry shipments. However, the impending exit of a
competitor from the business, relatively low inventories at service centers and
a positive outlook at the customer level for non-residential construction,
should lead to improved results in this important business segment. In the
Company's stronger markets, rod,
6
<PAGE> 7
wire products and small structurals, price increases have been
announced for later in the third quarter.
For the six-month period ended January 31, 1997, net sales were $288.9
million. This represents a decrease of $21.2 million or almost 7% compared to
the same period in the prior year. Tons shipped decreased from 774,730 net
tons for the six months ended January 31, 1996 to 750,661 for the comparable
six months in the current year.
Cost of goods sold, excluding depreciation, as a percentage of net sales
for the three-month period ended January 31, 1997 increased to almost 92.5%
compared to the prior year at 88.6%. The increase resulted primarily from
decreased production levels for large structural products, lower pricing levels
for the products noted above and higher operating costs in the quarter.
Operating costs were negatively impacted by a planned outage in the furnace
operations during November and decreased production levels in January due to
reduced order flow. Additionally, operations at the Houston plant were
suspended for ten days to rebalance the order backlog. These items, in
conjunction with increased energy costs, contributed to lower operating
performance.
Cost of goods sold, excluding depreciation, as a percentage of net sales
for the six months ended January 31, 1997 was 92.5% compared to the prior year
at 88.2%. The increase resulted primarily as noted above.
For the quarter and six months ended January 31, 1997, selling and
administrative expense was $2.6 million and $5.4 million, respectively,
virtually unchanged from the prior year.
Interest expense was $5.2 million and $10.0 million for the quarter and
six months ended January 31, 1997, respectively. This compared to $4.5 million
and $9.1 million for the same periods, respectively, in the prior fiscal year.
The increase in interest expense is primarily due to the effect of having
capitalized interest on major capital projects during the prior year.
Generally higher inventory balances during the second quarter of fiscal 1997
also contributed to increased interest expense.
The benefit for income taxes was $1.5 million for the three months ended
January 31, 1997 compared to an expense of $1.1 million for same period in the
prior year due to the net loss in the current year second quarter. For the six
months ended January 31, 1997, the Company recorded a benefit for income taxes
of $2.8 million compared to an expense of $3.1 million for the prior year
period.
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 January 31, 1997, total liquidity, comprising cash, cash
equivalents and funds available under the Company's credit facility, totaled
$49.4 million compared to $94.6
7
<PAGE> 8
million at July 31, 1996. Principal uses of cash during the first six
months of fiscal 1997 included increases in working capital, capital
expenditures and scheduled debt repayments.
The working capital increase was primarily the result of a reduction in
accounts payable and increased levels of inventory. The change in accounts
payable was primarily the result of the timing of payments for and reduced
purchases of scrap steel during the second quarter of fiscal 1997 compared to
the fourth quarter of fiscal 1996. Production levels for the first six months
were higher than shipments as the Company experienced reduced shipment levels
of structural products due to the uncertainties surrounding labor negotiations
described above. In addition, semi-finished steel inventory requirements for
the rolling mills increased due to a planned furnace outage during November for
installation of capital equipment. The equipment installation was completed on
schedule and the furnaces are operating. In the coming months, the Company
expects to reduce its level of inventories as better balance is achieved
between shipping and production levels.
Capital expenditures were $11.4 million for the first six months of fiscal
1997 compared to $24.5 million in the prior year. As a result of decreased
earnings, the Company reduced capital expenditures. The Company currently
anticipates capital expenditures for fiscal 1997 will approximate depreciation
charges.
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. The Company anticipates that its cash flow from
operations, available borrowings and access to the capital markets will be
sufficient to fund future debt service. 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, 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.
The Annual Meeting of Shareholders of the Company was held on January
16,1997 for the purpose of electing five Directors for the coming year. There
were a total of 22,760,245 shares of Common Stock cast.
<TABLE>
<CAPTION>
Two-Year Term Votes For
---------------------- ----------
<S> <C>
William F. Andrews 22,202,022
Darius W. Gaskins, Jr. 22,202,008
Thomas A. Gildehaus 22,208,127
Robert N. Gurnitz 21,620,193
Michael E. Lubbs 22,059,603
</TABLE>
8
<PAGE> 9
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 January 31, 1997.
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)
March 14, 1997
9
<PAGE> 10
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------------------
11.0 Exhibit 11
27.0 Financial Data Schedule
10
<PAGE> 1
Exhibit 11
NORTHWESTERN STEEL AND WIRE COMPANY
Computation of (Loss) Income Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
-------------------------- ----------------------------
1997 1996 1997 1996
------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Net (loss) income $ (2,185,000) $ 2,504,000 $(4,190,000) $ 7,186,000
============ =========== =========== =============
Shares outstanding for net (loss)
income per share calculation 24,870,869 25,209,497 24,870,869 25,209,497
============ =========== =========== =============
Net (loss) income per share $ (0.09) $ 0.10 $ (0.17) $ 0.29
============ =========== =========== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 653
<SECURITIES> 0
<RECEIVABLES> 54,679
<ALLOWANCES> 825
<INVENTORY> 121,571
<CURRENT-ASSETS> 192,812
<PP&E> 418,746
<DEPRECIATION> 179,197
<TOTAL-ASSETS> 456,256
<CURRENT-LIABILITIES> 74,064
<BONDS> 0
0
0
<COMMON> 123,966
<OTHER-SE> (26,615)
<TOTAL-LIABILITY-AND-EQUITY> 456,256
<SALES> 143,706
<TOTAL-REVENUES> 143,719
<CGS> 132,974
<TOTAL-COSTS> 142,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,249
<INCOME-PRETAX> (3,666)
<INCOME-TAX> (1,481)
<INCOME-CONTINUING> (2,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,185)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
