<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 April 30, 1998
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
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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 June 9, 1998:
Common Stock 24,903,424 shares
(includes 420,272 treasury shares)
Page 1 of 10
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
-------------------------- ----------------------------
1998 1997 1998 1997
(Unaudited)
(in thousands of dollars except per share data and tonnage data)
<S> <C> <C> <C> <C>
Net sales $ 168,274 $ 171,652 $ 447,619 $ 460,576
----------- ----------- ----------- -----------
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 140,891 157,149 376,555 424,814
Depreciation 4,256 6,582 13,374 19,573
Selling and administrative 3,817 3,869 9,912 9,234
----------- ----------- ----------- -----------
Total cost and operating expenses 148,964 167,600 399,841 453,621
----------- ----------- ----------- -----------
Operating profit 19,310 4,052 47,778 6,955
----------- ----------- ----------- -----------
Other income and expenses:
Interest expense 3,989 5,075 12,411 15,053
Interest and other income (488) (61) (5,843) (106)
----------- ----------- ----------- -----------
Total other income and expenses 3,501 5,014 6,568 14,947
----------- ----------- ----------- -----------
Income (loss) before income taxes 15,809 (962) 41,210 (7,992)
Provision (benefit) for income taxes 6,245 (389) 16,456 (3,229)
----------- ----------- ----------- -----------
Net income (loss) $ 9,564 $ (573) $ 24,754 $ (4,763)
=========== =========== =========== ===========
Basic net income (loss) per share $ 0.39 $ (0.02) $ 1.01 $ (0.19)
=========== =========== =========== ===========
Net tons shipped 435,711 448,611 1,179,103 1,199,272
=========== =========== =========== ===========
</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>
April 30, July 31,
1998 1997
--------- ---------
ASSETS
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 43,920 $ 4,078
Receivables, less allowance of
$1,175 and $1,375, respectively 61,651 67,228
Income tax receivable 203 8,158
Deferred income taxes 19,142 13,442
Other assets 3,397 4,596
--------- ---------
128,313 97,502
--------- ---------
Inventories, at lower of cost or market:
Finished products 39,655 37,295
Semi-finished products 27,256 23,912
Raw materials and supplies 13,630 25,501
--------- ---------
80,541 86,708
--------- ---------
Total current assets 208,854 184,210
--------- ---------
PLANT AND EQUIPMENT, at cost 313,826 306,663
Accumulated depreciation 162,023 148,659
--------- ---------
Net plant and equipment 151,803 158,004
--------- ---------
DEFERRED INCOME TAXES 11,030 31,886
DEFERRED FINANCING COST 2,296 3,212
OTHER ASSETS 5,923 5,968
--------- ---------
Total assets $ 379,906 $ 383,280
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 49,208 $ 43,405
Accrued expenses 31,154 35,084
Current portion of long term debt 14,407 8,018
--------- ---------
Total current liabilities 94,769 86,507
LONG TERM DEBT 125,249 163,450
OTHER LONG TERM LIABILITIES 84,663 82,852
--------- ---------
Total liabilities 304,681 332,809
--------- ---------
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 (43,417) (68,171)
Treasury shares, at cost; 420,272 shares
of common stock (5,324) (5,324)
--------- ---------
Total shareholders' equity 75,225 50,471
--------- ---------
Total liabilities and
shareholders' equity $ 379,906 $ 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 Nine Months Ended
April 30,
1998 1997
-------------------------
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
Cash Flows From Operations:
Net income (loss) $ 24,754 $ (4,763)
Depreciation 13,374 19,573
Loss on sale of plant and equipment 42 -
Amortization of deferred financing
costs and debt discount 989 676
Deferred income tax expense 15,156 -
Income tax receivable 7,955 -
Decrease in receivables 5,577 18
Decrease (increase) in inventories 6,167 (17,872)
Decrease in other current assets 1,199 1,992
Decrease (increase) in other assets 45 (13,456)
Increase (decrease) in accounts payable
and accrued expenses 1,873 (26,734)
Increase in other long term liabilities 1,811 15,821
---------- ---------
Net cash provided by (used in) operations 78,942 (24,745)
---------- ---------
Cash Flows From Investing Activities:
Capital expenditures (7,238) (15,092)
Proceeds from sale of plant and equipment 23 -
---------- ---------
Net cash used in investing activities (7,215) (15,092)
---------- ---------
Cash Flows From Financing Activities:
Payments of long term debt (66,885) (291,395)
Proceeds from issuance of long
term debt and revolver loans 35,000 329,400
Exercise of stock options - 180
---------- ---------
Net cash (used in) provided by
financing activities (31,885) 38,185
---------- ---------
Increase (decrease) in cash and
cash equivalents 39,842 (1,652)
Cash and Cash Equivalents:
Beginning of period 4,078 5,558
---------- ---------
End of period $ 43,920 $ 3,906
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During the Period For:
Interest $ 9,137 $ 11,407
Income taxes (8,702) 120
</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 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 and nine month
periods ended April 30, 1998 and 1997 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. Basic net income (loss) per share amounts, as presented on the Consolidated
Statements of Operations, are based on the weighted average actual shares
outstanding of 24,483,152 and 24,862,496 for the three months and nine months
ended April 30, 1998 and 1997, respectively. Only basic net income (loss) per
share was presented for all periods since income (loss) per share remain the
same for basic and diluted earnings per share. The dilutive impact for options
issued pursuant to the various Company stock option plans are immaterial.
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 and nine
months ended April 30, 1998 and 1997, which approximates the combined Federal
and State statutory rates.
5. On April 27, 1998, after more than two months of merger negotiations with
Bayou Steel Corporation, the Company announced it was unable to agree on
mutually acceptable terms and conditions. Accordingly, negotiations with Bayou
have been terminated and the Letter of Intent dated February 12, 1998 has
expired and terminated. The merger termination is more fully described in Item
2 of this Form 10-Q, Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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 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.
5
<PAGE> 6
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, DOJ and the U. S.
Environmental Protection Agency ("USEPA") have reached an agreement in
principle involving capital expenditures by the Company of approximately $6
million, additional environmental projects of approximately $1 million and an
additional fine of approximately $.6 million. The agreement is subject to
negotiating the terms of a consent decree in the months ahead.
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 herein
and in the Company's fiscal 1997 Annual Report on Form 10-K for Commitments and
Contingencies.
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", "will pay", "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; access to capital markets on acceptable
terms; 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 $168.3 million on shipments of 435,711 net
tons for the three months ended April 30, 1998, compared to $171.7 million on
shipments of 448,611 net tons for the three
6
<PAGE> 7
months ended April 30, 1997. For the third quarter ended April 30, 1998, net
income for the period rose to $9.6 million, or $0.39 per share, compared to a
net loss of $0.6 million or $0.02 per share, in the prior year period.
Tons shipped in the quarter decreased almost 3% compared to the prior year
period. However, the prior year period included results from the Houston
rolling mill which was closed in the fourth quarter last year. Excluding the
Houston rolling mill volume, tons shipped increased almost 23% compared to the
prior year period. Markets for most of the Company's products continued to
perform well in the quarter, with pricing generally higher than the prior year
comparable period. Additionally, semi-finished steel sales were higher,
reflecting the strength of overall steel markets. Strong demand in
non-residential construction markets contributed to the improved performance.
Backlogs decreased throughout the quarter ended April 30, 1998. However, the
backlogs are higher than the prior year's third quarter.
Pricing for light structurals, medium/heavy structurals and semi-finished
steel were all higher than the year ago period, as well as the prior quarter.
Price increases implemented during the second quarter were in place for the
entire third quarter. Pricing on these products are anticipated to remain
virtually unchanged for the balance of our fiscal year. However, for
medium/heavy structurals, additional supply resulting from increased imports
may put downward pressure on pricing as the Company enters the next fiscal
year. Only in the Company's wire rod markets were volumes and pricing lower
than the prior year comparable period.
For the nine-month period ended April 30, 1998, net sales were $447.6
million. Tons shipped decreased from 1,199,272 net tons for the nine months
ended April 30, 1997 to 1,179,103 for the comparable nine months in the current
year. Excluding the Houston rolling mill volume, tons shipped increased almost
26% compared to the prior year period. For the nine months ended April 30,
1998, net income rose to $24.8 million, or $1.01 per share, compared to a net
loss of $4.8 million or $0.19 per share, in the prior year period. Fiscal 1998
year to date net income includes $3.1 million, or $0.12 per share, for recovery
of previously disputed property tax payments made in prior years.
Cost of goods sold, excluding depreciation, as a percentage of net sales
for the three-month period ended April 30, 1998 decreased to 83.7% compared
to the prior year at 91.6%. The decrease resulted primarily from increased
operating efficiencies in the furnace operations and finishing mills and higher
pricing levels for the products noted above. The cost of steel scrap, the
Company's principal raw material, was slightly higher than the previous
quarter. Steel scrap costs for the third quarter ended April 30, 1998, were
essentially unchanged from the prior year period.
7
<PAGE> 8
Cost of goods sold, excluding depreciation, as a percentage of net sales
for the nine months ended April 30, 1998 was 84.1% compared to the prior year
at 92.2%. The improvement resulted primarily as noted above.
Depreciation expense decreased almost $2.3 million from $6.6 million in
the third quarter of fiscal 1997 to $4.3 million in the current year's third
quarter. Depreciation expense for fiscal 1998 year to date decreased almost
$6.2 million. These decreases were due primarily to the impact of the closure
of the Houston rolling mill in the fourth quarter last year.
For the quarter ended April 30, 1998, selling and administrative expense
was virtually unchanged from the prior fiscal year period. Selling and
administrative expense for fiscal 1998 year to date was $9.9 million compared
to $9.2 million in the prior fiscal year period. The increase is due primarily
to somewhat higher compensation expense.
Interest expense was $4.0 million for the quarter ended April 30, 1998
compared to $5.1 million in the prior fiscal year period. On a year to date
basis, interest expense for fiscal 1998 was $12.4 million compared to $15.1
million in the prior year fiscal period. The decrease in interest expense is
primarily due to the effect of almost $40 million in reduced inventory levels
for the comparative nine month periods which served to lower revolving credit
borrowings.
The provision for income taxes was $6.2 million and $16.5 million for the
three months and nine months ended April 30, 1998, respectively. This compared
to a benefit for income taxes of $0.4 million and $3.2 million for the three
and nine month periods in the prior year, respectively, due to the pre-tax loss
incurred for same period in the prior year. The Company will pay very little
in cash income 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 April 30, 1998, total liquidity, comprising cash, cash
equivalents and funds available under the Company's credit facility, was $115.0
million compared to $50.4 million at July 31, 1997. The Company generated cash
from operations of $78.9 million in the first nine months of fiscal 1998
compared to a use of cash of $24.7 million in the prior year period. The
increase is attributable to increased operating profits, utilization of tax
net operating loss carryforwards, income tax refunds received and reduced
inventory levels. The working capital ratio improved to 2.2 to 1 at April
30, 1998 compared to 2.1 to 1 at July 31, 1997.
8
<PAGE> 9
Net cash used in investing activities amounted to $7.2 million in the
first nine months of fiscal 1998 compared to $15.1 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 nine months of
fiscal 1998. The Company currently anticipates capital expenditures for fiscal
1998 to range from $11 to $14 million.
The Company has recently completed studies of its information systems.
Although originally the Company considered a new systems implementation
project, the Company has now determined that through conversion of existing
software code, the Company expects its current information systems to be "Year
2000" compliant by mid-1999. The Company expects to spend less than $2 million
over the next eighteen months on "Year 2000" conversion projects which will
generally be expensed as incurred.
On April 27, 1998, after more than two months of merger negotiations with
Bayou Steel Corporation, the Company announced it was unable to agree on
mutually acceptable terms and conditions. Accordingly, negotiations with Bayou
have been terminated and the Letter of Intent dated February 12, 1998 has
expired and terminated. Costs incurred on this project were approximately $.5
million. With the end of these merger negotiations, the Company has refocused
its attention on the development of internal plans as a stand-alone company.
With the current strong financial performance and greatly strengthened balance
sheet, the Company is developing a strategy to modernize the manufacturing
operations at its Sterling complex. Through the combination of the strength of
the Company's presence in its markets, continued favorable capital markets
environment and innovative employee cooperation, the goal of the Company's
internal plans are to achieve a stronger, more cost competitive Company.
During the quarter, the Company received a favorable determination letter
from the Internal Revenue Service regarding the application to terminate the
Company's Employee Stock Ownership Plan (the "ESOP"). Accordingly,
approximately 3.6 million shares of common stock are being distributed to ESOP
participants. Approximately 1.1 million shares of such common stock have been
designated to be sold in the open market and the balance transferred to
investment accounts directed by the ESOP participants.
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 successful
implementation of the Company's internal plans and be
9
<PAGE> 10
subject to general business, financial, capital markets, labor cooperation and
competitive conditions, including the announcements by three competitors that
they intend to build new steel plants which will increase capacity in the
structural steel market by approximately 2.5 million tons. Other factors could
also affect 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 20 - Other Statement to Security Holders
Press Release dated April 27, 1998
(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 April 30, 1998.
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)
June 15, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> APR-30-1998
<CASH> 43,920
<SECURITIES> 0
<RECEIVABLES> 62,826
<ALLOWANCES> 1,175
<INVENTORY> 80,541
<CURRENT-ASSETS> 208,854
<PP&E> 313,826
<DEPRECIATION> 162,023
<TOTAL-ASSETS> 379,906
<CURRENT-LIABILITIES> 94,769
<BONDS> 0
0
0
<COMMON> 123,966
<OTHER-SE> (48,741)
<TOTAL-LIABILITY-AND-EQUITY> 379,906
<SALES> 168,274
<TOTAL-REVENUES> 168,762
<CGS> 140,891
<TOTAL-COSTS> 148,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,989
<INCOME-PRETAX> 15,809
<INCOME-TAX> 6,245
<INCOME-CONTINUING> 15,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,809
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
