<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, 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
- ------------------------------------------------------------------------------
(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 9, 1998:
Common Stock 24,903,424 shares
(includes 420,144 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 Six Months Ended
January 31, January 31,
---------------------------------- --------------------------------
1998 1997 1998 1997
(Unaudited)
(in thousands of dollars except per share data and tonnage data)
<S> <C> <C> <C> <C>
Net sales $ 140,420 $ 143,706 $ 279,345 $ 288,924
--------- --------- --------- ---------
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 116,614 132,974 235,664 267,665
Depreciation 4,575 6,525 9,118 12,991
Selling and administrative 2,953 2,637 6,095 5,365
--------- --------- --------- ---------
Total cost and operating expenses 124,142 142,136 250,877 286,021
--------- --------- --------- ---------
Operating profit 16,278 1,570 28,468 2,903
--------- --------- --------- ---------
Other income and expenses:
Interest expense 4,042 5,249 8,422 9,978
Interest and other income (194) (13) (5,355) (45)
--------- --------- --------- ---------
Total other income and expenses 3,848 5,236 3,067 9,933
--------- --------- --------- ---------
Income (loss) before income taxes 12,430 (3,666) 25,401 (7,030)
Provision (benefit) for income taxes 5,010 (1,481) 10,211 (2,840)
--------- --------- --------- ---------
Net income (loss) $ 7,420 $ (2,185) $ 15,190 $ (4,190)
========= ========= ========= =========
Basic net income (loss) per share $ 0.30 $ (0.09) $ 0.62 $ (0.17)
========= ========= ========= =========
Net tons shipped 376,753 374,108 743,392 750,661
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part
of the unaudited consolidated financial statements
-2-
<PAGE> 3
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 19,773 $ 4,078
Receivables, less allowance of $1,175 and $1,375, respectively 55,594 67,228
Income tax receivable 203 8,158
Deferred income taxes 21,524 13,442
Other assets 3,144 4,596
--------- ---------
100,238 97,502
--------- ---------
Inventories, at lower of cost or market:
Finished products 43,120 37,295
Semi-finished products 28,404 23,912
Raw materials and supplies 11,387 25,501
--------- ---------
82,911 86,708
--------- ---------
Total current assets 183,149 184,210
--------- ---------
PLANT AND EQUIPMENT, at cost 311,142 306,663
Accumulated depreciation 157,777 148,659
--------- ---------
Net plant and equipment 153,365 158,004
--------- ---------
DEFERRED INCOME TAXES 13,593 31,886
DEFERRED FINANCING COST 2,601 3,212
OTHER ASSETS 5,968 5,968
--------- ---------
Total assets $ 358,676 $ 383,280
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 38,681 $ 43,405
Accrued expenses 28,384 35,084
Current portion of long term debt 12,277 8,018
--------- ---------
Total current liabilities 79,342 86,507
LONG TERM DEBT 129,486 163,450
OTHER LONG TERM LIABILITIES 84,187 82,852
--------- ---------
Total liabilities 293,015 332,809
--------- ---------
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 (52,981) (68,171)
Treasury shares, at cost; 420,144 shares of common stock (5,324) (5,324)
--------- ---------
Total shareholders' equity 65,661 50,471
--------- ---------
Total liabilities and shareholders' equity $ 358,676 $ 383,280
========= =========
</TABLE>
The accompanying notes are an integral part
of the unaudited consolidated financial statements
-3-
<PAGE> 4
NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
January 31,
-------------------------------
1998 1997
-------------- ------------
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
Cash Flows From Operations:
Net income (loss) $ 15,190 $ (4,190)
Depreciation 9,118 12,991
Amortization of deferred financing costs and debt discount 660 660
Deferred income tax expense 10,211 --
Income tax receivable 7,955 --
Decrease in receivables 11,634 14,150
Decrease (increase) in inventories 3,797 (23,170)
Decrease in other current assets 1,452 1,582
Increase in other assets -- (13,456)
Decrease in accounts payable and accrued expenses (11,424) (37,483)
Increase in other long term liabilities 1,335 14,880
--------- ---------
Net cash provided by (used in) operations 49,928 (34,036)
--------- ---------
Cash Flows From Investing Activities:
Capital expenditures (4,479) (11,351)
--------- ---------
Net cash used in investing activities (4,479) (11,351)
--------- ---------
Cash Flows From Financing Activities:
Payments of long term debt (64,754) (167,098)
Proceeds from issuance of long term debt and revolver loans 35,000 201,700
Cash overdraft -- 5,700
Exercise of stock options -- 180
--------- ---------
Net cash (used in) provided by financing activities (29,754) 40,482
--------- ---------
Increase (decrease) in cash and cash equivalents 15,695 (4,905)
Cash and Cash Equivalents:
Beginning of period 4,078 5,558
--------- ---------
End of period $ 19,773 $ 653
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During the Period For:
Interest $ 1,801 $ 1,607
Income taxes (8,175) --
</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 six month
periods ended January 31, 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 24,483,280 and 24,870,869 for the three months and six months
ended January 31, 1998 and 1997, respectively. In accordance with Statement of
Financial Accounting Standard No. 128 "Earnings Per Share" (SFAS 128), the
Company has implemented the requirements of SFAS 128 at the end of the second
quarter of fiscal 1998. Only basic net income (loss) per share was presented for
all periods since there is no dilutive impact for options issued pursuant to the
various Company stock option plans.
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 six
months ended January 31, 1998 and 1997, which approximates the combined Federal
and State statutory rates.
5. On February 12, 1998, the Company entered into a letter of intent to merge
with Bayou Steel Corporation subject to execution of a definitive agreement and
certain other conditions. This potential merger 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.
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")
5
<PAGE> 6
have reached an agreement in principle involving capital expenditures by the
Company of approximately $6 million, additional environmental projects of
approximately $.5 million and an additional fine of approximately $.7 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; and the
level of imported products in the Company's markets. The Company assumes no
obligation to update the information contained herein.
6
<PAGE> 7
RESULTS OF OPERATIONS
Net sales for the Company were $140.4 million on shipments of 376,753
net tons for the three months ended January 31, 1998, compared to $143.7 million
on shipments of 374,108 net tons for the three months ended January 31, 1997.
For the second quarter ended January 31, 1998, net income for the period rose to
$7.4 million, or $0.30 per share, compared to a net loss of $2.2 million or
$0.09 per share, in the prior year period.
Tons shipped in the quarter increased less than 1% compared to the
prior year period which 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 over 31% 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. Additionally, semi-finished steel
sales were higher, reflecting the strength of overall steel markets. Mild winter
weather has kept construction activity strong. As a result, shipments in the
seasonally weak second quarter were much higher than normal. Backlogs are strong
across the Company's steel products line.
Pricing for light structurals, wire rod and semi-finished steel were
all higher than the year ago period. Price increases implemented during the
second quarter should be in place for the entire third quarter and a further
price increase was recently announced on the Company's light structural product
line. Pricing for the Company's wire products remain unchanged, though shipments
continue to be lower than the prior year.
For the six-month period ended January 31, 1998, net sales were $279.3
million. Tons shipped decreased from 750,661 net tons for the six months ended
January 31, 1997 to 743,392 for the comparable six months in the current year.
For the six months ended January 31, 1998, net income rose to $15.2 million, or
$0.62 per share, compared to a net loss of $4.2 million or $0.17 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 January 31, 1998 decreased to 83.0%
compared to the prior year at 92.5%. 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 higher than in recent quarters, but
did not rise as much as anticipated. Steel scrap costs for the second quarter
ended January 31, 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 six months ended January 31, 1998 was 84.4% compared to the prior
year at 92.6%. The improvement resulted primarily as noted above.
Depreciation expense decreased almost $2.0 million from $6.5 million in
the second quarter of fiscal 1997 to $4.5 million in the current year's second
quarter. Depreciation expense for fiscal 1998 year to date decreased almost $3.9
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 January 31, 1998, selling and administrative
expense was $3.0 million compared to $2.6 million in the prior fiscal year
period. Selling and administrative expense for fiscal 1998 year to date was $6.1
million compared to $5.4 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 January 31,
1998 compared to $5.2 million in the prior fiscal year period. On a year to date
basis, interest expense for fiscal 1998 was $8.4 million compared to $10.0
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 six month periods which served to lower revolving credit
borrowings.
The provision for income taxes was $5.0 million and $10.2 million for
the three months and six months ended January 31, 1998, respectively. This
compared to a benefit for income taxes of $1.5 million and $2.8 million for the
three and six 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 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 January 31, 1998, total liquidity, comprising cash, cash
equivalents and funds available under the Company's credit facility, was $94.2
million compared to $50.4 million at July 31, 1997. The Company generated cash
from operations of $49.9 million in the first six months of fiscal 1998 compared
to a use of cash of $34.0 million in the prior year period. The increase is
attributable to increased operating profits, utilization of tax net operating
loss carryforwards including income tax refunds received and reduced inventory
levels. The working capital ratio improved to 2.3 to 1 at January 31, 1998
compared to 2.1 to 1 at July 31, 1997.
Net cash used in investing activities amounted to $4.5 million in the
first six months of fiscal 1998 compared to $11.4 million in the prior year
period. Due to the decreased earnings in the prior year, the Company reduced
capital expenditure commitments which carried into
8
<PAGE> 9
the first six months of fiscal 1998. The Company currently anticipates capital
expenditures for fiscal 1998 to range from $15 to $20 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 February 12, 1998, as described in the Company's Current Report on
Form 8-K dated February 20, 1998, the Company entered into a letter of intent
to merge with Bayou Steel Corporation ("Bayou"). The Company's Board of
Directors directed management to negotiate a definitive merger agreement with
Bayou. The Bayou proposal is a package of $2.29 cash and up to 7,000,000 shares
of Bayou common stock, depending upon the value of Bayou shares at closing. Each
shareholder of the Company will receive maximum aggregate consideration of $4.00
per share. The combination of the Company and Bayou is subject to execution of a
definitive agreement, approval by both companies' stockholders, certain
regulatory approvals and certain other conditions. Subject to these conditions,
it is anticipated that the transaction will be consummated in the late spring of
this year.
On March 15, 1998, the Company received notification from the United
Steelworkers of America ("USWA") that the USWA is interested in pursuing its
right under its labor contract with the Company to propose a competing bid in
the form of an employee led recapitalization of the Company as an alternative
to the Bayou proposal. The Company will cooperate with the USWA in its efforts.
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, 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.
9
<PAGE> 10
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 December
17, 1997 for the purpose of electing five Directors for the coming year. There
were a total of 21,747,327 shares of Common Stock cast.
Two-Year Term Votes For
------------------ ----------
Marion H. Antonini 20,751,270
Warner C. Frazier 20,795,307
James A. Kohlberg 20,336,116
Christopher Lacovara 20,783,152
George W. Peck IV 20,800,863
Item 6. Exhibits and Reports on Form 8-K.
(b) Exhibit 20 - Other Statement to Security Holders
Press Release dated February 13, 1998
(c) Exhibit 27 - Financial Data Schedule
(d) Reports on Form 8-K. No reports on Form 8-K were
filed by the Company during the quarter ended
January 31, 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)
March 17, 1998
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 19,773
<SECURITIES> 0
<RECEIVABLES> 56,769
<ALLOWANCES> 1,175
<INVENTORY> 82,911
<CURRENT-ASSETS> 183,149
<PP&E> 311,142
<DEPRECIATION> 157,777
<TOTAL-ASSETS> 358,676
<CURRENT-LIABILITIES> 79,342
<BONDS> 0
123,966
0
<COMMON> 0
<OTHER-SE> (58,305)
<TOTAL-LIABILITY-AND-EQUITY> 358,676
<SALES> 140,420
<TOTAL-REVENUES> 140,614
<CGS> 116,614
<TOTAL-COSTS> 124,142
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,042
<INCOME-PRETAX> 12,430
<INCOME-TAX> 5,010
<INCOME-CONTINUING> 7,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,420
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
