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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, 1999
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, 1999:
Common Stock 24,905,424 shares
(includes 420,601 treasury shares)
Page 1 of 13
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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 Nine Months Ended
April 30, April 30,
------------------------ ---------------------------
1999 1998 1999 1998
(Unaudited)
(in thousands of dollars except per share data and tonnage data)
<S> <C> <C> <C> <C>
Net sales $ 81,314 $ 168,274 $ 271,799 $ 447,619
--------- --------- --------- ----------
Cost and operating expenses:
Cost of goods sold (excluding depreciation) 79,808 140,891 256,260 376,555
Depreciation 3,660 4,256 11,042 13,374
Selling and administrative 3,342 3,817 8,700 9,912
Non-recurring items 5,398 - 46,995 -
--------- --------- --------- ----------
Total cost and operating expenses 92,208 148,964 322,997 399,841
--------- --------- --------- ----------
Operating (loss) profit (10,894) 19,310 (51,198) 47,778
--------- --------- --------- ----------
Other income and expenses:
Interest expense 3,103 3,989 9,524 12,411
Interest and other income (275) (488) (897) (5,843)
--------- --------- --------- ----------
Total other income and expenses 2,828 3,501 8,627 6,568
--------- --------- --------- ----------
(Loss) income before income taxes (13,722) 15,809 (59,825) 41,210
(Benefit) provision for income taxes (5,135) 6,245 (21,452) 16,456
--------- --------- --------- ----------
Net (loss) income $ (8,587) $ 9,564 $ (38,373) $ 24,754
========= ========= ========= ==========
Basic net (loss) income per share $ (0.35) $ 0.39 $ (1.57) $ 1.01
========= ========= ========= ==========
Net tons shipped 262,111 435,711 780,696 1,179,103
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part
of the unaudited consolidated financial statements
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NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 25,749 $ 36,930
Receivables, less allowance of $1,175 32,079 52,057
Income tax receivable 13 13
Deferred income taxes 14,264 14,147
Other assets 16,875 14,085
--------- ---------
88,980 117,232
--------- ---------
Inventories, at lower of cost or market:
Finished products 24,557 36,867
Semi-finished products 21,961 26,937
Raw materials and supplies 11,069 20,218
--------- ---------
57,587 84,022
--------- ---------
Total current assets 146,567 201,254
--------- ---------
PLANT AND EQUIPMENT, at cost 305,607 318,656
Accumulated depreciation 170,525 166,196
--------- ---------
Net plant and equipment 135,082 152,460
--------- ---------
DEFERRED INCOME TAXES 33,739 12,287
DEFERRED FINANCING COST 1,189 1,990
OTHER ASSETS 27,039 15,208
--------- ---------
Total assets $ 343,616 $ 383,199
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 22,001 $ 42,953
Accrued expenses 32,710 34,897
Current portion of long term debt 609 609
--------- ---------
Total current liabilities 55,320 78,459
LONG TERM DEBT 115,885 116,141
OTHER LONG TERM LIABILITIES 124,084 101,899
--------- ---------
Total liabilities 295,289 296,499
--------- ---------
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 - 24,905,424 shares 123,973 123,973
Retained (deficit) earnings (64,848) (26,475)
Accumulated other comprehensive loss (5,473) (5,473)
Treasury shares, at cost; 420,601 shares (5,325) (5,325)
--------- ---------
Total shareholders' equity 48,327 86,700
--------- ---------
Total liabilities and shareholders' equity $ 343,616 $ 383,199
========= =========
</TABLE>
The accompanying notes are an integral part
of the unaudited consolidated financial statements
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NORTHWESTERN STEEL AND WIRE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
April 30,
-----------------------------
1999 1998
---------- ---------
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
Cash Flows From Operations:
Net (loss) income $ (38,373) $ 24,754
Depreciation 11,042 13,374
Non-recurring items 46,995 -
Loss on sale of plant and equipment - 42
Amortization of deferred financing costs and debt discount 921 989
Deferred income tax (benefit) expense (21,569) 15,156
Income tax receivable - 7,955
Decrease in receivables 19,978 5,577
Decrease in inventories 21,384 6,167
(Increase) decrease in other current assets (2,988) 1,199
(Increase) in other assets (11,876) 45
(Decrease) in accounts payable and accrued expenses (32,459) 1,873
(Decrease) increase in other long term liabilities (1,015) 1,811
---------- ---------
Net cash (used in) provided by operations (7,960) 78,942
---------- ---------
Cash Flows From Investing Activities:
Capital expenditures (11,182) (7,238)
Proceeds from sale of plant and equipment 8,291 23
---------- ---------
Net cash used in investing activities (2,891) (7,215)
---------- ---------
Cash Flows From Financing Activities:
Payments of long term debt (330) (66,885)
Proceeds from issuance of long term debt and revolver loans - 35,000
---------- ---------
Net cash used in financing activities (330) (31,885)
---------- ---------
(Decrease) increase in cash and cash equivalents (11,181) 39,842
Cash and Cash Equivalents:
Beginning of period 36,930 4,078
---------- ---------
End of period $ 25,749 $ 43,920
========== =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During the Period For:
Interest $ 5,798 $ 9,137
Income taxes 3,660 (8,702)
</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 1998 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 and nine month periods
ended April 30, 1999 and 1998 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, except those noted below.
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 24,484,823 and 24,483,152 for the three months and nine months
ended April 30, 1999 and 1998, respectively. Only basic net income (loss) per
share was presented for all periods since the dilutive impact for options issued
pursuant to the various Company stock option plans is 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 37% and 40% for the three months
ended April 30, 1999 and 1998, respectively. For the nine months ended April 30,
1999 and 1998, the effective income tax was approximately 36% and 40%,
respectively. The rates approximate the combined Federal and State statutory
rates for all periods.
5. On October 7, 1998 the Company announced the exit of the majority of its
wire products business by the end of calendar 1998. The Company has ceased
production and marketing of its agricultural, nail and lawn and garden product
lines. As a result of the exit, the Company recorded a non-recurring, pre-tax
charge of $41.6 million in the first quarter of fiscal 1999. The non-recurring
charge of $41.6 million was decreased by $2.7 million in the third quarter for
employee termination expenses that were less than the original estimated charge.
The net charge of $38.9 million includes employee termination expenses, asset
writedowns associated with the facility, equipment and inventory and other
closure costs.
6. On July 24, 1998, the Company signed a letter of intent to sell the
Company's idled Houston facility including land and buildings in exchange for
cash. On December 7, 1998 the Company was notified by the potential purchaser of
their decision to cancel their letter of intent. The Houston facility was again
placed on the market for sale. On June 9, 1999 the Company reached an agreement
with another
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potential purchaser and signed a letter of intent to sell the land and
buildings. The sale is expected to close on or about June 16, 1999.
7. The Board approved a new negotiated labor agreement with the United
Steelworkers of America ("USWA") which was ratified by the Union membership on
March 22, 1999. The contract is subject to the condition that the Company is
successful in securing the financing necessary to construct the new structural
mill.
8. On April 7, 1999, the Company announced the sale of its concrete
reinforcing products facility, located in Hickman, Kentucky. Under the terms of
the purchase agreement, the purchaser acquired the inventory, property, plant
and equipment for approximately $8.3 million. As a result of the sale, the
Company recorded a non-cash, non-recurring pre-tax charge of $8.1 million in the
third fiscal quarter. The non-cash, non-recurring charge consisted of the asset
write-down associated with the property, plant and equipment that was sold. The
Company will continue to supply a portion of the plant's raw material
requirements under a separate, three-year agreement.
9. On April 23, 1999, the Company's Senior Credit Facility was amended to
revise certain provisions and terms of the credit agreement through October 30,
1999. The principal amendment is the determination of compliance with the fixed
charge coverage ratio, limiting the total revolving credit exposure to be no
greater than $30 million and permitting the sale of the Hickman, Kentucky
facility. There were no borrowings under the Senior Credit Facility as of April
30, 1999.
10. 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.
The Company has been cited by the U. S. Environmental Protection Agency
("USEPA") for alleged violations of the 1990 Clean Air Act ("CAA") and other
requirements at its Sterling furnace operations. The Company has agreed to
settle this claim pending final approval. The agreement, if approved, would
require the Company to pay a civil penalty of approximately $600,000 and achieve
and maintain compliance with the CAA through future capital expenditures that
the Company anticipates to range between $5.0 and $7.0 million. Additionally,
the Company would also undertake several Supplementary Environmental Projects
that could total $1.0 million in capital expenditures.
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 1998 Annual Report on Form 10-K for Commitments and
Contingencies.
10. In accordance with Statement of Financial Accounting Standard No. 130
"Reporting Comprehensive Income" ("SFAS 130"), the Company has implemented the
requirements of SFAS 130 on August 1, 1998. The adoption of SFAS 130 has not had
a significant impact on the Company's financial statements for the three and
nine months ended April 30, 1999, since no change occurred in the Company's
minimum pension
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liability, which represents the Company's only comprehensive income item.
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, 1998 ("1998 10-K MD&A").
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; pricing for the Company's products; 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; the level
of imported products in the Company's markets; and modernizing or replacing the
Company's existing rolling mills including the need to access the capital
markets on acceptable terms. The Company assumes no obligation to update the
information contained herein.
RESULTS OF OPERATIONS
Net sales for the Company were $81.3 million on total shipments of 262,111
net tons for the three months ended April 30, 1999, compared to $168.3 million
on shipments of 435,711 net tons for the three months ended January 31, 1998.
For the third quarter ended April 30, 1999, the Company recorded a net loss for
the period of $8.6 million, or $.35 per share, which included a one-time
non-cash after tax charge of $3.5 million, or $.14 per share, primarily due to
the sale of the Hickman, Kentucky facility. This compared to reported net income
of $9.6 million or $0.39 per share, in the prior year period.
Total tons shipped in the quarter decreased almost 40% compared to the
prior year period. Tons shipped decreased in the company's structural and
merchant bar product lines in a large part due to the dramatic influx of foreign
steel into the market, which significantly impacted the Company's shipments
during the three months ended April 30, 1999. End-use demand, however, for the
Company's structural and bar products remains good. Conversely, rod shipments
increased for the quarter in comparison to
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the third quarter of the prior year, primarily due to the easing of imports and
a concerted effort by the Company to sell the rod volume no longer consumed in
the shuttered wire operations. The Company has filed a wire rod trade case with
six other steel companies. The Industrial Trade Commission ("ITC") has ruled in
favor of the six steel companies in the wire rod trade case. The ITC is
currently assessing damages and is expected to issue its recommendation for
damages by July 12, 1999. The Company is also considering the filing a
structural steel case since the Company believes much of the increase in
imported steel is being traded unfairly. The Company believe imports pressures
will ease and the Company anticipates more normal shipping levels on its
products during the fourth fiscal quarter.
The downward pressure on structural product pricing announced throughout
fiscal 1999 continued during the most recent three-month period. Realized
pricing for medium structurals was down almost 25%, or $100 per ton, compared to
the third quarter of the prior year. Additionally, realized Company pricing for
wide flange beam is anticipated to erode as new domestic capacity comes on line
during calendar 1999, at the same time that service centers work down high
inventory levels built during the height of the import surge. Pricing for light
structurals and merchant bars decreased approximately 15% in the third quarter
compared to the prior year period. The Company estimates pricing for light
structurals and merchant bars to be steady in the fourth fiscal quarter and
increase slightly thereafter due to recently announced price increases which are
slated to become effective in July 1999. Pricing for wire rod decreased
approximately 20% compared to the prior year period. Wire rod is anticipated to
increase somewhat in the fourth fiscal quarter due to recently announced price
increases, which should become effective at the end of June.
For the nine-month period ended April 30, 1999, net sales were $271.8
million compared to $447.6 million in the prior year period. Tons shipped
decreased from 1,179,103 net tons for the nine months ended April 30, 1998 to
780,696 net tons for the comparable nine months in the current year. For the
nine months ended April 30, 1999, the Company recognized a net loss of $38.4
million, or $1.57 per share. The net loss included one-time after tax charges of
$30.6 million, or $1.25 per share, due to the exit from a significant portion of
the Company's wire business in the first quarter, and the sale of the Hickman,
Kentucky facility in the third quarter. This compared to net income of $24.8
million or $1.01 per share, in the prior year period, which included $3.1
million, or $.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, 1999 increased to 98.1% compared to
the prior year at 83.7%. The cost of goods sold as a percentage of net sales
increase resulted from decreased selling prices and increased operating costs.
With the increased presence of foreign steel in the Company's markets, operating
costs were higher in the quarter due to inefficiencies resulting from the
significant volume reductions. While the cost of steel scrap, the Company's
principal raw material, was lower in the third fiscal quarter compared
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to the prior year, the benefit was more than offset by increased energy costs
and poor operating rates.
Cost of goods sold, excluding depreciation, as a percentage of net sales
for the nine months ended April 30, 1999 was 94.3% compared to the prior year at
84.1%. The change resulted primarily as noted above.
Depreciation expense decreased almost 14% from $4.3 million in the third
quarter of fiscal 1998 to $3.7 million in the current year's third quarter. For
the nine-month period, depreciation expense decreased over 17% in 1999 compared
to the prior year period. Both three-month and nine-month decreases were due
primarily to major capital projects implemented in the early 1980's period
becoming fully depreciated.
For the quarter ended April 30, 1999, selling and administrative expense
was $3.3 million compared to $3.8 million in the prior fiscal year period.
Selling and administrative expense for fiscal 1999 year to date was $8.7 million
compared to $9.9 million in the prior fiscal year period. The decrease is due
primarily to somewhat lower compensation expense and a reduction in staffing
resulting from the closure of a significant portion of the wire
products operation during the first fiscal quarter.
Interest expense was $3.1 million for the quarter ended April 30, 1999
compared to $4.0 million in the prior fiscal year period. On a year to date
basis, interest expense for fiscal 1999 was $9.5 million compared to $12.4
million in the prior year fiscal period. The decrease in interest expense is
primarily due to the effect of reduced debt levels.
The benefit for income taxes was $5.1 million and $21.5 million for the
three-months and nine-months ended April 30, 1999, respectively. This compared
to a provision for income taxes of $6.2 million and $16.5 million for the three
and nine month periods in the prior year, respectively. The Company expects to
pay very little in cash taxes during fiscal 1999 due to the loss resulting from
the exit of a significant portion of its wire operations and the sale of the
Hickman facility, decreased operating earnings and its net operating loss
position.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Funds for the Company's operational needs have been provided from
internally generated cash. As of April 30, 1999, total liquidity, comprising
cash, cash equivalents and funds available under the Company's credit facility,
was $47.5 million compared to $108.3 million at July 31, 1998. The Company used
cash in operations of $8.0 million in the first nine months of fiscal 1999
compared to operations providing cash of $78.9 million in the prior year period.
The decrease is attributable to decreased operating profits, reduction in
working capital associated with planned inventory decreases, the exit from
certain wire operations and increased pension funding associated
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with meeting minimum funding standards of the Pension Benefit Guaranty
Corporation. The Company's Senior Credit Facility was amended on April 23, 1999,
see footnote 9. The amendment included the reduction in total credit exposure to
be no greater than $30 million.
Net cash used in investing activities amounted to $2.9 million in the first
nine months of fiscal 1999 compared to $7.2 million in the prior year period.
The Company increased capital spending in the most recent quarter in connection
with the approval of its strategic plan. The increases in capital spending were
offset primarily by the proceeds from the sale of the Hickman, Kentucky
facility. Additionally, the Company anticipates potentially significant capital
commitments as it implements its plan to replace and modernize the rolling mills
in Sterling, Illinois.
The Company has significant future debt service obligations, primarily
consisting of $115 million of senior notes that are scheduled to be redeemed on
June 15, 2001, and significant unfunded employee benefit 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 and
sustainable cash flow. This will be dependent on the Company's overall operating
performance, the level of steel imports, and the successful implementation of
the Company's plan to replace and modernize its rolling mills. The Company is
also subject to general business, financial, capital markets, labor cooperation
and competitive conditions, including competitors' new steel plants which will
increase capacity in the structural steel market by approximately 1.9 million
tons during calendar 1999. If the Company is not able to finance the
modernization or replacement of its existing mills in a timely manner, the
Company believes it is unlikely that its operating cash flow will be sufficient
to repay or refinance its future obligations as they become due. These factors
are more fully described in the Company's 1998 10-K MD&A.
On February 19, 1999, the Company announced its Board of Directors approved
the overall strategic plan to make the Company competitive in its chosen
markets. The overall plan calls for the construction of a new rolling mill and
the replacement of the existing furnaces with a new state of the art furnace.
The Board approved proceeding with the first phase of capital, detailed
engineering and utility utilization plans. The cost of completing this first
phase planning is estimated to be $2.6 million. Additionally, the Board approved
a new negotiated labor agreement with the United Steelworkers of America
("USWA") which was ratified by the Union membership on March 22,1999. The
contract is subject to the condition that the Company is successful in securing
the financing necessary to construct the new structural mill. The Board also
approved moving forward in obtaining financing for the new mill. The Company has
engaged two investment banks, on a co-managed basis, to assist in securing the
required capital. The Company is currently exploring the financial markets and
reviewing financing alternatives, including financial alternatives related to
the Senior Notes due in 2001 and its revolving credit facility, however, there
can be no assurance that the Company can secure financing on acceptable terms.
If the Company is unable to implement plans that adequately address the
challenges described above in a timely manner, the Company's business, financial
condition and operations will be materially and adversely affected. If the
Company is unable to
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finance the modernization of its existing rolling mills and its future debt
service obligations as they become due, the Company is considering a number of
alternatives including reorganization.
YEAR 2000
In 1997, the Company identified the following areas critical for its
successful implementation of Year 2000 ("Y2K") compliance: (1) financial and
information system applications, (2) manufacturing applications and (3) vendor
and other third-party relationships. For each of these areas, the Company has
established the following procedures to enable it to meet its Y2K compliance
obligation: (a) identifying systems potentially susceptible to Y2K compliance
issues, (b) developing and implementing corrective actions and (c) testing to
ensure compliance. Management believes that the Company is devoting the
necessary resources to identify and resolve significant Y2K issues in a timely
manner.
FINANCIAL AND INFORMATION SYSTEM APPLICATIONS: The Company utilized the services
of outside consultants to identify areas of exposure and solution implementation
for the financial and information system applications. Financial and information
system applications consist of the Company's main-frame computer hardware and
operating system, and the applications software. The Company's main-frame
operating system, which is presently in use, has been successfully tested for
Y2K compliance. All applications software have been identified for Y2K
compliance, upgraded where necessary and are currently in use. The Company has
successfully tested all applications software. The total cost of these Y2K
compliance activities, estimated at less than $1.0 million, has not been, and is
not anticipated to be material to the Company's financial position or its
results of operations and have all been or will be expensed as incurred. Based
on the information gathered and the testing performed to date, the Company does
not believe any material exposure to significant business interruption exists as
a result of Y2K issues from the financial and information system applications.
MANUFACTURING APPLICATIONS: The Company's manufacturing facilities rely on
systems for process control and production monitoring. Failure to identify,
correct and test Y2K sensitive systems at its manufacturing facilities could
result in manufacturing interruptions. The Company has identified and catalogued
hardware and software systems used in the manufacturing process and is currently
testing compliance with these hardware and software systems. At the same time,
the Company is also currently analyzing responses from the suppliers of these
manufacturing applications and thus does not, at this time, have sufficient data
to estimate the cost of achieving Y2K compliance for its manufacturing
applications. If the Company is unable to achieve Y2K compliance for its
manufacturing applications, the Year 2000 could have a material impact on the
operations of the Company. The analysis of information and recommendation of
corrective actions were completed during the third fiscal quarter. Additionally,
the Company expects implementation and testing will be completed by the end of
fiscal 1999.
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VENDOR AND OTHER THIRD-PARTY RELATIONSHIPS: The Company relies on third party
suppliers for raw materials, utilities, transportation and other key supplies
and services. Interruption of supplier operations due to Y2K issues could
adversely affect the Company's operations. The Company has initiated efforts to
evaluate the status of supplier's efforts to prepare for Y2K compliance issues
through a survey sent to its suppliers. The Company has received a 80% response
rate from the survey of suppliers. Unsatisfactory responses or non-responses
from critical suppliers will result, to the extent possible, in alternate
sources being utilized. These activities are intended to provide a means of
managing risk, but cannot eliminate the potential for disruption due to
third-party failure. The Company is also dependent upon its customers for sales
and cash flow. The Company does not currently have any formal information
concerning the Y2K compliance status of its customers but has received
indications that most of the Company's customers are working on Y2K compliance.
Y2K interruptions in the Company's customers' operations could result in reduced
sales, increased inventory or receivable levels and cash flow reductions. While
these events are possible, the Company believes its customer base is broad
enough to minimize the impact of isolated occurrences. The Company does not
believe it will experience material costs related to its Y2K compliance
activities for vendors and other third party relationships.
The foregoing assessment of the impact of the Y2K issue on the Company is
based on management's estimates at the present time. The assessment is based
upon numerous assumptions as to future events. There can be no assurance that
these estimates and assumptions will prove accurate, and the actual results
could differ materially. To the extent that Y2K issues cause significant delays
in production or limitation of sales, the Company's results of operations and
financial position would be materially adversely affected.
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 4.1 - Second Amendment to the Credit Agreement, effective
April 23, 1999.
(c) Exhibit 27 - Financial Data Schedule
(d) Reports on Form 8-K. On March 23, 1999 a Form 8-K was filed by the
Company stating that the Company and the United Steelworkers of
America (USWA) today announced the ratification of the new
negotiated labor agreement by the USWA Local 63 membership.
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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. M. Vercillo
------------------------------
Thomas M. Vercillo
Vice President, and
Chief Financial Officer
(Principal Financial Officer)
June 14, 1999
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EXHIBIT 4.1
CONFORMED COPY
AMENDMENT AND RESTATEMENT AGREEMENT (this
"Amendment and Restatement") dated of as of April 23,
1999, relating to the Amended and Restated Credit
Agreement dated as of August 16, 1988, as amended and
restated as of April 30, 1996 (the "Credit
Agreement"), among NORTHWESTERN STEEL AND WIRE
COMPANY (as successor, by merger, to NW Acquisition
Corporation), 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 (together
with NWS, the "Borrowers"), the Lenders (as defined
in Article I of the Credit Agreement), and THE CHASE
MANHATTAN BANK (formerly Chemical Bank), a New York
banking corporation, as issuing bank, as
administrative agent for the Lenders (in such
capacity, the "Administrative Agent") and as
collateral agent for the Lenders.
A. The Borrowers (such term and each other capitalized term
used but not defined herein having the meanings assigned to such terms in the
Credit Agreement) has requested that the Lenders approve amendments to certain
provisions of the Credit Agreement and a restatement of the Credit Agreement to
incorporate such amendments.
B. The undersigned Lenders are willing, on the terms and
subject to the conditions set forth herein, to approve such amendments and such
restatement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendment and Restatement. Upon the effectiveness
of this Amendment and Restatement as provided in Section 4 below, the Credit
Agreement shall be amended and restated in the form resulting from the following
revisions:
(a) Article I of the Credit Agreement is hereby amended by
inserting the following new definition in the appropriate alphabetical order:
<PAGE> 2
"'Amendment Effective Date' shall mean April 23, 1999."
(b) Category (1) of the definition of "Applicable Margin" in
Article I of the Credit Agreement is hereby amended by deleting the text of such
category and replacing it with the following:
Category Ratio Eurodollar ABR LC
- -------- ----- Spread Spread Participation
------ ------ Fee
Percentage
----------
(1) Greater than 2.75 to 1.0
but less than or equal to
3.25 to 1.0 2.50% 1.50% 2.50%
Greater than 3.25 to 1.0
but less than or equal to
3.5 to 1.0 2.75% 1.75% 2.75%
Greater than 3.5 to 1.0 3.00% 2.00% 3.00%
(c) A new Section 5.14 is hereby added to the Credit Agreement
as follows:
"SECTION 5.14. Complete, at the Borrower's expense, a
collateral examination by the Collateral Agent and/or its representatives within
90 days after the Amendment Effective Date."
(d) Section 6.15 of the Credit Agreement is hereby amended by
inserting the following sentence at the end thereof: "For purposes of
determining compliance herewith, (a) Consolidated Cash Flow Available for Fixed
Charges will be determined after adding back the non-recurring charges taken in
the fiscal quarters ended November 30, 1998, and April 30, 1999, and (b) the
required ratio will be 3.0 to 1.0 as of April 30, 1999, and 1.15 to 1.0 as of
July 31, 1999."
(e) A new Section 6.19 is hereby added to the Credit Agreement
as follows:
"SECTION 6.19. Permit the total Revolving Credit Exposure to
be greater than $30,000,000 for the period beginning on the Amendment Effective
Date and ending on the date that the Borrower delivers its consolidated
financial statements for the fiscal quarter ending October 31, 1999."
(f) Section 6.05 of the Credit Agreement is hereby amended by
(x) deleting the "or" at the end of clause (a)(i) thereof and replacing it with
a comma, (y) inserting immediately after clause (a)(i) thereof the following:
"(ii) the sale of the Kentucky Plant" and (z) replacing the "(ii)" in front of
"Permitted Acquisitions" with a "(iii)".
<PAGE> 3
3
SECTION 2. Representations and Warranties. The Borrowers
represent and warrant to each of the Lenders that, after giving effect to the
amendment and restatement contemplated hereby:
(a) The representations and warranties set forth in the Loan
Documents are true and correct in all material respects on and as of
the date of this Amendment and Restatement, except to the extent such
representations and warranties expressly relate to an earlier date.
(b) NWS and its Subsidiaries after giving effect to this
Amendment and Restatement are in compliance in all material respects
with all the terms and provisions contained in the Credit Agreement and
in the other Loan Documents required to be observed or performed.
(c) After giving effect to this Amendment and Restatement, no
Event of Default or event which with notice or lapse of time or both
would constitute an Event of Default has occurred and is continuing.
SECTION 3. Amendment and Restatement Fee. The Borrowers agree
to pay to the Administrative Agent, for the account of each Lender that executes
and delivers to the Administrative Agent (or its counsel) a counterpart of this
Amendment and Restatement, an amendment and restatement fee equal to 0.15%
multiplied by the sum of such Lender's outstanding Revolving Credit Commitment;
provided that the Borrowers shall not be required to pay such amendment and
restatement fee (i) to any Lender that has not so executed and delivered a
counterpart of this Amendment and Restatement on or before April 23, 1999, or
(ii) to any Lender unless and until this Amendment and Restatement becomes
effective. Such amendment and restatement fees shall be due and payable (a) at
the time that this Amendment and Restatement becomes effective, with respect to
each Lender that is entitled to receive an amendment and restatement fee at such
time, or (b) within two Business Days after such Lender executes and delivers a
counterpart of this Amendment and Restatement entitling it to receive such
amendment and restatement fee, in the case of each other Lender.
SECTION 4. Conditions to Effectiveness. This Amendment and
Restatement shall become effective as of April 23, 1999, only when each of the
following conditions has
<PAGE> 4
4
been satisfied: (a) the Administrative Agent (or its counsel) shall have
received counterparts of this Amendment and Restatement which, when taken
together, bear the signatures of the Borrowers and the Required Lenders
(delivery of an executed counterpart by telecopy being effective as manual
delivery) and (b) the Administrative Agent shall have received payment for the
account of each Lender then entitled thereto of the amendment and restatement
fees payable under Section 3 of this Amendment and Restatement. The
Administrative Agent shall notify the Borrowers and the Lenders when this
Amendment and Restatement becomes effective.
SECTION 6. Applicable Law. THIS AMENDMENT AND RESTATEMENT
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK.
SECTION 7. Agreement. Except as expressly set forth herein,
the Credit Agreement shall continue in full force and effect in accordance with
the terms and provisions thereof on the date hereof.
SECTION 8. Counterparts. This Amendment and Restatement 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 contract.
<PAGE> 5
5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Restatement to be duly executed by their respective authorized
officers as of the day and year first written above.
NORTHWESTERN STEEL AND WIRE COMPANY,
an Illinois corporation,
by
/s/ Thomas M. Vercillo
----------------------
Name: Thomas M. Vercillo
Title: Chief Financial Officer
NORTHWESTERN STEEL AND WIRE COMPANY,
a Texas corporation,
by
/s/ Thomas M. Vercillo
-----------------------
Name: Thomas M. Vercillo
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK,
in its capacity as a Lender
and as Administrative Agent,
collateral agent and issuing bank,
by
/s/ James H. Ramage
---------------------
Name: James H. Ramage
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.,
by
/s/ John M. Johnson
---------------------
Name: John M. Johnson
Title: Authorized Signatory
<PAGE> 6
HELLER FINANCIAL, INC.,
by
/s/ Scott Ziemke
-----------------------
Name: Scott Ziemke
Title: Assistant Vice President
SOCIETE GENERALE,
by
/s/ Cynthia A. Jay
-----------------------
Name: Cynthia A. Jay
Title: Managing Director
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
by
/s/ Daniel Lange
-----------------------
Name: Daniel Lange
Title: Vice President
CIT GROUP/BUSINESS CREDIT, INC.
by
/s/ Robert C. Smith
-----------------------
Name: Robert C. Smith
Title: Senior Vice President
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<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> APR-30-1999
<CASH> 25,749
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0
0
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<SALES> 81,314
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