<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: September 30, 1999
NORTHWESTERN STEEL AND WIRE COMPANY
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(Exact Name of Registrant as Specified in Charter)
Illinois 0-21556 36-1562920
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(State or Other (Commission (IRS Employer
Jurisdiction of Incorporation) File Number) Identification No.)
121 Wallace Street, Sterling, Illinois 61081
- ------------------------------------------- -------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (815) 625-2500
---------------
<PAGE> 2
ITEM 5. OTHER EVENTS.
On September 28, 1999, Northwestern Steel and Wire Company (the "Company")
announced that as part of its strategic plan to build a new structural rolling
mill in Sterling, Illinois, it has reached an agreement in principle with the
steering committee of the holders of its 9 1/2% Senior Notes to restructure the
$115 million of outstanding debt represented by the notes. The terms include:
- a payment of $50 million plus accrued and unpaid interest to
the Noteholders out of the Company's funds and from the
proceeds of a new revolving credit agreement expected to
become effective in the near future;
- the issuance to the Noteholders of common stock representing
70% of the outstanding common shares of the Company on a fully
diluted basis; and
- the Noteholders will be given the right to elect 4 of 7
directors.
The agreement in principle has been approved by the Board of Directors of the
Company and the steering committee will recommend its adoption by the
Noteholders.
The Company will also file an application under the Emergency Steel Loan
Guarantee Act of 1999 to obtain a guarantee of new senior debt to fund the
construction of the new mill.
The agreement in principle with the Noteholders is subject to, among other
things (i) 95% acceptance by the Noteholders; (ii) obtaining the federal
guarantee of new senior debt; and (iii) stockholder approval.
On September 28, 1999, the Company issued the press release attached hereto as
Exhibit 99.1 relating to the agreement in principal with Noteholders.
At a meeting on September 30, 1999, the Company delivered the "Presentation to
Noteholders" attached hereto as Exhibit 99.2 to representatives of the
Noteholders.
The information contained in the press release and the Presentation to
Noteholders is incorporated herein by reference.
Except for historical information, matters discussed above contain
forward-looking information and describe the company's belief concerning future
business and capital market conditions and outlook based on currently available
information. The company has identified these "forward-looking" statements by
words such as "should result" and "to file" and similar expressions. Risks and
uncertainties which could cause 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
2
<PAGE> 3
in domestic manufacturing capacity; the level of non-residential construction;
final approval of the agreement in principle with 95% of the Noteholders and
stockholder approval; whether the company can obtain a federal guarantee of debt
in an acceptable amount with acceptable terms; overall economic growth in the
United States; changes in legislative or regulatory requirements; and the level
of imported products in the company's markets. The company assumes no obligation
to update the information contained herein.
3
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
--------
99.1 Press Release dated September 28, 1999.
99.2 Presentation to Noteholders delivered September 30,
1999.
4
<PAGE> 5
SIGNATURES
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 hereunto duly authorized.
NORTHWESTERN STEEL AND WIRE COMPANY
Dated: September 30, 1999 By: /s/ Frederick J. Rocchio, Jr.
----------------------------------------
Frederick J. Rocchio, Jr.
President and Chief Executive Officer
5
<PAGE> 6
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT
- ----------- -------
99.1 Press Release dated September 28, 1999.
99.2 Presentation to Noteholders delivered September 30, 1999.
6
<PAGE> 1
EXHIBIT 99.1
NORTHWESTERN STEEL AND WIRE COMPANY
REACHES AGREEMENT IN PRINCIPLE WITH NOTEHOLDERS
Sterling, Illinois -- September 28, 1999 --- Northwestern Steel and
Wire Company (Nasdaq:NWSW) announced that as part of its strategic plan to build
a new structural rolling mill in Sterling, Illinois, it has reached an agreement
in principle with the steering committee of its 9 1/2% Senior Notes to
restructure the $115 million of outstanding debt represented by the notes. The
terms include:
- a payment of $50 million plus accrued and unpaid interest to the
Noteholders out of the company's funds and from the proceeds of a
new revolving credit agreement expected to become effective in the
near future;
- the issuance to the Noteholders of common stock representing 70%
of the outstanding common shares of the company on a fully diluted
basis; and
- the Noteholders will be given the right to elect 4 of 7 directors.
The agreement in principle has been approved by the Board of Directors of
Northwestern Steel and the steering committee will recommend its adoption by the
Noteholders.
The company will also file an application under the Emergency Steel
Loan Guarantee Act of 1999 to obtain a guarantee of new senior debt to fund the
construction of the new mill.
The agreement in principle with the Noteholders is subject to, among
other things (i) 95% acceptance by the Noteholders; (ii) obtaining the federal
guarantee of new senior debt; and (iii) stockholder approval.
Fred Rocchio, Chief Executive Officer of Northwestern Steel and Wire,
stated: "In concluding this agreement with the Noteholders, Northwestern Steel
has achieved another critical component of our strategic plan to build a new
structural rolling mill. We have already reached agreement with the United
Steelworkers of America for a new labor agreement and we have substantially
completed the plans and feasibility studies for the new mill. Now, we need only
secure the federal guarantee under the Emergency Loan Act for all of the
components of our strategic plan to be in place. We are working closely with our
bankers to file a guarantee application as soon as the regulations governing the
guarantees are adopted, which is expected on or about October 18."
<PAGE> 2
Except for historical information, matters discussed above contain
forward-looking information and describe the company's belief concerning future
business and capital market conditions and outlook based on currently available
information. The company has identified these "forward-looking" statements by
words such as "should result" and "to file" and similar expressions. Risks and
uncertainties which could cause 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; final
approval of the agreement in principle with 95% of the Noteholders and
stockholder approval; whether the company can obtain a federal guarantee of debt
in an acceptable amount with acceptable terms; overall economic growth in the
United States; changes in legislative or regulatory requirements; and the level
of imported products in the company's markets. The company assumes no obligation
to update the information contained herein.
Founded in 1879, the company is a major mini-mill producer of
structural steel components that include wide flange beams, channels, angles and
merchant bars, as well as rod and selected wire products. The structural
products are used in a wide variety of commercial, industrial and residential
construction applications.
<PAGE> 1
EXHIBIT 99.2
PROJECTIONS
The Company does not as a matter of course publicly disclose projected
financial information, but prepared the projected financial information included
in this presentation in connection with our negotiations with Noteholders. The
projections were not prepared specifically with a view toward compliance with
published guidelines of the SEC, the American Institute of Certified Public
Accountants or any other regulatory or professional agency or body, generally
accepted accounting principles or consistency with the Company's audited
financial statements.
The projections set forth in this presentation are based on the
assumptions set forth herein. The Company does not intend to update or otherwise
revise the projections to reflect events or circumstances existing or arising
after the date of this presentation or to reflect the occurrence of
unanticipated events, even if any or all of the underlying assumptions do not
prove to be valid. Furthermore, the Company does not intend to update or revise
the projections to reflect changes in general economic or industry conditions.
These projections reflect numerous assumptions made by our management.
In addition, factors such as industry performance, general business, economic,
regulatory, market and financial conditions, all of which are difficult to
predict, may cause the projections or the underlying assumptions to be
inaccurate. Accordingly, there can be no assurance that the projections will be
realized. We expect that there will be differences between actual and projected
results, and actual results may be materially greater than or less than those
set forth below.
<PAGE> 2
NORTHWESTERN
STEEL AND WIRE COMPANY
Northwestern Steel and Wire Company
Presentation to Noteholders
September 30, 1999
<PAGE> 3
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Northwestern Steel and Wire Company [LOGO]
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AGENDA
I. Executive Overview
II. Industry Overview
III. Company Overview
IV. Historical Financial Overview
V. Strategic Plan
VI. Business Plan
VII. Transaction Overview
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Confidential 1
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Northwestern Steel and Wire Company [LOGO]
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EXECUTIVE OVERVIEW
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Northwestern Steel and Wire Company [LOGO]
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EXECUTIVE OVERVIEW
SUMMARY STRATEGIC PLAN
o Northwestern Steel and Wire Company ("NWSW" or the "Company") has developed
a plan to improve its competitiveness and create and maximize long-term
value for all of its stakeholders. The plan consists primarily of the
following:
o Construction of a new, more efficient, low cost mill to replace
certain of the Company's existing 14" and 24" rolling mill
capacity at a cost of $120 million;
o Workforce efficiencies through a new collective bargaining
agreement (the "Collective Bargaining Agreement") with the
Company's union;
o Modernizing the Company's existing melting capabilities with the
construction of a new furnace to replace the Company's existing
three furnaces; and
o In connection with the modernization the Company will require the
restructuring of the existing $115 million bond debt as described
in Tuesday's press release.
o It is anticipated that the facility modernization component of the strategic
plan will cost $130 million and result in $55 million of annual savings.
o NWSW's plan is dependent on successfully obtaining sufficient funding under
the Emergency Steel Loan Guarantee Act of 1999 (the "Byrd Bill").
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Confidential 3
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Northwestern Steel and Wire Company [LOGO]
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INDUSTRY OVERVIEW
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Northwestern Steel and Wire Company [LOGO]
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INDUSTRY OVERVIEW
The following are some of the major industry factors which face the Company:
o Beginning in early 1998, despite continued strong demand, steel prices began
to plummet as foreign competition began "dumping" product on the
marketplace.
o Since mid 1998, NWSW has seen prices of its products decline by
approximately 25% to 30%, primarily due to imports. Though scrap prices have
declined, the decline has been insufficient to offset the large decreases in
selling prices.
[BAR CHART]
o Supply of structural products is expected to exceed demand throughout the
forecast period. Imports will be replaced by new domestic capacity recently
added or under construction.
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Northwestern Steel and Wire Company [LOGO]
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EMERGENCY STEEL LOAN GUARANTEE ACT OF 1999/
EMERGENCY OIL AND GAS GUARANTEED LOAN PROGRAM ACT
o The U.S. Senate passed legislation creating a $1.0 billion loan guarantee
program for the steel industry, a bill designed to provide relief to the
steel industry that has lost thousands of jobs despite a decade of economic
prosperity.
o Application procedures have not been finalized and will not be until the
Board issues its regulations, expected to be no later than October 18, 1999.
o The lender, joined by the borrower, will apply for the guarantee.
o The aggregate amount of loans that can be guaranteed under this program at
any one time is $1 billion, with no one company eligible for more than $250
million.
o To be eligible for a guaranteed loan, a steel company must meet three
criteria:
o be incorporated under the laws of any State;
o be engaged in the production and manufacture of a product defined by
the American Iron and Steel Institute as a basic steel mill product;
and
o have experienced layoffs, production losses, or financial losses since
January of 1998 due to imports.
o For an eligible steel company to receive a guaranteed loan, the Loan Board
must determine:
o credit is not otherwise available to the company under reasonable terms
or conditions;
o there is reasonable assurance of repayment of the loan; and
o the loan bears interest at a rate deemed reasonable by the Board.
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Northwestern Steel and Wire Company [LOGO]
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EMERGENCY STEEL LOAN GUARANTEE ACT OF 1999/
EMERGENCY OIL AND GAS GUARANTEED LOAN PROGRAM ACT
o The Company expects the Board to approve or deny each application for a
guarantee as soon as possible after receipt of such application.
o Up to 85 percent of the amount of the principal of the loan can be
guaranteed.
o All guaranteed loans must be paid in full no later than December 31, 2005.
o A charge of no more than 0.5 percent of the outstanding principal balance of
the guaranteed loan shall be paid to cover the costs of the program.
o It is anticipated from the hearings which were held in Washington that the
loans under the program will carry a requirement to be used for plant
modernization and not used to refinance existing indebtedness.
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7
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Northwestern Steel and Wire Company [LOGO]
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COMPANY OVERVIEW
<PAGE> 11
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Northwestern Steel and Wire Company [LOGO]
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COMPANY OVERVIEW
o Founded in 1879, NWSW pioneered the use of electric arc furnaces for
steelmaking, making it the first mini-mill.
o Today, NWSW is focussed on production of light to medium structural
forms, a market where it has a leading position in the Midwest and
which tends to be less cyclical than the heavy steel structural market.
o The Company sells its products to a variety of customers, including
Original Equipment Manufacturers ("OEMs"), service centers, and
directly into consumer markets, as follows:
<TABLE>
<CAPTION>
PRODUCTS END USE MARKETS CUSTOMERS
- -------- --------------- ---------
<S> <C> <C>
STRUCTURAL:
Wide Flange Beams Non Residential Construction SVC Centers
Bridges Fabricators
Truck Trailers Export
Manufactured Housing
Other Structurals Non Residential Construction SVC Centers
Pre Engineered Metal Buildings Fabricators
Machinery and Equipment Railroad Equipment
Rail Cars Export
Manufacturing AG
Machinery and Equipment
BARS:
MBQ Flats Pre Engineered Metal Buildings SVC Centers
Machinery and Equipment Metal Building Manufacturers
- Industrial OEMs
- Agricultural
Rail Cars and Equipment
RODS:
Carbon Steel Rod Drawn and Fabricated Wire Products Wire Drawers
Nails OEMs
Fencing
Shelving
Hangers
Brushes
Furniture
Automotive
Mesh Products
</TABLE>
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Northwestern Steel and Wire Company [LOGO]
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COMPANY OVERVIEW
o NWSW's production focus is on the $2.0 billion light to medium structural
steel market.
o Management estimates that the Company has a 12% and 8% share of the total
domestic light to medium and total structural steel market, respectively.
[1998 DOMESTIC STRUCTURAL STEEL MARKET]
[PIE CHART]
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Northwestern Steel and Wire Company [LOGO]
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COMPANY OVERVIEW
o The Company enjoys a significant freight advantage in its core markets
over almost all of its competitors.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(dollars per ton)(1)
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Chaparral Nucor(2) Birmingham Steel(2) SMI Bayou Bayou(2)
Shipped From: MIDLOTHIAN, TX HUGER, SC CARTERSVILLE, GA BIRMINGHAM, AL LA PLACE, LA CHICAGO, IL
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Freight Cost Variance: $26.69 $38.44 $26.81 $25.74 $38.42 ($ 1.67)
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Bayou Northstar Northstar Lasco(3) Nucor Nucor
Shipped From: CATOOSA, OK CALVERT CITY, KY WILTON, IA WHITBY, ON JEWETT, TX NORFOLK, NE
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Freight Cost Variance: $19.14 $10.97 $ 2.41 $33.04 $36.74 $16.84
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Nucor Nucor SDI(3) Ameristeel KY Electric Steel Chaparral(3)
Shipped From: DARLINGTON, SC BLYTHEVILLE, AR FT WAYNE, IN JACKSON, TN ASHLAND, KY PETERSBURG,VA
- --------------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------
Freight Cost Variance: $32.49 $13.41 $ 2.52 $16.76 $15.65 $29.04
</TABLE>
(1) Using NWSW shipped tonnage.
(2) Freight from depot, which does not include freight and additional
handling costs associated with transferring the product from the
actual mill to the depot.
(3) Represents new capacity.
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Northwestern Steel and Wire Company [LOGO]
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COMPANY OVERVIEW
[UNITED STATES MAP]
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12
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Northwestern Steel and Wire Company [LOGO]
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COMPANY OVERVIEW
o In November 1998, the Company brought in Mr. Frederick Rocchio and a
significant part of the management team to formulate and initiate a
new strategic plan. From his background at Birmingham Steel and
Inland Steel, Mr. Rocchio has extensive experience in overseeing the
design and build-out of major new mill facilities. In total, the key
NWSW executives have over 150 years of experience, which is summarized
briefly below:
<TABLE>
<CAPTION>
Manager Position Experience
- ------- -------- ----------
<S> <C> <C>
Frederick Rocchio CEO and President Birmingham Steel, Inland Steel
Michael Venie Senior Vice President, Sales & Marketing Kaiser Aluminum
Thomas Vercillo CFO, Secretary & Treasurer Northwestern since 1985
Daniel Brisson Vice President, Quality and Planning Birmingham Steel, Inland Steel
Chris Fiora Vice President/General Manager Primary Birmingham Steel, WCI
Operations
Andrew Moore Vice President, Human Resources Northwestern since 1979
Louis Pisani Vice President/General Manager Structural Inland Steel
Operations
</TABLE>
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Northwestern Steel and Wire Company [LOGO]
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COMPANY OVERVIEW
COMPETITIVE CHALLENGE
o Proliferation of "Greenfield Mills" and extensive refurbishment of other
mills have continuously driven production costs lower, and many producers
benefit from higher labor productivity.
o NWSW needs to make material enhancements to its production facilities and
processes to remain competitive.
[NWSW/COMPETITOR COMPARISON BAR CHART]
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Northwestern Steel and Wire Company [LOGO]
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HISTORICAL FINANCIAL OVERVIEW
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Northwestern Steel and Wire Company [LOGO]
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HISTORICAL FINANCIAL OVERVIEW
SELECTED INCOME STATEMENT INFORMATION
(Audited, $000,000s Omitted)
(1999 figures are unaudited)
<TABLE>
<CAPTION>
Fourth Quarter
Fiscal Year Ended July 31, Ended July 31, (Unaudited)
--------------------------------------------- --------------------------
1999 1998 1997 1996 1999 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues, Net $ 349.345 $ 596.437 $ 640.980 $ 661.069 $ 77.546 $ 148.818
Cost of Sales (Goods Sold) 351.489 514.454 613.072 613.562 84.187 124.525
--------- --------- --------- --------- --------- ---------
Gross Profit (2.144) 81.983 27.908 47.507 (6.641) 24.293
--------- --------- --------- --------- --------- ---------
Gross Profit % -0.6% 13.7% 4.4% 7.2% -8.5% 16.3%
Nonrecurring Gain (Loss) (46.291) 0.000 (92.943) 0.000 0.704 0.000
--------- --------- --------- --------- --------- ---------
Total Operating Expenses 11.350 13.017 13.546 11.920 2.650 3.105
--------- --------- --------- --------- --------- ---------
Operating Income (59.785) 68.966 14.362 35.587 (8.587) 21.188
Interest Expense 12.846 16.372 20.031 18.583 3.322 3.961
Other Income (Expense) 1.325 16.324 0.192 0.163 0.428 10.481
Pretax Income (Loss) (71.306) 68.918 (98.420) 17.167 (11.481) 27.708
Income Taxes (Credit) (25.957) 27.222 (35.300) (3.503) (4.505) 10.766
Net Income (Loss) $ (45.349) $ 41.696 $ (63.120) $ 20.670 $ (6.976) $ 16.942
========= ========= ========= ========= ========= =========
Depreciation/Amortization $ 14.476 $ 17.548 $ 25.827 $ 24.788 $ 3.434 $ 4.174
========= ========= ========= ========= ========= =========
Capital Expenditures $ 8.057 $ 12.069 $ 17.435 $ 36.269 $ (3.125) $ 4.831
========= ========= ========= ========= ========= =========
EBITDA (Excluding Nonrecurring) $ 0.982 $ 86.514 $ 40.189 $ 60.375 $ (5.857) $ 25.362
========= ========= ========= ========= ========= =========
EBITDA % 0.3% 14.5% 6.3% 9.1% -7.5% 17.0%
EBIT (Excluding Nonrecurring) $ (13.494) $ 68.966 $ 14.362 $ 35.587 $ (9.291) $ 21.188
========= ========= ========= ========= ========= =========
EBIT % -3.9% 11.6% 2.2% 5.4% -11.9% 14.2%
</TABLE>
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Northwestern Steel and Wire Company [LOGO]
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HISTORICAL FINANCIAL OVERVIEW
SELECTED BALANCE SHEET INFORMATION
(Audited, $000,000s Omitted)
(1999 figures are unaudited)
<TABLE>
<CAPTION>
As Of July 31,
----------------------------------------------
ASSETS 1999 1998 1997 1996
--------- --------- --------- ---------
<S> <C> <C>
Current Assets:
Cash & Equivalents $ 41.475 $ 36.930 $ 4.078 $ 5.558
Accounts Receivable 29.585 52.057 67.228 68.004
Inventories 51.485 84.022 86.708 98.401
Income Tax Receivable 0.013 0.013 8.158 0.000
Deferred Tax Assets 1.764 14.147 13.442 11.517
Other Current Assets 3.967 14.085 4.596 6.799
--------- --------- --------- ---------
Total Current Assets 128.289 201.254 184.210 190.279
--------- --------- --------- ---------
Fixed Assets:
Land 2.828 5.952 5.952 5.952
Buildings 27.979 38.249 38.132 38.958
Machinery and Equipment 264.381 274.455 262.579 362.485
Less: Accum. Depreciation 173.175 166.196 148.659 166.206
--------- --------- --------- ---------
Net Fixed Assets 122.013 152.460 158.004 241.189
--------- --------- --------- ---------
Deferred Income Taxes 50.744 12.287 31.886 6.616
Deferred Financing Costs 0.869 1.990 3.212 4.434
Other Assets 16.625 15.208 5.968 0.000
--------- --------- --------- ---------
Total Assets $ 318.540 $ 383.199 $ 383.280 $ 442.518
========= ========= ========= =========
</TABLE>
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Northwestern Steel and Wire Company [LOGO]
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HISTORICAL FINANCIAL OVERVIEW
SELECTED BALANCE SHEET INFORMATION
(Audited, $000,000s Omitted)
(1999 figures are unaudited)
<TABLE>
<CAPTION>
As of July 31,
------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY 1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts Payable $ 17.471 $ 42.953 $ 43.405 $ 75.470
Current Maturities 0.609 0.609 8.018 7.504
Accrued Expenses 27.064 34.897 35.084 22.768
------------ ------------ ------------ ------------
Total Current Liabilities 45.144 78.459 86.507 105.742
Long-Term Debt 135.228 116.141 163.450 153.646
Other Liabilities 91.342 101.899 82.852 77.114
------------ ------------ ------------ ------------
Total Liabilities 271.714 296.499 332.809 336.502
Stockholders' Equity:
Common Stock 123.973 123.973 123.966 123.786
Retained Earnings (71.822) (26.475) (68.171) (5.051)
Minimum Pension Liability 0.000 (5.473) 0.000 (7.395)
Less: Treasury Stock (5.325) (5.325) (5.324) (5.324)
------------ ------------ ------------ ------------
Net Stockholders' Equity 46.826 86.700 50.471 106.016
------------ ------------ ------------ ------------
Total Liabilities & Stockholders' Equity $ 318.540 $ 383.199 $ 383.280 $ 442.518
============ ============ ============ ============
Net Working Capital $ 83.145 $ 122.795 $ 97.703 $ 84.537
============ ============ ============ ============
</TABLE>
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Northwestern Steel and Wire Company [LOGO]
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HISTORICAL FINANCIAL OVERVIEW
REVOLVING CREDIT FACILITY DISCUSSION
o 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. At the option of the Company, any borrowings of
Revolving Credit Loans bear interest at (a) the prime rate plus applicable
margin, or (b) the LIBOR rate plus applicable margin.
o The Company is about to close on a new $65 million revolving credit facility
which will provide maximum borrowing of $60 million and expires in September
2002. The new revolving facility is not dependent on reaching agreement with
the Company's noteholders.
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Northwestern Steel and Wire Company [LOGO]
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STRATEGIC PLAN
<PAGE> 23
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Northwestern Steel and Wire Company [LOGO]
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STRATEGIC PLAN
MODERNIZATION PROJECT
o A major component of NWSW's Strategic Plan is its $130 million Modernization
Project.
o The main initiatives of the Modernization Project are:
o Construction of the new mill (the "New Mill");
o Conversion to one electric arc furnace operation (the "Single EAF
Project"); and
o Initiating improved control and maintenance programs designed by
Fluor-Daniels.
o The Modernization Project will provide the Company with significant
benefits:
o $55 million annual cost savings;
o Increased capacity;
o Improved quality; and
o Reduced inventories.
o The economic feasibility and market analysis have been verified by
independent third parties.
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Northwestern Steel and Wire Company [LOGO]
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STRATEGIC PLAN
NEW MILL PROJECT
GOALS
- -----
o Design a new mill facility in the open bay at the Company's existing 24"
mill.
o Provide maximum flexibility to adjust product mix to changing market
conditions.
o The New Mill is equipped to provide quick change capability to 30 minute
change-overs, increasing productivity while reducing inventory.
o Installation and construction of the New Mill is expected to be completed in
14 to 16 months.
o The New Mill will show improvements in yield and throughput related to the
more efficient, modern equipment.
o Reduction in semi-finished SKUs from eight to four.
SCOPE
- -----
o New state of the art multi-product structural mill.
o Cartridge type quick change rougher and finishing stands.
o State of the art cut-to-length and stacking system.
o Profile monitoring of the finished product.
o Performance guarantees.
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Northwestern Steel and Wire Company [LOGO]
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STRATEGIC PLAN
FACILITIES OVERVIEW
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Quantity Current Facilities Capacity
(in tons)
- ----------------------------------------------------------------------------
<S> <C> <C>
3 Electric Arc Furnaces 2,400,000
2 Ladle Met. Furnaces (LMF) 2,400,000
3 Casters 2,400,000
1 12" Rod mill 432,000
1 14" Structural/Bar Mill 432,000
1 24" Structural Mill 432,000
</TABLE>
[GRAPHIC]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Quantity Proposed Facilities Capacity
(in tons)
- ----------------------------------------------------------------------------
<S> <C> <C>
1 Electric Arc Furnace (one as backup) 1,720,000
2 Ladle Met. Furnaces (LMF) 2,400,000
2 Casters 2,000,000
1 12" Rod mill 522,000
1 22" Structural Mill 900,000
</TABLE>
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23
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Northwestern Steel and Wire Company [LOGO]
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STRATEGIC PLAN
SINGLE EAF PROJECT
GOALS
- -----
o Engineer a single EAF operation with the capacity to produce 1.7 million
liquid steel tons and decommission the other two existing furnaces.
o A tap to tap time of 100 minutes.
o Management anticipates completing the Single EAF Project in January of 2000.
BENEFITS
- --------
o Streamline the melt process by installing one new high production
steelmaking unit.
o Reduce tap to tap time in the melt shop from approximately three hours for
each of the existing three furnaces to 100 minutes for the single Ultra-High
Powered furnace.
o Improve steel cleanliness and quality with eccentric bottom tapping.
o Single EAF Project will result in inventory reduction of 20,000 tons,
representing a savings of $4.5 million.
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24
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Northwestern Steel and Wire Company [LOGO]
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STRATEGIC PLAN
COLLECTIVE BARGAINING AGREEMENT
o Provide a workable partnership environment.
o Provides significant manpower utilization methods that will enable the
Company to more efficiently staff and schedule its operations.
o Includes annual wage increases, some of which are based upon meeting certain
Company financial performance targets.
o Eliminates numerous jurisdictional issues.
o Extends the term of the Agreement to October 31, 2003.
o The Strategic Plan anticipates reducing the number of workers required for
operations by 443.
o THE COLLECTIVE BARGAINING AGREEMENT IS CONTINGENT UPON THE COMPANY OBTAINING
FINANCING FOR THE NEW MILL.
BAR/STRUCTURAL PRODUCTS PRODUCT COST/TON EFFECT
o Management estimates that the Strategic Plan will reduce total product cost
per ton by 17 percent over the period 1998 to 2003.
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25
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<PAGE> 28
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Northwestern Steel and Wire Company [LOGO]
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BUSINESS PLAN
<PAGE> 29
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Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
BUSINESS PLAN
MAJOR MODEL ASSUMPTIONS
o New mill to replace both the 14" and 24" mill.
o Cost of the new mill is $120 million (including $10 million training
expense).
o Installation of the new mill will require approximately 14 to 16 months.
o Sales volume from the new mill of 810,000 tons.
o $10 million investment made over one year for one furnace operation.
o Senior financing of $150.0 million.
BASE CASE MODEL RESULTS
o EBITDA in fiscal 2003 is projected to reach $75.3 million.
o Projected debt at year end fiscal 2003 is expected to be $101.4 million (net
of cash).
o During the next five years the minimum revolver availability is $32.3
million at peak borrowing periods.
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27
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<PAGE> 30
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Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
BUSINESS PLAN
PROJECTED FINANCIAL STATISTIC
($000,000s Omitted)
<TABLE>
<CAPTION>
Projected Fiscal Year Ending July 31,
---------------------------------------------------------------
2000 2001 2002 2003
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues, Net $ 385.494 $ 419.117 $ 421.737 $ 429.462
========= ========= ========= =========
Gross Profit $ 8.281 $ 53.010 $ 63.065 $ 66.271
========= ========= ========= =========
Margin 2.1% 12.6% 15.0% 15.4%
EBIT (Before Non-Recurring Charges) $ (5.825) $ 42.222 $ 51.677 $ 54.283
========= ========= ========= =========
EBIT Margin 1.5% 10.1% 12.3% 12.6%
EBITDA (Before Non-Recurring Charges) $ 6.287 $ 60.884 $ 71.850 $ 75.252
========= ========= ========= =========
EBITDA Margin 1.6% 14.5% 17.0% 17.5%
Capital Expenditures $ 100.664 $ 46.570 $ 15.700 $ 13.500
========= ========= ========= =========
Minimum Revolver Availability 2000 2001 2002 2003
--------- --------- --------- ---------
Quarter 1 $ 36.603 $ 37.749 $ 47.944 $ 49.085
Quarter 2 $ 33.055 $ 39.029 $ 45.047 $ 46.132
Quarter 3 $ 32.262 $ 48.304 $ 50.931 $ 52.128
Quarter 4 $ 36.037 $ 47.444 $ 48.031 $ 49.172
</TABLE>
Note: The Company continues to refine the projections, in particular the
transitional period during construction of the new mill where there
remains certain unresolved issues.
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28
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<PAGE> 31
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Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
BUSINESS PLAN
DOWNSIDE CASE MODEL ASSUMPTIONS
o The recession begins in the second quarter of fiscal 2001 and lasts through
the second quarter of fiscal 2002.
o Volume is down 10 percent at the new 22" mill and continues to remain down
through the out years.
o There is no volume decrease at the 12" mill.
o Pricing has decreased 10 percent for all products.
o Scrap prices have been decreased 15 percent.
o There are no semi-finished sales during the second quarter of fiscal 2001
and last through the second quarter of fiscal 2002.
DOWNSIDE CASE MODEL RESULTS
o EBITDA in fiscal 2002 is projected to be $40.2 million.
o EBITDA in fiscal 2003 is projected to be $55.2 million.
o Projected debt at year end fiscal 2003 is expected to be $172.7 million (net
of cash).
o During the next five years the minimum revolver availability is $13.3
million at peak borrowing periods.
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29
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<PAGE> 32
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Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
BUSINESS PLAN
STATUS QUO MODEL ASSUMPTIONS
o The same assumptions for pricing and market conditions were used to develop
a base case model if the new mill was not produced.
o This model has not taken into consideration the effects of competitor or
customer reaction to business as usual, which has major downside
implications.
o The single furnace project and the other strategic initiatives have been
assumed to have occurred.
o Union reaction has also been assumed to be neutral.
STATUS QUO MODEL RESULTS
o EBITDA in fiscal 2002 is projected to be $13.6 million.
o EBITDA in fiscal 2003 is projected to be $14.7 million.
o Projected debt at year end fiscal 2003 is expected to be $166.7 million.
o During the next five years the minimum revolver availability is $2.7 million
at peak borrowing periods.
o 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,
assuming no other operational improvements or significant changes in market
conditions other than those noted above.
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30
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<PAGE> 33
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Northwestern Steel and Wire Company [LOGO]
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RESTRUCTURING OVERVIEW
<PAGE> 34
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Northwestern Steel and Wire Company [LOGO]
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RESTRUCTURING OVERVIEW
OBJECTIVES
o Enhance the Company's ability to compete in the marketplace.
o Dramatically improve manpower efficiency which will make the Company
fundamentally more competitive.
o Modernize facilities to improve overall competitive position and
profitability.
o Restructure Capital Structure.
o Capital structure consistent with cash flow generating capabilities of
business.
o Capital structure which can sustain periods of volatile earnings
associated with steel price fluctuations.
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32
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<PAGE> 35
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Northwestern Steel and Wire Company [LOGO]
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RESTRUCTURING OVERVIEW
ATTEMPTED M&A EFFORTS
o Beginning in early 1998, the Company began aggressively pursuing M&A
alternatives and Chase Securities was retained to assist in this effort.
o Ultimately, only one offer materialized and a letter of intent was executed.
o After substantial due diligence was completed, an additional condition to
the letter of intent effectively rescinded the offer.
o Given the current steel industry condition and the challenges facing NWSW,
an M&A alternative does not appear viable.
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33
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<PAGE> 36
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Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
RESTRUCTURING OVERVIEW
ATTEMPTED REFINANCING EFFORTS
o BT/Alex Brown ("BT") and CIBC Oppenheimer ("CIBC") were retained to secure
new financing for the Company.
o CIBC attempted to raise mezzanine/preferred financing which, together
with existing cash and the BT $125 million offering would have been
sufficient to refinance the existing bond debt. No commitments
materialized in connection with these efforts.
o BT attempted to obtain $125 million of new senior mortgage notes to
finance construction of the mill. Due to market conditions, and the
inability to raise the mezzanine/preferred financing, the new senior
mortgage note financing was unavailable.
NOTEHOLDER RESTRUCTURING
o With no currently viable options to sell the Company or refinance the notes
commercially, the Company must now complete a restructuring transaction
which will enable the Company to present the U.S. Government via The
Emergency Steel Loan Guarantee Act of 1999 with a viable application.
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34
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<PAGE> 37
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Northwestern Steel and Wire Company [LOGO]
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TRANSACTION OVERVIEW
<PAGE> 38
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Northwestern Steel and Wire Company [LOGO]
- -------------------------------------------------------------------------------
TRANSACTION SUMMARY
NOTEHOLDERS
o $50 million in cash (funded from existing cash and revolver availability).
o Issuance of common stock representing 70 percent interest in Company on a
fully diluted basis.
o Payment of all accrued interest at closing.
o Noteholders will be given the right to elect 4 of 7 directors.
o 95 percent of Noteholders must accept the offer.
SENIOR NOTES
o $150 million new Senior Notes guaranteed by the US Government as provided in
The Emergency Steel Loan Guarantee Act of 1999 (application to be
submitted).
o Expected rate of 9 percent.
o Six year balloon maturity.
o Standard Covenants.
REVOLVER
o $65 Million facility.
o Appropriate market spread.
o Estimated three-year evergreen maturity.
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36
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<PAGE> 39
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Northwestern Steel and Wire Company [LOGO]
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW
The following is a summary of the transaction structure:
<TABLE>
<CAPTION>
($000,000 Omitted)
SOURCES USES
- ------- ----
<S> <C> <C> <C>
Cash (a) $ 33,800 Cash for New Mill (c) $ 120,000
Revolver (b) 13,800 Fees (d) 8,000
New Senior Note 150,000 Repayment of Revolver 19,600
--------- Cash to Noteholders 50,000
---------
$ 197,600 $ 197,600
========= =========
</TABLE>
(a) Reflects estimated current cash balance.
(b) Revolver will be used to fund any cash shortfalls during new mill
construction period.
(c) Cash needed for the new mill construction.
(d) Estimated fees could be several million dollars higher.
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37
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