<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 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: 33-67532
SHEFFIELD STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-2191557
(State or other (I.R.S. Employer
jurisdiction of incorporation) identification No.)
220 NORTH JEFFERSON STREET
SAND SPRINGS, OK 74063
(Address of principal executive offices)
(918) 245-1335
(Registrant's telephone number, including area code)
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 _____
At the date of this filing, there were 3,461,175 shares of the Registrant's
$.01 par value Common Stock outstanding. The aggregate market value of voting
stock held by nonaffiliates is unknown as the Registrant's stock is not traded
on an established public trading market.
<PAGE>
SHEFFIELD STEEL CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
July 31, 1998 and April 30, 1998 3
Consolidated Condensed Statements of Operations
for the three months ended July 31, 1998
and July 31, 1997 4
Consolidated Condensed Statements of Cash Flows
for the three months ended July 31, 1998 and
July 31, 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit Index 13
</TABLE>
2
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unaudited
April 30, July 31,
1998 1998
--------- ----------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and equivalents $ 2,590 $ 201
Accounts receivable, less allowance for doubtful accounts
of $733 and $658 at July 31, 1998 and April 30, 1998,
respectively 20,994 20,008
Inventories 33,548 35,246
Other current assets 3,803 3,736
-------- --------
Total current assets 60,935 59,191
Property, plant and equipment, net 68,730 68,264
Intangible assets, net 8,672 8,503
Other assets 3,238 3,237
Deferred income tax asset, net 2,043 2,061
-------- --------
Total assets $143,618 $141,256
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,702 $ 2,563
Accounts payable 19,745 13,662
Accrued interest payable 5,151 2,108
Accrued liabilities 6,375 6,435
-------- --------
Total current liabilities 32,973 24,768
Long-term debt, excluding current portion 112,682 119,128
Other liabilities 12,089 12,562
-------- --------
Total liabilities 157,744 156,458
-------- --------
Stockholders' equity (deficit):
Common stock 36 34
Additional paid-in capital 2,536 1,939
Accumulated deficit (15,698) (16,161)
-------- --------
Total stockholders' deficit (13,126) (14,188)
Less loans to stockholders 1,000 1,014
-------- --------
(14,126) (15,202)
-------- --------
Total liabilities and stockholders' deficit $143,618 $141,256
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
-------------------------------
1997 1998
--------------- -----------------
<S> <C> <C>
Sales $47,717 $43,077
Cost of sales 38,309 33,848
------- -------
Gross profit 9,408 9,229
Selling, general and administrative expense 3,297 3,602
Depreciation and amortization expense 1,711 1,864
Postretirement benefit expense 688 730
------- -------
Operating income 3,712 3,033
Other expense:
Interest expense, net 2,957 3,481
Other - 15
------- -------
2,957 3,496
Income from operations before income taxes 755 (463)
Income tax expense - -
------- -------
Net income (loss) $ 755 $ (463)
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
------------------------------
1997 1998
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 755 $ (463)
Depreciation and amortization 1,760 1,945
Accrual of postretirement benefits other than pensions,
net of cash paid 438 480
Changes in assets and liabilities (118) (9,749)
------- -------
Net cash provided by (used in) operations 2,835 (7,787)
------- -------
Cash flows from investing activities -
Capital expenditures (963) (1,254)
------- -------
Cash flows from financing activities:
Net (decrease) increase in long-term debt (1,869) 7,307
Other financing activities - (655)
------- -------
Net cash (used in) provided by financing activities (1,869) 6,652
------- -------
Net increase (decrease) in cash 3 (2,389)
Cash at beginning of period 15 2,590
------- -------
Cash at end of period $ 18 $ 201
======= =======
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the period for interest $ 5,207 $ 6,443
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JULY 31, 1998 AND 1997
(IN THOUSANDS)
(UNAUDITED)
1) BASIS OF PRESENTATION AND SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements of Sheffield Steel Corporation (the
Company) include the accounts of its divisions, Sheffield Steel-Sand Springs
(Sand Springs), Sheffield Steel-Kansas City (Kansas City), and Sheffield Steel-
Joliet (Joliet) and its wholly owned subsidiaries, Sheffield Steel Corporation-
Oklahoma City (Oklahoma City), Waddell's Rebar Fabricators, Inc. (Waddell) since
October 28, 1997, and Sand Springs Railway Company (the Railway). HMK
Enterprises, Inc. (HMK) owns approximately 90% of the currently issued and
outstanding common stock. All material intercompany transactions and balances
have been eliminated in consolidation. The Company's primary business is the
production of concrete reinforcing bar, fence posts, and a range of hot rolled
bar products including rounds, flats and squares. The Company's products are
sold throughout the continental United States.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the financial
statements contained in the Company's Form 10-K, for the year ended April 30,
1998. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the quarter ended July 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
April 30, 1999.
(2) INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
July 31,
April 30, 1998
1998 Unaudited
---- ---------
<S> <C> <C>
Raw materials and storeroom supplies $10,673 $11,805
Work in process 11,721 11,097
Finished goods 11,154 12,344
------- -------
$33,548 $35,246
======= =======
</TABLE>
(3) Long-term Debt
On July 31, 1998, the Railway amended its credit agreement with a bank. The
amendment extends the Railway's revolving credit agreement to July 31, 2000.
Substantially all of the other terms of the original agreement remain in effect.
On June 30, 1998, the Company entered into an equipment financing agreement for
approximately $5.6 million, of which approximately $4.6 was outstanding at July
31, 1998. The loan bears interest at LIBOR plus 3% and matures in June, 2003.
The loan is secured by equipment, primarily related to the shear-line project.
At July 31, 1998, the interest rate was 8.66%.
6
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion should be read in conjunction with the
Consolidated Condensed Financial Statements of the Company and the notes
thereto elsewhere in this Form 10-Q.
This Quarterly Report on Form 10-Q may contain forward-looking statements
as that term is defined in the Private Securities Litigation Reform Act of
1995. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties which could cause results to
differ materially from those described in the forward-looking statements.
There can be no assurance that actual results or business conditions will not
differ materially from those anticipated or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the size and timing of significant orders, as well as deferral of
orders, over which the Company has no control; the variation in the Company's
sales cycles from customer to customer; increased competition posed by other
mini-mill producers; changes in pricing policies by the Company and its
competitors; the need to secure or build manufacturing capacity in order to
meet demand for the Company's products; the Company's success in expanding its
sales programs and its ability to gain increased market acceptance for its
existing product lines; the ability to scale up and successfully produce its
products; the potential for significant quarterly variations in the mix of
sales among the Company's products; the gain or loss of significant customers;
shortages in the availability of raw materials from the Company's suppliers;
fluctuations in energy costs; the costs of environmental compliance and the
impact of government regulations; the Company's relationship with its work
force; the restrictive covenants and tests contained in the Company's debt
instruments, which could limit the Company's operating and financial
flexibility; and general economic conditions.
Results of Operations
Three Months Ended July 31, 1998 As Compared to the Three Months Ended July 31,
1997
SALES. Sales for the Company for the three month period ended July 31,
1998 were approximately $43.1 million as compared to sales of approximately
$47.7 million for the three month period ended July 31, 1997, a decrease of
approximately $4.6 million or 9.72%. Shipping levels decreased 16.9% to
110,318 tons from 132,797 tons and the average price per ton shipped increased
to $390 from $359. The decrease in tons shipped is primarily due to the
Company's low inventory position at the beginning of the year resulting from
the rolling mill outage at the Sand Springs Facility in the fourth quarter of
fiscal 1998. The outage was due to installation of the new shear line which
improved the efficiency of the cooling bed and increased the capacity of the
shear line. The increase in price per ton is due to the change in product mix.
Hot Rolled Bar Products. Shipments for the three month period ended July
31, 1998 were 44,664 tons compared to 45,054 tons for the three month period
ended July 31, 1997, a decrease of 390 tons or 0.9%. The decrease was
primarily a result of the low inventory position of the Sand Springs Facility.
Shipments of hot rolled bar products from the Joliet Facility increased 8.5%
over the same period in the prior year primarily due to strong market demand.
The average price per ton of hot rolled bar products for the three month period
ended July 31, 1998 increased to $454 from
7
<PAGE>
$439, reflecting an increase in sales prices at both the Sand Springs Facility
and the Joliet Facility due to strong market demand and product mix.
Rebar. Rebar shipments for the three month period ended July 31, 1998
were 41,669 tons compared to 56,551 tons for the three month period ended July
31, 1997, a decrease of 14,882 or 26.3%. This decrease was primarily a result
of the low inventory position at the Sand Springs Facility at the beginning of
fiscal 1999. Although the Sand Springs rolling mill production increased
approximately 16.9% over the same period in the prior year, the Company
typically sells rebar out of inventory during this time of year. The average
price per ton of rebar for the three month period ended July 31, 1998 increased
slightly to $302 from $295.
Fabricated Products. Shipments of fabricated products for the three month
period ended July 31, 1998 were 14,538 tons compared to 14,825 tons for the
three month period ended July 31, 1997, a decrease of 287 tons or 1.9%. The
decrease in shipments was due to a slight decrease in shipments from the Sand
Springs Facility fence post shop and a decrease in shipments from the Kansas
City Facility. The Kansas City Facility had a paint booth fire in June that
halted production for approximately three days. The average price per ton for
the three month period ended July 31, 1998 increased to $495 from $458. The
increase in average price per ton was primarily due to improved product mix and
pricing at the Kansas City Facility and the acquisition of Waddell.
Billets. Shipments of billets to third parties for the three month period
ended July 31, 1998 were 9,447 tons compared to 16,367 tons for the three month
period ended July 31, 1997, a decrease of 6,920 tons or 42.3%. This decrease
was due to increased internal billet usage at the Sand Springs rolling mill as
a result of the start-up of the new shear line.
COST OF SALES. The cost of sales for the three month period ended July
31, 1998 was approximately $33.8 million as compared to approximately $38.3
million for the three month period ended July 31, 1997. On an average per ton
basis, cost of sales increased to $307 per ton for the three month period ended
July 31, 1998 from $288 per ton for the three month period ended July 31, 1997.
The increase in cost per ton is due to higher conversion costs per ton,
specifically weather related electric utility costs, as well as a change in
product mix to a higher percentage of hot rolled bar products.
GROSS PROFIT. Gross profit for the Company for the three month period
ended July 31, 1998 was approximately $9.2 million as compared to gross profit
of approximately $9.4 million for the three month period ended July 31, 1997, a
decrease of approximately $0.2 million or 1.9%. Gross profit for the Company
as a percentage of sales for the three months ended July 31, 1998 was 21.4% as
compared to 19.7% for the three months ended July 31, 1997. The increase is
primarily the result of higher average selling prices and a more favorable
product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the Company for the three month period ended July
31, 1998 was $3.6 million, an increase of $0.3 million from the three month
period ended July 31, 1997. The increase is primarily a result of the
acquisition of Waddell, additional environmental expenditures and an increase
in property taxes.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three month period ended July 31, 1998 increased to $1.9 million from $1.7
million for the three month period ended July 31, 1997. The increase is due to
increased intangible assets associated with the acquisition of
8
<PAGE>
Waddell and debt issuance costs and depreciation expense increases at the Sand
Springs Facility due to capital expenditures.
POST-RETIREMENT BENEFIT EXPENSE. Post-retirement benefit expense for the
three month periods ended July 31, 1998 and 1997 was approximately $0.7
million.
OPERATING INCOME. Operating income for the Company for the three month
period ended July 31, 1998 was approximately $3.0 million as compared to
approximately $3.7 million for the three month period ended July 31, 1997, a
decrease of approximately $0.7 million. Operating income for the Company as a
percentage of sales for the three month period ended July 31, 1998 was 7.0% as
compared to 7.8% for the three month period ended July 31, 1997. This decrease
was primarily due to decreased sales in addition to slightly higher operating
expenses, as discussed above.
INTEREST EXPENSE. Interest expense for the Company for the three month
period ended July 31, 1998 was approximately $3.5 million as compared to
approximately $3.0 million for the three month period ended July 31, 1997, an
increase of approximately $0.5 million. The increase is due to the increase
in outstanding debt during the period.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1998, the Company's long-term indebtedness, including
current portion, was approximately $121.7 million. The Company had
approximately $29.0 million of borrowing availability at July 31, 1998 under
its revolving credit agreements and approximately $1.0 million of borrowing
availability under its equipment financing agreement.
Cash flow used in operations was approximately $7.8 million for the three
month period ended July 31, 1998, as compared with cash flow provided by
operations of approximately $2.8 million for the three month period ended July
31, 1997. The increase in cash used by operations was primarily due to timing
of payments to vendors. Cash used in investing activities in the three months
ended July 31, 1998 was approximately $1.3 million, consisting primarily of
capital expenditures necessary to sustain operations. For the three month
period ended July 31, 1998, cash provided by financing activities consisted of
proceeds from the equipment financing agreement and increases in the revolving
credit facility. Cash used in financing activities primarily included payment
of debt issue costs.
The Company's cash flow from operations and borrowings under the Revolving
Credit Facility, the Railway Credit Facility, and equipment financing
agreements are expected to be sufficient to fund the budget for capital
improvements, and meet near-term working capital requirements.
On a longer term basis, the Company has significant future debt service
obligations. The Company's ability to satisfy these obligations is dependent
on its ability to generate adequate cash flow from operations. The Company
expects that its cash flow from operations and available borrowings under its
revolving credit facilities and equipment financing agreements will be
sufficient to fund the repayment of the long term debt and other investing
activities. The Company's future operating results are dependent on its
overall operating performance and are subject to general business, financial
and other factors affecting the Company and the domestic steel
9
<PAGE>
industry, as well as prevailing economic conditions, certain of which are
beyond the control of the Company.
CAPITAL EXPENDITURES
Capital expenditures for the three month period ended July 31, 1998 were
approximately $1.3 million, consisting of normal capital projects required or
deemed economically feasible, throughout the Company. The Company's cash flow
from operations and borrowings under its revolving credit facilities and
equipment financing agreements are expected to be sufficient to meet any near-
term working capital requirements the Company may have and to fund anticipated
capital improvements.
YEAR 2000 COMPLIANCE
The Company has been reviewing potential issues associated with the computer
applications that could fail or generate erroneous results by or at the year
2000 ("Year 2000") and expects to conclude its review of all these issues
during 1998. A significant number of the Company's critical business
applications have already been modified and tested to ensure Year 2000
compliance. The remaining Year 2000 projects are scheduled for completion and
testing during 1998 and 1999. The total cost of converting internal systems to
achieve Year 2000 compliance is not expected to be material to the Company.
The Company has formed a project team that has inventoried the operating and
other systems and has acquired written assurance from vendors that they have
addressed or will address the Year 2000 issue before Year 2000. The Company is
also assessing the business impact of Year 2000 issues related to vendors,
major customers, service suppliers, communications providers, and banks.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("Statement") No. 130 "Reporting
Comprehensive Income". Statement No. 130 establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. Statement No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company adopted
Statement No. 130 in the quarter ended July 31, 1998. The adoption did not
have an impact on the Company's consolidated results of operations, financial
position or cash flow.
Also in June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Statement No. 131,
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Statement No. 131 is effective for
financial statements for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
The Company plans to adopt Statement No. 131 for the year ended April 30, 1999.
The adoption of Statement No. 131 is not expected to have a material impact on
the Company's consolidated results of operations, financial position or cash
flows.
10
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any significant pending legal proceedings
other than litigation incidental to its business which the Company believes
will not materially affect its financial position, results of operations or
liquidity. Such claims against the Company are ordinarily covered by
insurance. There can be no assurance, however, that insurance will be
available in the future at reasonable rates.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended July 31, 1998.
11
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
SHEFFIELD STEEL CORPORATION
Date: Sept. 11, 1998 /s/ Robert W. Ackerman
------------------ -----------------------
Robert W. Ackerman, President
and Chief Executive Officer
Date: Sept. 11, 1998 /s/ Stephen R. Johnson
------------------ -----------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<C> <S> <C>
10.35 Sixth Amendment to Restated Credit Agreement, date July 31, 1998 between
Sand Springs Railway Company and Bank of Oklahoma, N.A. 15
</TABLE>
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
EXHIBIT 10.35
<PAGE>
SIXTH AMENDMENT TO RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AGREEMENT ("Sixth Amendment") is made effective
this 31st day of July, 1998, by and between SAND SPRINGS RAILWAY COMPANY, an
Oklahoma corporation ("Borrower") and BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a
national banking association ("Bank").
RECITALS
Reference is made to the Restated Credit Agreement dated April 23, 1991, by and
between Borrower and Bank, as amended by the Amendment to Restated Credit
Agreement entered into as of May 31, 1992, and the Second Amendment to Restated
Credit Agreement dated September 24, 1993, as amended by the Third Amendment to
Restated Credit Agreement dated November 4, 1994, as amended by the Fourth
Amendment to Restated Credit Agreement dated July 31, 1996, as amended by the
Fifth Amendment to Restated Credit Agreement,(as amended, the "Restated Credit
Agreement"), pursuant to which exists a $1,500,000 revolving line of credit as
evidenced by the $1,500,000 Note dated July 31, 1997, and a $2,000,000.00 Term
Loan dated July 31, 1996, payable by Borrower to Bank.
Borrower and Bank have agreed to extend the Commitment Termination Date for the
Line of Credit and, renew and extend the maturity date of the Line Note, as
specifically set forth below:
AGREEMENT
For valuable consideration received, and as inducement for and in consideration
of Bank agreeing to the provisions set forth below, it is agreed as follows:
1. Definitions. All terms used herein shall have the meanings given in the
Restated Credit Agreement, unless otherwise specifically defined herein.
2. Amendments to the Restated Credit Agreement. The Restated Credit Agreement
is amended as follows:
2.1 Amount of Commitment. Section 1.1 of the Restated Credit Agreement is
amended to read as follows:
1.1 Amount of Commitment and Term Loan. Subject to the terms and conditions
of this Agreement, Bank agrees to make such loans (individually, a "Loan" and
collectively, the "Loans") to Borrower from the date hereof through July 31,
2000 ("Commitment Termination Date"), as may be requested from time to time by
Borrower. The aggregate principal amount of all Loans outstanding at any one
time shall not exceed $1,500,000.00 (the "Commitment"). Within the limits set
forth in this Agreement, Borrower may repay and reborrow under the Commitment
from time to time on or before the Commitment Termination Date. In addition to
the Commitment, Lender has made a Term Loan to Borrower in the amount of
$2,000,000.00 maturing July 31, 2000. The Commitment and the Term Loan
constitute a restructuring and renewal of a reducing line of credit with an
original maximum principal amount of $3,500,000.00.
2.2 Note. Section 1.2 of the Restated Credit Agreement is amended to read, as
follows:
<PAGE>
1.2 Note. Borrower shall execute and deliver to Bank a promissory note
evidencing the Loans, dated of even date herewith, payable to the order of Bank
in the principal amount of One Million Five Hundred Thousand Dollars
($1,500,000.00), in substantially the form of Exhibit "A" attached hereto.
Borrower has executed and delivered to Bank a promissory note dated July 31,
1996, evidencing the Term Loan, payable to the order of Bank in the principal
amount of Two Million Dollars ($2,000,000.00), in substantially the form of
Exhibit "A-1" attached hereto (the two notes being referred to hereafter
individually and collectively as the "Note"). The Note shall bear interest and
be payable as described therein. Borrower hereby authorizes and directs Bank to
debit Borrower's general demand deposit account with Bank for the amount of each
payment provided for in the Note.
2.3 Exhibits. Exhibit "A" of the Fifth Amendment to the Restated Credit
Agreement shall be replaced with Exhibit "A" hereto.
3. Amendments to Other Loan Documents. Borrower hereby ratifies and confirms
all other instruments, documents and agreements executed and/or delivered in
connection with the Restated Credit Agreement including, without limitation, the
Assignment of Transportation Agreement, the Assignment of User Contracts, the
Security Agreements, and the Mortgages, and agrees and hereby amends such
documents evidencing security or collateral to evidence that they shall secure
payment of the $2,000,000 Promissory Note and $1,500,000 Promissory Note
executed and delivered by Borrower to Bank in connection with this Sixth
Amendment, together with extensions, renewals, and changes in form thereof.
4. Amendment to Pledge Agreement. The Pledge Agreement shall be ratified and
confirmed by Sheffield Steel, formerly known as HMK Industries of Oklahoma,
Inc., as evidenced by the Ratification in form and content as set forth on
Exhibit "B" hereto, which shall be executed and delivered by the Pledgor to Bank
on or before closing, and shall be accompanied by (i) certified resolutions in
form and content as set forth on Schedule "4-A" hereto.
5. No Defaults. Borrower hereby represents and warrants to Bank that no Event
of Default exists, and that Borrower is in full and complete compliance with the
terms and conditions of the Restated Credit Agreement and all instruments,
documents and agreements executed and/or delivered by Borrower in connection
therewith.
6. Governing Law and Binding Effect. This Sixth Amendment and all documents
executed and/or delivered in connection herewith shall be governed by and
construed in accordance with the laws of the State of Oklahoma, and shall inure
to the benefit of and be binding upon the parties hereto, their successors and
assigns.
7. Costs, Expenses and Fees. Borrower agrees to pay all costs, expenses and
fees incurred by Bank in connection with the preparation of this Sixth Amendment
and all related documents.
"Bank"
BANK OF OKLAHOMA, N.A.
By: /s/ Chris T. Young
--------------------------
Chris T. Young
Banking Officer
"Borrower"
SAND SPRINGS RAILWAY COMPANY,
By: /s/ Stephen R. Johnson Stephen R. Johnson
--------------------------
Its: Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT AS OF AND FOR THE PERIOD ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 201
<SECURITIES> 0
<RECEIVABLES> 20,741
<ALLOWANCES> 733
<INVENTORY> 35,246
<CURRENT-ASSETS> 59,191
<PP&E> 68,264
<DEPRECIATION> 0
<TOTAL-ASSETS> 141,256
<CURRENT-LIABILITIES> 24,768
<BONDS> 119,128
0
0
<COMMON> 34
<OTHER-SE> 14,222
<TOTAL-LIABILITY-AND-EQUITY> 141,256
<SALES> 43,077
<TOTAL-REVENUES> 43,077
<CGS> 33,848
<TOTAL-COSTS> 33,848
<OTHER-EXPENSES> 1,864
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 3,481
<INCOME-PRETAX> (463)
<INCOME-TAX> 0
<INCOME-CONTINUING> (463)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (463)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
