<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
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)
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K[ ]
As of July 26, 1999, there were 3,459,300 shares of the Registrants $.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.
Documents Incorporated by Reference
1) Portions of the Registrants Proxy Statement dated July 31, 1999 are
incorporated by reference into Part III of this Report on Form 10-K.
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SHEFFIELD STEEL CORPORATION
FORM 10-K
Table of Contents
<TABLE>
<CAPTION>
Item Page
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<S> <C>
Part I
1. Business 1-10
2. Properties 10-11
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
Part II
5. Market for the Registrant's Common Equity and Related Stockholder
Matters 11
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-19
8. Financial Statements and Supplementary Data 20-37
9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 38
Part III
10. Directors and Executive Officers of the Registrant 38
11. Executive Compensation 38
12. Security Ownership of Certain Beneficial Owners and Management 38
13. Certain Relationships and Related Transactions 38
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 39
</TABLE>
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PART I
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ITEM 1. BUSINESS
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Overview
Sheffield Steel Corporation (the Company, which may be referred to as we,
us, or our) is a leading regional mini-mill producer of steel products
including:
. Hot rolled steel bar products (hot rolled bar), which includes rounds,
flats, squares, channels and other shapes.
. Concrete reinforcing bar (rebar), which includes #4 bar (1/2 inch or 13mm)
to #18 bar (2 1/4 inches or 57mm) which is sheared to standard lengths from
20 feet to 60 feet.
. Fabricated products, including fabricated and epoxy-coated rebar, steel
fence posts and railroad track spikes.
. Various types of semi-finished steel (billets).
Our home page on the Internet is at www.sheffieldsteel.com. You can learn
----------------------
about us by visiting that site.
Our Company and its predecessors have been in the steelmaking business for
over 69 years. We believe that we are among the lowest cost producers of billets
in the United States because of our efficient melt and cast operation, high
labor productivity levels, low gas and electric costs and competitive steel
scrap costs. Our low cost billets feed our downstream bar mill operations and
fabricated products operations. We shipped approximately 420,000 tons of steel
in fiscal 1999, resulting in sales of $163.4 million.
Our primary manufacturing facility is located in Sand Springs, Oklahoma
(Sand Springs), where we conduct a full range of steelmaking activities,
including the melting and casting of billets and the rolling of billets into
rebar, steel fence posts and a range of hot rolled bar products. We currently
have 600,000 tons of steelmaking capacity. We installed a new rolling mill
(Rolling Mill) in Sand Springs in 1995 which has increased productivity and
efficiency in the manufacturing of rebar and has enabled us to produce certain
higher quality hot rolled bar products than we were previously able to produce.
In the fourth quarter of fiscal 1998, we completed a project (the Shear Line
Project) to eliminate a production bottleneck in the Rolling Mill that further
increased our production and improved quality. Recently we entered into a letter
of intent to purchase a new reheat furnace for the Rolling Mill that would
decrease natural gas usage as well as improve quality, yields, and productivity.
If we proceed with this project, which is expected to cost approximately $10
million, we anticipate installation to be during fiscal 2001. From Sand Springs,
we also transfer billets to our two rolling mills in Joliet, Illinois (Joliet),
where we produce high-end specialty hot rolled bar products. We also operate two
rebar fabrication plants, one in Kansas City, Missouri (Kansas City) and one in
Independence, Missouri (Waddell), a railroad spike fabrication plant in Sand
Springs (Wellington) and a short line railroad (the Railway).
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Business Strategy
We believe our operating strategy serves to strengthen our market position
and maximize profitability. There are three major components to our strategy:
(i) improve our finished goods product mix; (ii) continue to focus on and extend
our strong customer relationships; and (iii) further modernize our melt shop
operations.
Improve Finished Goods Product Mix. With the addition of the Rolling Mill
in Sand Springs, we increased our hot rolled bar production capacity.
Accordingly, shipments of finished products have increased as less profitable
third party billet sales have been diverted to the production of hot rolled
bars. Billet sales, which accounted for 23.6% of tons shipped in fiscal 1994,
accounted for only 7.4% of tons shipped in fiscal 1999. By shifting away from
third party billet sales and increasing hot rolled bar production, we have
increased margins and reduced sales volatility, since hot rolled bar products
are significantly more profitable than third party billet sales and demand is
more stable. As part of our strategy to further improve product mix, in the
fourth quarter of fiscal 1998, we completed the Shear Line Project which we
ultimately expect will (i) increase hot rolled bar production capacity by more
than 100,000 tons per year; (ii) increase utilization of our existing 600,000
tons of steelmaking capacity; (iii) improve the quality of all mill products,
especially hot rolled bar; and (iv) improve product mix by further reducing
billet sales to third parties. To date, we have had partial success in achieving
our expectations of the new shear line and we continue our efforts to achieve
its anticipated potential.
Extend Strong Customer Relationships. We have a number of long-standing
customer relationships in each of our product markets. We have built a
reputation for providing consistent product quality, reliable, prompt product
delivery and service, product availability and flexible scheduling to meet our
customers needs. We also provide a high level of follow up technical assistance
and service. The ISO 9002 certification at both Sand Springs and Joliet is an
indication of our commitment to producing quality products. We believe that our
business strategy to improve finished product mix will strengthen our existing
customer relationships and aid us in developing new customer relationships.
Modernize Melt Shop. We believe that we are among the lowest cost producers
of billets in the United States as a result of our efficient melt and cast
operation, high labor productivity level, low natural gas and electricity costs
and competitive steel scrap costs. Over the last three years, we have made
improvements to general operating practices, improved yields, and reduced costs.
Annual billet production capacity has increased from 525,000 tons to 600,000
tons per year. Through incremental capital investments, we intend to pursue
additional modernization measures, such as the possible installation of a ladle
arc furnace in the melt shop, which will further enhance production capability,
increase production capacity, reduce manufacturing costs and improve the quality
of finished products. An engineering study is currently underway to determine
the feasibility of this project.
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Products, Customers and Markets
The following table shows the percentage of revenues derived from each product
category for the last three years:
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
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1997 1998 1999
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<S> <C> <C> <C>
Hot Rolled Bar 44.4% 45.8% 43.6%
Rebar 31.7% 34.1% 31.3%
Fabricated Products 14.3% 14.0% 19.5%
Billets 7.6% 4.5% 3.8%
Other 2.0% 1.6% 1.8%
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Total 100% 100% 100%
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</TABLE>
Hot Rolled Bar. According to the American Iron and Steel Institute (AISI),
the size of the hot rolled bar product market in the United States was
approximately 8.2 million tons in 1998. The demand for consistent quality is
significant in this market, where quality is measured by the adherence to
specifications related to chemical composition, surface quality, product
integrity and size tolerances. We sell a variety of specialty hot rolled bar
products, including flats, squares, rounds and channels for end use applications
that include wrenches, pole line hardware, conveyor assemblies, construction
machinery, auto parts, farm equipment, and oilfield sucker rods. The majority of
hot rolled bar products produced in Joliet are sold directly to original
equipment manufacturers and cold drawn bar finishers, while the remainder is
sold to steel service centers. Hot rolled bar products produced in Sand Springs
are sold to both end product manufacturers and steel service centers.
We strive to differentiate ourselves from our competitors in the hot rolled
bar market. In Joliet, we focus on specialty products and target customers with
special requirements as to bar shape, size and chemical composition and, in many
cases, small volume needs. We believe that our target customer focus often
allows us to act as the sole supplier of particular shapes, sizes or steel
chemistries to certain customers. In some cases we compete with a limited number
of producers of specialty hot rolled bar products. We believe that these niche
markets are unattractive to larger volume producers. In Sand Springs, we provide
a competitive geographical advantage in the south-central United States hot
rolled bar market. This enables our customers to benefit from lower freight
costs, shorter lead times and more timely deliveries. As a result of these
competitive advantages and our reputation for quality and service, we have
developed a number of close relationships with hot rolled bar product customers
in our region. We believe that there are significant opportunities to sell
standard hot rolled bar products to customers that Joliet is currently serving
in the specialty hot rolled bar market.
We also endeavor to provide our hot rolled bar product customers with
superior service. To provide a high level of service, we carry substantial
customer-designated finished goods inventories of hot rolled bar products in
both Joliet and Sand Springs. Joliet has a customer query system that provides
agents and major customers with direct computer access to the status of their
production orders, the availability of inventory designated for them and our
production schedule for their products.
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Rebar. According to the AISI, the size of the rebar market in the United
States was approximately 5.9 million tons in 1998. Rebar is a lower value,
higher volume commodity bar product for which price is an important competitive
factor. Geographic proximity to customers, which in turn determines both freight
costs and delivery times, is also a critical element in the rebar market, where
profit margins are tight and independent fabricators typically depend on quick
mill response rather than their own inventories to meet ever-changing
construction schedules. We sell rebar to leading independent fabricators located
in the south-central United States who then shear and bend the rebar to meet
engineering or architectural specifications for construction projects. We
produce rebar in Sand Springs, where the bars are rolled in standard diameters
from #4 bar (1/2 inch or 13mm) to #18 bar (2 1/4 inches or 57mm) and sheared to
standard lengths from 20 feet to 60 feet. To provide rapid response to customer
needs, we usually maintain a finished goods inventory of 25,000 to 35,000 tons
of rebar.
Rebar demand is driven by trends in commercial and industrial construction
and infrastructure investment. During periods of overall reduced steel industry
demand, we have maintained relatively stable rebar sales volume due to the level
of public sector investment in roads, bridges, dams, airports and public
facilities in the south-central United States. We have successfully built and we
strive to maintain long-term relationships with our customers by providing them
with competitive pricing, assured product availability and reliable, prompt
delivery and service. This strategy permits the fabricators to compete
successfully in the construction and infrastructure markets, thus reinforcing
our relationships with such fabricators.
Due to the importance of pricing, freight costs and delivery response time,
sales of rebar tend to be concentrated within close geographic proximity to a
rebar manufacturer's mini-mill. Our rebar market is concentrated in the
geographic area surrounding Sand Springs. In our primary market area of
Oklahoma, Kansas and portions of southern Nebraska, western Missouri, western
Arkansas, and northern Texas, we enjoy a freight advantage over our competitors
and believe we have a market share in excess of 50%. Approximately 80% of our
rebar shipments are made in this primary market area. The remaining rebar
shipments are made in the adjacent regions of Nebraska, Missouri, Arkansas,
Texas, Louisiana, New Mexico, and Colorado.
Fabricated Products. We manufacture three fabricated steel products: fence
posts, which are sold to distributors and farm cooperatives, fabricated rebar,
including epoxy-coated rebar, and railroad track spikes. Fence posts are
produced in a post fabrication shop located adjacent to the Rolling Mill in two
weights (1.25 pounds per foot and 1.33 pounds per foot), in orange and green
colors and various lengths from 4 feet to 8 feet. The majority of our fence post
sales are concentrated in the Oklahoma, Kansas, Missouri, Texas and Arkansas
market area.
Fabricated rebar is shipped from Kansas City and Waddell to highway and
construction contractors in Missouri, Kansas and Nebraska. In recent years, we
have experienced increased demand from contractors bidding on infrastructure
projects for fabricated rebar which is epoxy-coated prior to fabrication to
protect against corrosion in the field. This has provided Kansas City with a
competitive advantage and contributed to a growth in shipments. We believe that
our epoxy coating line, the only one located in the Kansas City market, provides
a competitive advantage in securing contracts. Since the acquisition of Waddell
in October 1997, we have been successful at integrating the management of these
two companies. With Waddell handling
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smaller, higher value added jobs and Kansas City able to handle larger volume
jobs, we believe we have significantly strengthened our position in this market.
On October 6, 1998, we purchased Wellington Industries, Inc., a railroad
track spike manufacturer located in Sand Springs. The acquisition price was
approximately $3 million, subject to performance related contingency payments,
consisting of $1.5 million in cash and $1.5 million of unsecured subordinated
promissory notes which mature annually over three years and bear interest at
Bank America's prime rate. We believe that the purchase of Wellington secured a
downstream market for our Rolling Mill products and it enhances our fabrication
capabilities.
Billets. We sell billets to forgers and other steel mills for conversion
into finished products. Sales volume potential and pricing for billets,
particularly in the spot market, is highly variable. The dominant competitive
factors are availability and price. Billet sales to third parties are dependent
on our own billet requirements and market conditions that vary widely.
The Railway Company. We operate approximately seven miles of mainline rail
line between Sand Springs and Tulsa, Oklahoma, primarily serving the operations
of Sand Springs and, to a lesser extent, third parties. Revenues from third
parties are immaterial to our financial results.
Manufacturing Process
In Sand Springs, steel scrap is conveyed by rail car from our scrap yard to
the melt shop, where the steel scrap is melted in two 85-ton electric arc
furnaces. During the scrap melting process, impurities are removed from the
molten steel. The molten steel is then poured into a ladle, where metal alloys
are added to obtain desired chemical compositions. The molten steel is then
conveyed to a six-strand continuous caster that casts various types of billets.
The continuous caster is capable of casting billets up to 6 inches square and 50
feet long. These billets are then reheated, rolled and shaped into various
finished steel products at the rolling mills in Sand Springs or Joliet or, to a
lesser extent, sold to third parties. The rolling mill in Sand Springs produces
rebar, "T" sections (which are further processed into fence posts), and a
range of hot rolled bar products, including squares (which are forged into track
spikes at Wellington). The rolling mills in Joliet produce an extensive range of
hot rolled bar products. A portion of the rebar produced in Sand Springs is
epoxy coated and/or fabricated at either Kansas City or Waddell.
Sales and Marketing
Hot rolled bar products produced in Joliet are sold by our sales personnel
and through commissioned sales representatives under exclusive agency agreements
with us. Rebar and hot rolled bar products produced in Sand Springs are sold
through our own sales personnel and limited sales agencies which also service
Joliet. We market fence post directly to farm cooperatives and to fence post
distributors. While some billets are sold through semi-finished steel brokers on
the "spot" market, most are sold directly by us. As a result of increased
production capacity directly related to the completion of the Shear Line
Project, we expect that internal billet requirements will increase and the
availability of billets for sale to third parties will decrease. As a result of
adverse weather conditions that can impact construction activities and a
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normal seasonal downturn in manufacturing levels, we typically experience lower
sales volumes in the third fiscal quarter.
Raw Materials
Our primary raw material is steel scrap, which is generated principally
from the following sources: industrial, automotive, demolition, railroad,
obsolete and other. We purchase scrap in the open market through a limited
number of steel scrap brokers and dealers or by direct purchase. The cost of
steel scrap is subject to market forces, including demand by other steel
producers and export volumes. Our cost of scrap can vary significantly, and we
may not be able to adjust product prices in the short-term to recover large
increases in scrap costs. Over longer periods of time, however, product prices
and steel scrap prices have tended to move in the same direction.
The long-term demand for steel scrap and its importance to the domestic
steel industry may be expected to increase as mini-mill producers continue to
expand steel scrap-based electric arc furnace capacity with additions to or
replacements of existing integrated facilities. For the foreseeable future,
however, we believe that supplies of steel scrap will continue to be available
in sufficient quantities. In addition, a number of technologies exist for the
processing of iron ore into forms which may be substituted for steel scrap in
electric arc furnace-based steelmaking. Such forms include direct-reduced iron,
iron carbide, hot-briquette iron and pig iron. A sustained increase in the price
of steel scrap could result in increased use of these alternative materials. We
have successfully employed scrap substitutes in our manufacturing process to
achieve quality characteristics and we expect to increase usage of such
substitutes in the future.
Energy
Our manufacturing process in Sand Springs consumes large amounts of
electricity. We purchase our electrical needs for Sand Springs from Public
Service of Oklahoma (PSO) under a real time pricing tariff which is available
only to PSO's largest customers. Under this tariff, we purchase a base load at a
contracted price adjusted for fuel costs and then purchase or sell power on an
hour-by-hour basis at rates which approximate PSO's incremental costs plus a
small markup. Historically, we have been adequately supplied with electricity
and we do not anticipate any material curtailment in our operations resulting
from energy shortages.
We believe that our utility rates from PSO are among the lowest in the
domestic mini-mill steel industry. PSO is able to generate electricity at
relatively low rates, as its electric load is generated using western coal and
local natural gas as compared to the higher costs of electric utilities that
generate electric load using oil or nuclear power.
We also use natural gas to reheat billets, but we are not considered a
large natural gas user. Since deregulation of the natural gas industry, we have
negotiated and purchased well-head gas with supplemental transportation through
local pipeline distribution networks. Although increases in the price of natural
gas might have an adverse impact on our cost structure, any such price increase
would likely have a similar affect on competitors using natural gas and/or
electricity generated by natural gas. The majority of our natural gas needs
(both to reheat billets and as a consumer of the electricity generated by
natural gas) stem from use in Sand Springs,
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Oklahoma, a state with excess natural gas supplies. Historically, we have been
adequately supplied with natural gas and we expect an adequate supply to be
available in the future.
Competition
We compete with a number of domestic mini-mills in each of our markets.
There are common competitive factors in the steel bar business--price, proximity
to market, quality and service, for example--although their relative importance
varies in the different market segments.
In the market for hot rolled bar products, Joliet occupies a niche position
at the specialty end of the product range. We believe we are the sole supplier
to certain customers because of their requirements for particular shapes, sizes
or steel chemistries. In other cases, we compete with a limited number of other
producers of specialty hot rolled bar products, including Kentucky Electric
Steel Incorporated, Calumet Steel Company, Laclede Steel Company and
Northwestern Steel and Wire Company. From Sand Springs and to a much lesser
degree from Joliet, we compete with mini-mill producers of standard hot rolled
bar products, including Chaparral Steel Company, North Star Steel Company and
Structural Metals, Incorporated. Competitors vary from customer to customer
depending on product specifications and requirements for order sizes and
inventory support.
Since pricing, freight costs and delivery times are the most important
competitive factors in the sale of rebar, sales tend to be concentrated within
about 350 miles of a mini-mill. In the south-central United States, we enjoy a
competitive advantage as the closest mill serving an area comprising Oklahoma,
Kansas, western Missouri and Arkansas, and parts of northern Texas. The majority
of our rebar tonnage was shipped to this area in fiscal 1999. We compete in the
rebar market with a number of other mini-mills, principally Chaparral Steel
Company and Structural Metals, Incorporated.
We are not in competition on a regular basis with foreign or integrated
steel producers. These mills have cost and freight disadvantages compared to us
and other domestic mini-mills which have effectively precluded them from
competing in the relatively low priced hot rolled bar product and rebar markets.
Competitive factors in fence post sales include product quality measured by
durability, appearance, workmanship, delivery response time, price, and freight
costs. Competitors include Structural Metals, Incorporated and Chicago Heights
Steel Company.
For fabricated rebar, primary competitors are independent fabrication shops
that are furnished with rebar from other mini-mills in the Midwest. In recent
years, we believe that increased demand for epoxy-coated product from
contractors bidding on infrastructure projects has provided Kansas City with a
competitive advantage and contributed to growth in shipments. Other competitive
factors include delivery performance, engineering support, accurate fabrication
and competitive pricing. Waddell's focus is on small rebar projects, generally
under 200 tons each. These two fabricators complement each other and allow for
more efficient production at both locations.
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In the railroad track spike market competitive factors include quality,
service and price. Our primary competitors are Ameristeel and Birmingham Rail.
Employees
As of April 30, 1999, we had approximately 673 employees. Approximately 65%
of our employees are represented by one of three bargaining units affiliated
with the United Steelworkers of America (Sand Springs, Joliet and Kansas City).
Sand Springs is party to a collective bargaining agreement covering
approximately 289 hourly-paid production and maintenance employees. This
agreement was negotiated as of March 2, 1997 and is for a three-year period
expiring on March 1, 2000.
Joliet is also party to a collective bargaining agreement covering
approximately 133 hourly-paid production and maintenance employees, which was
negotiated on February 28, 1999. The new agreement, which expires on March 1,
2002, contains provisions for wage increases and benefit changes. Kansas City
has a collective bargaining agreement covering approximately 16 employees which
expires on October 31, 1999. The Railway has approximately 14 employees who are
represented by various labor unions. We believe that we have maintained good
relationships with our labor unions in the past, but we are unable to provide
assurance that the terms of any future collective bargaining agreements with any
labor unions will contain terms comparable to the terms contained in its
existing collective bargaining agreements.
Since the last national, industry-wide strike of steelworkers in 1959, the
Company has experienced only a five-day strike in Sand Springs in May 1988 and a
work stoppage in Kansas City after the expiration of its collective bargaining
agreement in September 1991. We have not experienced a protracted work stoppage
in Sand Springs or Joliet, and we believe that we have good relations with our
employees. However, we can give no assurance that work stoppages will not occur
in the future, in connection with labor negotiations or otherwise.
Environmental Compliance
We are subject to a broad range of Federal, state and local environmental
requirements, including those governing air emissions and discharges into water,
and the handling and disposal of wastes. We have spent substantial amounts to
comply with these requirements. In the event that we release hazardous
materials, we could potentially be responsible for the remediation of
contamination associated with such a release.
Primarily because the melting process in Sand Springs generates emission
dust that contains lead, cadmium and other heavy metals, we are classified, in
the same manner as other similar mini-mills in its industry, as a generator of
hazardous waste. The Resource Conservation and Recovery Act of 1976, as amended
(RCRA), regulates the management of emission control sludge/dust from electric
arc furnaces (K061), a waste stream generated in significant quantities in Sand
Springs. All of the K061 generated in Sand Springs is shipped to Mexico, where a
High Temperature Metals Recovery processor, Zinc Nacional, S.A., recovers the
zinc, lead and cadmium and manufactures commercial and high purity zinc
products. If a release of K061 were to occur, we could be required to remediate
such a release. Although current law permits the export of K061, we can provide
no assurance that new United States legislation prohibiting the
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export of hazardous waste materials or new Mexican legislation prohibiting the
import of such materials, including K061, will not be enacted. In that event, we
would have to find an alternative means of treatment or disposal of the K061 in
compliance with RCRA. We believe that we could properly dispose of the K061
generated in Sand Springs by constructing an on-site recovery or chemical
stabilization process or by shipping the K061 to a licensed domestic treatment
facility. However, we can give no assurance that such an alternative would be
available or that their construction and/or use would not result in significant
cost increases.
In accordance with the Clean Air Act Amendments of 1990 (CAAA) and
Oklahoma's State Implementation Plan, we submitted a Title V application for an
operating permit in January 1997 and received the permit in March, 1998. We have
had one compliance audit that had no resulting violations or outstanding issues.
Additional or new air emission control regulations or requirements applicable to
our operations may be promulgated under the Clean Air Act in the future. We
cannot at this time accurately estimate the costs, if any, of compliance with
such future Clean Air Act regulations or requirements.
We are in the final stages of work with the EPA in concluding their RCRA
Compliance Evaluation Inspection, which was conducted by Region 6 officials in
April of 1997. Because we have been able to effectively address all of the EPA's
concerns, they have verbally indicated that no penalties should be imposed. The
EPA has dismissed their consultants and decided to let our consultants write the
final report, or "Risk Assessment." The report was filed on June 15, 1999 and
the EPA review will take several more weeks. However, we now believe that the
outcome of the inspection will not have a material adverse impact on our results
of operations or financial condition. We also feel that any remediation work on
the site (if any is required) will be minimal in nature and will not require us
to make any substantial expenditures for remediation or environmental control
during the next three years.
Cautionary Factors That May Affect Future Results
Our disclosure and analysis in this report to shareholders contain some
forward-looking statements. Forward-looking statements give our current
expectations or forecasts of future events. You can identify these statements by
the fact that they do not relate strictly to historical or current facts. They
use words such as "anticipate", "estimate", "expect", "project", "intend",
"plan", "believe", or other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. Specifically,
these include statements relating to future actions, prospective products,
future performance or results of current and anticipated new products, sales
efforts, availability of raw materials, expenses such as energy costs, the
outcome of contingencies, the cost of environmental compliance, capital
expenditures and financial results. From time to time, we also may provide oral
or written forward-looking statements in other materials we release to the
public.
Any or all of our forward-looking statements in this report and in any
other public statements we make may turn out to be wrong. They can be affected
by inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Many factors mentioned in the discussion above--for example,
competition--will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially.
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We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our other reports to the SEC. Also note that we provide the
following cautionary discussion of risks, uncertainties, and possibly inaccurate
assumptions relevant to our businesses. These are factors that we think could
cause our actual results to differ materially from expected and historical
results. Other factors besides those listed here could also adversely affect us.
This discussion is provided as permitted by the Private Securities Litigation
Reform Act of 1995.
. The steel industry is highly cyclical and seasonal in nature.
. There is the possibility of increased competition from other mini-mills.
. The risk of our ability to expand our product lines and increase acceptance
of existing product lines.
. The risk of our ability to successfully produce quality products.
. There is risk regarding the availability of raw materials such as steel
scrap.
. There is risk in cost and availability of energy, specifically natural gas
and electricity.
. There are costs of environmental compliance and the impact of government
regulations.
. Our relationship with our workforce, including the United Steelworkers of
America Union.
. There are restrictive covenants and tests contained in our debt instruments
that could limit our operating and financial flexibility.
. There have been imports into the United States that have affected the steel
market.
. General economic conditions in the United States.
ITEM 2. PROPERTIES AND FACILITIES
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We own the properties that are the operations for Sand Springs, Joliet, and
Waddell. The facility in Sand Springs is located on approximately 148 acres of
land in Sand Springs, Oklahoma. The facility in Joliet is located on
approximately 30 acres of land in Joliet, Illinois. Waddell's 33,000 square foot
building is located on approximately 2 acres of land in Independence, Missouri.
We lease 9 acres of land adjacent to the facility in Joliet from the
Metropolitan Water Reclamation District of Greater Chicago under a long-term
lease expiring in 2053. We also lease the plant in Kansas City, which contains
approximately 77,100 square feet. We lease the Wellington facility which is
approximately 26,000 square foot building located on approximately 3 acres in
Sand Springs, Oklahoma.
The facility in Sand Springs comprises an aggregate of approximately
520,390 square feet of floor space and contains two 85-ton electric arc
furnaces, a six strand billet continuous caster, a rolling mill, two warehouses
and a fence post shop. The current total annual capacity in Sand Springs is
approximately 600,000 tons of billet, approximately 450,000 tons of rebar and
hot rolled bar and approximately 70,000 tons of fence post.
The facility in Joliet comprises an aggregate of approximately 334,305
square feet of floor space and contains a 12 inch merchant bar mill and a 10
inch merchant bar mill. The total annual capacity in Joliet is approximately
155,000 tons of hot rolled bar products.
10
<PAGE>
The Railway provides freight service between Sand Springs and Tulsa on
seven miles of mainline track and 21 miles of spur line which connect customer
facilities with the main line. The Railway owns the mainline track and three
locomotives and operates a maintenance shop for normal repairs and upkeep. The
Railway owns approximately 10 acres and leases and operates a transload facility
and warehouse.
We have granted a security interest in substantially all of the Railway
assets to the Bank of Oklahoma as security for the Railway's obligations under
the Railway Revolving Credit Facility and the Railway Term Loan.
We have granted a first priority lien on substantially all of our real
property and equipment (excluding the Railway, Waddell and Wellington) in favor
of the Trustee for the benefit of the holders of the First Mortgage Notes.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
We are not a party to any significant pending legal proceedings other than
litigation incidental to our business that we believe will not materially affect
our financial position or results of operations. Such claims against us are
ordinarily covered by insurance. We can give no assurance, however, that
insurance will be available in the future at reasonable rates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
On January 5, 1999, the stockholders of the Company voted to amend the 1993
Employee, Director and Consultant Stock Option Plan to allow for an independent
appraisal of the formula used to calculate the fair market value of the equity
of the Company.
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
- ------- ------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Our Common Stock, par value $.01 per share, is not traded on an established
public trading market. As of the date of this filing, there were eight
stockholders of record. We paid dividends of $10,000,000, or $2.80 per share, to
stockholders in fiscal 1998. There were no dividends paid during the year ended
April 30, 1999. We have loan agreements that contain limitations on our ability
to pay cash dividends on Common Stock.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------ -----------------------
The following selected consolidated financial data for the five years ended
April 30, 1999 has been derived from our financial statements audited by KPMG
LLP, independent auditors. Our financial statements and the report thereon are
included elsewhere in this Annual Report on Form 10-K. The information below
should be read in conjunction with our financial statements and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included in Item 7.
<TABLE>
<CAPTION>
(Dollars in thousands except per share and per ton data)
Fiscal Year Ended April 30,
---------------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Sales................................................. $ 175,753 $ 172,317 $ 170,865 $ 185,077 $ 163,444
Cost of sales......................................... 144,385 143,121 140,234 148,496 125,013
--------- --------- --------- --------- ---------
Gross profit.......................................... 31,368 29,196 30,631 36,581 38,431
Selling, general and administrative expense........... 12,156 11,737 11,923 13,006 14,470
Depreciation and amortization......................... 5,930 6,567 6,775 7,112 7,726
Postretirement benefit expense other
than pensions..................................... 3,153 2,776 2,353 2,681 2,411
Restructuring charge [a].............................. - - 1,320 - -
Litigation Settlement [b]............................. - - - - (2,256)
--------- --------- --------- --------- ---------
Operating income (loss)............................... 10,129 8,116 8,260 13,782 16,080
Interest expense...................................... (8,049) (11,733) (11,769) (12,300) (14,599)
Other income (expense)................................ (58) 526 - (180) 15
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item................................ 2,022 (3,091) (3,509) 1,302 1,496
Income tax (expense) benefit.......................... (197) - - 495 -
--------- --------- --------- --------- ---------
Income (loss) from continuing operations.............. 1,825 (3,091) (3,509) 1,797 1,496
Extraordinary item - loss on retirement of
long-term debt, net of income tax benefit of
$0 in 1998 [c].................................... - - - (8,023) -
--------- --------- --------- --------- ---------
Net income (loss)..................................... $ 1,825 $ (3,091) $ (3,509) $ (6,226) $ 1,496
========= ========= ========= ========= =========
Dividends per common share................................. $ .18 $ .52 $ - $ 2.80 $ -
Balance Sheet Data (at end of period):
Total assets.......................................... $ 146,459 $ 143,182 $ 136,627 $ 143,618 $ 152,561
Long-term debt (including current portion)............ 93,170 97,041 96,550 114,384 125,595
Stockholders' equity (deficit)........................ 11,395 6,385 2,156 (14,126) (13,197)
Other Data:
Capital expenditures.................................. $ 24,220 $ 4,978 $ 3,695 $ 9,023 $ 6,248
Net tons shipped...................................... 500,151 477,005 473,755 490,128 420,353
Average price per ton shipped......................... $ 351 $ 361 $ 361 $ 378 $ 389
Average production cost per ton shipped............... 290 300 296 303 297
Number of active employees at end of period........... 718 705 670 623 673
Ratio of earnings to fixed charges [d]................ 1.19 - - 1.10 1.10
</TABLE>
_____________________________
[a] A restructuring charge of $1.3 million was recognized in fiscal 1997 as a
result of early retirement incentives included in a collective bargaining
agreement and salaried workforce reductions in Sand Springs.
[b] Litigation settlement income of $2.3 million was recorded in fiscal 1999
as a result of a lawsuit against certain graphite electrode manufacturers.
[c] Extraordinary loss of $8.0 million was recorded in 1998 related to the First
Mortgage Note offering. The extraordinary charge related to a redemption
premium, unamortized discount and debt issue costs associated with the
retirement of our old First Mortgage Notes that were due in 2001.
[d] Ratio of earnings to fixed charges is defined as income before income taxes
and extraordinary item plus amortization of debt issuance cost and interest
expense divided by the sum of interest expense plus amortization of debt
issuance costs. Earnings were insufficient to cover fixed charges by
approximately $3,091 in 1996 and $3,509 in 1997.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following discussion should be read in conjunction with our
Consolidated Financial Statements and notes included in item 8 of this Form
10-K.
General
The results of operations are dependent on the level of construction,
infrastructure spending, oil and gas, agribusiness, and general economic
activity in the U.S. Our sales are seasonal with the third fiscal quarter
generally being weaker than the rest of the year. The major cost components
of our products are steel scrap and other raw materials, energy, labor,
warehousing and handling, and freight costs.
The following table provides information regarding the historical
results of operations (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
---------------------------------------------------------------------------
1997 1998 1999
------------------------ ------------------------ -----------------------
Operating Results: Net Sales % of Sales Net Sales % of Sales Net Sales % of Sales
---------- ------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 170,865 100.0% 185,077 100.0% 163,444 100.0%
Cost of sales 140,234 82.1% 148,496 80.2% 125,013 76.5%
--------- ------- -------
Gross profit 30,631 17.9% 36,581 19.8% 38,431 23.5%
Selling and administrative 11,923 7.0% 13,006 7.0% 14,470 8.9%
Depreciation and 6,775 4.0% 7,112 3.8% 7,726 4.7%
amortization
Postretirement benefit 2,353 1.4% 2,681 1.4% 2,411 1.5%
expense
Restructuring Expense 1,320 0.8% - - - -
Litigation settlement - - - - (2,256) (1.4%)
--------- ------- -------
Operating income 8,260 4.8% 13,782 7.4% 16,080 9.8%
Interest expense, net 11,769 6.9% 12,300 6.6% 14,599 8.9%
Other - - 180 0.1% (15) (0.0%)
--------- ------- -------
Income (loss) from operations
before taxes and
extraordinary item (3,509) (2.1%) 1,302 0.7% 1,496 0.9%
Income tax benefit - - 495 0.3% - -
--------- ------- -------
Income (loss) from operations
before extraordinary item (3,509) - 1,797 - 1,496 -
Extraordinary item-loss
on retirement of debt - - (8,023) (4.3%) - -
--------- ------- -------
Net income (loss) $ (3,509) (2.1%) (6,226) (3.4%) 1,496 0.9%
========= ======= =======
</TABLE>
13
<PAGE>
The following table provides information regarding the historical shipment
levels and average selling prices per ton:
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
-----------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Tons shipped:
Hot Rolled Bars 174,290 185,700 154,397
Rebar 185,745 212,159 171,075
Fabricated Products 53,208 55,511 63,757
-------- ------- -------
Total finished products 413,243 453,370 389,229
Billets 60,512 36,758 31,124
-------- ------- -------
Total tons shipped 473,755 490,128 420,353
======== ======= =======
Price per ton:
Hot Rolled Bars $ 435 456 461
Rebar 292 297 299
Fabricated Products 460 468 501
Billets 214 229 201
Average price per ton shipped 361 378 389
Average production cost per ton 296 303 297
</TABLE>
Results of Operations
Fiscal 1999 As Compared To Fiscal 1998
Sales. Sales in fiscal 1999 were approximately $21.6 million or 11.7% less
than sales in fiscal 1998. There were several factors that contributed to this
fluctuation in sales:
. We had unusually low rebar inventories at the beginning of the 1999 fiscal
year due to the shutdown for the installation of a more efficient, higher
capacity shear line in the fourth quarter of fiscal 1998 (the Shear Line
Project). Consequently, we produced more rebar during the first two quarters
in order to satisfy customer demands which took some time away from
production of hot rolled bar products. We believe that we were able to retain
our customers during this low inventory period and that there is no lasting
impact on our customer relationships.
. In the third quarter of fiscal 1999, we were negatively impacted by unsettled
market conditions caused by the Asian economic crisis. We had lower sales of
hot rolled bars that support certain industries such as oil field and
agricultural equipment manufacturers. We believe that the Asian economic
crisis prompted inventory reductions among service centers and certain
original equipment manufacturers and created pricing pressure.
. Although not as significant, rebar imports impacted our sales and pricing of
un-graded rebar.
. In October 1998, we purchased Wellington, a railroad track spike manufacturer
which increased sales of fabricated products.
14
<PAGE>
. During the first two fiscal quarters of 1999, we curtailed billet sales to
third parties due to maintenance problems and summer power outages that we
had in the Sand Springs melt shop.
. Steel scrap raw material costs decreased during fiscal 1999 affecting cost of
sales and billet pricing.
Cost of Sales and Expenses. Average product costs decreased to $297 in fiscal
1999 from $303 in fiscal 1998 due to decreases in steel scrap raw material
costs, partially offset by the higher costs associated with finished goods
product mix. Gross profit as a percentage of net sales increased from fiscal
1998 to fiscal 1999 due to increases in sales prices, sales mix of higher margin
finished goods, and lower steel scrap raw material costs.
Selling, general and administrative expenses increased over the prior fiscal
year due to the acquisitions of Waddell and Wellington, additional property
taxes assessed and environmental expenditures related to the RCRA Compliance
Evaluation Inspection.
Depreciation increased because of additional capital expenditures primarily
in Sand Springs. Amortization increased compared to the prior year due to
increased amortization of intangible assets associated with the acquisitions of
Waddell and Wellington.
Postretirement benefit expense, which is calculated by an independent
actuary, decreased compared to last year because of favorable retiree health
claim experience.
During fiscal 1999, we were parties in a lawsuit with several other steel
manufacturers against certain graphite electrodes manufacturers related to price
fixing within the electrode industry. We received approximately $2.3 million
related to the settlement of this lawsuit.
Interest expense increased due to the level of outstanding debt during the
fiscal year. Additions to debt were due to working capital and capital
expenditure requirements.
Fiscal 1998 As Compared To Fiscal 1997
Sales. Sales in fiscal 1998 were approximately $14.2 or 8.3% higher than in
fiscal 1997 due primarily to the following:
. During fiscal 1998, we continued to improve operations in the Sand Springs
rolling mill and implement our business strategy to improve finished product
mix. We decreased billet sales and increased finished product sales in all
product lines.
. Market conditions improved during fiscal 1998 for rebar and hot rolled bar
products contributing to increases in shipments and pricing.
. In October 1997 we purchased Waddell, a rebar fabricator that specializes in
smaller volume, higher value added construction contracts which increased
sales of fabricated products.
Cost of Sales and Expenses. Average product costs increased from the prior
year due to an increase in scrap raw material costs and an increase in the mix
of finished product sales. In fiscal
15
<PAGE>
1998, billet shipments decreased 23,754 tons while finished products shipments
increased 40,127 tons. Gross profit as a percentage of net sales increased from
1997 to 1998 due to the increase in sales prices as well as an increase in the
sales mix of higher margin finished goods.
Selling, general and administrative expense increased approximately $1.1
million from fiscal 1997 levels due to the addition of Waddell, additional
environmental consulting expenditures and payments on performance incentive
plans.
Depreciation and amortization increased $0.3 million from fiscal 1997 to
fiscal 1998. Depreciation expense increased as a result of capital expenditures
in fiscal 1997 and 1998. Amortization expense increased due to increased
amortization of intangible assets associated with the acquisition of Waddell and
debt issuance costs.
Post-retirement benefit expense increased $0.3 million from fiscal 1997 to
fiscal 1998 due to a decrease in the discount rate.
Interest expense increased $0.5 million from fiscal 1997 to fiscal 1998 due
to the level of outstanding debt during the fiscal year. Additions to debt were
due to working capital and capital expenditure requirements.
Liquidity and Capital Resources
As of April 30, 1999, we had long-term indebtedness of $125.6 million and
approximately $30.1 million of additional borrowing availability under our
revolving credit agreements. We were in compliance with all of our debt
covenants under our long-term debt instruments as of April 30, 1999.
Borrowings under our revolving credit agreements bear interest at a floating
rate. To the extent that interest rates increase, and to the extent that amounts
outstanding under the revolving credit agreements increase, there will be
corresponding increases in our interest obligations. In addition to borrowings
under the revolving credit agreements, we have historically used cash flow from
operations and equipment financing agreements to fund our investing activities,
including capital expenditures.
Cash flow used by operating activities was $3.7 million in fiscal 1999,
compared with cash flow provided by operating activities of $14.0 million in
fiscal 1998. The decrease in cash provided by operations is due primarily to
the re-building of inventories and decreases in accounts payable as a result of
paying for the Shear Line Project that was included in accounts payable at the
end of fiscal 1998.
Earnings before interest, taxes, depreciation, amortization, restructuring
expense, extraordinary item and the non-cash portion of the post-retirement
expense (EBITDA) was approximately $25.2 million at April 30, 1999 as compared
to $22.8 million in the prior year. We believe that EBITDA is a valuable
measure of our operating cash flow and we consider it an indicator of our
ability to meet interest payments and fund capital expenditures. EBITDA does
not represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles and EBITDA does not necessarily indicate whether cash flow will be
sufficient for cash requirements. We exclude
16
<PAGE>
restructuring expense, extraordinary items and gain or loss on retirements from
EBITDA due to the non-recurring nature of these items.
Cash used in investing activities in fiscal 1999 was $8.9 million, consisting
principally of the purchase of Wellington and capital improvements of $6.2
million including $0.7 million related to last years Shear Line Project. In
fiscal 1999, cash provided by financing activities consisted of increases in the
revolving line of credit, proceeds from equipment financing and the debt related
to the purchase of Wellington. Cash used in financing activities included
payments on the revolving credit facilities and other equipment loans and the
repurchase of common stock.
Cash flow from operating activities was $14.0 million in fiscal 1998,
compared with cash flow from operating activities of $4.7 million in fiscal
1997. The increase in cash provided by operations was due to improved
operations, decreases in inventories, and increases in accounts payable. Cash
used in investing activities in fiscal 1998 was $11.4 million, consisting
principally of the purchase of Waddell and capital improvements. In fiscal 1998,
we offered $110 million of First Mortgage Notes due 2005 (First Mortgage Notes).
Cash used in financing activities included payment of offering costs, payments
on the revolving credit facilities, payment of the First Mortgage Notes due 2001
and payment of dividends.
Our cash flow from operating activities and borrowings under our revolving
credit facilities are expected to be sufficient to fund capital improvements and
meet any near-term working capital requirements. We estimate that our annual
level of necessary maintenance capital expenditures is approximately $3 million.
On a long-term basis, we have significant future debt service obligations. Our
ability to satisfy these obligations and to secure adequate capital resources in
the future will be dependent on our ability to generate adequate operating cash
flow. We expect that our cash flow from operations and borrowing availability
under the revolving credit facilities will be sufficient to fund the repayment
of the First Mortgage Notes and other investing activities. This will be
dependent on our overall operating performance and is subject to general
business, financial and other factors affecting us and others in the domestic
steel industry, as well as prevailing economic conditions, certain of which are
beyond our control. The leveraged position we are in and the restrictive
covenants we have in our bond Indenture and the revolving credit facilities
could significantly limit our ability to withstand competitive pressures or
adverse economic conditions.
Compliance with Environmental Laws and Regulations
We are subject to a broad range of federal, state and local
environmental regulations and requirements, including those governing air
emissions and discharges into water, and the handling and disposal of solid
and/or hazardous wastes. As part of the normal course of business, we incur
expenses, primarily for the disposal of bag house dust generated in the
meltshop, to comply with these regulations and requirements. Expenses were
approximately $2.1 million in fiscal 1997, $2.0 million in fiscal 1998 and $2.2
million in fiscal 1999. Capital expenditures incurred to comply with these
requirements were approximately $0.3 million in fiscal 1998 and $1.1 million in
fiscal 1999. In addition, in the event that we release a hazardous substance, we
could be responsible for the remediation of contamination associated with such a
release. We believe that we are currently in substantial compliance with all
known material and applicable environmental regulations.
17
<PAGE>
Inflation
We have not experienced any material adverse effects on operations in recent
years because of inflation, though margins can be affected by inflationary
conditions. Our primary cost components are ferrous scrap and other raw
materials, energy and labor, all of which are susceptible to domestic
inflationary pressures. Pricing of finished products, however, can be
influenced by general economic conditions and competitive factors in the steel
industry. While we have been successful in passing on cost increases to our
customers through price adjustments, the effect of steel imports, severe market
price competition and under-utilized industry capacity has in the past, and
could in the future, limit our ability to adjust pricing.
Year 2000 Compliance
State of Readiness. We recognized the Year 2000 (Y2K) Information Technology
issues in 1986 and began to address the problem with the re-design of our
internal information systems. We instituted a comprehensive Year 2000 strategy
in 1997. In early 1998, we created a formal Y2K Task Force with executive
oversight to examine Y2K issues as they pertain to areas outside internal
information systems including the following:
Information Systems Infrastructure. Hardware, networks and operating systems
that support our software.
Desktop Applications. Private user spreadsheets and data collection that may
have Y2K issues.
Facilities. Basic infrastructure items as well as backup power, fire control
systems, security systems, scales and phones.
Manufacturing/Distribution. Process control equipment and software and other
manufacturing operations that have personal computers, board level computers, or
PLC's (Programmable Logic Controllers) interfaced to them.
Product Compliance. Primarily testing equipment. Spectrometers, personal
computers interfaced to testing equipment, meters and gauges used by the quality
assurance department.
Supply Chain. Supply vendors, transportation and utilities, third party support
organizations, banking and finance.
The Task Force is responsible for taking an inventory of all systems software
and equipment to identify potential Y2K issues and for developing remediation
plans for problems identified. To date, the majority of the financial and
commercial systems have been converted to full Y2K compliance. The payroll
system and the accounts receivable systems are currently not Y2K compliant.
However, the payroll system is in Phase IV of a four-phase project. The
accounts receivable system is currently in Phase I of a three-phase conversion.
Both projects are on schedule and expected to be completed during 1999. In
addition, the accounts payable system has a minor Y2K problem but testing has
confirmed that it does not pose a service interruption risk.
Outside the areas noted above, only minor problems were identified with
electronic equipment and third party software. Our rolling mill and shear line
in Sand Springs were both installed in the last four years. The rolling mill
relies on a third party system that has been represented to us as being Y2K
compliant, with the exception of certain upgrades that we expect to have
installed by September of 1999. All remaining third party software has been
examined and has been represented by the vendor as being Y2K compliant. The
Task Force has surveyed all vendors with invoices that total over $10,000 in the
previous calendar year in an attempt to
18
<PAGE>
ascertain the potential risks within the supply chain, specifically in the areas
of raw materials and utilities. We have received responses from approximately
80% of the vendors surveyed and the Task Force has recommended additional follow
up for vendors failing to respond to the survey. To date, we have not received
any unfavorable responses from significant vendors. It is anticipated that the
vendor survey process will be completed by July of 1999. Although others in the
steel industry will be required to spend significant amounts to become Y2K
compliant, we identified problem areas early and upgraded equipment and systems
in the normal course of business. The historical and estimated future costs
related to Y2K issues have not been and are not expected to be significant.
The Risks of Year 2000 Issues and Contingency Plans. While we believe we have
taken the necessary steps to identify and remediate our Y2K issues, the failure
to do so prior to January 1, 2000 could result in system/equipment failures
causing disruption in routine business activities including the production of
goods. We believe that our greatest risk of Y2K issues to be with third party
suppliers and customers. The failure of third parties upon whom we rely to
timely remediate their Y2K issues could result in disruption to our daily
operations including the production of steel products. As a result of our
reliance on third parties to resolve their Y2K issues, the overall risks
associated with the year 2000 remain difficult to accurately describe and
quantify. There can be no assurance that the Y2K issues will not have a material
adverse impact on us or on our operations. We have developed contingency plans
in areas where the risk of Y2K failures appears to be possible and where the
cost of a contingency plan is not prohibitive.
Accounting Pronouncements
Currently, we have no significant derivative instruments and accordingly, the
adoption of Statement of Financial Accounting Standards (Statement) No. 133,
"Accounting for Derivative Instruments and Hedging Activities" issued by the
Financial Accounting Standards Board on June 15, 1998, is not expected to have a
significant effect on our consolidated results of operations, financial
position, or cash flows.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
- ------- --------------------
Independent Auditors' Report
The Board of Directors and Stockholders
Sheffield Steel Corporation:
We have audited the accompanying consolidated balance sheets of Sheffield Steel
Corporation and subsidiaries as of April 30, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended April 30, 1999. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule listed in the index at Item
14(a)2. These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sheffield Steel
Corporation and subsidiaries at April 30, 1998 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 30, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Tulsa, Oklahoma
June 6, 1999
20
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and share data)
<TABLE>
<CAPTION>
April 30,
-----------------------
Assets 1998 1999
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,590 86
Accounts receivable, less allowance for doubtful accounts of
$658 at April 30, 1998 and 1999 20,994 19,943
Inventories 33,548 44,034
Prepaid expenses and other 861 1,486
Deferred income tax asset 2,942 3,353
--------- -------
Total current assets 60,935 68,902
Property, plant and equipment, net 68,730 68,310
Property held for sale 439 439
Intangible asset, less accumulated amortization of $1,316
and $2,249 in 1998 and 1999, respectively 8,672 10,011
Other assets 94 482
Receivable from parent 2,705 2,705
Deferred income tax asset 2,043 1,712
--------- -------
$ 143,618 152,561
========= =======
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,702 2,885
Accounts payable 19,745 14,803
Accrued interest payable 5,151 5,362
Accrued liabilities 6,290 6,455
Due to affiliated company 85 75
--------- -------
Total current liabilities 32,973 29,580
Long-term debt, excluding current portion 112,682 122,710
Accrued postretirement benefit costs 10,988 12,380
Other liabilities 1,101 1,088
--------- -------
Total liabilities 157,744 165,758
--------- -------
Stockholders' deficit:
Common stock, $.01 par value, authorized 10,000,000
shares, issued and outstanding 3,570,125 and
3,459,300 at April 30, 1998 and 1999, respectively 36 35
Additional paid-in capital 2,536 2,024
Retained deficit (15,698) (14,202)
--------- -------
Total stockholders' deficit (13,126) (12,143)
Less loans to stockholders 1,000 1,054
--------- -------
(14,126) (13,197)
Commitments and contingencies
--------- -------
$ 143,618 152,561
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Sales $ 170,865 185,077 163,444
Cost of sales 140,234 148,496 125,013
--------- ------- -------
Gross profit 30,631 36,581 38,431
Selling, general and administrative expense 11,923 13,006 14,470
Depreciation and amortization expense 6,775 7,112 7,726
Postretirement benefit expense other than pensions 2,353 2,681 2,411
Restructuring expense 1,320 - -
Litigation settlement - - (2,256)
--------- ------- -------
Operating income 8,260 13,782 16,080
--------- ------- -------
Other (expense) income:
Interest expense, net (11,769) (12,300) (14,599)
Other - (180) 15
--------- ------- -------
(11,769) (12,480) (14,584)
--------- ------- -------
Income (loss) from operations before
income taxes and extraordinary item (3,509) 1,302 1,496
Income tax benefit - 495 -
--------- ------- -------
Income (loss) from operations before
extraordinary item (3,509) 1,797 1,496
Extraordinary item - loss on retirement of debt - (8,023) -
--------- ------- -------
Net income (loss) $ (3,509) (6,226) 1,496
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands, except share data)
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------
1997 1998 1999
----- ---- ----
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 34 34 36
Common stock warrants
Exercised (245,250 shares) - 2 -
Common stock retired (161,450 shares) - - (2)
Stock options exercised (50,625 shares) - - 1
------- ------- -------
Balance at end of year 34 36 35
------- ------- -------
Additional paid-in capital:
Balance at beginning of year 3,591 2,536 2,536
Agreement to repurchase 50,625 shares
of common stock (1,055) - -
Common stock retired - - (886)
Stock options exercised - - 374
------- ------- -------
Balance at end of year 2,536 2,536 2,024
------- ------- -------
Retained earnings (deficit):
Balance at beginning of year 4,037 528 (15,698)
Net income (loss) (3,509) (6,226) 1,496
Dividends - (10,000) -
------- ------- -------
Balance at end of year 528 (15,698) (14,202)
------- ------- -------
Total stockholders' equity (deficit) $ 3,098 (13,126) (12,143)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------------
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,509) (6,226) 1,496
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,919 7,409 8,052
Loss (gain) on sale or retirement of assets - 160 (15)
Accrual of postretirement benefits other than
pensions, net of cash paid 1,272 1,893 1,392
Non-cash portion of extraordinary item - 2,995 -
Deferred income taxes - (495) (80)
Changes in assets and liabilities, net of effects
of acquisition of business':
Accounts receivable 751 726 1,520
Inventories 3,209 3,779 (10,065)
Prepaid expenses and other (538) 677 (241)
Other assets (54) (16) (441)
Accounts payable (4,020) 2,899 (5,610)
Accrued interest payable - 651 211
Accrued liabilities (680) 373 122
Due to affiliated company 2 36 (10)
Income taxes payable - - -
Other liabilities 1,377 (875) (13)
------- ------- -------
Total adjustments 8,238 20,212 (5,178)
------- ------- -------
Net cash provided by (used in) operating
activities 4,729 13,986 (3,682)
------- ------- -------
Cash flows from investing activities:
Capital expenditures (3,695) (9,023) (6,248)
Acquisition of business, net of cash acquired - (2,414) (2,635)
Proceeds from sale of fixed assets 18 - 18
------- ------- -------
Net cash used in investing activities (3,677) (11,437) (8,865)
------- ------- -------
</TABLE>
(Continued)
24
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended April 30,
--------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) under revolving lines of credit $ (1,995) (19,684) 6,875
Proceeds from issuance of long-term debt 2,075 112,213 7,091
Repayment of long-term debt (715) (76,502) (2,990)
Payment of debt issuance costs - (6,001) (45)
Payments in respect of stock appreciation rights (448) - -
Dividends paid - (10,000) -
Payments to retire stock - - (888)
-------- ------- ------
Net cash provided by (used in) financing activities (1,083) 26 10,043
-------- ------- ------
Net (decrease) increase in cash and cash equivalents (31) 2,575 (2,504)
Cash and cash equivalents at beginning of year 46 15 2,590
-------- ------- ------
Cash and cash equivalents at end of year $ 15 2,590 86
======== ======= ======
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the year for:
Interest $ 11,625 11,352 14,062
======== ======= ======
Income taxes $ - - 80
======== ======= ======
Noncash items:
Change in unfunded accumulated benefit obligation
included in other assets and other liabilities $ 53 172 -
======== ======= ======
Decrease in paid-in capital for stock repurchase agreement $ 1,055 - -
======== ======= ======
Increase in other liabilities for stock repurchase agreement $ 662 - -
======== ======= ======
Decrease in loans to stockholders related to stock
repurchase agreement $ 393 - -
======== ======= ======
Increase in accounts receivable for stock option exercise $ - - 375
======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
April 30, 1997, 1998 and 1999
(In thousands, except share data)
(1) Summary of Significant Accounting Policies
Organization and Nature of Business
The consolidated financial statements of Sheffield Steel Corporation (the
Company, which may be referred to as we, us or our) 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, Wellington
Industries, Inc. (Wellington) since October 7, 1998 and Sand Springs Railway
Company (the Railway). HMK Enterprises, Inc. (HMK) owns approximately 93% of
our currently issued and outstanding common stock. All material intercompany
transactions and balances have been eliminated in consolidation.
Our primary business is the production of concrete reinforcing bar, fence posts,
and a range of hot rolled bar products including rounds, flats and squares. We
operate in an economic environment wherein the commodity nature of both our
products for sale and our primary raw materials cause sales prices and purchase
costs to fluctuate, often on a short-term basis, due to the worldwide supply and
demand situation for those commodities. The supply and demand factors for our
products for sale and the supply and demand factors for our primary raw
materials correlate to a degree, but are not necessarily the same. Therefore,
margins between sales price and production costs can fluctuate significantly on
a short-term basis. We grant credit to customers under normal industry
standards and terms. We have established policies and procedures that allow for
proper evaluation of each customer's creditworthiness as well as general
economic conditions. Consequently, an adverse change in those factors could
effect our estimate of bad debts.
Cash Equivalents
We consider all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (as determined by the first-in
first-out method) or market. The cost of work-in-process and finished goods
inventories is based on standards which approximate cost. Work-in-process and
finished goods include direct labor and allocated overhead.
Intangible Assets
Intangible assets consist primarily of goodwill and debt issuance costs. The
cost of goodwill is being amortized on a straight-line basis over a period of 40
years. Debt issuance costs are amortized over the term of the related
indebtedness. Our policy is to recognize an impairment of the carrying value of
goodwill when our best estimate of undiscounted future cash flows over the
remaining amortization period is less than the carrying amount.
26
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the individual assets using the straight-line
method. The useful lives of the property and equipment range from three to
forty years. Significant renewals and betterments are capitalized; costs of
maintenance and repairs are charged to expense as incurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
We are members of a group that files a consolidated income tax return with HMK
(the Group). The Group's tax-sharing agreement provides that current and
deferred income taxes are determined as if each member of the Group were a
separate taxpayer. All income taxes payable or receivable are due to or from
HMK.
Pension and Other Postretirement Plans
On May 1, 1998, we adopted Statement of Financial Accounting Standards (SFAS)
No. 132, "Employers' Disclosures about Pension and Other Postretirement Benefits
which revises employers' disclosures about pension and other postretirement
plans but does not change the method of accounting for such plans.
We have defined benefit pension plans covering the hourly employees at Sand
Springs and Joliet and the salary employees at Sand Springs. The benefits are
based on years of service and the employee's compensation during the highest
five out of the last ten years before retirement. The cost of this program is
being funded currently.
We also sponsor a defined benefit health care plan for the retirees and
employees in Sand Springs. We measure the costs of this obligation based on our
best estimate. The net periodic costs are recognized as employees render the
services necessary to earn the postretirement benefits.
Environmental Compliance Costs
We accrue for losses associated with environmental remediation obligations when
such losses are probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally are recognized no
later than completion of the remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Recoveries of
environmental remediation costs from other parties are recorded as assets when
their receipt is deemed probable. Environmental remediation costs have not had
a material impact on our financial position, results of operations, or
liquidity.
Revenue Recognition
Revenues from sales are recognized when products are shipped to customers,
except the Railway which recognizes revenues when services are performed.
27
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions that affect
the amounts reported. We believe that these estimates are reasonable and
proper, however, actual results could differ from our estimates.
Stock Option Plan
We adopted SFAS No. 123, "Accounting for Stock-Based Compensation" which
permits, but does not require, a fair value based method of accounting for
stock-based employee compensation. Alternatively, SFAS No. 123 allows companies
to continue applying the provisions of Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees", however, such companies are
required to disclose pro forma net income and earnings per share as if the fair
value based method had been applied. We have elected to continue to apply the
provisions of APB Opinion No. 25 for puposes of computing compensation expense
and we have provided the pro forma disclosure provisions of SFAS No. 123 herein.
Segment Information
We operate in a single operating segment providing steel products and services
to the steel manufacturing and fabricating industry. We had sales of $163,444 in
fiscal 1999, of which $162,730 were sales in the United States and $714 were
sales outside the United States. We sell our products in the United States and
internationally through our own sales force and to a limited extent, sales
agencies. Our assets are all located in the United States. We have one customer
that accounted for approximately 12% of sales in 1998 and 14% of sales in 1999,
and no customers that accounted for greater than 10% of sales in 1997.
(2) Fair Value of Financial Instruments
We define the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying value of cash and cash equivalents, trade accounts receivable and
trade accounts payable approximates the fair value because of the short maturity
of those instruments. The carrying amounts of notes payable to banks and
equipment financing companies (see Note 5) approximates the fair value due to
these debt instruments having variable interest rates similar to those that are
currently available to us. The fair value of the first mortgage notes (see Note
5) at April 30, 1999, based on the currently offered market price, is
approximately $107.8 million versus a carrying value of approximately $110.0
million.
(3) Inventories
The components of inventories are as follows:
<TABLE>
<CAPTION>
April 30,
---------------------
1998 1999
---- ----
<S> <C> <C>
Raw materials and storeroom supplies $10,673 12,408
Work in process 11,721 13,390
Finished goods 11,154 18,236
------- ------
$33,548 44,034
======= ======
</TABLE>
28
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
(4) Property, Plant and Equipment
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
April 30,
------------------------
1998 1999
---- ----
<S> <C> <C>
Land and buildings $ 17,264 17,561
Machinery and equipment 94,872 106,327
Roadbed and improvements 5,303 5,492
Construction in process 7,562 2,181
-------- -------
125,001 131,561
Less accumulated depreciation and amortization 56,271 63,251
-------- -------
$ 68,730 68,310
======== =======
</TABLE>
Depreciation and amortization of property, plant and equipment charged to
operations was $6,271 in 1997, $6,605 in 1998 and $7,119 in 1999.
The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
Buildings 5-25 years
Machinery and equipment 3-25 years
Roadbed and improvements 3-40 years
(5) Long-term Debt
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
April 30,
------------------------
1998 1999
---- ----
<S> <C> <C>
First mortgage notes [a] $110,000 110,000
Revolving credit agreement [b] - 6,285
Railway term loan [c] 1,500 1,000
Railway revolving credit agreement [c] - 620
Equipment notes [d] 1,050 4,931
Notes payable [e] 1,834 2,759
-------- -------
114,384 125,595
Less current portion 1,702 2,885
-------- -------
$112,682 122,710
======== =======
</TABLE>
[a] On November 26, 1997, we issued $110,000 of 11.5% First Mortgage Notes
due 2005. Interest on the First Mortgage Notes is payable semi-annually
on June 1st and December 1st of each year at the rate of 11.5% per year.
The First Mortgage Notes are secured by a first priority lien on
substantially all existing and future real property and equipment. We are
subject to certain covenants including certain limitations on additional
indebtedness and restricted payments, such as dividends and purchases of
stock.
29
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
[b] The revolving credit agreement with a bank provides for maximum borrowings
of $40,000 based on a percentage of eligible accounts receivable and
inventory. Borrowings are secured by a first priority lien on inventory
and accounts receivable. Interest is computed at prime plus a variable
margin (based on the achievement of certain interest coverage ratios) from
0% to 1% and is payable monthly. At April 30, 1999, the interest rate was
7.75%. An annual commitment fee of .25% is charged on the unused portion
of the revolving credit agreement. The agreement continues through
November 1, 2002 and thereafter on a year-to-year basis until terminated by
us or the lender.
[c] The Railway credit agreement with a bank is comprised of two notes; a
$2,000 term loan with $500 principal payments each year with the final
payment on July 31, 2000, and a $1,500 million line of credit maturing July
31, 2000. The notes are secured by all of the assets and capital stock of
the Railway. Interest is computed at prime plus a variable margin (based
on the achievement of certain interest coverage ratios) from 0% to 1% and
is payable quarterly. At April 30, 1999, the interest rate was 7.75%.
[d] Equipment notes are notes payable to equipment financing companies and
vendors related primarily to the financing of equipment purchases. The
notes are payable in monthly principal installments of $143 plus interest
payable at variable rates. The notes mature on various dates through 2004
and are secured by equipment.
[e] Notes payable consists of various notes issued and assumed in conjunction
with the acquisition of Waddell and Wellington and are secured by the stock
of these two companies. The notes, which mature over the next three to four
years, bear interest at varying rates based on the prime rate of interest
as determined by Bank of America.
The aggregate maturities of long-term debt for the years ended April 30, are as
follows:
<TABLE>
<S> <C>
2000 $ 2,885
2001 3,243
2002 1,857
2003 7,404
2004 206
Thereafter 110,000
--------
Total maturities $125,595
========
</TABLE>
Interest costs were $11,769 in 1997, $12,300 in 1998 and $14,599 in 1999.
Various agreements contain restrictive covenants including limitations on
additional borrowings, dividends and other distributions and the retirement of
stock. Additionally, certain agreements require maintenance of specified
performance ratios. In the event of default of the restrictive covenants or
failure to maintain the specified performance measures, the lender may withdraw
the credit agreements.
30
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
(6) Income Taxes
We had no income tax expense or benefit for the year ended April 30, 1997.
Income tax benefit for the years ended April 30, 1998 and 1999 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Year ended April 30, 1998:
U.S. federal tax benefit (expense) $ - 421 $ 421
State tax benefit (expense) - 74 74
------- --- -----
$ - 495 $ 495
======= === =====
Year ended April 30, 1999:
U.S. federal tax benefit (expense) $ (80) 80 $ -
State tax benefit (expense) - - -
------- --- -----
$ (80) 80 $ -
======= === =====
</TABLE>
Income taxes attributable to operations differed from the amounts computed by
applying the U.S. federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax benefit (expense) $ 1,193 (443) 509
State income taxes, net of federal benefit 140 (52) 60
Change in valuation allowance (1,032) 872 429
Utilization of net operating loss carryforwards - - (1,026)
Other, net (301) 118 28
------- ---- ------
$ - 495 -
======= ==== ======
</TABLE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
April 30,
----------------------
1998 1999
---- ----
<S> <C> <C>
Deductible temporary differences:
Inventories $ 957 1,355
Allowance for doubtful accounts 250 250
Accrued liabilities not deductible until paid 1,769 1,636
Postretirement benefit costs 4,175 4,704
Restructuring charge 520 513
Net operating loss carryforwards 13,847 13,159
Alternative minimum tax credit carryforwards 962 1,042
Investment tax credit carryforwards 3,298 3,523
------- ------
25,778 26,182
Less valuation allowance 8,986 8,886
------- ------
16,792 17,296
Taxable temporary difference - plant and equipment (11,807) (12,231)
------- ------
Net deferred tax asset $ 4,985 5,065
======= ======
</TABLE>
31
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
At April 30, 1999, we had available net operating loss (NOL) carryforwards for
regular federal tax purposes of approximately $34,629 which will expire as
follows: $66 in 2001, $69 in 2002, $100 in 2004, $135 in 2005, $2,623 in 2007,
$4,374 in 2008, $5,797 in 2009, $7,447 in 2011, $6,264 in 2012 and $7,754 in
2013. We have investment tax credit carryforwards of $599 for federal tax
purposes and $2,924 for state tax purposes. We have fully reserved for the
investment tax credit carryforwards as it is likely that they will not be
utilized prior to their expiration. The credits expire in various periods
through 2007. We also have available $1,042 of alternative minimum tax (AMT)
credit carryforwards which may be used indefinitely to reduce future federal
regular income tax obligations. Of the amounts noted above, approximately $810
of NOL carryforwards and $152 of investment tax credit carryforwards were added
due to the purchase of Wellington and can only be used if Wellington has taxable
income; these amounts were fully reserved at the date of acquisition. Future
annual postretirement benefit costs are expected to exceed deductible amounts
for many years and it is anticipated that all of the deferred tax assets related
thereto will be utilized as such amounts become deductible.
A valuation allowance is required when it is more likely than not that all or a
portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon future profitability.
The steel industry has historically experienced cyclical earnings patterns and
we have normally utilized all NOL's generated during the down cycle.
Substantially all of our NOL's have been generated since 1992 and can be
attributed to a down cycle in the industry in 1992 through 1995, losses incurred
in the closing of our Oklahoma City facility and losses on the early retirement
of debt. The latter two events have accounted for $6.8 million and $13.3 million
in losses, respectively. During this latest upward cycle which began in 1995, we
have installed a new rolling mill and shear line which has increased the
productivity and efficiency in the production of rebar and has enabled us to
produce certain higher quality hot rolled bar products. Delays in the
installation, testing and acceptance of these projects have negatively impacted
earnings during this period. We continue to introduce new mill products and make
progress toward achieving the anticipated potential of the mill. However, we can
give no assurance that the mill will reach the forecasted production goals or
that we will achieve future profitability.
Accordingly, we established a valuation allowance at April 30, 1999, to reduce
the deferred tax assets to a level which, based on historical taxable income
trends and our projections for future taxable income, will more likely than not,
be realized. In order to fully realize the remaining net deferred tax asset, we
will need to generate future taxable income of approximately $13 million.
(7) Employee Benefit Plans
We have defined benefit plans that cover the hourly employees at Sand Springs
and Joliet and the salary employees at Sand Springs. Benefits are generally
based on years of service and the employee's compensation during the last ten
years of employment. Our funding policy is to contribute annually at least the
minimum amount necessary to avoid a deficiency in the funding standard.
In addition to the defined benefit pension plan, we also provide postretirement
health and life insurance benefits to certain retirees and their beneficiaries,
generally for the remainder of their lives. The Plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles, co-insurance, and Medicare. Our policy is to fund
accumulated postretirement benefits on a "pay-as-you-go" basis.
The following tables set forth the plan's benefit obligations, fair value of
plan assets, and funded status at April 30, 1999 and 1998 as determined by an
independent actuary:
32
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------- -----------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 21,188 25,220 19,543 22,983
Service cost 735 792 292 264
Interest costs 1,591 1,831 1,539 1,396
Plan participants' contributions - - - -
Amendments - 147 - -
Actuarial loss/(gain) 2,898 1,856 2,868 (2,444)
Benefits paid (1,192) (1,557) (1,259) (1,186)
-------- -------- -------- --------
Benefit obligation at end of year 25,220 28,289 22,983 21,013
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 21,653 26,527 - -
Actual return on plan assets 5,300 3,441 - -
Employer contributions 766 1,265 - -
Plan participants' contributions - - - -
Benefits paid (1,192) (1,557) - -
-------- -------- -------- --------
Fair value of plan assets at end of year 26,527 29,676 - -
-------- -------- -------- --------
Funded status 1,307 1,387 (22,983) (21,013)
Unrecognized actuarial loss (3,852) (3,211) (9,526) (11,453)
Unrecognized prior service cost 597 711 - -
Unrecognized transition obligation/(asset) 2,092 1,570 21,521 20,086
-------- -------- -------- --------
Net amount recognized $ 144 457 (10,988) (12,380)
======== ======== ======== ========
Amount recognized in the statement of
Financial position consist of:
Prepaid/(accrued) benefit cost $ 144 457 (10,988) (12,380)
Accrued benefit liability - (206) - -
Intangible asset - 206 - -
Accumulated other comprehensive income - - - -
-------- -------- -------- --------
Net amount recognized $ 144 457 (10,988) (12,380)
======== ======== ======== ========
Weighted-average assumptions as of
April 30:
Discount rate 7.00 7.00% 7.00% 7.00%
Rate of compensation increase 0-4 0-4% 0.00% 0.00%
Expected rate of return on plan assets 8.00% 8.50% 0.00% 0.00%
</TABLE>
For measurement purposes, the medical trend rates used for HMO and PPO/indemnity
plans were 6.0% and 9.5%, respectively. The medical and HMO trend rates are
assumed to decline one-half percent per year to an ultimate level of 5.0%. The
health care cost trend rate assumption has a significant effect on the amounts
reported.
33
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
The following table presents the components of the net periodic benefit cost:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------- -----------------
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 735 792 292 264
Interest cost 1,591 1,831 1,539 1,396
Expected (return)/loss on plan assets (1,842) (2,218) - -
Amortization of unrecognized transition obligation 522 522 1,435 1,435
Amortization of prior service cost 1 34 - -
Recognized actuarial loss 7 (8) (585) (684)
------- ------- ------- -------
Net periodic benefit cost $ 1,014 953 2,681 2,411
======= ======= ======= =======
</TABLE>
At April 30, 1999, we had one pension plan that has a projected benefit
obligation in excess of plan assets. For this plan, the projected benefit
obligation was $3,659, the accumulated benefit obligation was $3,659, and the
fair value of plan assets was $3,170.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
--------------------- ---------------------
<S> <C> <C>
Effect of total of service and interest on cost $ 231 $ (192)
components
Effect on postretirement benefit obligation $ 2,624 $ (2,218)
</TABLE>
We have certain divisions of the Company that maintain defined contribution
plans in which various groups of employees participate. We made contributions
to these plans of $81 in 1997, $89 in 1998, and $132 in 1999.
(8) Operating Leases
We are obligated under various noncancelable operating leases for certain land
and buildings. These leases generally contain inflationary rent escalations and
require us to pay all executory costs such as maintenance and insurance. Rental
expense for operating leases (except those with lease terms of a month or less
that were not renewed) was $313 in 1997, $315 in 1998 and $345 in 1999. Future
minimum lease payments under noncancelable operating leases (with initial or
remaining lease terms in excess of one year) for the years ending April 30, are
as follows:
<TABLE>
<S> <C>
2000 $ 392
2001 409
2002 411
2003 275
2004 120
Later years 175
------
Total $1,782
======
</TABLE>
34
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
(9) Commitments and Contingencies
We are partially self-insured for certain risks consisting primarily of employee
health insurance programs and workers' compensation. Probable losses and claims
are accrued as they become estimable. We maintain letters of credit totaling
approximately $2.3 million in accordance with workers' compensation
arrangements.
We are involved in claims and legal actions arising in the ordinary course of
business. We believe that the ultimate disposition of these matters will not
have a material adverse effect on our financial position, results of operations,
or liquidity.
(10) Related Party Transactions
An affiliated company provides management and business services to us,
including, but not limited to, financial, marketing, executive personnel,
corporate development, human resources, and limited legal services. We believe
that transactions with related parties are at costs that could be obtained from
third parties. Management fees charged were $569 in 1997, $720 in 1998 and $817
in 1999. In addition, we purchase general liability, workers' compensation and
other insurance through an affiliated company that provides risk management
services. These risk management services include; procuring and maintaining
property and casualty insurance coverage; reviewing and recommending alternative
financing methods for insurance coverage; identifying and evaluating risk
exposures, and preparing and filing proof of loss statements for insured claims.
Total fees paid for insurance services were $115 in 1997, $142 in 1998 and $204
in 1999.
During fiscal year 1993, certain minority shareholders issued $1,000 of notes
receivable to us. The notes bear interest at an annual rate of 7.61% and are
secured by common stock of the Company owned by those shareholders. Principal
and interest are due on February 1, 2007, unless extended at our option until
February 1, 2012. The principal balance outstanding was $700 as of April 30,
1998 and 1999.
On September 30, 1996, we signed an agreement to repurchase 50,625 shares of our
common stock from two minority shareholders who were former officers of the
Company. The stock repurchase is pursuant to the Amended and Restated
Stockholder's Agreement dated September 15, 1993 and the stock purchase price
was calculated in accordance with the agreement. As a result of this
transaction, $393 of notes receivable from the former shareholders was
satisfied, we recorded a note payable in the amount of $662 and decreased paid-
in capital by $1,055. The notes payable accrue simple interest at 6.02% and are
being repaid in five annual installments that began December 12, 1997. The
principal balance outstanding was $530 at April 30, 1998 and $397 at April 30,
1999.
On January 31, 1999, we signed a short-term note receivable with an officer of
the Company for $375. The note is secured by common stock of the Company and is
due July 31, 1999.
We have a receivable of $2,205 from HMK related to certain tax attributes
allocated to us. Under an agreement with HMK, the receivable will be realized by
reducing future income taxes otherwise payable to HMK. In addition, we advanced
$500 to HMK to secure a letter of credit for the Joliet insurance program.
(11) Stock Options
On September 15, 1993, the Board of Directors adopted, and the stockholders
approved, our 1993 Employee, Director and Consultant Stock Option Plan (the
Stock Option Plan). The Stock Option Plan provides for the grant of incentive
options to key employees and nonqualified stock options to key employees,
directors, and consultants. A total of 580,000 shares of our common stock, which
would represent approximately 16.8% of the common stock on a fully diluted
basis, have been reserved for issuance under the Stock Option Plan. The options
vest three years from the date of grant and may be
35
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
exercised within 10 years from the grant date for incentive stock options or 20
years from the grant date for non-qualified stock options at a price not less
than the fair market value of the stock at the time the options are granted.
Fair market value for purposes of determining the exercise price is determined
by appraisal as prescribed in the Stock Option Plan. At April 30, 1999, there
were 106,000 additional shares available for grant under the Stock Option Plan.
We apply APB Opinion No. 25 in accounting for the Plan and, accordingly, no
compensation cost has been recognized for its stock options in the financial
statements. If we had determined compensation cost based on the fair value at
the grant date for our stock options under SFAS No. 123, our results would have
been reduced to losses of $3,578 in 1997 and $6,303 in 1998 and income of $1,409
for the year ended April 30, 1999.
The per share weighted-average fair value of stock options granted was $4.83 in
1997, $4.66 in 1998 and $7.48 in 1999 on the date of grant using the minimum
value method with the following assumptions: expected dividend yield of
approximately 1.0%, risk-free interest rate of 6.38%, and an expected life of
five years. Pro forma net income reflects only options granted in 1997, 1998 and
1999.
The options outstanding and activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
--------- --------------
<S> <C> <C>
At April 30, 1996 405,000 $ 7.41
Granted 51,000 20.52
-------
At April 30, 1997 456,000 8.87
Granted 5,000 19.88
Canceled (5,000) 20.52
-------
At April 30, 1998 456,000 8.87
Granted 18,000 30.48
Exercised (50,625) 7.41
-------
At April 30, 1999 423,375 9.96
=======
</TABLE>
Exercise prices for options outstanding as of April 30, 1999 ranged from $7.41
to $30.48. The weighted-average remaining contractual life of those options is
12.8 years. There were 405,000 shares exercisable as of April 30, 1997 and 1998
and 354,375 exercisable as of April 30, 1999.
In connection with the adoption of the Stock Option Plan, we elected to
terminate our Stock Appreciation Rights Plan (SAR). Existing liabilities under
the SAR plan were frozen at their current level. All vested rights become
exercisable upon the participants' termination. Included in other liabilities at
April 30, 1998 and 1999 is $368 which is the present value of the SAR's based on
vesting and retirement dates.
(12) Restructuring Expense
During fiscal 1997, we recognized costs related to workforce reductions.
Approximately 42 hourly employees accepted early retirement incentives resulting
in costs of approximately $1,070 during the fourth quarter of fiscal 1997. In
addition, 14 salaried employees were involuntarily terminated in the third
quarter of fiscal 1997 resulting in severance costs totaling approximately $250.
36
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements, Continued
(13) Litigation Settlement
We were party to a lawsuit with several other steel manufacturers against
certain manufacturers of carbon electrodes related to price fixing within the
electrode industry. We recognized approximately $2,256 related to settlements
reached to date with certain of the defendents.
(14) Extraordinary Item
We incurred a $8,023 extraordinary loss related to the First Mortgage Note
offering completed during the third quarter of 1998. The extraordinary charge
related primarily to a redemption premium, unamortized discount and debt issue
costs associated with the retirement of our First Mortgage Notes that were due
2001.
(15) Acquisition
On October 28, 1997, we acquired all of the outstanding capital stock of
Waddell's Rebar Fabricators, Inc. The purchase price of the stock was $3,137,
subject to certain potential performance related payments. We paid approximately
$1,100 in cash and incurred $2,000 in debt related to this acquisition. The
acquisition was accounted for in accordance with the purchase method. The fair
value of tangible assets acquired was $2,490 including $1,902 of current assets
and $588 of fixed assets. The amount of liabilities assumed was $812 including
$701 of accounts payable and other accrued liabilities and $111 of long-term
debt. In addition, we recorded $1,459 as excess of cost over net assets acquired
(goodwill).
On October 6, 1998, we acquired all of the outstanding capital stock of
Wellington Industries, Inc. The acquisition price consisted of $1,500 in cash,
subject to performance related contingency payments, and unsecured, subordinated
promissory notes in an aggregate principal amount of $1,464. The acquisition was
accounted for in accordance with the purchase method. The fair value of tangible
assets acquired was $1,683 including $1,229 of current assets and $454 of fixed
assets. The amount of liabilities assumed was $947 including $711 of accounts
payable and accrued liabilities and $236 of long-term debt. In addition, we
recorded $2,228 as excess cost over net assets acquired (goodwill).
The following pro forma financial information reflects the results of operations
for the years ended April 30, 1998 and 1999 as though the operations of Waddell
and Wellington had been considered combined as of May 1, 1997:
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------
1998 1999
------- -------
<S> <C> <C>
Sales $189,907 164,929
======== =======
Income (loss) from operations before extraordinary item $ 1,721 1,328
======== =======
Net income (loss) $ (6,302) 1,328
======== =======
</TABLE>
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
- -------- --------------------------------
The information included under the caption entitled "Management" in our
Proxy Statement dated July 31, 1999, with respect to directors and executive
officers is incorporated herein by reference in response to this item.
Because we do not have a class of securities registered under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), none of
our directors, executive officers or ten percent or greater securityholders are
subject to the reporting requirements of Section 16(a) of the Exchange Act.
Accordingly, disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not applicable.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information regarding compensation of our executive officers is
included under the caption entitled "Executive Compensation" in our Proxy
Statement dated July 31, 1999, and is incorporated herein by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------- ---------------------------------------------------
MANAGEMENT
----------
The information regarding beneficial ownership of our Common Stock by
certain beneficial owners and by management is included under the caption
entitled "Share Ownership" in our Proxy Statement dated July 31, 1999, and is
incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information regarding certain relationships and related transactions
with management and others is included under the caption entitled "Certain
Transactions" in our Proxy Statement dated July 31, 1999, and is incorporated
herein by reference in response to this item.
38
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
ITEM 14(a)1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED BY
- ------------ -----------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
------------------------------
The Consolidated Financial Statements of Sheffield Steel Corporation are
included in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets - April 30, 1998 and 1999
Consolidated Statements of Operations - Years ended April 30, 1997,
1998 and 1999
Consolidated Statements of Stockholders' Deficit - Years Ended April
30, 1997, 1998 and 1999
Consolidated Statements of Cash Flows - Years Ended April 30, 1997,
1998 and 1999
Notes to Consolidated Financial Statements - April 30, 1997, 1998 and
1999
ITEM 14(a)2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
- ------------ ---------------------------------------------------
The following consolidated financial statement schedules of Sheffield Steel
Corporation are included in Item 14(d):
Form 10-K Schedules Description Page
------------------- ----------- ----
Number
------
II Valuation and Qualifying 45
Accounts
Schedules other than those listed above have been omitted because they are
not applicable. Columns omitted from schedules filed have been omitted because
the information is not applicable.
39
<PAGE>
ITEM 14(a)3. EXHIBITS
- ------------ --------
The exhibits listed on the Exhibit Index below are filed or incorporated by
reference as part of this report and such Exhibit Index is hereby incorporated
herein by reference.
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description numbered page
- -------- ------------------------------------------------------------------------------------------------- -------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit
3.1 to Amendment No. 2 to the Registrant's Registration Statement on Form S-1 filed on October
21, 1993).
3.2 By-Laws of the Registrant (Incorporated by reference to Exhibit 3.2 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 filed on October 21, 1993).
4.1 Indenture for First Mortgage Notes (including form of First Mortgage Note issued thereunder),
dated as of December 1, 1997, between Sheffield Steel Corporation and State Street Bank and
Trust Company, as Trustee (Incorporated by reference to Exhibit 4.1 to the Registrant's
Regristration Statement on Form S-1 filed on January 9, 1998).
4.2 Form of New First Mortgage Note (Incorporated by reference to Exhibit 4.2 to the Registrant's
Regristration Statement on Form S-1 filed on January 9, 1998).
4.3 Intercreditor Agreement, dated December 1, 1997, among Sheffield Steel Corporation, NationsBank,
N.A. and State Street Bank and Trust Company, as Trustee (Incorporated by reference to Exhibit
4.3 to the Registrant's Registration Statement on Form S-1 filed on January 9, 1998).
4.4 Receivable and Inventory Financing Agreement, dated as of January 16, 1992, between HMK
Industries of Oklahoma, Inc., Sheffield Steel Corporation, Sheffield Steel Corporation-Joliet,
Sheffield Steel Corporation-Oklahoma City and NationsBank of Georgia, N.A. (Incorporated by
reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1 filed on August
17, 1993).
4.5 Guaranty, dated January 16, 1992, from HMK Industries of Oklahoma, Inc. to NationsBank of
Georgia, N.A. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-1 filed on August 17, 1993).
4.6 Mortgage and Security Agreement, dated January 16, 1992, between Sheffield Steel Corporation and
NationsBank of Georgia, N.A. (Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
4.7 Mortgage and Security Agreement, dated January 16, 1992, between Sheffield Steel
Corporation-Joliet and NationsBank of Georgia, N.A. (Incorporated by reference to Exhibit 4.5 to
the Registrant's Registration Statement on Form S-1 filed on August 17, 1993).
4.8 Stock Pledge Agreement, dated January 16, 1992, between HMK Industries of Oklahoma, Inc. and
NationsBank of Georgia, N.A. (Incorporated by reference to Exhibit 4.6 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
4.9 First Amendment to Receivable and Inventory Financing Agreement, dated August 13, 1993 between
HMK Industries of Oklahoma, Inc., Sheffield Steel Corporation, Sheffield Steel
Corporation-Joliet, Sheffield Steel Corporation-Oklahoma City and NationsBank of Georgia, N.A.
(Incorporated by reference to Exhibit 4.24 to the Registrant's Registration Statement on Form
S-1 filed on October 6, 1993).
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C>
4.10 Warrant Agreement, dated November 1, 1993, between Sheffield Steel Corporation and Shawmut Bank
Connecticut, N.A., as Warrant Agent (Incorporated by reference to Exhibit 4.8 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31, 1993).
4.13 Second Amendment to Receivable and Inventory Financing Agreement, dated November 1, 1993 between
Sheffield Steel Corporation-Oklahoma City, Sheffield Steel Corporation, and NationsBank of
Georgia, N.A. (Incorporated by reference to Exhibit 4.13 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1993).
4.14 Third Amendment to Receivable and Inventory Financing Agreement, dated December 13, 1994 between
Sheffield Steel Corporation and NationsBank of Georgia, N.A. (Incorporated by reference to
Exhibit 4.14 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31,
1993).
4.15 Fourth Amendment to Receivable and Inventory Financing Agreement, dated October 30, 1995 between
Sheffield Steel Corporation and NationsBank of Georgia, N.A. (Incorporated by reference to
Exhibit 4.15 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended October 31,
1995).
4.16 Fifth Amendment to Receivable and Inventory Financing Agreement, dated April 19, 1996 between
Sheffield Steel Corporation and NationsBank of Georgia, N.A. (Incorporated by reference to
Exhibit 4.16 of the Registrant's Annual Report on Form 10-K for the fiscal year ended April 30,
1996).
4.17 Sixth Amendment to Receivable and Inventory Financing Agreement, dated December 1, 1997 between
Sheffield Steel Corporation and NationsBank, N.A. (Incorporated by reference to Exhibit 4.17 to
the Registrant's Regristration Statement on Form S-1 filed on January 9, 1998).
** 4.18 Seventh Amendment to Receivable and Inventory Financing Agreement, dated December 1, 1997 48
between Sheffield Steel Corporation and NationsBank, N.A.
** 4.19 Eighth Amendment to Receivable and Inventory Financing Agreement, dated April 13, 1999 between 58
Sheffield Steel Corporation and NationsBank, N.A.
10.1 Income Tax Expense Allocation Policy and Tax Sharing Agreement, effective May 1, 1991 between
HMK Enterprises, Inc. and Sheffield Steel Corporation, Sheffield Steel Corporation-Joliet,
Sheffield Steel Corporation-Oklahoma City and Sand Springs Railway Company (Incorporated by
reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 filed on August
17, 1993).
10.2 Form of Master Loan and Security Agreement between Sheffield Steel Corporation and the CIT
Group/Equipment Financing, Inc. dated July 14, 1994 (Incorporated by reference to Exhibit 10.6
to the Registrant's Annual Report on Form 10-K for the year ended April 30, 1994).
10.3 Restated Credit Agreement, dated April 23, 1991, between Sand Springs Railway Company and Bank
of Oklahoma (Incorporated by reference to Exhibit 4.7 to the Registrant's Registration Statement
on Form S-1 filed on August 17, 1993).
10.4 Amendment to Restated Credit Agreement, dated May 31, 1992, between Sand Springs Railway Company
and Bank of Oklahoma (Incorporated by reference to Exhibit 4.8 to the Registrant's Registration
Statement on Form S-1 filed on August 17, 1993).
10.5 Amendment to Assignment of Transportation Agreement, dated April 23, 1991 between Sand Springs
Railway Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.10 to the
Registrant's Registration Statement on Form S-1 filed on August 17, 1993).
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
10.6 Amendment to Assignment of User Contracts, dated April 23, 1991 between Sand Springs Railway
Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.11 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.7 Amendment to Pledge and Security Agreement, dated April 23, 1991 between Sand Springs Railway
Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.12 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.8 Amendment to Security Agreements, dated April 23, 1991 between Sand Springs Railway Company and
Bank of Oklahoma (Incorporated by reference to Exhibit 4.13 to the Registrant's Registration
Statement on Form S-1 filed on August 17, 1993).
10.9 Amendment to Real Estate Mortgage and Security Agreement, dated April 23, 1991 between Sand
Springs Railway Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.14 to the
Registrant's Registration Statement on Form S-1 filed on August 17, 1993).
10.10 Amendment to Real Estate Mortgage and Security Agreement, dated April 23, 1991 between Sand
Springs Railway Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.15 to the
Registrant's Registration Statement on Form S-1 filed on August 17, 1993).
10.11 Assignment of Transportation Agreement, dated December 10, 1987 between Sand Springs Railway
Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.16 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.12 Assignment of User Contracts, dated December 10, 1987 between Sand Springs Railway Company and
Bank of Oklahoma (Incorporated by reference to Exhibit 4.17 to the Registrant's Registration
Statement on Form S-1 filed on August 17, 1993).
10.13 Security Agreement, dated December 10, 1987 between Sand Springs Railway Company and Bank of
Oklahoma (Incorporated by reference to Exhibit 4.18 to the Registrant's Registration Statement
on Form S-1 filed on August 17, 1993).
10.14 Security Agreement, dated December 10, 1987 between Sand Springs Railway Company and Bank of
Oklahoma (Incorporated by reference to Exhibit 4.19 to the Registrant's Registration Statement
on Form S-1 filed on August 17, 1993).
10.15 Real Estate Mortgage and Security Agreement, dated December 10, 1987 between Sand Springs
Railway Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.20 to the
Registrant's Registration Statement on Form S-1 filed on August 17, 1993).
10.16 Real Estate Mortgage and Security Agreement, dated December 10, 1987 between Sand Springs
Railway Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.21 to the
Registrant's Registration Statement on Form S-1 filed on August 17, 1993).
10.17 Pledge and Security Agreement, dated December 10, 1987 between Sand Springs Railway Company and
Bank of Oklahoma (Incorporated by reference to Exhibit 4.22 to the Registrant's Registration
Statement on Form S-1 filed on August 17, 1993).
10.18 Guaranty Agreement, dated December 10, 1987 between HMK Industries of Oklahoma, Inc. and Sand
Springs Railway Company (Incorporated by reference to Exhibit 4.23 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.19 Second Amendment to Restated Credit Agreement, dated September 24, 1993 between Sand Springs
Railway Company and Bank of Oklahoma (Incorporated by reference to Exhibit 4.25 to the
Registrant's Registration Statement on Form S-1 filed on August 17, 1993).
</TABLE>
42
<PAGE>
<TABLE>
<S> <C> <C>
10.20 Subordination Agreement dated November 10, 1995, between Sheffield Steel Corporation and the CIT
Group/Equipment Financing, Inc. (Incorporated by reference to Exhibit 10.25 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended April 30, 1996).
10.21 First Amendment to Master Loan and Security Agreement between Sheffield Steel Corporation and
the CIT Group/Equipment Financing, Inc. dated April 25th, 1995. (Incorporated by reference to
Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 30,
1996).
10.22 Second Amendment to Master Loan and Security Agreement between Sheffield Steel Corporation and
the CIT Group/Equipment Financing, Inc. dated July 2, 1996. (Incorporated by reference to
Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 30,
1996).
**10.23 Sheffield Steel Corporation 1993 Employee, Director and Consultant Stock Option Plan, as Amended. 64
*
10.24 Second Amendment to Real Estate Mortgage and Security Agreement, dated July 31, 1996 between
Sand Springs Railway Company and Bank of Oklahoma, N.A. (Incorporated by reference to Exhibit
10.29 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996).
10.25 Third Amendment to Real Estate Mortgage and Security Agreement, dated July 31, 1996 between Sand
Springs Railway Company and Bank of Oklahoma, N.A. (Incorporated by reference to Exhibit 10.30
to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996).
10.26 Fourth Amendment to Restated Credit Agreement, date July 31, 1996 between Sand Springs Railway
Company and Bank of Oklahoma, N.A. (Incorporated by reference to Exhibit 10.31 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996).
10.27 Real Time Pricing Program Agreement dated June 1, 1996 between Sheffield Steel Corporation and
Public Service Company of Oklahoma. (Incorporated by reference to Exhibit 10.34 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July 31, 1996).
10.28 Agreement between the United Steelworkers of America and the Sand Springs Division of Sheffield
Steel Corporation dated March 2, 1997. (Incorporated by reference to Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended April 30, 1997).
10.29 Fifth Amendment to Restated Credit Agreement, dated July 31, 1997 between Sand Springs Railway
Company and Bank of Oklahoma, N.A. (Incorporated by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-Q for the quarter ended July 31, 1997).
10.30 Management Services Agreement, dated December 5, 1997 between HMK Enterprises, Inc. and
Sheffield Steel Corporation. (Incorporated by reference to Exhibit 10.32 to the Registrant's
Registration Statement on Form S-1 filed on January 9, 1998).
10.31 Insurance Services Agreement, dated December 1, 1997 between Risk Management Solutions, Inc. and
Sheffield Steel Corporation. (Incorporated by reference to Exhibit 10.33 to the Registrant's
Registration Statement on Form S-1 filed on January 9, 1998).
10.33 Stock Purchase Agreement between Sheffield Steel Corporation, Waddell's Rebar Fabricators, Inc.
and the Stockholders of Waddell's Rebar Fabricators, Inc. dated October 27, 1997.
(Incorporated by reference to Exhibit 10.38 to the Registrant's Quarterly Report on Form 10Q for
the Quarter ended October 31, 1997.)
</TABLE>
43
<PAGE>
<TABLE>
<S> <C> <C>
10.34 Master Loan and Security Agreement between Sheffield Steel Corporation and Sanwa Business Credit
Corporation dated June 30, 1998. (Incorporated by reference to Exhibit 10.34 to the Registrant's
Annual Report on Form 10K for the fiscal year ended April 30, 1998.)
10.35 Sixth Amendment to Restated Credit Agreement, date July 31, 1998 between Sand Springs Railway
Company and Bank of Oklahoma, N.A. (Incorporated by reference to Exhibit 10.35 to the
Registrant's Quarterly Report on Form 10Q for the Quarter ended July 31, 1998.)
10.36 Stock Purchase Agreement between Sheffield Steel Corporation, Wellington Industries, Inc. and
the Stockholders of Wellington Industries, Inc. Dated October 6, 1998. (Incorporated by
reference to Exhibit 10.36 to the Registrant's Quarterly Report on Form 10Q for the Quarter
ended October 31, 1998.)
** 12 Statement re Computation of Ratio of Earnings to Fixed Charges. 77
** 13 Statement re Computation of EBITDA. 78
** 21 Subsidiaries of the Registrant (Incorporated by reference to Exhibit 21 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993). 79
** 27 Financial Data Schedule. 80
</TABLE>
* Executive Compensation Plans and Arrangements
** Filed herewith.
ITEM 14(b). REPORTS ON FORM 8-K
- ---------- -------------------
No reports on Form 8-K were filed during the fourth quarter ended April 30,
1999.
ITEM 14(c). EXHIBITS
- ---------- --------
The response to this portion of item 14 is submitted as a separate section
of this report.
ITEM 14(d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
- ---------- -----------------------------------------
44
<PAGE>
Schedule II
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended April 30, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Balance Charged to Balance
April 30, Costs and Deductions - April 30,
1998 Expenses Write-offs 1999
---- -------- ---------- ----
<S> <C> <C> <C> <C>
Accounts receivable - allowance for
doubtful accounts $ 658 - - 658
=== ===== ==== ===
Balance Charged to Balance
April 30, Costs and Deductions - April 30,
1997 Expenses Write-offs 1998
---- -------- ---------- ----
Accounts receivable - allowance for
doubtful accounts $ 658 - - 658
=== ===== ==== ===
</TABLE>
<TABLE>
<CAPTION>
Balance Charged to Balance
April 30, Costs and Deductions - April 30,
1996 Expenses Write-offs 1997
---- -------- ---------- ----
<S> <C> <C> <C> <C>
Accounts receivable - allowance for
doubtful accounts $ 658 - - 658
=== ===== ==== ===
</TABLE>
45
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SHEFFIELD STEEL CORPORATION
July 19, 1999 /s/ Robert W. Ackerman
- ------------------------- -----------------------------
Date Robert W. Ackerman, President
and Chief Executive Officer
July 19, 1999 /s/ Stephen R. Johnson
- ------------------------- -----------------------------
Date Stephen R. Johnson, Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacity and on the dates indicated.
July 19, 1999 /s/ Robert W. Ackerman
- ----------------------- -----------------------------
Date Robert W. Ackerman, Director
July 19, 1999 /s/ Steven E. Karol
- ----------------------- -----------------------------
Date Steven E. Karol, Director
July 19, 1999 /s/ Dale S. Okonow
- ----------------------- -----------------------------
Date Dale S. Okonow, Director
July 19, 1999 /s/ Jane M. Karol
- ----------------------- -----------------------------
Date Jane M. Karol, Director
July 19, 1999 /s/ Howard H. Stevenson
- ----------------------- -----------------------------
Date Howard H. Stevenson, Director
July 19, 1999 /s/ Robert Schaal
- ------------- -----------------------------
Date Robert Schaal, Director
<PAGE>
============================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Exhibits
to
Annual Report
on
Form 10-K
for the Fiscal Year Ended
April 30, 1999
SHEFFIELD STEEL CORPORATION
============================================
47
<PAGE>
Exhibit 4.18
SEVENTH AMENDMENT TO AMENDED AND RESTATED
RECEIVABLE AND INVENTORY FINANCING AGREEMENT
THIS SEVENTH AMENDMENT TO AMENDED AND RESTATED RECEIVABLE AND INVENTORY
FINANCING AGREEMENT (this "Amendment") is made and entered into as of the 1st
day of December, 1997, between SHEFFIELD STEEL CORPORATION, f/k/a HMK INDUSTRIES
OF OKLAHOMA, INC., successor by merger to SHEFFIELD STEEL CORPORATION-SAND
SPRINGS, f/k/a SHEFFIELD STEEL CORPORATION and SHEFFIELD STEEL CORPORATION -
JOLIET (the "Company"), and NATIONSBANK, N.A., a national banking association,
formerly known as NationsBank, N.A. (South) and also formerly known as
NationsBank of Georgia, N.A. (the "Lender").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, heretofore, the Company and its predecessors and Affiliates, and the
Lender, made and entered into a certain Receivable and Inventory Financing
Agreement, dated as of January 16, 1992 (hereinafter, as previously amended, the
"Agreement"), pursuant to which the Lender agreed to certain financial
accommodations on the terms and conditions stated therein; and
WHEREAS, the Company and the Lender desire to amend the Agreement as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises, and other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise expressly defined
herein shall have the respective meanings given to such terms in the Agreement.
2. The Agreement is amended as follows:
(a) Delete the definitions of "Banking Day" and "Prime Rate" contained in
Section 1.1 and replace them with the following:
"Banking Day" shall mean a day for dealings by and between banks
(excluding Saturday, Sunday and any day which shall be a legal holiday in the
City of Atlanta, Georgia, or a day on which banking institutions in the City
of Atlanta, Georgia are authorized to close) and, if relating to a Eurodollar
Rate Loan, on which dealings are carried on in the London interbank market.
"Prime Rate" shall mean the rate of interest announced by the Lender in
Atlanta, Georgia, from time to time as its "Prime Rate". The Prime Rate shall
be adjusted on the first day of each month based on the Prime Rate in effect
at the
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close of business on the last Banking Day of the immediately preceding
calendar month.
(b) Add the following new definitions in appropriate alphabetical order to
Section 1.1:
"Applicable Margin" shall mean an amount determined in accordance with
Annex I attached hereto based upon the Company's ratio of EBITDA to Cash
Interest as of the date of the determination. Adjustments to the Applicable
Margin shall be effective as of the first day of the calendar month after
the Lender's receipt of the Company's financial statements as of the last
day of each fiscal quarter (commencing with the financial statements for
the fiscal quarter ending on or about October 31, 1997) during each fiscal
year in conformance with Section 8.3(a), together with the officer's
certificate described in Section 8.3(a) setting forth the calculations
necessary to determine the ratio referred to above. The calculations of the
Applicable Margin made at fiscal year end shall be subject to adjustment
upon the Lender's receipt of the Company's audited financial statements in
conformance with Section 8.3(b). In the event the Company fails to timely
provide the financial statements and certificates referred to above, and
without prejudice to any additional rights under Section 11, the maximum
Applicable Margin shall apply to all Eurodollar Rate Loans and Prime Rate
Loans until the first day of the calendar month after the Lender's receipt
of such financial statements and certificates, unless the Lender has agreed
to extend the time for delivery of such financial statements.
"Dollar" and "$" shall mean freely transferable United States dollars.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Rate Loan
for the Interest Period applicable thereto, a simple per annum interest
rate determined pursuant to the following formula:
Eurodollar Rate = Interbank Offered Rate
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1 - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Basis" shall mean a simple interest rate per annum
equal to the Eurodollar Rate plus the Applicable Margin.
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"Eurodollar Rate Loan" shall mean any Loan which bears interest at the
time in question based on the Eurodollar Rate Basis.
"Eurodollar Reserve Percentage" shall mean, for any day, that
percentage (expressed as a decimal) which is in effect from time to time
under Regulation D of the Board of Governors of the Federal Reserve System,
as such
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regulation may be amended from time to time or any successor regulation, as
the maximum reserve requirement (including, without limitation, any basic,
supplemental, emergency, special, or marginal reserves) applicable to any
member bank with respect to Eurocurrency liabilities as that term is
defined in Regulation D (or against any other category of liabilities that
includes deposits by reference to which the interest rate of Eurodollar
Rate Loans is determined), whether or not the Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time. Eurodollar
Rate Loans shall be deemed to constitute Eurocurrency liabilities and as
such shall be deemed subject to reserve requirements without benefit of
credits for proration, exceptions or offsets that may be available from
time to time to the Lender.
"Interbank Offered Rate" shall mean, with respect to any Eurodollar
Rate Loan for the Interest Period applicable thereto, the average (rounded
upward to the nearest one-sixteenth (1/16) of one percent) per annum rate
of interest determined by the office of the Lender then determining such
rate (each such determination to be conclusive and binding) as of two
Banking Days prior to the first day of such Interest Period, as the
effective rate at which deposits in immediately available funds in Dollars
are being, have been, or would be offered or quoted by the Lender to major
banks in the applicable interbank market for Eurodollar deposits at any
time during the Banking Day which is the second Banking Day immediately
preceding the first day of such Interest Period, for a term comparable to
such Interest Period and in an amount comparable to the amount of the
Eurodollar Rate Loan. If no such offers or quotes are generally available
for such amount, then the Lender shall be entitled to determine the
Interbank Offered Rate by estimating in its reasonable judgment the per
annum rate (as described above) that would be applicable if such quotes or
offers were generally available.
"Interest Period" shall mean, in connection with any Eurodollar Rate
Loan, the term of such Loan selected by the Company or otherwise determined
in accordance with this Agreement, which may have a duration of one (1),
two (2), three (3) or six (6) months. Notwithstanding the foregoing,
however, (i) any applicable Interest Period which would otherwise end on a
day which is not a Banking Day shall end on the next succeeding Banking Day
unless such Banking Day falls in another calendar month, in which case such
Interest Period shall end on the next preceding Banking Day, (ii) any
applicable Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such
Interest Period is to end shall (subject to clause (i) above) end on the
last day of such calendar month, and (iii) no Interest Period shall extend
beyond the maturity of the Loans or such earlier date as would interfere
hereunder with the repayment obligations of the Company.
"Prime Rate Basis" shall mean a simple interest rate per annum equal
to the Prime Rate plus the Applicable Margin.
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"Prime Rate Loan" shall mean any Loan which bears interest at the time
in question based on the Prime Rate Basis.
(c) Delete Section 2.2 and replace it with the following:
2.2 INTEREST.
(a) Choice of Interest Rate, Etc. Each Loan shall, at the option
of the Company, be made as a Prime Rate Loan or a Eurodollar Rate Loan.
Each Prime Rate Loan shall bear interest at the Prime Rate Basis. Each
Eurodollar Rate Loan shall bear interest at the applicable Eurodollar Rate
Basis. Any notice given to the Lender in connection with a requested Loan
hereunder shall be given prior to 12:00 noon (Eastern Time) in order for
such Banking Day to count toward the minimum number of Banking Days
required. If the Company fails to give the Lender timely notice of its
selection of a Eurodollar Rate Basis, or if for any reason a determination
of a Eurodollar Rate Basis for any Loan is not timely concluded, the Prime
Rate Basis shall apply to such Loan.
(b) Prime Rate Loans.
(i) Initial Loans. The Company shall give the Lender, in
the case of Prime Rate Loans, irrevocable telephonic notice, confirmed
immediately by a written notice, on the date specified in the notice
for such Prime Rate Loan; provided, however, that the failure by the
Company to confirm any notice shall not invalidate any notice so
given.
(ii) Repayments and Reborrowings. The Company may repay a
Prime Rate Loan at any time and (A) reborrow all or a portion of the
principal amount thereof as one or more Eurodollar Rate Loans, or (B)
not reborrow all or any portion of such Prime Rate Loan.
(c) Eurodollar Rate Loans.
(i) Initial Loans. The Company shall give the Lender, in
the case of Eurodollar Rate Loans, at least two (2) Banking Days'
irrevocable telephonic notice, confirmed immediately by a written
notice, which notice shall include the proposed Interest Period;
provided, however, that the failure of the Company to confirm any
notice shall not invalidate any notice so given. The Lender, whose
determination shall be conclusive, shall determine the available
Eurodollar Rate Basis and shall notify the Company of such Eurodollar
Rate Basis.
(ii) Repayments and Reborrowings. At least two (2) Banking
Days' prior to the maturity date for a Eurodollar Rate Loan, the
Company shall give the Lender written notice (or telephonic notice
confirmed immediately by a written notice) specifying whether all
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or a portion of any Eurodollar Rate Loan outstanding on such maturity
date (A) is to be repaid and then reborrowed in whole or in part as a
Eurodollar Rate Loan, (B) is to be repaid and then reborrowed in whole
or in part as a Prime Rate Loan, or (C) is to be repaid and not
reborrowed. The Company's failure to give a proper notice shall be
deemed a request to reborrow the entire maturing amount as a Prime
Rate Loan. Upon such maturity date such Eurodollar Rate Loan will,
subject to the provisions hereof, be so repaid and, as applicable,
reborrowed. Each repayment shall be in an amount not less than US Five
Hundred Thousand Dollars (US$500,000.00). The Company's failure to
give a proper notice shall be deemed a request to reborrow the entire
maturing amount as a Prime Rate Loan.
(iii) Limitation on Eurodollar Rate Loans. Each Eurodollar
Rate Loan shall be in a minimum amount of US One Million Dollars
(US$1,000,000.00) or integral multiples of US One Hundred Thousand
Dollars (US$100,000.00) in excess thereof. Notwithstanding anything to
the contrary contained herein, no more than two (2) Eurodollar Rate
Loans may be outstanding under this Agreement at any one time.
(iv) Prepayment. Eurodollar Rate Loans may be prepaid
prior to the applicable maturity date, upon four (4) Banking Days'
prior written notice to the Lender, provided that the Company shall
reimburse the Lender, on demand, for any loss or out-of-pocket expense
incurred by the Lender in connection with such prepayment. Any notice
of prepayment of a Eurodollar Rate Loan shall be irrevocable. Each
prepayment of any of the Eurodollar Rate Loan shall be in an amount
not less than US Five Hundred Thousand Dollars (US$500,000.00).
(d) Certain Fees. As additional consideration for the credit
facility established in Section 2.1 hereof, the Company agrees to pay the
Lender a facility fee payable on the first day of each month equal to 0.5%
per annum of the average unused portion of the facility during the prior
month minus $5,000,000.00. As compensation for delays in the collection and
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clearance of checks, each month the Lender will charge the Company's
account with respect to each remittance received against Receivables during
the month for an amount equal to interest on the amount of such remittance
at the Prime Rate Basis then in effect for the period beginning with the
day following the day of receipt of such remittance and ending at the end
of the second Banking Day following the day of such receipt. In the event
of termination of this Agreement by either party hereto, the Lender's
entitlement to this charge shall continue so long as any obligations
hereunder are outstanding.
(e) General. Interest on the Loans shall be due and payable
monthly, on the first day of each month. The final payment of all accrued
and unpaid interest shall be due and payable on the date that the
outstanding principal amount of the Loans is paid or due and payable in
full. After an Event of Default,
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<PAGE>
interest on the Loans shall also be due and payable, upon demand from time
to time by the Lender. The Lender shall advise the Company of the amount of
interest due and payable as of the days set forth above, and the Company
shall pay the same when due or the Lender may, in its discretion, charge
such amount to the Company's account under this Agreement. Upon the entire
outstanding principal amount of the Loans becoming due and payable or if
any payment of principal or interest is not timely made, interest shall
accrue on the unpaid principal balance of the Loans or on such defaulted
principal payment, from the date that the Loans became so due and payable,
or that the defaulted payment was not timely made, at an annual rate of
three percent (3%) plus the Prime Rate. Such interest shall continue to
accrue until the date of payment of all principal and accrued but unpaid
interest or such defaulted payment, as applicable, and shall be due and
payable upon demand from time to time by the Lender.
(d) Add the following new Sections 2.9, 2.10, 2.11, and 2.12:
2.9 EURODOLLAR RATE BASIS DETERMINATION INADEQUATE OR
UNFAIR. Notwithstanding anything contained herein which may be construed
to the contrary, if with respect to any proposed Eurodollar Rate Loan for
any Interest Period, the Lender determines that deposits in Dollars (in the
applicable amount) are not being offered to the Lender in the relevant
market for such Interest Period on a basis sufficient to permit a fair
establishment of the Eurodollar Rate, the Lender shall forthwith give
notice thereof to the Company, whereupon until the Lender notifies the
Company that the circumstances giving rise to such situation no longer
exist, the obligations of the Lender to make such Eurodollar Rate Loans
shall be suspended.
2.10 ILLEGALITY. If any applicable law, rule or
regulation, or any change therein, or any interpretation or change in
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall make it unlawful or impossible for
the Lender to make, maintain or fund its Eurodollar Rate Loans, the Lender
shall so notify the Company. Upon receipt of such notice, notwithstanding
anything contained herein, the Company shall repay in full the then-
outstanding principal amount of each affected Eurodollar Rate Loan,
together with accrued interest thereon either (a) on the last day of the
then current Interest Period applicable to such Eurodollar Rate Loan if the
Lender may lawfully continue to maintain and fund such Eurodollar Rate Loan
to such day or (b) immediately if the Lender may not lawfully continue to
fund and maintain such Eurodollar Rate Loan, whereupon the Company shall
borrow a Prime Rate Loan from the Lender, and the Lender shall make such
Prime Rate Loan, in the amount of the Eurodollar Rate Loans to be repaid.
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2.11 INCREASED COSTS.
(a) If any applicable law, rule or regulation, or any
change therein, or any interpretation or change in interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof
or compliance by the Lender with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency:
(i) shall subject the Lender to any tax, duty or
other charge with respect to its obligation to make Eurodollar Rate
Loans, or shall change the basis of taxation or other charges or
payments to the Lender of the principal of or interest on its
Eurodollar Rate Loans (except for changes in the rate of tax on the
overall net income of the Lender imposed by the jurisdiction in which
the Lender's principal executive office is located); or
(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System, but excluding any included in
an applicable domestic reserve percentage), special deposit, capital
adequacy, assessment or other requirement or condition against assets
of, deposits with or for the account of, or commitments or credit
extended by, the Lender or shall impose on the Lender or the
Eurodollar borrowing market any other condition affecting its
obligation to make such Eurodollar Rate Loans;
and the result of any of the foregoing is to increase the cost to the
Lender of making or maintaining any such Eurodollar Rate Loans, or to
reduce the net amount of any sum received or receivable by the Lender under
this Agreement then, on demand by the Lender, the Company agrees to pay to
the Lender such additional amount or amounts as will compensate the Lender
for such increased costs or reduced returns.
(b) A certificate of the Lender claiming compensation
under this Section 2.11 and setting forth the additional amount or amounts
to be paid to it hereunder and calculations therefor shall be conclusive in
the absence of manifest error. In determining such amount, the Lender may
use any reasonable averaging and attribution methods. Concurrently with
prepaying such Eurodollar Rate Loans, the Company shall borrow a Prime Rate
Loan from the Lender, and the Lender shall make such Prime Rate Loan in the
amount of the outstanding Eurodollar Rate Loans.
2.12 EFFECT ON OTHER ADVANCES. If notice has been given
pursuant to Section 2.9, 2.10 or 2.11 suspending the obligation of the
Lender to make any Eurodollar Rate Loan, or requiring Eurodollar Rate Loans
of
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the Lender to be repaid or prepaid, then, unless and until the Lender
notifies the Company that the circumstances giving rise to such repayment
no longer apply, all Loans which would otherwise be made by the Lender as
Eurodollar Rate Loans shall be made instead as Prime Rate Loans.
(e) Add, immediately following the signature pages, ANNEX I in the
form of Exhibit A attached hereto.
3. Restatement of Representations and Warranties. The Company hereby
---------------------------------------------
reaffirms each and every representation and warranty heretofore made by it under
or in connection with the execution and delivery of the Agreement and the
documents executed in connection therewith (including, without limitation, those
representations and warranties set forth in Section 7 of the Financing
Agreement) as fully as though such representations and warranties had been made
on the date hereof and with specific reference to this Amendment.
4. No Default. To induce the Lender to enter into this Amendment the
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Company hereby, as of the date hereof, and after giving effect to the terms
hereof, (i) represents and warrants that there exists no Event of Default (or
any event which, with the giving of notice or the passage of time, or both,
would constitute an Event of Default), and (ii) agrees that there exists no
right of offset, defense, counterclaim, claim or objection in favor of the
Company as against the Lender arising out of or with respect to any of the
Obligations.
5. Effect of Amendment. Except as expressly set forth hereinafter, the
-------------------
Agreement and documents executed in connection therewith shall be and remain in
full force and effect and shall constitute the legal, valid, binding and
enforceable obligations of the Company to the Lender and the Company hereby
restates, ratifies and reaffirms each and every term and condition set forth in
the Agreement and documents executed in connection therewith effective as of the
date hereof.
6. Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which, when so executed and delivered, shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
7. Successors and Assigns. This Amendment shall be binding upon and
----------------------
inure to the benefit of the successors and permitted assigns of the parties
hereto.
8. Section References. Section titles and references used in this
------------------
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
9. Costs, Expenses, Taxes and Fees. The Company agrees to pay on demand
-------------------------------
all costs and expenses of the Lender in connection with the preparation,
execution, delivery and enforcement of this Amendment and any other transactions
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contemplated hereby, including, without limitation, the fees and out-of-pocket
expenses of legal counsel to the Lender.
10. Further Assurances. The Company agrees to take such further action as
------------------
the Lender shall reasonably request in connection herewith to evidence the
amendments herein contained to the Financing Agreement.
11. Governing Law. This Amendment shall be governed by, and construed in
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accordance with, the laws of the State of Georgia.
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<PAGE>
IN WITNESS WHEREOF, the Company and the Lender have caused this Amendment
to be duly executed under seal, all as of the date first above written.
SHEFFIELD STEEL CORPORATION, F/K/A HMK INDUSTRIES OF
OKLAHOMA, INC., SUCCESSOR BY MERGER TO SHEFFIELD STEEL
CORPORATION-SAND SPRINGS, F/K/A SHEFFIELD STEEL
CORPORATION and SHEFFIELD STEEL CORPORATION - JOLIET
By: /s/ Stephen R. Johnson VP-CFO
------------------------------------------------
(Title)
Attest: /s/ Cheryl Kaiser
--------------------------------------------
[CORPORATE SEAL]
NATIONSBANK, N.A., F/K/A NATIONSBANK, N.A. (SOUTH),
F/K/A NATIONSBANK OF GEORGIA, N.A.
By: /s/ Stuart A. Hall, Vice President
------------------------------------------------
(Title)
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Exhibit 4.19
EIGHTH AMENDMENT TO AMENDED AND RESTATED
RECEIVABLE AND INVENTORY FINANCING AGREEMENT
THIS EIGHTH AMENDMENT TO AMENDED AND RESTATED RECEIVABLE AND INVENTORY
FINANCING AGREEMENT (this "Amendment") is made and entered into as of the 13th
----
day of April, 1999, between SHEFFIELD STEEL CORPORATION, f/k/a HMK INDUSTRIES OF
OKLAHOMA, INC., successor by merger to SHEFFIELD STEEL CORPORATION-SAND SPRINGS,
f/k/a SHEFFIELD STEEL CORPORATION and SHEFFIELD STEEL CORPORATION - JOLIET
("Sheffield"), WADDELL'S REBAR FABRICATORS, INC. ("Waddell"), and WELLINGTON
INDUSTRIES, INC. ("Wellington"; Sheffield, Waddell and Wellington are sometimes
collectively referred to herein as the "Companies"), and NATIONSBANK, N.A., a
national banking association, formerly known as NationsBank, N.A. (South) and
also formerly known as NationsBank of Georgia, N.A. (the "Lender").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, heretofore, Sheffield and its predecessors and Affiliates, and the
Lender, made and entered into a certain Receivable and Inventory Financing
Agreement, dated as of January 16, 1992 (hereinafter, as previously amended, the
"Agreement"), pursuant to which the Lender agreed to certain financial
accommodations on the terms and conditions stated therein; and
WHEREAS, Sheffield has completed stock purchase agreements with the
shareholders of Waddell and Wellington and now controls them as wholly-owned
Subsidiaries; and
WHEREAS, Waddell and Wellington expect to derive a substantial benefit from
the Loans previously made, and the Loans to be hereafter made, under the
Agreement, and as such Waddell and Wellington desire to become borrowers under
the Agreement; and
WHEREAS, the Companies and the Lender desire to amend the Agreement as set
forth herein.
NOW, THEREFORE, in consideration of the foregoing premises, and other good and
valuable consideration, the receipt and legal sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. All capitalized terms used herein and not otherwise expressly defined
herein shall have the respective meanings given to such terms in the Agreement.
2. The Agreement is amended as follows:
(a) The following defined terms are added to Section 1.1:
"Waddell" shall mean Waddell's Rebar Fabricators, Inc., a Missouri
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corporation.
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"Wellington" shall mean Wellington Industries, Inc., an Oklahoma
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corporation, as successor by merger to Wellington Industries, Inc. a Texas
corporation.
(b) Delete the definition of "Companies" in Section 1.1 and replace
it with the following:
"Companies" shall mean Sheffield, Waddell, and Wellington.
---------
(c) Each reference to "Company" contained in the Agreement (other
than references to "a Company", "each Company", "any Company" and similar
references) shall hereafter be deemed to refer to "Companies", as defined in
this Amendment.
(d) Delete Section 2.8 and replace it with the following:
2.8 COMPANIES' REPRESENTATIVE. Each of the Companies other than
Sheffield hereby appoints Sheffield as, and Sheffield shall act under this
Agreement as, the representative of such other Companies for all purposes,
including, without being limited to, requesting Advances and receiving
account statements and other notices and communications to the Companies
(or any of them) from the Lender. The Lender may rely, and shall be fully
protected in relying, on any request for a Loan, disbursement instruction,
report, information or any other notice or communication made or given by
Sheffield, whether in its own name, on behalf of any other Company or on
behalf of "the Companies," and the Lender shall not have any obligation to
make any inquiry or request any confirmation from or on behalf of any other
Company as to the binding effect on it of any such notice, instruction,
report, information, other notice or communications, nor shall the joint
and several character of the Companies' liability for the Obligations be
affected, provided that the provisions of this Section 2.8 shall not be
construed so as to preclude any Company from directly requesting Advances
or taking other actions permitted to be taken by "a Company" hereunder. The
Lender intends to maintain a single loan account in the name of "Sheffield
Steel Corporation" hereunder and each Company expressly agrees to such
arrangement and confirms that such arrangement shall have no effect on the
joint and several character of its liability for the Obligations.
(e) Add the following new Section 2.9:
2.9 JOINT AND SEVERAL LIABILITY.
(a) The Obligations shall constitute one joint and several direct and
general obligation of all of the Companies. Notwithstanding anything to the
contrary contained herein, each of the Companies shall be jointly and
severally, with each other Company, directly and unconditionally liable to
the Lender for all Obligations and shall have the obligations of co-maker
with respect to the Obligations, it being agreed that the Advances to each
Company inure to the benefit of all Companies, and that the Lender is
relying on the joint and several liability of the Companies as co-makers in
extending the Loans hereunder. Each Company hereby unconditionally and
irrevocably agrees that upon default in the payment when due (whether at
stated maturity, by acceleration or otherwise) of any principal of, or
interest on, any Loan or other Obligation payable to the Lender, it will
forthwith pay the same, without notice or demand.
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(b) No Reduction in Obligations. No payment or payments made by
---------------------------
any of the Companies or any other Person or received or collected by the
Lender from any of the Companies or any other Person by virtue of any
action or proceeding or any set-off or appropriation or application at any
time or from time to time in reduction of or in payment of the Obligations
shall be deemed to modify, reduce, release or otherwise affect the
liability of each Company under this Agreement, each of which shall remain
liable for the Obligations until the Obligations are paid in full and the
Agreement is terminated.
(f) Add the following new Section 2.10:
2.10 OBLIGATIONS ABSOLUTE. Each Company agrees that the Obligations
will be paid strictly in accordance with the terms of this Agreement and
any related loan documents, regardless of any law, regulation or order now
or hereafter in effect in any jurisdiction affecting any of such terms or
the rights of the Lender with respect thereto. All Obligations shall be
conclusively presumed to have been created in reliance hereon. The
liabilities under this Agreement shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of this Agreement or
any related loan document or any other agreement or instrument
relating thereto;
(b) any change in the time, manner or place of payments of, or
in any other term of, all or any part of the Obligations, or any other
amendment or waiver thereof or any consent to departure therefrom,
including, but not limited to, any increase in the Obligations
resulting from the extension of additional credit to any Company or
otherwise;
(c) any taking, exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty for all or any of the Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of any Company; or
(e) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Company.
This Agreement shall continue to be effective or be reinstated, as the case
may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Lender upon the insolvency, bankruptcy
or reorganization of any Company or otherwise, all as though such payment
had not been made.
(g) Delete Section 7.5 and replace it with the following:
7.5 SUBSIDIARIES. Sheffield has no Subsidiaries other than Waddell,
Wellington, Sheffield Steel Corporation - Oklahoma City ("OKC") and Sand
Springs Railway Company ("Sand Springs"). Waddell is wholly owned by
Sheffield and has no Subsidiaries. Wellington is wholly owned by Sheffield
and has no Subsidiaries. Sand Springs and OKC are each wholly owned by
Sheffield and neither has any Subsidiaries.
(h) Add the following new Section 7.22:
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7.22 YEAR 2000 COMPLIANCE. Each Company has (a) initiated a review
and assessment of all areas within its and its Subsidiaries' business and
operations (including those affected by suppliers, vendors and customers)
that could be adversely affected by the "Year 2000 Problem" (that is, the
risk that computer applications used by it or its Subsidiaries (or
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any
date after December 31, 1999), (b) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (c) to date,
implemented that plan in accordance with that timetable. Based on the
foregoing, each Company believes that all computer applications (including,
to the best of the Company's knowledge, those of its suppliers, vendors and
customers) that are material to its and its Subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1,
2000 (that is, be "Year 2000 compliant").
(i) Add the following new Section 8.21:
8.21 YEAR 2000 COMPLIANCE. Each Company will promptly notify the
Lender in the event such Company discovers or determines that any computer
application (including those of its or its Subsidiaries' suppliers, vendors
and customers) that is material to its and its Subsidiaries' business and
operations will not be Year 2000 compliant (as defined in Section 7.22).
(j) Delete Schedules 1 through 8 and replace them with Schedules 1
through 8 attached hereto (the "New Schedules").
3. Each of the Companies acknowledges that (a) it has entered into a
lockbox agreement with the Lender, the purpose of which is to provide for the
payment of all of such Company's receivables directly to the Lender for
application to the Obligations, (b) the lockbox account associated with such
lockbox agreement shall be under the control of the Lender, and (c) at all times
the Lender shall have a duly perfected first priority security interest in such
lockbox account and all money held therein.
4. Each of the Companies acknowledges that each of the financial
covenants contained in Section 8 and Section 9 of the Agreement shall be
calculated based on the consolidated results of the Companies and their
consolidated Subsidiaries, and each acknowledges that the presentation and
delivery of all financial statements shall be done on a consolidated and
consolidating basis.
5. The effectiveness of this Amendment shall be conditioned on the
Lender's receipt of each of the documents listed on the Schedules of Closing
Documents attached hereto as Exhibits A-1 and A-2, including the New Schedules,
------------ ---
all in form and substance satisfactory to the Lender and its counsel.
6. Statement of Representations and Warranties. Wellington and Waddell
--------------------------------------------
hereby confirm that each and every representation, warranty and covenant of the
Companies in the Agreement and the documents executed in connection therewith
(including, without limitation, those representations and warranties set forth
in Section 7 of the Agreement, and the covenants set forth in Section 8 and 9 of
the Agreement) shall apply to each of Wellington and Waddell.
-4-
<PAGE>
7. Restatement of Representations and Warranties. Sheffield hereby
---------------------------------------------
reaffirms each and every representation and warranty heretofore made by it under
or in connection with the execution and delivery of the Agreement and the
documents executed in connection therewith (including, without limitation, those
representations and warranties set forth in Section 7 of the Agreement) as fully
as though such representations, warranties and covenants had been made on the
date hereof and with specific reference to this Amendment.
8. No Default. To induce the Lender to enter into this Amendment, the
----------
Companies hereby, as of the date hereof, and after giving effect to the terms
hereof, (i) represent and warrant that there exists no Event of Default (or any
event which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default), and (ii) agree that there exists no right of
offset, defense, counterclaim, claim or objection in favor of the Companies as
against the Lender arising out of or with respect to any of the Obligations.
9. Effect of Amendment. Except as expressly set forth hereinafter, the
-------------------
Agreement and documents executed in connection therewith shall be and remain in
full force and effect and shall constitute the legal, valid, binding and
enforceable obligations of the Companies to the Lender and the Companies hereby
restate, ratify and reaffirm each and every term and condition set forth in the
Agreement and documents executed in connection therewith effective as of the
date hereof.
10. Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which, when so executed and delivered, shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
11. Successors and Assigns. This Amendment shall be binding upon and
----------------------
inure to the benefit of the successors and permitted assigns of the parties
hereto.
12. Section References. Section titles and references used in this
------------------
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
13. Costs, Expenses, Taxes and Fees. The Companies agree to pay on demand
-------------------------------
all costs and expenses of the Lender in connection with the preparation,
execution, delivery and enforcement of this Amendment and any other transactions
contemplated hereby, including, without limitation, the fees and out-of-pocket
expenses of legal counsel to the Lender.
14. Further Assurances. The Companies agree to take such further action
------------------
as the Lender shall reasonably request in connection herewith to evidence the
amendments herein contained to the Financing Agreement.
15. Governing Law. This Amendment shall be governed by, and construed in
-------------
accordance with, the laws of the State of Georgia.
-5-
<PAGE>
IN WITNESS WHEREOF, the Companies and the Lender have caused this Amendment
to be duly executed under seal, all as of the date first above written.
SHEFFIELD STEEL CORPORATION, F/K/A HMK INDUSTRIES OF
OKLAHOMA, INC., SUCCESSOR BY MERGER TO SHEFFIELD STEEL
CORPORATION-SAND SPRINGS, F/K/A SHEFFIELD STEEL
CORPORATION and
SHEFFIELD STEEL CORPORATION - JOLIET
By:/s/ Robert W. Ackerman
--------------------------------------------------
Robert W. Ackerman, President (Title)
Attest:/s/ Stephen R. Johnson
------------------------------------------
Stephen R. Johnson, Assistant Secretary
[CORPORATE SEAL]
WADDELL'S REBAR FABRICATORS, INC.
By:/s/ Robert W. Ackerman
--------------------------------------------------
Robert W. Ackerman, Chairman & CEO (Title)
Attest:/s/ Stephen R. Johnson
----------------------------------------------
Stephen R. Johnson, Secretary
[CORPORATE SEAL]
WELLINGTON INDUSTRIES, INC.
By:/s/ Robert W. Ackerman
--------------------------------------------------
Robert W. Ackerman, Chairman & CEO (Title)
Attest:/s/ Stephen R. Johnson
----------------------------------------------
Stephen R. Johnson, Secretary
[CORPORATE SEAL]
NATIONSBANK, N.A., F/K/A NATIONSBANK, N.A. (SOUTH),
F/K/A NATIONSBANK OF GEORGIA, N.A.
By:/s/ Stuart Hall
--------------------------------------------------
Stuart Hall, Vice President (Title)
-6-
<PAGE>
Exhibit 10.23
Amended
SHEFFIELD STEEL CORPORATION
1993 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Sheffield Steel Corporation 1993 Employee,
Director and Consultant Stock Option Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to a committee. (See Paragraph 4)
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the Committee to which the Board of Directors has
---------
delegated power to act under or pursuant to the provisions of the
Plan.
Common Stock means shares of the Company's common stock, $.01 par
------------
value.
Company means Sheffield Steel Corporation, a Delaware corporation.
-------
Disability or Disabled means permanent and total disability as defined
---------- --------
in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange or
traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, either (a) the average of the closing
or last prices of the Common Stock on the Composite Tape or other
comparable reporting system for the ten (10) consecutive trading days
immediately preceding the applicable date or (b) the closing or last
price of the Common Stock on the Composite Tape or other comparable
reporting system for the trading day immediately preceding the
applicable date, as the Administrator shall determine.
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading days
or day referred to in clause (1), and if bid and asked prices for the
Common Stock are regularly reported, the average of the mean between
the bid and the asked price for the Common Stock at the close of
trading in the over-the-counter market for the ten (10) trading days
on which Common Stock was traded immediately preceding the applicable
date;
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, the Administrator
shall determine such fair market value using the quantitative methods
of financial analysis set forth on Schedule A attached hereto;
----------
provided,
--------
1
<PAGE>
however, that no less than every fourth year, the Administrator shall
-------
retain an independent appraiser to review the reasonableness and validity
of the methodology used by the Administrator in determining the fair market
value. If such methodology is determined to be invalid or unreasonable,
then the Administrator shall determine an appraised value using appropriate
and relevant quantitative methods of financial analysis that the
Administrator, in good faith, deems representative of a fair market value.
ISO means an option meant to qualify as an incentive stock option under
---
Code Section 422.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by the
Administrator to be eligible to be granted one or more Options under the
Plan.
Non-Qualified Option means an option which is not intended to qualify as an
--------------------
ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a Participant
----------------
delivered pursuant to the Plan.
Participant means a Key Employee, director or consultant to whom one or
-----------
more Options are granted under the Plan. As used herein, "Participant"
shall include "Participant's Survivors" where the context requires.
Participant's Survivors means a deceased Participant's legal and/or any
-----------------------
person or persons who acquired the Participant's rights to an Option or
Shares by will or by the laws of descent and distribution.
2
<PAGE>
Plan means this Sheffield Steel Corporation 1993 Employee, Director
----
and Consultant Stock Option Plan.
Shares means shares of the Common Stock as to which Options have been
------
or may be granted under the Plan or any shares of capital stock into
which the Shares are changed or for which they are exchanged within
the provisions of Paragraph 3 of the Plan. The Shares issued upon
exercise of Options granted under the Plan may be authorized and
unissued shares or shares held by the Company in its treasury, or
both.
2. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Key Employees,
directors and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the issuance of ISOs and Non-
Qualified Options.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
The number of Shares subject to this Plan as to which Options may be
granted from time to time shall be 580,000, or the equivalent of such number of
Shares after the Administrator, in its sole discretion, has interpreted the
effect of any stock split, stock dividend, combination, recapitalization or
similar transaction in accordance with Paragraph 16 of the Plan.
If an Option ceases to be "outstanding", in whole or in part, the Shares
which were subject to such Option shall be available for the granting of other
Options under the Plan. Any Option shall be treated as "outstanding" until such
Option is exercised in full, or terminates or expires under the provisions of
the Plan, or by agreement of the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to a Committee of the
Board of Directors. Following the date on which the Common Stock is registered
under the Securities and Exchange Act of 1934, as amended (the "1934 Act"), the
Plan is intended to comply in all respects with Rule 16b-3 or its successors,
promulgated pursuant to Section 16 of the 1934 Act with respect to Participants
who are subject to Section 16 of the 1934 Act, and any provision in this Plan
with respect to such persons contrary to Rule 16b-3 shall be deemed null and
void to the extent permissible by law and deemed appropriate by the
Administrator. Subject to the provisions of the Plan, the Administrator is
authorized to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Options;
c. Determine the number of Shares for which an Option or Options shall be
granted; and
d. Specify the terms and conditions upon which an Option or Options may
be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and
3
<PAGE>
prescribed in the context of preserving the tax status under Code Section 422 of
those Options which are designated as ISOs. Subject to the foregoing, the
interpretation and construction by the Administrator of any provisions of the
Plan or of any Option granted under it shall be final, unless otherwise
determined by the Board of Directors, if the Administrator is other than the
Board of Directors.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee, director
or consultant of the Company or of an Affiliate at the time an Option is
granted. Notwithstanding any of the foregoing provisions, the Administrator may
authorize the grant of an Option to a person not then an employee, director or
consultant of the Company or of an Affiliate. The actual grant of such Option,
however, shall be conditioned upon such person becoming eligible to become a
Participant at or prior to the time of the execution of the Option Agreement
evidencing such Option. ISOs may be granted only to Key Employees. Non-Qualified
Options may be granted to any Key Employee, director or consultant of the
Company or an Affiliate. The granting of any Option to any individual shall
neither entitle that individual to, nor disqualify him or her from,
participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such conditions as the Administrator may deem appropriate
including, without limitation, subsequent approval by the stockholders of the
Company of this Plan or any amendments thereto. The Option Agreements shall be
subject to at least the following terms and conditions:
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest of
the Company, subject to the following minimum standards for any such
Non-Qualified Option:
a. Option Price: The option price (per share) of the Shares covered
by each Option shall be determined by the Administrator but shall
not be less than the par value per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which
it pertains;
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in installments over a period of months or
years, or upon the occurrence of certain conditions or the
attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
4
<PAGE>
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to at least the following terms and
conditions, with such additional restrictions or changes as the
Administrator determines are appropriate but not in conflict with Code
Section 422 and relevant regulations and rulings of the Internal
Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described above, except
clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Code Section 424(d):
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred percent
(100%) of the Fair Market Value per share of the Shares on
the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, each Option shall terminate not more than ten
(10) years from the date of the grant or at such earlier
time as the Option Agreement may provide;
ii. More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (e) shall have no
force or effect if its inclusion in the Plan is not necessary for
Options issued as ISOs to qualify as ISOs pursuant to Section
422(d) of the Code.
e. Limitation on Grant of ISOs: No ISOs shall be granted after the
date which is the earlier of ten (10) years from the date of the
-------
adoption of the Plan by the Company and the date of the approval
of the Plan by the shareholders of the Company.
7. EXERCISE OF OPTION AND ISSUE OF SHARES.
--------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address, together with
provision for payment of the full purchase price in accordance with this
paragraph for the Shares as to which such Option is being exercised, and upon
compliance with any other
5
<PAGE>
condition(s) set forth in the Option Agreement. Such written notice shall be
signed by the person exercising the Option, shall state the number of Shares
with respect to which the Option is being exercised and shall contain any
representation required by the Plan or the Option Agreement. Payment of the
purchase price for the Shares as to which such Option is being exercised shall
be made (a) in United States dollars in cash or by check, or (b) at the
discretion of the Administrator, through delivery of shares of Common Stock
having a fair market value equal as of the date of the exercise to the cash
exercise price of the Option, determined in good faith by the Administrator, or
(c) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (d) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator or (e) at the discretion of the Administrator, by
any combination of (a), (b), (c) and (d) above. Notwithstanding the foregoing,
the Administrator shall accept only such payment on exercise of an ISO as is
permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which such
Option was exercised to the Participant (or to the Participant's Survivors, as
the case may be). In determining what constitutes "reasonably promptly," it is
expressly understood that the delivery of the Shares may be delayed by the
Company in order to comply with any law or regulation which requires the Company
to take any action with respect to the Shares prior to their issuance. The
Shares shall, upon delivery, be evidenced by an appropriate certificate or
certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 19) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in paragraph
6(e).
8. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom an Option has been granted shall have rights as a
shareholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
--------------------------------------------
By its terms, an Option granted to a Participant shall not be transferable
by the Participant other than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act or the rules thereunder,
provided, however, that the designation of a beneficiary of an Option by a
Participant shall not be deemed a transfer prohibited by this paragraph. Except
as provided in the preceding sentence, an Option shall be exercisable, during
the Participant's lifetime, only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon an Option, shall be null and void.
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE".
-------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Options, the following rules apply:
6
<PAGE>
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
"for cause", Disability, or death for which events there are special
rules in Paragraphs 11, 12, and 13, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only
within such term as the Administrator has designated in the pertinent
Option Agreement.
b. In no event may an Option Agreement provide, if the Option is intended
to be an ISO, that the time for exercise be later than three (3)
months after the Participant's termination of employment.
c. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director
status or termination of consultancy, but prior to the exercise of an
Option, the Board of Directors determines that, either prior or
subsequent to the Participant's termination, the Participant engaged
in conduct which would constitute "cause", then such Participant shall
forthwith cease to have any right to exercise any Option.
d. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have
terminated such Participant's employment, director status or
consultancy with the Company or with an Affiliate, except as the
Administrator may otherwise determine.
e. Options granted under the Plan shall not be affected by any change of
employment or other service within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate, provided,
however, if a Participant's employment by either the Company or an
Affiliate should cease (other than to become an employee of an
Affiliate or the Company), such termination shall affect the
Participant's rights under any Option granted to such Participant in
accordance with the terms of the Plan and the pertinent Option
Agreement.
7
<PAGE>
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all of his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the date the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited, unless the Option Agreement provides
otherwise.
b. For purposes of this Paragraph, "cause" shall include (and is not
limited to) dishonesty with respect to the employer, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized
disclosure of confidential information, and conduct substantially
prejudicial to the business of the Company or any Affiliate. The
determination of the Administrator as to the existence of cause will
be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause"
for termination and which is in effect at the time of such
termination, shall supersede the definition in this Plan with respect
to such Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of
the accrual period which next ends following the date of Disability.
The proration shall be based upon the number of days of such accrual
period prior to the date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date that the Participant became Disabled,
notwithstanding that the Participant might have been able to exercise the Option
as to some or all of the Shares on a later date if he or she had not become
disabled and had continued to be an employee, director or consultant or, if
earlier, within the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
8
<PAGE>
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant to whom an Option has been granted while the
Participant is an employee, director or consultant of the Company or of an
Affiliate, such Option may be exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration
shall be based upon the number of days of such accrual period prior to
the Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
14. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"),
the Company shall be under no obligation to issue the Shares covered by such
exercise unless and until the following conditions have been fulfilled:
a. The person(s) who exercise such Option shall warrant to the Company,
prior to the receipt of such Shares, that such person(s) are acquiring
such Shares for their own respective accounts, for investment, and not
with a view to, or for sale in connection with, the distribution of
any such Shares, in which event the person(s) acquiring such Shares
shall be bound by the provisions of the following legend which shall
be endorsed upon the certificate(s) evidencing their Shares issued
pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by
any person, including a pledgee, unless (1) either (a) a
Registration Statement with respect to such shares shall be
effective under the Securities Act of 1933, as amended, or (b)
the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such
Act is then available, and (2) there shall have been compliance
with all applicable state securities laws.
b. The Company shall have received an opinion of its counsel that the
Shares may be issued upon such particular exercise in compliance with
the 1933 Act without registration thereunder.
The Company may delay issuance of the Shares until completion of any action
or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such
9
<PAGE>
date shall not have been exercised will terminate and become null and void;
provided, however, that if the rights of a Participant or a Participant's
Survivors have not otherwise terminated and expired, the Parti cipant or the
Participant's Survivors will have the right immediately prior to such
dissolution or liquidation to exercise any Option to the extent that the Option
is exercisable as of the date immediately prior to such dissolution or
liquidation.
16. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which have not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the written agreement between the
Participant and the Company relating to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall
--------------------------------
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of such Option shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be consolidated with or
-------------------------
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this subsection), within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
Fair Market Value of the shares subject to such Options (either to the extent
then exercisable or, at the discretion of the Administrator, all Options being
made fully exercisable for purposes of this subsection) over the exercise price
thereof.
C. Recapitalization or Reorganization. In the event of a recapitalization
----------------------------------
or reorganization of the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities he or she would have
received if he or she had exercised such Option prior to such recapitalization
or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing indicates that the holder has full knowledge of the
consequences of such "modification" on his or her income tax treatment with
respect to the ISO.
17. ISSUANCES OF SECURITIES.
-----------------------
10
<PAGE>
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company.
18. FRACTIONAL SHARES.
-----------------
No fractional share shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional share equal to the Fair Market Value thereof.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS:
----------------------------------------------
TERMINATION OF ISOs.
-------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISO's converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Administrator takes appropriate action. The Administrator, with the consent
of the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such termination.
20. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Option holder's salary, wages or other remuneration in connection with
the exercise of an Option or a Disqualifying Disposition (as defined in
Paragraph 21), the Option holder shall advance in cash to the Company, or to any
Affiliate of the Company which employs or employed the Option holder, the amount
of such withholdings unless a different withholding arrangement, including the
use of shares of the Company's Common Stock, is authorized by the Administrator
(and permitted by law), provided, however, that with respect to persons subject
to Section 16 of the 1934 Act, any such withholding arrangement shall be in
compliance with any applicable provisions of Rule 16b-3 promulgated under
Section 16 of the 1934 Act. For purposes hereof, the fair market value of the
shares withheld for purposes of payroll withholding shall be determined in the
manner provided in Paragraph 1 above, as of the most recent practicable date
prior to the date of exercise. If the fair market value of the shares withheld
is less than the amount of payroll withholdings required, the Option holder may
be required to advance the difference in cash to the Company or the Affiliate
employer. The Administrator in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO.
11
<PAGE>
A Disqualifying Disposition is any disposition (including any sale) of such
shares before the later of (a) two years after the date the Key Employee was
granted the ISO, or (b) one year after the date the Key Employee acquired shares
by exercising the ISO. If the Key Employee has died before such stock is sold,
these holding period requirements do not apply and no Disqualifying Disposition
can occur thereafter.
22. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on the date which is twenty (20) years from the
earlier of the date of its adoption and the date of its approval by the
- -------
stockholders of the Company. The Plan may be terminated at an earlier date by
vote of the stockholders of the Company; provided, however, that any such
earlier termination will not affect any Options granted or Option Agreements
executed prior to the effective date of such termination.
23. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the stockholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Options granted under the
Plan or Options to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, to the extent necessary
to ensure the qualification of the Plan under Rule 16b-3, at such time, if any,
as the Company has a class of stock registered pursuant to Section 12 of the
1934 Act, and to the extent necessary to qualify the shares issuable upon
exercise of any outstanding Options granted, or Options to be granted, under the
Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which is of a scope that requires stockholder
approval in order to ensure favorable federal income tax treatment for any
incentive stock options or requires stockholder approval in order to ensure the
compliance of the Plan with Rule 16b-3 at such time, if any, as the Company has
a class of stock registered pursuant to Section 12 of the 1934 Act, shall be
subject to obtaining such stockholder approval. Any modification or amendment of
the Plan shall not, without the consent of a Participant, adversely affect his
or her rights under an Option previously granted to him or her. With the consent
of the Participant affected, the Administrator may amend outstanding Option
Agreements in a manner which may be adverse to the Participant but which is not
inconsistent with the Plan. In the discretion of the Administrator, outstanding
Option Agreements may be amended by the Administrator in a manner which is not
adverse to the Participant.
24. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, consultancy or director
status of a Participant, nor to prevent a Participant from terminating his or
her own employment, consultancy or director status or to give any Participant a
right to be retained in employment or other service by the Company or any
Affiliate for any period of time.
25. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
12
<PAGE>
Exhibit 12
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(In thousands, except ratios)
<TABLE>
<CAPTION>
Years Ended April 30,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt $ 10,127 $ 11,758 $ 11,769 $ 12,300 $ 14,599
Amortization of debt issue costs 474 476 368 383 456
-------- -------- -------- -------- --------
Total fixed charges $ 10,601 $ 12,234 $ 12,137 $ 12,683 $ 15,055
======== ======== ======== ======== ========
Earnings, as defined:
Income (loss) before income taxes
and extraordinary item $ 2,022 $ (3,091) $ (3,509) $ 1,302 $ 1,496
Fixed charges (as shown above) 10,601 12,234 12,137 12,683 15,055
-------- -------- -------- -------- --------
Earnings available for fixed charges $ 12,623 $ 9,143 $ 8,628 $ 13,985 $ 16,551
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.19x .75x .71x 1.10x 1.10x
======== ======== ======== ======== ========
</TABLE>
<PAGE>
Exhibit 13
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Computation of Earnings Before Interest, Taxes, Depreciation,
Amortization, and Non-cash Post-retirement Benefit Expense (EBITDA)
(In thousands)
<TABLE>
<CAPTION>
Years Ended April 30,
------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income (loss) before extraordinary item $ (3,509) $ 1,797 $ 1,496
Interest expense 11,769 12,300 14,599
Income tax expense (benefit) - (495) -
Depreciation and amortization 6,775 7,112 7,726
Gain (loss) on retirement of equipment - 180 (15)
Accrual of post-retirement benefit
expense, net of cash paid 1,272 1,893 1,392
-------- -------- --------
EBITDA $ 16,307 $ 22,787 $ 25,198
======== ======== ========
Restructuring expense 1,320 - -
-------- -------- --------
EBITDA, excluding restructuring expense $ 17,627 $ 22,787 $ 25,198
======== ======== ========
</TABLE>
<PAGE>
Exhibit 21
Sheffield Steel Corporation
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State of
Name of Subsidiary Incorporation D/B/A
- ------------------ ------------- -----
<S> <C> <C>
Sand Springs Railroad Company Oklahoma Sand Springs Railroad Company
Sheffield Steel Corporation-
Oklahoma City Delaware Sheffield Steel Corporation-Oklahoma City
Waddell's Rebar Fabricators, Inc. Missouri Waddell's Rebar Fabricators, Inc.
Wellington Industries, Inc. Oklahoma Wellington Industries, Inc.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT AS OF AND FOR THE YEAR ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 20,601
<ALLOWANCES> 658
<INVENTORY> 44,034
<CURRENT-ASSETS> 68,902
<PP&E> 131,561
<DEPRECIATION> 63,251
<TOTAL-ASSETS> 152,561
<CURRENT-LIABILITIES> 29,580
<BONDS> 122,710
0
0
<COMMON> 35
<OTHER-SE> (12,178)
<TOTAL-LIABILITY-AND-EQUITY> 152,561
<SALES> 163,444
<TOTAL-REVENUES> 163,444
<CGS> 125,013
<TOTAL-COSTS> 125,013
<OTHER-EXPENSES> 7,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,599
<INCOME-PRETAX> 1,496
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,496
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
