<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number: 33-67532
SHEFFIELD STEEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2191557
(State or other (I.R.S. Employer
jurisdiction of incorporation) identification No.)
220 North Jefferson Street
Sand Springs, OK 74063
(Address of principal executive offices)
(918) 245-1335
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
-----
At the date of this filing, there were 3,459,300 shares of the Registrant's
$.01 par value Common Stock outstanding. The aggregate market value of voting
stock held by nonaffiliates is unknown as the Registrant's stock is not traded
on an established public trading market.
<PAGE>
SHEFFIELD STEEL CORPORATION
FORM 10-Q
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
April 30, 1999 and July 31, 1999 3
Consolidated Condensed Statements of Operations -
Three months ended July 31, 1998 and 1999 4
Consolidated Condensed Statements of Cash Flows -
Three months ended July 31, 1998 and 1999 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
2
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
July 31,
April 30, 1999
Assets 1999 Unaudited
- ------ ---- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 86 295
Accounts receivable, less allowance for doubtful accounts of $658
at April 30, 1999 and $733 at July 31, 1999 19,943 22,948
Inventories 44,034 46,399
Other current assets 4,839 4,548
-------- -------
Total current assets 68,902 74,190
Property, plant and equipment, net 68,310 68,179
Intangible assets, net 10,011 9,776
Other assets 3,626 3,879
Deferred income tax asset, net 1,712 1,662
-------- -------
Total assets $152,561 157,686
======== =======
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,885 2,783
Accounts payable 14,878 14,003
Accrued interest payable 5,362 2,236
Accrued liabilities 6,455 7,162
-------- -------
Total current liabilities 29,580 26,184
Long-term debt, excluding current portion 122,710 128,065
Accrued post-retirement benefit costs 12,380 12,775
Other liabilities 1,088 1,087
-------- -------
Total liabilities 165,758 168,111
-------- -------
Stockholders' deficit:
Common stock 35 35
Additional paid-in capital 2,024 2,024
Accumulated deficit (14,202) (11,417)
-------- -------
Total stockholders' deficit (12,143) (9,358)
Less loans to stockholders 1,054 1,067
-------- -------
(13,197) (10,425)
-------- -------
Total liabilities and stockholders' deficit $152,561 157,686
======== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
---------------------
1998 1999
---- ----
<S> <C> <C>
Sales $43,077 42,939
Cost of sales 33,848 31,821
------- ------
Gross profit 9,229 11,118
Selling, general and administrative expense 3,602 4,098
Depreciation and amortization expense 1,864 2,084
Postretirement benefit expense other than pensions 730 646
Litigation settlement - (2,326)
------- ------
Operating income 3,033 6,616
Other expense:
Interest expense, net 3,481 3,698
Other 15 133
------- ------
3,496 3,831
------- ------
Income (loss) from operations before
Income taxes (463) 2,785
Income tax expense - -
------- ------
Net income (loss) $ (463) 2,785
======= ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (463) 2,785
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,945 2,163
Loss on sale of assets held for sale - 118
Accrual of postretirement benefits other than pensions,
Net of cash paid 480 395
Changes in assets and liabilities (9,749) (8,890)
------- ------
Net cash used in operating activities (7,787) (3,429)
------- ------
Cash flows from investing activities:
Capital expenditures (1,254) (1,797)
Proceeds from sale assets held for sale - 182
------- ------
Net cash used in investing activities (1,254) (1,615)
------- ------
Cash flows from financing activities:
Net increase in long-term debt 7,307 5,253
Other (655) -
------- ------
Net cash provided by financing activities 6,652 5,253
------- ------
Net (decrease) increase in cash (2,389) 209
Cash and cash equivalents at beginning of period 2,590 86
------- ------
Cash and cash equivalents at end of period $ 201 295
======= ======
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the period for interest $ 6,443 6,743
======= ======
Cash paid during the period for income taxes $ - 30
======= ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
July 31, 1998 and 1999
(In thousands)
(Unaudited)
1) Basis of Presentation and Summary of Accounting Policies
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), 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. Our products are sold
throughout the continental United States. We operate in a single operating
segment providing steel products and services to the steel manufacturing and
fabricating industry.
These condensed consolidated interim financial statements have been prepared by
us without audit, according to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments that we believe were necessary
for a fair statement of the results for the interim periods. All adjustments
made were normal recurring accruals. We suggest that these interim financial
statements are read in conjunction with the financial statements and notes
contained in our Form 10-K for the year ended April 30, 1999. Operating results
for the three months ended July 31, 1999 are not necessarily indicative of the
results that we expect for the year ending April 30, 2000.
2) Inventories
The components of inventories are as follows:
July 31,
April 30, 1999
1999 (Unaudited)
---- ---------
Raw materials and storeroom supplies $12,408 12,201
Work in process 13,390 16,254
Finished goods 18,236 17,944
------- ------
$44,034 46,399
======= ======
6
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
3) Long-term Debt
Long-term debt is comprised of the following:
July 31,
April 30, 1999
1999 (Unaudited)
---- ---------
First mortgage notes $110,000 110,000
Revolving credit agreement 6,285 12,687
Railway term loan 1,000 1,000
Railway revolving credit agreement 620 16
Equipment notes 4,931 4,511
Notes payable 2,759 2,634
-------- -------
125,595 130,848
Less current portion 2,885 2,783
-------- -------
$122,710 128,065
======== =======
On July 31, 1999, we amended our revolving credit agreement primarily to
increase our line of credit to $50 million.
4) Litigation Settlement
We were party to a lawsuit with several other steel manufacturers against
certain manufacturers of graphite electrodes related to price fixing within the
electrode industry. We recognized approximately $2,326 related to settlements
reached this quarter with certain of the defendents. We have received
approximately $1,325 in cash and the remainder is secured by a letter of credit
and included in accounts receivable.
7
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SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion should be read in conjunction with our
Consolidated Condensed Financial Statements and notes included in this Form
10-Q.
Results of Operations
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>
Three Months Ended July 31,
--------------------------------------------------------------
1998 1999
---------------------------- --------------------------
Operating Results: Net Sales % of Sales Net Sales % of Sales
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sales
Cost of sales $43,077 100.0% 42,939 100.0%
33,848 78.5% 31,821 74.1%
------- ------
Gross Profit
9,229 21.4% 11,118 25.9%
Selling and administrative
Depreciation and amortization 3,602 8.4% 4,098 9.5%
Postretirement benefit expense 1,864 4.3% 2,084 4.9%
Litigation settlement 730 1.7% 646 1.5%
- - (2,326) (5.4%)
------- ------
Operating income
3,033 7.0% 6,616 15.4%
Interest expense, net
Other 3,481 8.1% 3,698 8.6%
15 0.0% 133 0.3%
Income (loss) from operations ------- ------
before income taxes (463) (1.1%) 2,785 6.5%
Income tax benefit
- - - -
------- ------
Net income (loss)
$ (463) (1.1%) 2,785 6.5%
======= ======
</TABLE>
8
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
The following table provides information regarding the historical shipment
levels and average selling prices per ton:
Three Months Ended July 31,
----------------------------
1998 1999
------ ------
Tons shipped:
Hot Rolled Bars 44,664 38,452
Rebar 41,669 50,898
Fabricated Products 14,538 17,573
------- -------
Total finished products 100,871 106,923
Billets 9,447 8,393
------- -------
Total tons shipped 110,318 115,316
======= =======
Price per ton:
Hot Rolled Bars $ 454 447
Rebar 302 287
Fabricated Products 495 505
Billets 223 179
Average price per ton shipped 390 372
Average production cost per ton 307 276
Three Months Ended July 31, 1999 As Compared To Three Months Ended July 31, 1998
Sales. Sales for the first quarter of fiscal 2000 were $42.9 million.
Shipments increased in comparison to the same quarter in the prior year, while
pricing generally decreased as summarized below:
. In comparison to the first quarter of fiscal 1999, shipments and pricing of
our hot rolled bar products have been impacted by market conditions,
particularly the Joliet market, where shipments decreased 13%. We continue to
experience lower sales of hot rolled bars that support certain industries such
as oil field and agricultural equipment.
. Rebar shipments rebounded due to our favorable inventory position in
comparison to the first quarter of fiscal 1999. In the prior year, we had very
low inventories due to the rolling mill outage at the Sand Springs Facility in
the fourth quarter of fiscal 1998. Rebar demand continues to be strong, however
pricing has been impacted by imports and lower scrap raw material costs.
. In October 1998, we purchased Wellington, a railroad track spike
manufacturer, which increased sales of fabricated products and improved average
selling prices.
. Steel scrap raw material costs decreased in comparison to the first quarter
of fiscal 1999 affecting cost of sales and billet pricing.
Cost of Sales and Expenses. Average product costs decreased to $276 in the
first quarter of fiscal 2000 from $307 in the first quarter of fiscal 1999 due
to decreases in steel scrap raw material costs, partially offset by the higher
costs associated with finished goods product mix.
Selling, general and administrative expenses increased approximately $0.5
million over the first quarter of fiscal 1999, due to recruiting and severance
costs as well as the acquisition of Wellington in October 1998.
9
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
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. During the second quarter of fiscal 1999,
we recorded approximately $2.3 million related to this lawsuit. In the first
quarter of fiscal 2000, we recorded an additional $2.3 million from different
defendants, of which $1.3 million was received during the first quarter of
fiscal 2000.
Interest expense increased in comparison to the first fiscal quarter of the
prior year due to the level of outstanding debt during the quarter. In the past
year, additions to debt were due to working capital requirements and capital
expenditures, including approximately $5 million of equipment financing related
to the Shear Line Project at the Sand Springs mill. Additions to debt during
this quarter were due to working capital requirements.
Liquidity and Capital Resources
As of July 31, 1999, we had long-term indebtedness of $130.8 million and
approximately $28.4 million of additional borrowing availability under our
revolving credit agreements. We continue to comply with all of our loan
agreements. 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 approximately $3.4 million for
the three month period ended July 31, 1999, as compared with cash flow used in
operating activities of approximately $7.8 million for the three month period
ended July 31, 1998. Improvements in cash flows from operating activities was
primarily the result of our improved operating performance, offset, in part, by
increases in accounts receivable related to the litigation settlement and
increases in billet inventories prior to the annual melt shop outage. Cash used
in investing activities in the three months ended July 31, 1999 was
approximately $1.6 million, consisting of capital expenditures and proceeds from
the sale of land and building. Primarily all of the capital expenditures
consisted of normal capital projects required or justified economically. For the
three month period ended July 31, 1999, cash provided by financing activities
consisted primarily of draws on the Revolving Credit Facility to fund increases
in accounts receivable and inventory.
Earnings before interest, taxes, depreciation, amortization, and the non-
cash portion of the post-retirement expense (EBITDA) was approximately $6.8
million for the quarter ended July 31, 1999 excluding the litigation settlement,
compared to approximately $5.4 million for the same quarter 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.
10
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
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 are 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 service 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.
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
accounts receivable system is currently not Y2K compliant, but is expected to be
compliant by December 15, 1999.
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 ascertain the potential risks within the
supply chain, specifically in the areas of raw materials and utilities. We have
received responses from
11
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
approximately 90% 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 September 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 been and are
expected to remain insignificant. Costs incurred to date have been under
$100,000.
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.
12
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. 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 HOLERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See exhibit index.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter ended July 31, 1999.
13
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
SHEFFIELD STEEL CORPORATION
Date: September 10, 1999 /s/ Robert W. Ackerman
------------------ -----------------------------------
Robert W. Ackerman, President
and Chief Executive Officer
Date: September 10, 1999 /s/ Stephen R. Johnson
------------------ -----------------------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
14
<PAGE>
Exhibit Index
Exhibit No. Description Page No.
- ----------- ----------- --------
4.20 Ninth Amendment to Receivable and Inventory Financing
Agreement, dated July 31, 1999 between Sheffield Steel
Corporation and Bank of America, N.A. 16
<PAGE>
Exhibit 4.20
NINTH AMENDMENT TO RECEIVABLE AND
INVENTORY FINANCING AGREEMENT
THIS NINTH AMENDMENT TO RECEIVABLE AND INVENTORY FINANCING AGREEMENT (this
"Amendment") is made and entered into as of the 31st day of July, 1999, among
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., a Missouri corporation ("Waddell"), WELLINGTON
INDUSTRIES, INC., an Oklahoma corporation ("Wellington"; Sheffield, Waddell and
Wellington are sometimes referred to individually as a "Company" and
collectively as the "Companies"), and BANK OF AMERICA, N.A., a national banking
association, formerly NationsBank, N.A., also 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 Companies and the Lender are parties to that
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 provide certain financial accommodations on the terms and
conditions stated therein; 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 are
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) Add the following new definition to Section 1.1 in the appropriate
alphabetical order:
"Fixed Charge Coverage Ratio" shall mean, as of the date of
determination, in each case on a consolidated basis for the Companies and
their consolidated Subsidiaries, the ratio of (a) EBITDA, minus dividends
and other distributions with respect to the capital stock of Sheffield,
minus taxes paid in cash, in each case for the twelve fiscal month period
most recently ended, to (b) Interest Expense, plus payments made or
scheduled to be made on long term debt and Capitalized Lease Obligations,
in each case for the twelve fiscal month period most recently ended.
(b) Delete the definitions of "Applicable Margin" and "Loans" from Section
1.1 and replace them with the following:
"Applicable Margin" shall mean an amount determined in accordance with
Annex I attached hereto based upon the Fixed Charge Coverage Ratio as of
the date of 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 Companies' financial statements as of the last day of each
fiscal month (commencing with the financial statements for the fiscal month
ending on or about July 31, 1999) 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 Companies' audited financial statements in conformance with Section
8.3(b). In the event the Companies fail 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.
<PAGE>
"Loans" shall mean the Loan or Loans in the original principal amount
of up to US Fifty Million Dollars (US$50,000,000.00) made by the Lender to
the Companies pursuant to and in accordance with the terms of this
Agreement.
(c) Delete the first sentence of Section 2.1 and replace it with the
following:
2.1 THE LOANS. The Lender agrees to make loans to the Companies, and
the Companies agree to borrow from the Lender, upon the request of any
Company from time to time up to (i) 80% of the face value of the Companies'
Eligible Receivables, plus (ii) 60% of the lower of the fair market value
or cost of the Companies' Eligible Inventory, less (iii) such reserves as
the Lender may in its absolute discretion establish at any time that an
Event of Default exists; provided, however, that the total amount of all
Loans outstanding at any one time under the terms of this Agreement shall
not at any time exceed US Fifty Million Dollars (US$50,000,000.00), and the
total amount of all Loans outstanding at any one time under this Agreement
against Eligible Inventory shall not exceed US Thirty-Four Million Dollars
(US$34,000,000.00).
(d) Delete the first sentence of Section 2.2(d) and replace it with the
following:
(d) Certain Fees. As additional consideration for the credit
facility established in Section 2.1 hereof, the Companies agree 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, less
$10,000,000.00, during the prior month; provided, from and after the date
on which the amount of Obligations outstanding first exceeds
$30,000,000.00, such facility fee will be equal to 0.5% per annum of the
average unused portion of the facility during the prior month.
(e) Delete the first sentence of Section 2.6 and replace it with the
following:
2.6 EFFECTIVE DATE AND TERMINATION. This Agreement shall be
effective on January 16, 1992 and shall continue in full force and effect
until November 1, 2002, and from year to year thereafter unless terminated
on any such anniversary date by either the Lender or Sheffield, on behalf
of the Companies, giving to the other not less than sixty (60) days' prior
written notice.
(f) Delete Section 8.13 and replace it with the following:
8.13 MINIMUM FIXED CHARGE COVERAGE RATIO. The Companies and their
consolidated Subsidiaries shall maintain at all times a Fixed Charge
Coverage Ratio, measured as of any date of determination for the 12-month
period ending on such date, of at least 1.0 to1.
(g) Delete Section 9.16 and replace it with the following:
9.16 MINIMUM AVAILABILITY. The Companies shall not permit
Availability to be less than the amount that corresponds to the then
current Fixed Charge Coverage Ratio as set forth in the matrix below:
Fixed Charge Coverage Ratio Minimum Availability
--------------------------- --------------------
Less than 1.20 $5,000,000.00
1.20 or greater, but less than 1.40 $2,500,000.00
1.40 or greater, but less than 1.60 $1,500,000.00
Greater than or equal to 1.60 $1,000,000.00
(h) Add the following new Section 9.18:
9.18 CAPITAL EXPENDITURES. From and after the earlier to occur of (a)
the date on which Availability first becomes less than $7,500,000, and (b)
the date on which the outstanding Obligations first become greater than
$30,000,000, the Companies shall not make or incur Capital Expenditures, in
the aggregate, for the then current fiscal year in excess of the greater of
(y) $4,000,000.00 and (z) (i) $8,000,000.00, multiplied by (ii) the number
of fiscal months remaining in such fiscal year, and (iii) divided by
twelve. From and after such fiscal year, the Companies shall not
<PAGE>
make or incur Capital Expenditures in excess of $8,000.000.00 in the
aggregate in any fiscal year thereafter.
(i) Delete the existing ANNEX I and replace it with the following:
ANNEX I
Performance Pricing Matrix
--------------------------
=====================================================
FIXED CHARGE Prime Rate Eurodollar
RATIO Margin Rate Margin
=====================================================
1.60 or greater 0.00% 2.25%
-----------------------------------------------------
1.40 or greater, but 0.00% 2.50%
less than 1.60
-----------------------------------------------------
1.20 or greater, but 0.00% 2.75%
less than 1.40
-----------------------------------------------------
Less than 1.20 0.25% 3.00%
=====================================================
3. Borrowing Base Certificate. The Companies shall deliver to the Lender
--------------------------
a borrowing base certificate setting forth the amount of Loans available to be
borrowed in accordance with Section 2.1 of the Agreement, as amended by this
Amendment, together with such other information as the Lender may reasonably
request, for each week by the third Business Day of the following week.
4. Restatement of Representations and Warranties. The Companies hereby
---------------------------------------------
reaffirm each and every representation and warranty heretofore made or deemed to
be made by them 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 and warranties had been made
on the date hereof and with specific reference to this Amendment.
5. No Default. To induce the Lender to enter into this Amendment, each
----------
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 any
Company as against the Lender arising out of or with respect to any of the
Obligations.
6. Effect of Amendment. Except as expressly set forth herein, 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 each 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.
7. 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.
8. Successors and Assigns. This Amendment shall be binding upon and
----------------------
inure to the benefit of the successors and permitted assigns of the parties
hereto.
9. 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.
<PAGE>
10. Costs, Expenses, Taxes and Fees. The Companies agree to pay, on the
-------------------------------
date hereof, a fee of $25,000 for the structuring and approval of this Amendment
(which fee shall be fully earned on such date and shall not be subject to refund
or rebate), and 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. Such fees are
fees for services and are not, nor shall they be deemed to be, interest or a
charge for the use of money.
11. Further Assurances. Each Company agrees to take such further action
------------------
as the Lender shall reasonably request in connection herewith to evidence the
amendments herein contained to the Agreement.
12. Governing Law. This Amendment shall be governed by, and construed in
-------------
accordance with, the laws of the State of Georgia.
<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/ Stephen R. Johnson - Vice President and CFO
----------------------------------------------------
(Title)
Attest: /s/ Cheryl Kaiser
------------------------------------------------
[CORPORATE SEAL]
WADDELL'S REBAR FABRICATORS, INC.
By: /s/ Stephen R. Johnson - Treasurer
----------------------------------------------------
(Title)
Attest: /s/ Cheryl Kaiser
------------------------------------------------
[CORPORATE SEAL]
WELLINGTON INDUSTRIES, INC.
By: /s/ Stephen R. Johnson - Treasurer
----------------------------------------------------
(Title)
Attest: /s/ Cheryl Kasier
------------------------------------------------
[CORPORATE SEAL]
BANK OF AMERICA, N.A., F/K/A 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)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMAYR FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
REPORT AS OF AND FOR THE THREE MONTHS ENDED JULY 31, 1999 IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 23,681
<ALLOWANCES> 733
<INVENTORY> 46,399
<CURRENT-ASSETS> 74,190
<PP&E> 68,179
<DEPRECIATION> 0
<TOTAL-ASSETS> 157,686
<CURRENT-LIABILITIES> 26,184
<BONDS> 128,065
0
0
<COMMON> 35
<OTHER-SE> (9,393)
<TOTAL-LIABILITY-AND-EQUITY> 157,686
<SALES> 42,939
<TOTAL-REVENUES> 42,939
<CGS> 31,821
<TOTAL-COSTS> 31,821
<OTHER-EXPENSES> 2,084
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 3,698
<INCOME-PRETAX> 2,785
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,785
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
