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 October 31, 2000 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 3,517,626 shares of the Registrant's $.01 par value Common Stock outstanding. The aggregate market value of voting stock held by non-affiliates is unknown, as the Registrant's stock is not traded on an established public trading market. SHEFFIELD STEEL CORPORATION FORM 10-Q Index Page ---- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - October 31, 2000 and April 30, 2000 3 Consolidated Condensed Statements of Operations - Three and six month periods ended October 31, 2000 and 1999 4 Consolidated Condensed Statements of Cash Flows - Six months ended October 31, 2000 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 8-14 Part II. Other Information Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 2 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (In thousands)

~~July~~October 31, 2000 April 30, ~~ASSETS~~Assets Unaudited 2000 ------ ---------~~-----~~ ----~~----~~ Current assets: Cash and cash equivalents $ 80148 $ 79 Accounts receivable, less allowance for doubtful accounts of $~~568~~444 at ~~July~~October 31, 2000 and $~~541~~541at at April 30, 2000 22,~~078~~494 25,320 Inventories 4945,~~163~~354 49,333 Other current assets 45,~~362~~480 4,727 -------- -------- Total current assets 7573,~~683~~476 79,459 Property, plant and equipment, net 6566,~~946~~359 66,245 Intangible assets, net 98,~~094~~842 9,346 Other assets 3,~~253~~328 3,560 Deferred income tax asset, net 1,843 1,843 -------- -------- $~~155~~153,~~819~~848 160,453 ======== ======== ~~LIABILITIES~~Liabilities ~~AND~~and ~~STOCKHOLDERS~~Stockholders' ~~DEFICIT~~Deficit ------------------------------------- Current liabilities: Current portion of long-term debt $ 2,607 $ 2,607 Accounts payable 13,~~594~~669 20,722 Accrued interest payable 25,~~291~~397 5,385 Accrued liabilities 6,~~873~~571 6,701 -------- -------- Total current liabilities 2528,~~365~~244 35,415 Long-term debt, excluding current portion ~~138~~135,~~671~~953 130,135 Accrued post-retirement benefit costs 1314,~~770~~166 13,374 Other liabilities 1,~~171~~169 742 -------- -------- Total liabilities ~~178~~179,~~977~~532 179,666 -------- -------- Stockholders' deficit: Common stock 36 35 Additional paid-in capital - - Accumulated deficit (2023,~~951~~474) (18,141) -------- -------- (2023,~~915~~438) (18,106) Less loans to stockholders 2,~~243~~246 1,107 -------- -------- Total stockholders' deficit (2325,~~158~~684) (19,213) -------- -------- $~~155~~153,~~819~~848 $160,453 ======== ========

See accompanying notes to consolidated condensed financial statements. 3 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Operations (In thousands) (Unaudited)

Three Months Ended ~~July~~Six Months Ended October 31, October 31, ----------------------- ----------------------- 2000 1999 2000 1999 ------- ------ ------ ------ Sales $45,~~775~~769 $42,~~939~~513 91,544 85,452 Cost of sales 36,~~223~~952 3132,~~821~~789 73,175 64,610 ------- ------ ------ ------ Gross profit 8,817 9,~~052~~724 1118,~~118~~369 20,842 Selling, general and administrative expense 4,080 3,~~688~~819 47,~~098~~768 7,917 Depreciation and amortization expense 2,~~104~~108 2,~~084~~075 4,212 4,159 Postretirement benefit expense other than pensions 646 646 1,292 1,292 Litigation settlement - - - (2,326) ------- ------ ------ ------ Operating income 1,983 3,~~114~~184 65,~~616~~097 9,800 Other expense: Interest expense, net 4,~~113~~148 3,~~698~~710 8,261 7,408 Other -4 ~~133~~15 4 148 ------- ------ ------ ------ 4,~~113~~152 3,~~831~~725 8,265 7,556 ------- ------ ------ ------ Income (loss) from operations before ~~income~~Income taxes (~~999~~2,169) (541) (3,168) 2,~~785~~244 Income tax expense - - - - ------- ------ ------ ------ Net income (loss) $(2,169) (~~999~~541) $(3,168) 2,~~785~~244 ======= ====== ====== ======

See accompanying notes to consolidated condensed financial statements. 4 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited)

~~Three~~Six Months Ended ~~July~~October 31, -------------------------~~-------------~~ 2000 1999 ------- ------- Cash flows from operating activities: Net income (loss) $ (~~999~~3,168) $ 2,~~785~~244 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 24,~~185~~344 24,~~163~~321 Loss (gain) on sale of assets held for sale - 118 Accrual of postretirement benefits other than pensions, ~~net~~Net of cash paid ~~396~~792 ~~395~~790 Changes in assets and liabilities (~~5,537~~460) (84,~~890~~473) ------- ------- Net cash ~~used~~provided inby operating activities (31,~~955)~~508 (3,~~429)~~000 ------- ------- Cash flows from investing activities: Capital expenditures (13,~~646~~968) (13,~~797~~229) Proceeds from sale of assets held for sale - 182 ------- ------- Net cash used in investing activities (13,~~646~~968) (13,~~615~~047) ------- ------- Cash flows from financing activities: Net increase (decrease) in long-term debt ~~8,536~~ 5,~~253~~818 (356) Other (23,~~934~~289) -401 ------- ------- Net cash provided by financing activities 52,~~602~~529 ~~5,253~~45 ------- ------- Net (decrease) increase in cash 169 ~~209~~(2) Cash and cash equivalents at beginning of period 79 86 ------- ------- Cash and cash equivalents at end of period $148 8084 ~~$ 295~~ ======= ======= Supplemental disclosure of cash flow information ------------------------------------------------ Cash paid during the period for interest $8,087 7,~~126~~203 ~~$ 6,743~~ ======= ======= Cash paid during the period for income taxes $ - $105 30 ======= ======= Noncash item: Dividend declared - 2,500 Increase in loans to ~~stockholders~~Shareholders $ 1,~~123~~139 $ - ======= =======

See accompanying notes to consolidated condensed financial statements. 5 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements October 31, 1999 and 2000 (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, Waddell's Rebar Fabricators, Inc. (Waddell), Wellington Industries, Inc. (Wellington) and Sand Springs Railway Company (the Railway). HMK Enterprises, Inc. (HMK) owns approximately 91% 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, 2000. Operating results for the three months ended October 31, 2000 are not necessarily indicative of the results that we expect for the year ending April 30, 2001. 2) Inventories The components of inventories are as follows: October 31, 2000 April 30, (Unaudited) 2000 ----------- ---- Raw materials and storeroom supplies $11,630 11,419 Work in process 13,958 16,357 Finished goods 19,766 21,557 ------- ------ $45,354 49,333 ======= ====== 6 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements, Continued 3) Long-term Debt Long-term debt is comprised of the following: October 31, 2000 April 30, Unaudited 2000 ----------- --------- First mortgage notes $110,000 110,000 Revolving credit agreement 22,446 15,380 Railway term loan 2,000 2,000 Railway revolving credit agreement 63 92 Equipment notes 3,063 3,543 Notes payable 988 1,727 -------- ------- 138,560 132,742 Less current portion 2,607 2,607 -------- ------- $135,953 130,135 ======== ======= 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 in the first quarter of fiscal 2000 related to settlements reached with certain of the defendants. 7 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, world steel economy, 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) for the quarters ended October 31, 2000 and 1999:

~~July~~Three ~~31,~~Months ~~2000~~Ended ~~April~~October 3031, ~~(Unaudited)~~------------------------------------------------------------- 2000 1999 --------------------------- --------------------------- ~~Raw~~Operating ~~materials~~Results: ~~and~~Net ~~storeroom~~Sales ~~supplies~~% of Sales Net Sales % of Sales --------- ---------- --------- ---------- Sales $1145,~~136~~769 ~~$11~~100.0% 42,~~419~~513 ~~Work~~100.0% inCost ~~process~~of 16sales 36,~~899~~952 1680.7% 32,~~357~~789 ~~Finished~~77.1% ~~goods~~------- 21------ Gross Profit 8,~~128~~817 2119.3% 9,~~557~~724 22.9% Selling and administrative 4,080 8.9% 3,819 9.0% Depreciation and amortization 2,108 4.6% 2,075 4.9% Postretirement benefit expense 646 1.4% 646 1.5% ------- ------ Operating income 1,983 4.3% 3,184 7.5% Interest expense, net 4,148 9.1% 3,710 8.7% Other 4 0.0% 15 0.0% ------- ~~$49~~------ Income (loss) from operations before income taxes (2,~~163~~169) (4.7%) (541) (1.3%) Income tax expense - - - - ------- ------ Net income (loss) $49(2,~~333~~169) (4.7%) (541) (1.3%) ======= =======

8 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES The following table provides information regarding the historical shipment levels and average selling prices per ton: Three Months Ended October 31, ------------------------------ 2000 1999 ------- ------- Tons shipped: Hot Rolled Bars 43,072 38,648 Rebar 53,054 47,795 Fabricated Products 17,668 17,106 ------- ------- Total finished products 113,794 103,549 Billets 14,171 14,618 ------- ------- Total tons shipped 127,965 118,167 ======= ======= Average price per ton shipped 358 360 Average production cost per ton 289 277 Three Months Ended October 31, 2000 As Compared To Three Months Ended October 31, 1999 Sales. Sales for the second quarter of fiscal 2001 were $45.8 million. Shipments increased in comparison to the same quarter in the prior year, while pricing generally decreased as summarized below: . In comparison to the second quarter of fiscal 2000, shipments of our hot rolled bar products out of Sand Springs increased 49%. The Sand Springs Rolling Mill's productivity rates increased over the prior year contributing to increased sales volume. Joliet shipments decreased 5% due to market conditions in the world and domestic steel business and notable weakness in the agricultural equipment industry. Pricing of hot rolled bar products decreased approximately 2% due primarily to product mix, particularly the increase in shipments from Sand Springs and the decrease from Joliet. Certain competitive pressures also influenced pricing. . Rebar shipments increased 11% due to improved weather in our region compared to the second quarter of fiscal year 2000 and continued strength in this sector. Rebar demand continues to be strong, however pricing on twenty-foot and no-grade rebar is down in comparison to the prior year due to the continued impact of imports. . Fabricated product shipments increased 3% as this downstream product group continues to be a steady performer for Sheffield. Pricing improved by 1%, primarily due to sales mix. . Billet shipments were essentially consistent with last year. Cost of Sales and Expenses. Average product costs increased to $289 in the second quarter of fiscal 2001 from $277 in the second quarter of fiscal 2000 due to increases in energy costs and higher costs associated with finished goods product mix. Hot rolled bar and rebar shipments were 9,683 tons higher in the second quarter of fiscal 2001 compared to the same quarter in fiscal 2000. Because of energy costs increasing, we expect our gas and electric utility costs to increase approximately $0.4 million per month for the foreseeable future. Lower scrap steel costs should offset this added expense. SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES 9 Selling, general and administrative expenses increased approximately $0.3 million over the second quarter of fiscal 2000, due to costs associated with process control engineering and design, as well as third party work on certain business systems incurred the second quarter of fiscal 2001. Interest expense increased in comparison to the second fiscal quarter of the prior year due to higher interest rates on our revolving credit agreement and the level of outstanding debt during the quarter. In the past year, additions to debt were due to working capital requirements, capital expenditures, and purchases of common stock. Six Months Ended October 31, 2000 As Compared To Six Months Ended October 31, 1999 The following table provides information regarding the historical results of operations (in thousands) for the six months ended October 31, 2000 and 1999:

~~July~~Six ~~31,~~Months ~~2000~~Ended ~~April~~October 3031, ~~(Unaudited)~~--------------------------------------------------------------- 2000 1999 --------------------------------------------------------------- Operating Results: Net Sales % of Sales Net Sales % of Sales --------- ~~First~~---------- ~~mortgage~~--------- ~~notes~~---------- Sales $~~110~~91,~~000~~544 ~~$110~~100.0% 85,~~000~~452 ~~Revolving~~100.0% ~~credit~~Cost ~~agreement~~of 24sales 73,~~189~~175 1579.9% 64,~~380~~610 ~~Railway~~75.6% ~~term~~------- ~~loan~~------ ~~2,000~~Gross 2Profit 18,~~000~~369 ~~Railway~~20.1% ~~revolving~~20,842 ~~credit~~24.4% ~~agreement~~Selling ~~148~~and 92administrative ~~Equipment~~7,768 ~~notes~~8.5% 37,~~340~~917 9.3% Depreciation and amortization 4,~~543~~212 ~~Notes~~4.6% ~~payable~~4,159 4.9% Postretirement benefit expense 1,~~601~~292 1.4% 1,~~727~~292 1.5% Litigation settlement - - (2,326) (2.7%) ------- -------- ~~141~~Operating income 5,~~278~~097 ~~132~~5.6% 9,~~742~~800 ~~Less~~11.5% ~~current~~Interest ~~portion~~expense, net 8,261 9.0% 7,408 8.7% Other 4 0.0% 148 0.2% ------- ------ Income (loss) from operations before income tax (3,~~607~~168) (3.5%) 2,~~607~~244 2.6% Income tax expense - - - - ---- --- ------ Net income (loss) $~~138~~(3,~~671~~168) ~~$130~~(3.5%) 2,~~135~~244 2.6% ======== ========

10 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES The following table provides information regarding the historical shipment levels and average selling prices per ton: Six Months Ended October 31, --------------------------- 2000 1999 ------- ------ Tons shipped: Hot Rolled Bars 88,150 77,100 Rebar 101,441 98,693 Fabricated Products 36,609 34,679 ------- ------- Total finished products 226,200 210,472 Billets 26,264 23,011 ------- ------- Total tons shipped 252,464 233,483 ======= ======= Average price per ton shipped 363 366 Average production cost per ton 290 277 Sales. Sales for the six months ended October 31, 2000 were $91.5 million. Shipments increased in comparison to the period in the prior year, while pricing was slightly decreased as summarized below: . In comparison to the six months ending October 31, 1999, shipments of our hot rolled bar products out of Sand Springs increased 59%. The Sand Springs Rolling Mill's productivity rates increased over the prior year contributing to increased sales volume. Joliet shipments decreased 5% due to market conditions in the world and domestic steel business and notable weakness in the agricultural equipment industry. Pricing of hot rolled bar products decreased approximately 3% due primarily to product mix, particularly the increase in shipments from Sand Springs and the decrease from Joliet. Certain competitive pressures also influenced pricing. . Rebar shipments increased 3% due to improved market conditions compared to the six months ended October 31, 1999. Rebar demand continues to be strong, however pricing on twenty-foot and no-grade rebar is down in comparison to the prior year due to the continued impact of imports. Pricing was off 2% from the same period in the prior year. . Fabricated product shipments increased 6% as this downstream product group continues to be a steady performer for Sheffield. Pricing is consistent with same period in the prior year. . Billet shipments were 14% higher compared to the first six months of last year. Cost of Sales and Expenses. Average product costs increased to $290 in the first six months of fiscal 2001 from $277 in the first six months of fiscal 2000 due to increases in energy costs and higher costs associated with finished goods product mix. Hot rolled bar and rebar shipments were 13,798 tons higher in the first six months of fiscal 2001 compared to the same six months in fiscal 2000. Because of energy costs increasing, we expect our gas and electric utility costs to increase approximately $0.4 million per month for the foreseeable future. Lower scrap steel costs should offset this added expense. 11 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES Selling, general and administrative expenses decreased approximately $0.1 million over the first six months of fiscal 2000. 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. In the first quarter of fiscal 2000, we recorded settlements of $2.3 million from different defendants. Interest expense increased in comparison to the first six months of the prior year due to higher interest rates on our revolving credit agreement and the level of outstanding debt during the quarter. In the past year, additions to debt were due to working capital requirements, capital expenditures, and purchases of common stock. Adding to the Sand Springs and Joliet certifications, during July 2000, Wellington received ISO 9002 quality certification. Liquidity and Capital Resources As of October 31, 2000, we had long-term indebtedness of $138.6 million and approximately $20.5 million of additional borrowing availability under our revolving credit agreements. We continue to comply with all of our loan covenants. 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 provided by operating activities was approximately $1.5 million for the six month period ended October 31, 2000, as compared with cash flow provided by operating activities of approximately $3.0 million for the six month period ended October 31, 1999. The reduction in cash flow from operating activities is partially the result of the cash collected on the electrode litigation settlement and weaker operating income related to tighter margins due to weak economic conditions in the current year. Cash used in investing activities in the six months ended October 31, 2000 was approximately $4.0 million, consisting entirely of capital expenditures. Primarily all of the capital expenditures consisted of normal capital projects required or justified economically. For the six month period ended October 31, 2000, cash provided by financing activities consisted primarily of draws on the Revolving Credit Facility to fund decreases in accounts payable, payments on notes payable, and payments to repurchase common stock. 12 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES Earnings before interest, taxes, depreciation, amortization, and the non-cash portion of the post-retirement expense (EBITDA) was approximately $4.5 million for the quarter ended October 31, 2000 compared to approximately $5.7 million for the same quarter in the prior year, excluding the electrode litigation settlement. 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. 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 amount 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 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. New Accounting Pronouncements In March 2000, the FASB issued Interpretation No. 44, ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION: AN INTERPRETATION OF APB OPINION NO. 25. Among other issues, Interpretation No. 44 clarifies the application of Accounting Principles Board Opinion No. 25 (APB No. 25) regarding (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock options in a business combination. The provisions of Interpretation No. 44 affecting us have been applied on a prospective basis effective July 1, 2000. There was no impact from the adoption of this interpretation in the six-month period ended October 31, 2000. SEC Staff Accounting Bulletin No. 101, Revenue Recognition and Staff Accounting Bulletin No. 101A. This guidance adds new Topic 13, Revenue Recognition, to the SEC Codification of Staff Accounting Bulletins. We understand that the SEC staff is preparing a document to address significant implementation issues related to SAB 101. To the extent that SAB 101 ultimately changes revenue recognition practices, we will adopt SAB 101 no later than the fourth quarter of fiscal 2001 through a cumulative effect adjustment. We do not anticipate that the adoption of this Bulletin, as amended, will have a material impact on our financial position and results of operations. 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our earnings are affected by changes in interest rates (primarily the prime rate). At October 31, 2000, we had approximately $27.6 million of long-term debt with variable rates. Therefore, we may have changes in interest expense due to fluctuations of interest rates in the markets. Interest risk can be estimated by measuring the impact of a 10% increase in interest rates. We would incur an additional $262 thousand of interest expense per year on our variable rate borrowing if our debt levels remained approximately the same as at October 31, 2000. Because we experience changes in our debt levels due to operating requirements or changes in the general economic environment that we are unable to predict, this estimate assumes no changes in our financial structure. The fair value of our First Mortgage Notes at October 31, 2000, based on the currently offered market price was $60.5 million versus a carrying value of approximately $110 million. 14 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 At the Annual Meeting of Stockholders held on August 29, 2000, for which proxies for the meeting were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934, the stockholders of the Company unanimously elected Steven E. Karol, Robert W. Ackerman, Dale S. Okonow, Howard H. Stevenson, Robert Schaal, and Jane M. Karol to serve as members of the Board of Directors for a period of one year. At the Annual Meeting of Stockholders, the stockholders also unanimously approved the reappointment of KPMG LLP as independent auditors. 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 second quarter ended October 31, 2000. 15 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: December 13, 2000 /s/ James P. Nolan --------------------- ---------------------------------- James P. Nolan, President and Chief Operating Officer Date: December 13, 2000 /s/ Stephen R. Johnson --------------------- ---------------------------------- Stephen R. Johnson, Vice President and Chief Financial Officer 16 Exhibit Index Exhibit No. Description Page No. ----------- ----------- -------- 10.39 First Amendment to Project Lease Agreement between 18 TA Steel I, LLC, as Lessor and Sheffield Steel Corporation, as Lessee dated December 4, 2000. 27 Financial Data Schedule

THREE MONTHS ENDED JULY 31, --------------------------------------------------------------------- 2000 1999 ------- ------ Operating Results: Net Sales % of Sales Net Sales % of Sales ---------------- -------------- -------------- ------------- Sales $45,775 100.0% $42,939 100.0% Cost of sales 36,223 79.1% 31,821 74.1% ------- ------- Gross Profit 9,052 19.8% 11,118 25.9% Selling and administrative 3,688 8.1% 4,098 9.5% Depreciation and amortization 2,104 4.6% 2,084 4.9% Postretirement benefit expense 646 1.4% 646 1.5% Litigation settlement - - (2,326) (5.4%) ------- ------- Operating income 3,114 6.8% 6,616 15.4% Interest expense, net 4,113 9.0% 3,698 8.6% Other - 0.0% 133 0.3% ------- ------ Income (loss) from operations before income (999) (2.2%) 2,785 6.5% taxes Income tax benefit - - - - ------- ------- Net income (loss) $ (999) (2.2%) $ 2,785 6.5% ======= =======

Three Months Ended July 31, ---------------------------------------- 2000 1999 -------- -------- Tons shipped: Hot Rolled Bars 45,078 38,452 Rebar 48,387 50,898 Fabricated Products 18,941 17,573 -------- -------- Total finished products 112,406 106,923 Billets 12,093 8,393 -------- -------- Total tons shipped 124,499 115,316 ======== ======== Average price per ton shipped $368 $372 Average production cost per ton $290 $276

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