<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, 1997

                                       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
                                                                    ---- 
        Securities registered pursuant to Section 12(g) of the Act: None
                                                                    ---- 
       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[ ]

       At the date of this filing, there were 3,375,000 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, 1997 are
   incorporated by reference into Part III of this Report on Form 10-K.
<PAGE>
 
                           SHEFFIELD STEEL CORPORATION
                                    FORM 10-K

                                TABLE OF CONTENTS
<TABLE> 
<CAPTION> 

Item                                                                                  Page
----                                                                                  ----
                                     Part I
<S>    <C>                                                                            <C>   
1.     Business                                                                        1-8

2.     Properties                                                                        9

3.     Legal Proceedings                                                                 9

4.     Submission of Matters to a Vote of Security Holders                               9

                                     Part II

5.     Market for the Registrant's Common Equity and Related Stockholder Matters        10

6.     Selected Financial Data                                                          11

7.     Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                                 12-18

8.     Financial Statements and Supplementary Data                                   18-38

9.     Changes In and Disagreements with Accountants on
           Accounting and Financial Disclosure                                          39

                                    Part III

10.    Directors and Executive Officers of the Registrant                               39

11.    Executive Compensation                                                           39

12.    Security Ownership of Certain Beneficial Owners and Management                   39

13.    Certain Relationships and Related Transactions                                   39

                                     Part IV

14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K              38-48
</TABLE> 
<PAGE>
 
                                    PART I
                                    ------
ITEM 1.   BUSINESS
-------   --------

Overview
--------

       Sheffield Steel Corporation (the "Company") is a mini-mill producer of
hot rolled steel bar products ("hot rolled bar products"), concrete reinforcing
bar ("rebar"), fabricated products including fabricated and epoxy-coated rebar
and steel fence posts ("fabricated products"), and various types of
semi-finished steel, known as billets ("semi-finished steel"). The Company's
primary manufacturing facility is located in Sand Springs, Oklahoma (the "Sand
Springs Facility"), where it conducts a full range of steelmaking activities,
including the melting of steel and casting of billets, and the processing of
billets into rebar, steel fence posts and a range of hot rolled bar products
including rounds, flats and squares. From the Sand Springs Facility, the Company
also ships billets to its two rolling mills in Joliet, Illinois (the "Joliet
Facility"), which produce hot rolled bar products, and transfers rebar to its
rebar fabrication plant in Kansas City, Missouri (the "Kansas City Plant"). The
Company also owns and operates a short line railroad consisting of approximately
seven miles of rail line between Sand Springs and Tulsa, Oklahoma that serves
primarily the operations of the Sand Springs Facility and, to a lesser extent,
third parties. The Sand Springs Facility and the Joliet Facility received ISO
9002 quality certification in November, 1995 and June, 1996, respectively.

       On October 29, 1993, the Company's two principal operating subsidiaries
Sheffield-Sand Springs and Sheffield-Joliet were merged into Sheffield Steel
Corporation, with Sheffield Steel Corporation as the surviving corporation.
Substantially all of the Company's assets are owned directly by Sheffield Steel
Corporation, with the Company's other assets being owned by Sheffield's two
remaining wholly-owned subsidiaries, the Sand Springs Railway Company (the
"Railway Company") and Sheffield Steel Corporation-Oklahoma City (the "Oklahoma
City Mill").

       This Annual Report on Form 10-K may contain forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995.
Such statements are based on management's current expectations and are subject
to a number of factors and uncertainties which could cause results to differ
materially from those described in the forward-looking statements. There can be
no assurance that actual results or business conditions will not differ
materially from those anticipated or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the size and timing of significant orders, as well as deferral of
orders, over which the Company has no control; the variation in the Company's
sales cycles from customer to customer; increased competition posed by other
mini-mill producers; changes in pricing policies by the Company and its
competitors; the need to secure or build manufacturing capacity in order to meet
demand for the Company's products; the Company's success in expanding its sales
programs and its ability to gain increased market acceptance for its existing
product lines; the ability to scale up and successfully produce its products;
the potential for significant quarterly variations in the mix of sales among the
Company's products; the gain or loss of significant customers; shortages in the
availability of raw materials from the Company's suppliers; fluctuations in
energy costs; the costs of environmental compliance and the impact of government
regulations; the Company's relationship with its work force; the restrictive
covenants and tests contained in the Company's debt instruments, which could
limit the Company's operating and financial flexibility; and general economic
conditions.

                                       1
<PAGE>
 
Manufacturing Process

       The Company operates a steel mini-mill with melting, casting and rolling
operations. In contrast to integrated steel mills, which produce steel from coke
and iron ore through the use of blast furnaces and basic oxygen furnaces, a
mini-mill uses electric arc furnaces to melt and refine steel scrap. At the Sand
Springs Facility, steel scrap is conveyed by rail car from the Company's scrap
yard to the facility's melt shop, where the steel scrap is melted with
electricity in two 85-ton electric arc furnaces. The molten steel is then
conveyed to a six-strand continuous caster which casts various sizes and grades
of billets. These billets are then reheated, rolled and shaped into various
finished steel products at the Sand Springs or Joliet rolling mills or, to a
lesser extent, sold to third parties as semi-finished steel. The Sand Springs
rolling mill produces rebar, T-sections, which are further processed into fence
posts, and a range of hot rolled bar products. The Joliet rolling mills produce
an extensive range of hot rolled bar products.

       Hot Rolled Bar Products. The Company has changed the name of this line of
       ------------------------
business from "MBQ products" to "hot rolled bar products" for the sole purpose
of conforming this product category to the designation used by the American Iron
and Steel Institute ("AISI"). This category includes all steel bar products
excluding rebar. There has been no change in Sheffield's strategy or product
line from previous filings. From its two rolling mills, the Joliet Facility
produces hot rolled bar products including, flats, squares, rounds, angles and
channels, which are generally non-standard sizes, shapes and chemistries that
are made to order for specific customer requirements. The Sand Springs Facility
has successfully entered certain hot rolled bar product markets, including
certain hot rolled bar squares, rounds, and flats. Construction of the new
rolling mill at the Sand Springs Facility, which was substantially completed in
fiscal 1995, has added manufacturing capacity for the Company's hot rolled bar
products. Hot rolled bar product sales were approximately 44% of total Company
revenues in fiscal 1997.

       Rebar. The Company produces rebar at the Sand Springs Facility rolling
       ------
mill, where the bars are rolled in standard diameters from #4 rebar (1/2" or
13mm) to #18 rebar (2-1/4" or 57mm) and sheared to standard lengths from 20' to
60'. Rebar sales were approximately 32% of total Company revenues in fiscal
1997.

       Fabricated Products. The Company manufactures two fabricated steel
       --------------------
products: fence post and fabricated rebar, including epoxy-coated rebar. Sales
of these fabricated products were approximately 14% of the Company's total
revenues in fiscal 1997. The Company produces fence post in two weights (1.25
pounds per foot and 1.33 pounds per foot), in orange and green colors and
various lengths from four feet to eight feet. The Company believes that its
fence post is recognized as a quality leader in the industry.

       Rebar shipped from the Sand Springs Facility to the Kansas City Plant is
fabricated and sold to highway and construction contractors in Kansas, Missouri
and adjacent markets. Typically, more than 35% of the annual fabricated rebar
tons sold are epoxy-coated prior to fabrication to protect against corrosion in
the field.

                                       2
<PAGE>
 
       Semi-finished Steel (billets). To meet customer and finished product
       ------------------------------
specifications, the Company produced in excess of 100 grades of steel during
fiscal 1997. Sales of billets to third parties are dependent on internal billet
requirements and widely varying market conditions. In the past three fiscal
years, shipments of billets to third parties have ranged between 8% and 18% of
total Company revenues. Sales of billets were approximately 8% of total Company
revenues in fiscal 1997.

       The Railway. The Railway Company operates approximately seven miles of
       ------------
rail line between Sand Springs and Tulsa, Oklahoma, serving primarily the
operations of the Sand Springs Facility and, to a lesser extent, third parties.

Customers and Markets

       Hot Rolled Bar Products. According to AISI, the size of the hot rolled
       ------------------------       
bar product market in the U.S. was approximately 7.0 million tons in 1996. The
majority of hot rolled bar products produced at the Joliet Facility are sold
directly to original equipment manufacturers ("OEMs") and cold drawn bar
finishers, while the remainder is sold to steel service centers. Major end use
applications include farm equipment and auto parts, conveyor assemblies, pole
line hardware, wrenches and construction machinery. Hot rolled bar products
produced at the Sand Springs Facility are sold to both OEMs and steel service
centers.

       While most hot rolled bar products are sold in standard sizes, shapes and
chemistries, the Joliet Facility focuses on applications which require
non-standard sizes, shapes or chemistries. The Joliet Facility also focuses on
meeting the requirements of hot rolled bar products customers with small volume
needs. The Company believes that these niche markets are unattractive to larger
volume producers of hot rolled bar products. The Joliet Facility aims to
maximize its production flexibility, since targeting customers with special
requirements in turn requires short production runs (often as low as five tons
per item), special manufacturing aids or additional inventories. The Company
believes that the Joliet Facility's focus allows it to act as the sole supplier
of particular shapes, sizes or steel chemistries to certain customers, while in
other cases it competes with a limited number of producers of specialty hot
rolled bar products.

       The demand for consistent quality is very significant in the hot rolled
bar product market, where quality is measured by the adherence to specifications
related to chemical composition, surface quality, product integrity and size
tolerances. The capabilities of the melt shop at the Sand Springs Facility
contribute significantly to the Company's ability to maintain consistent quality
at a competitive cost.

       The Company also strives to provide its hot rolled bar product customers
with superior service. To permit a high level of service consistent with
efficient production scheduling, the Company carries a customer-designated
finished goods inventory of hot rolled bar products in excess of 10,000 tons.
Both the Sand Springs Facility and the Joliet Facility have implemented an
internally developed bar-coded inventory tracking system which permits quick and
precise hot rolled bar inventories to be taken at any time. The Joliet Facility
has also developed a customer query system (the "Customer Query System") which
provides agents and major customers with direct computer access to the status of
their production orders, the availability of inventory designated for them and
to the Joliet Facility's production schedule for their products.

                                       3
<PAGE>
 
     Rebar. According to the AISI, the size of the rebar market in the U.S. was
     ------
approximately 6.3 million tons in 1996. The Company sells rebar to independent
fabricators who shear and bend the rebar to meet engineering or architectural
specifications for construction projects.

       Rebar is a lower cost, higher volume commodity bar product for which
price is often the customer's decisive factor. Geographic proximity to
customers, which in turn determines both freight costs and delivery response
time, is also an important factor in the rebar market, where profit margins are
particularly tight and independent fabricators typically depend on quick mill
response rather than their own inventories to meet changing construction
schedules. 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.

       The Company's rebar market is concentrated in the geographic area
surrounding the Sand Springs Facility. In the Company's primary market area of
Oklahoma, Kansas and portions of Nebraska, Missouri, Arkansas and northern
Texas, the Company enjoys a freight advantage over its competitors and believes
it has a market share in excess of 50%. Approximately half of the Company's
rebar shipments are made in this primary market area. The remaining rebar
shipments are made in the adjacent regions of Nebraska, Missouri, Arkansas and
Texas and in Louisiana, New Mexico and Colorado. Since pricing, freight costs
and delivery response times are important competitive factors in the rebar
market, the Company believes that efforts to penetrate more distant markets
would be uneconomical or impractical.

       Demand for rebar tends to be influenced by trends in commercial and
residential construction, industrial investment in new plants and facilities,
and government spending on infrastructure projects and public sector buildings.
The Company has worked to build and maintain long-term relationships with
leading independent fabricators located in construction centers in the
south-central United States 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, which helps to reinforce the Company's relationships
with such fabricators. Consequently, although rebar demand will fluctuate with
the trends in construction and industrial and public sector investment, strong
relationships with the dominant fabricators have helped support consistent rebar
sales volume during periods of reduced demand over the past several years.

       Fabricated Products. The Company sells fence post to distributors and
       --------------------
farm cooperatives. The Company believes that it is the dominant supplier of
fence post in the Oklahoma, Kansas, Missouri, and Arkansas market with more than
half of the market share in that area. Additional important markets for the
Company are in Texas, Mississippi, and Louisiana.

       Fabricated rebar is shipped from the Kansas City Plant to construction
contractors in Missouri, Kansas, Nebraska and in contiguous markets. In recent
years the Company has experienced increased demand for epoxy-coated rebar from
contractors bidding on infrastructure projects. This has provided the Kansas
City Plant with a competitive advantage and contributed to a growth in
shipments.

                                       4
<PAGE>
 
       Semi-finished Steel (billets). Semi-finished steel is sold by the Company
       ------------------------------   
to other steel mills or forgers for conversion into finished products. A portion
of the sales are made to accounts with continuing billet requirements and a
portion is sold in the "spot" market. In the latter instance, steel may be
exported to markets in Mexico, Canada, South America and the Caribbean. Sales
volume potential and pricing for semi-finished steel, particularly in the spot
market, is highly variable. The dominant competitive factors are availability
and price.

The Sand Springs Mill

       The Company substantially completed construction of the new rolling mill
at the Sand Springs Facility in 1995 to further increase sales of higher margin
products by shifting productive billet capacity from semi-finished steel sales
to hot rolled bar products. The new rolling mill is capable of producing rebar
and high quality hot rolled bar products at low cost and, together with the
Joliet Facility, of ultimately processing most of the billets produced by the
Company into finished products. Final acceptance of the mill occurred in the 
third quarter of 1997 after certain performance tests were satisfied. The
contract cost for construction of the new mill, including related infrastructure
improvements, was approximately $22 million. An additional $4 million was
expended for a new hot rolled bar finished goods warehouse, related material
handling equipment and a metallurgical laboratory.

       During fiscal 1997, the Company commissioned an engineering study to
evaluate a bottleneck in the shear line which follows the new rolling mill in
the manufacturing process. On the basis of this study, the Company is
undertaking a project to raise the throughput capacity of the shear line. The
project is scheduled for completion in the fourth quarter of fiscal 1998.

Sales and Marketing

       Hot rolled bar products produced at the Joliet Facility are sold
regionally by the Company's sales personnel and nationally through commissioned
sales representatives under exclusive agency arrangements with the Company. Hot
rolled bar products produced at the Sand Springs Facility and rebar are sold
through the Company's own sales force and the sales agencies which service the
Joliet Facility. The Company markets fence post directly to farm cooperatives
and to fence post distributors. While some semi-finished steel is sold to
accounts with continuing billet requirements, the remaining portion is sold
through semi-finished steel brokers on the "spot" market. As a result of adverse
weather conditions which impact construction activities and a normal seasonal
downturn in manufacturing levels, the Company typically experiences lower sales
volumes in its third fiscal quarter.

Raw Materials

       The Company's primary raw material is steel scrap, which is generated
principally from industrial, automotive, demolition, railroad, obsolete and
other scrap sources and is purchased by the Company 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 can fluctuate significantly. Product prices generally cannot be
adjusted in the short-term to recover large increases in steel scrap costs.
However, over longer periods of time, product prices and steel scrap prices have
tended to move in the same direction.

                                       5
<PAGE>
 
       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. For the foreseeable
future, however, the Company believes 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, hot briquetted iron, iron carbide and pig iron. A sustained
increase in the price of steel scrap could result in increased use of these
alternative materials. The Company has successfully employed scrap substitutes
in its manufacturing process to achieve quality characteristics and expects to
increase their usage in the future.

Energy

       The Company's manufacturing process consumes large amounts of
electricity. The Company purchases its electrical needs at the Sand Springs
Facility from Public Service Company of Oklahoma ("PSO"). The Company believes
that its utility rates are among the lowest in the domestic long product
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.

       The Company also uses natural gas to reheat billets, but is not
considered a large natural gas user. Since deregulation of the natural gas
industry, natural gas requirements generally have been provided through
negotiated contract purchases of well-head gas transported through local
pipeline distribution networks. Although increases in the price of natural gas
might have an adverse impact on the Company's cost structure and the Company's
profitability, any such price increases would likely have a similar effect on
competitor's using natural gas and/or electricity generated by natural gas. The
majority of the Company's natural gas needs (both to reheat billets and as a
consumer of the electricity generated by natural gas) are at the Sand Springs
Facility in Oklahoma, a state with excess natural gas supplies. The Company has
been adequately supplied with natural gas in the past and expects an adequate
supply to be available in the future.

Competition

       The Company competes with a number of domestic mini-mills in each of its
market segments. Common competitive factors in the steel bar business include:
price, proximity to market, quality and service, although their relative
importance varies in the different market segments.

       In the market for hot rolled bar products, the Joliet Facility occupies a
niche position at the specialty end of the product range. The Company believes
that it acts as the sole supplier of particular shapes, sizes or steel
chemistries to certain customers. In other cases, the Company competes with a
limited number of other producers of specialty hot rolled bar products. The new
rolling mill enables the Sand Springs Facility to compete with mini-mill
producers of standard hot rolled bar products. Competitors vary from customer to
customer and by product depending on product specifications, requirements for
order sizes and inventory support.

                                       6
<PAGE>
 
       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, the Company
believes it enjoys a competitive advantage as the closest mill serving an area
comprising Oklahoma, Kansas, western Missouri and Arkansas, and parts of
northern Texas.

       The Company is generally not in competition with foreign or integrated
steel mill producers. These mills have cost and freight disadvantages compared
to the Company and other domestic mini-mills which effectively preclude them
from competing in the lower priced hot rolled bar product and rebar markets.

       Competitive factors in fence post sales include price, product quality
measured by durability, appearance, workmanship, freight costs and delivery
response time. The Company believes that the high quality of its fence post,
combined with a more aggressive sales effort, contributed to an increase in
market penetration in fiscal 1996 and fiscal 1997.

       For fabricated rebar, primary competitors are independent fabrication
shops which are furnished with rebar from other mini-mills in the Midwest. In
recent years, the Company believes that increased demand for epoxy-coated
product from contractors bidding on infrastructure projects has provided the
Kansas City Plant with a competitive advantage and contributed to growth in
shipments. Other competitive factors include delivery performance, engineering
support and competitive pricing.

Employees

       At April 30, 1997, the Company had approximately 670 employees, of
which approximately 73% are represented by one of three bargaining units
affiliated with the United Steelworkers of America. The Company is party to a
collective bargaining agreement covering approximately 308 hourly-paid
production and maintenance employees at the Sand Springs Facility. The
agreement, which was negotiated as of March 2, 1997 is for a three year period
expiring March 2, 2000. The agreement included wage increases, certain benefit
increases and changes to local work rules. The agreement also allowed for the
Company to reduce and reorganize its hourly workforce by approximately 70
positions, primarily maintenance related. Of the 70 positions, 42 were
eliminated through retirement offers effective June 1, 1997 and the remaining
positions will be eliminated through attrition.

       The Company is also party to a collective bargaining agreement covering
approximately 147 hourly-paid production and maintenance employees at the Joliet
Facility, which expires on March 1, 1999 and a collective bargaining agreement
covering approximately 23 employees at the Kansas City Plant which expires on
October 31, 1999. The Railway Company employs approximately 19 people of which
one is represented by the Brotherhood of Locomotive Engineers, three are
represented by the United Transportation Union, two are represented by the
Brotherhood of Railway Carmen, two are represented by the Brotherhood of
Maintenance Of Way Employees and six are represented by the Transportation
Communications International Union. Industry-wide contracts with these unions
expired on December 31, 1994. The Brotherhood of Maintenance of Way Employees
have signed an agreement which expires January 1, 2001. The United
Transportation Union agreement is currently in arbitration and a decision is
expected shortly. The remaining unions continue to be involved in the collective

                                       7
<PAGE>
 
Environmental Compliance

       The Company is 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. The Company has spent substantial amounts to comply
with these regulations and requirements. In addition, in the event of a release
of a hazardous substance generated by the Company, the Company could potentially
be responsible for the remediation of contamination associated with such a
release.

       Primarily because the melting process at the Sand Springs Facility
produces emission dust that contains lead, cadmium and other heavy metals, the
Company is 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 ("RCRA") regulates the management of emission control sludge/dust
from electric arc furnaces ("K061"). All of the K061 generated at the Sand
Springs Facility is shipped to Mexico, where a processor recovers the heavy
metals and chemically stabilizes the residual dust. If an accidental release of
K061 were to occur, the Company could be required to remediate such release.
Although current law permits the export of K061, there can be no assurance that
new legislation prohibiting the export of hazardous waste materials, including
K061, will not be enacted. In that event, the Company would have to find an
alternative means of treatment or disposal of the K061 in compliance with RCRA.
Although the Company believes that it could properly dispose of the K061
generated at the Sand Springs Facility by constructing an on-site recovery and
chemical stabilization processor or by shipping the K061 to a licensed domestic
treatment facility, there can be no assurance as to the availability of such
alternatives or the level of cost associated with them.

       New regulations to be adopted under the 1990 Clean Air Act Amendments
("CAAA") may require the Company to make additional expenditures for air
emissions control or changes in the steelmaking process, or both. Because
regulations applicable to the Company's operations have not yet been promulgated
under the CAAA, the Company cannot at this time accurately estimate the costs,
if any, of compliance with the new regulations. Because these standards will
also apply to the Company's domestic competitors, they are not expected to
materially affect the Company's competitive position. The Company has submitted
an operating permit application under Title V of the CAAA which it anticipates
will be approved in calendar year 1998. Because the application has been judged
administratively complete by the regulators, the Company may continue to operate
normally pending the final approval.

       Based on continuing review of applicable regulatory requirements by the
Company's internal environmental compliance officer and advice from independent
consultants, the Company believes that it is currently in substantial compliance
with applicable environmental requirements and does not currently anticipate the
need to make expenditures beyond those planned for within the normal budgeting
process for environmental control measures during fiscal 1998.

                                       8
<PAGE>
 
ITEM 2.    PROPERTIES
-------    ----------

       The Company owns the properties comprising the Sand Springs Facility and
the Joliet Facility. The Sand Springs Facility is located on approximately 148
acres of land in Sand Springs, Oklahoma. The Joliet Facility is located on
approximately 30 acres of land in Joliet, Illinois. The Company leases 9 acres
of land adjacent to the Joliet Facility from the Metropolitan Water Reclamation
District of Greater Chicago under a long term lease expiring in 2053. The
Company also leases the Kansas City Plant, containing approximately 77,100
square feet. In addition, the Company owns 4.5 acres of land in Oklahoma City,
Oklahoma that formerly comprised the Oklahoma City Mill.

       The Sand Springs Facility consists 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 total annual capacity of the Sand Springs Facility is approximately 615,000
tons of billet, approximately 360,000 tons of rebar and hot rolled bar products
and approximately 70,000 tons of fence post.

       The Joliet Facility consists of approximately 334,305 square feet of
floor space and contains a 12" merchant bar mill and a 10" merchant bar mill.
The total annual capacity of the Joliet Facility is approximately 155,000 net
tons of hot rolled bar products.

       The Railway Company 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 Company owns the mainline
track and three locomotives and operates a maintenance shop for normal repairs
and upkeep. The Railway Company also operates a transload facility and
warehouse.

       The Railway Company has granted a security interest in substantially all
of its assets as security for the Railway Company's obligations under a bank
credit facility.

       The Company has granted a first priority lien on substantially all of the
real property and equipment in favor of the Trustee for the benefit of the
holders of the First Mortgage Notes, and has granted a second priority lien
thereon in favor of its lender to secure future borrowings under the Company's
revolving credit facility.

ITEM 3.   LEGAL PROCEEDINGS
-------   -----------------

       The Company is not a party to any significant pending legal proceedings
other than litigation incidental to its business which the Company believes will
not materially affect its financial position, results of operations, or
liquidity. Such claims against the Company are ordinarily covered by insurance.
There can be no assurance, however, that insurance will be available in the
future at reasonable rates.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------   ---------------------------------------------------

       Not applicable.

                                       9
<PAGE>
 
                                    PART II
                                    -------

ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
-------   ------------------------------------------------
          STOCKHOLDER MATTERS
          -------------------

       The Company's 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
approximately nine stockholders of record. There were no dividends paid during
the year ended April 30, 1997. Certain of the Company's loan agreements contain
limitations on the ability of the Company to pay cash dividends on Common Stock.

                                       10
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA
-------  -----------------------

The following selected consolidated financial data for the five years ended
April 30, 1997 has been derived from the Company's financial statements audited
by KPMG Peat Marwick LLP, independent auditors. The Company's 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 the
Company's 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,
                                                       ----------------------------------------------------------------------------
                                                              1993           1994           1995            1996           1997
                                                         ------------    -----------     ----------     -----------     ----------
<S>                                                      <C>             <C>             <C>            <C>             <C>  
Statement of Earnings Data:
    Sales ............................................    $ 144,026      $ 165,920       $ 175,753      $ 172,317       $ 170,865
    Cost of sales ....................................      125,705        141,215         144,385        143,121         140,234
                                                            -------        -------         -------        -------         -------
    Gross profit......................................       18,321         24,705          31,368         29,196          30,631
    Selling, general and administrative expense.......       10,536         10,682          12,156         11,737          11,923
    Depreciation and amortization ....................        5,714          4,941           5,930          6,567           6,775
    Postretirement benefit expense other
        than pensions.................................            -          4,248           3,153          2,776           2,353
    Restructuring charge [a]..........................        6,764           -               -              -              1,320
                                                            -------        -------         -------        -------         -------
    Operating income (loss)...........................       (4,693)         4,834          10,129          8,116           8,260
    Interest expense..................................       (5,707)        (7,147)         (8,049)       (11,733)        (11,769)
    Other income (expense)............................         (103)           (40)            (58)           526            -
                                                            -------        -------         -------        --------        -------
    Income (loss) before income taxes and
        extraordinary item                                  (10,503)        (2,353)          2,022         (3,091)         (3,509)
    Income tax (expense) benefit......................        2,975            949            (197)          -               -
                                                            -------        -------         -------        --------        -------
    Income (loss) from continuing operations                 (7,528)        (1,404)          1,825         (3,091)         (3,509)
    Extraordinary item - loss on retirement of
        long-term debt, net of income tax benefit
        of $1,346.....................................         -            (3,966)           -              -               -
                                                            -------        -------         -------        --------        -------

    Net income (loss).................................    $  (7,528)     $  (5,370)      $   1,825      $  (3,091)      $  (3,509)
                                                            =======        =======         =======        =======         =======
Per Share Data: [b]
    Net income (loss) from continuing operations
        per common and common equivalent share            $  (2.23)      $    (.42)      $     .50      $    (.92)      $   (1.04)
    Net income (loss) per common and
        common equivalent share.......................    $  (2.23)      $   (1.60)      $     .50      $    (.92)      $   (1.04)
    Dividends per common share........................         .15             .15             .18            .52             -

Balance Sheet Data (at end of period):
    Total assets......................................    $  94,643      $ 115,958       $ 146,459      $ 143,182       $ 136,627
    Long-term debt (including current portion)........       56,707         72,629          93,170         97,041          96,550
    Stockholders' equity..............................       14,098         10,558          11,395          6,385           2,156

Other Data:
    Capital expenditures..............................    $   2,467      $   1,667       $  24,220      $   4,978       $   3,695
    Net tons shipped..................................      488,303        519,043         500,151        477,005         473,755
    Average price per ton shipped ....................    $     291      $     314       $     351      $     361       $     361
    Average production cost per ton shipped...........          256            271             290            300             296
    Number of active employees at end of period.......          689            708             718            705             670
    Ratio of earnings to fixed charges [c]............           -              -             1.19             -               -
</TABLE> 
-------------------------------------------------------

[a] In January 1993, the Company approved a restructuring plan which provided
    for closure of the Oklahoma City Mill. In conjunction with this plan, the
    Company recorded a nonrecurring charge aggregating $6,764. Of the total
    charge, $6,330 relates to the estimated loss expected upon disposal of the
    facility and plant protection, insurance, and other expenses associated with
    this plan. The remaining charge relates to operating losses incurred from
    the date of approval through April 30, 1993.

    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] Restated to give retroactive recognition for a 3,375-for-one stock split
    approved on September 15, 1993.

[c] Ratio of earnings to fixed charges is defined as income before income taxes,
    extraordinary item, and cumulative effect of change in accounting principle
    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 in 1993, 1994, 1996 and 1997 by
    approximately $10,503, $2,353, $3,091 and $3,509, respectively.

                                       11
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        -----------------------------------------------------------------------
        OF OPERATIONS
        -------------

       The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto included
in item 8 of this Form 10-K.

General
-------

       The Company substantially completed construction of the new rolling mill
at the Sand Springs Facility in 1995 and accepted final commissioning in the
third quarter of fiscal 1997. The new rolling mill is capable of producing rebar
and high quality hot rolled bar products. The commissioning process took longer
than expected due to various mechanical equipment problems, process control
computer start up difficulties, integration of the new mill with existing
production elements, and certain employee training requirements. During fiscal
1997, the Company commissioned an engineering study to evaluate the shear line
that follows the new mill. On the basis of this study, the Company believes that
improvements to the shear line will increase the throughput capacity of the mill
and has scheduled the project for completion in the fourth quarter of fiscal
1998.

       On December 18, 1996, the Company experienced a failure in the
transformer supporting its number one furnace at the Sand Springs Facility. A
spare transformer was promptly installed which subsequently failed for unrelated
reasons on January 5, 1997. Although the insurance settlement has not been
finalized, the Company's property, casualty and business interruption insurance
is expected to cover substantially all of the costs associated with the repair
of the transformers and increased operating costs incurred as a result of the
one furnace operation. The Company was able to satisfy rolling mill requirements
by supplementing billet production with outside billet purchases and shipments
of finished goods to customers were not affected in any way. Normal melting
operations resumed at the end of April, 1997. 

       In January, the Company restructured the operating functions at the Sand
Springs Facility resulting in a 14% reduction in the salaried workforce.
Severance costs recognized in the third quarter were approximately $250
thousand.

       On March 2, 1997, the Company completed negotiation of a collective
bargaining agreement with the United Steelworkers of America which covers
approximately 310 hourly-paid production and maintenance employees at the Sand
Springs Facility. The new contract is for a term of three years expiring March
1, 2000. This collective bargaining agreement included wage increases, certain
benefit increases and changes to local work rules. The contract also allowed the
Company to reduce and reorganize its hourly workforce by approximately 70 hourly
positions, primarily maintenance related. Of the 70 positions, 42 employees were
eliminated through retirement offers effective June 1, 1997 and the remaining 
positions will be eliminated through attrition. Non-recurring costs recognized 
in the fourth quarter were approximately $1.07 million.

        The Sand Springs Facility and the Joliet Facility received ISO 9002 
certification from their registrar on November 10, 1995 and June 18, 1996, 
respectively. This certification is expected to help the Company improve its 
quality system and should aid entry into new hot rolled bar markets.

                                      12
<PAGE>
 
June 1, 1997 and the remaining positions will be eliminated through attrition.
Retirement costs recognized in the fourth quarter were approximately $1.07
million.

       The Sand Springs Facility and the Joliet Facility received ISO 9002
certification from its registrar, KPMG Quality Registrar, on November 10, 1995
and June 18, 1996, respectively. This certification is expected to help the
Company improve its quality system and should aid entry into new hot rolled bar
markets.


Results of Operations
---------------------

Fiscal 1997 As Compared to Fiscal 1996

       Sales. Sales for the Company for fiscal 1997 were approximately $170.9
million as compared to sales of approximately $172.3 million for fiscal 1996, a
decrease of approximately $1.4 million or 0.8%. Sales decreased primarily as a
result of decreased sales of semi-finished steel.

              Hot Rolled Bar Products. Shipments in fiscal 1997 were 174,290
              ------------------------
       tons compared to 159,688 tons in fiscal 1996, an increase of 14,602 tons
       or 9%. Sales of hot rolled bar products from the Joliet Facility
       decreased primarily due to weak market conditions encountered during the
       first fiscal quarter. Shipments of hot rolled bars produced at the Sand
       Springs facility were up 66% in fiscal 1997 over the previous year due to
       increased mill production of hot rolled bar products. The increased
       production of hot rolled bar products was a result of new product trial
       shipments as well as continued production orders. The average price per
       ton for hot rolled bar products decreased to $435 per ton in fiscal 1997
       from $461 per ton in fiscal 1996. The decrease in average price per ton
       is due to both product mix and the ratio of hot rolled bar products sold
       between the Sand Springs Facility and the Joliet Facility.

              Rebar. Rebar shipments for fiscal 1997 were 185,745 tons as
              ------
       compared to 169,316 tons in fiscal 1996. The average price per ton for
       rebar decreased to $292 for fiscal 1997 from $293 per ton in fiscal 1996.
       The increase in the tons shipped was primarily due to increased
       production. Rebar shipments in the previous year were limited because
       mill time was allocated to the development of new hot rolled bar
       business.

              Fabricated Products. Shipments of fabricated products in fiscal
              --------------------
       1997 were 53,208 tons, down from 54,444 tons in fiscal 1996. Shipments of
       fabricated products from the Kansas City Plant decreased from the prior
       year, primarily due to weak market demand in the fourth quarter.
       Shipments of fence posts were consistent with the prior year. The average
       price per ton for fabricated products decreased slightly to $460 per ton
       in fiscal 1997 from $461 per ton in fiscal 1996.

                                      13
<PAGE>
 
              Semi-finished Steel. Shipments of semi-finished steel to third
              --------------------
       parties for fiscal 1997 were 60,512 tons as compared to 93,557 tons in
       fiscal 1996. The decrease of 33,045 tons or 35% was due to a weak market
       for semi-finished steel products. Average sales price per ton for
       semi-finished steel decreased to $214 per ton in fiscal year 1997 from
       $225 per ton in fiscal 1996. The decrease in the average price per ton of
       semi-finished steel was partially due to weak market demand and partially
       due to selling a higher proportion of commodity grade steel.

       Cost of Sales. The cost of sales for fiscal year 1997 was approximately
$140 million as compared to approximately $143 million for the fiscal year ended
1996. Cost of sales on an average per-ton basis decreased slightly from the
prior year to $298 from $302. The decrease in cost of sales per ton is due to
product mix, improved production rates, and a decrease in scrap raw material
costs from the prior year. The decrease is partially offset by slightly higher
conversion costs per ton in both the melt shop and Sand Springs rolling mill
primarily due to an electric furnace transformer failure and higher energy costs
in comparison to the prior year.


       Gross Profit. Gross profit for fiscal 1997 was approximately $30.6
million as compared to approximately $29.2 million for fiscal 1996, an increase
of approximately $1.4 million or 4.9%. Gross profit as a percentage of net sales
for fiscal 1997 was 17.9% as compared to 16.9% for fiscal 1996. The increase in
gross profit in fiscal 1997 is due to the decrease in cost of sales and the
increase in sales as discussed above.

       Selling, General and Administrative Expense. Selling, general and
administrative expense for fiscal 1997 was approximately $11.9 million,
reflecting an increase of approximately $0.2 million from 1996 levels. This
increase is due to additional selling expenses related to the expanded sales
efforts for hot rolled bar products.

       Depreciation and Amortization. Depreciation and amortization for 1997 was
approximately $6.8 million as compared to approximately $6.6 million for 1996,
an increase of approximately $0.2 million or 3%. The increase in depreciation
expense was primarily the result of depreciation on capital expenditures made in
the prior year and the current year.

       Postretirement Benefit Expense. Postretirement benefit expense decreased
to approximately $2.4 million for 1997 from approximately $2.8 million in 1996.
The decrease is primarily due to a decrease in the health care cost trend rates
as determined by an independent actuary.

       Restructuring Expense. 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.

                                      14
<PAGE>
 
       Operating Income. Operating income was approximately $8.3 million for
fiscal 1997 as compared to operating income of approximately $8.1 million for
fiscal 1996, an increase of approximately $0.2 million. Operating income as a
percentage of sales for fiscal 1997 was 4.8% as compared to 4.7% for fiscal
1996. The slight increase is a result of higher gross profit as explained above,
offset by higher administrative expenses and the restructuring charge as
explained above.

       Interest Expense. Interest expense for fiscal 1997 was approximately
$11.8 million as compared to approximately $11.7 million for fiscal 1996, an
increase of approximately $0.1 million or .3%. The increase was due to increased
average monthly borrowings under the Company's revolving credit facility to
support a slightly higher investment in working capital in comparison to the
prior year.


Fiscal 1996 As Compared to Fiscal 1995

       Sales. Sales for the Company for fiscal 1996 were approximately $172.3
million as compared to sales of approximately $175.8 million for fiscal 1995, a
decrease of approximately $3.5 million or 2.0%. Sales decreased primarily as a
result of decreased demand in the market for semi-finished steel (billets).

              Hot Rolled Bar Products. Shipments in fiscal 1996 were 159,688
              ------------------------
       tons compared to 157,610 tons in fiscal 1995, an increase of 2,078 tons
       or 1.3%. Sales of hot rolled bar products from the Joliet Facility
       decreased due primarily to weak market conditions encountered during the
       third fiscal quarter. Hot rolled bar product sales tons shipped from the
       Sand Springs facility were up 74% in fiscal 1996 over the previous year
       due to the introduction of additional hot rolled bar products rolled on
       the new mill. Growth in hot rolled bar product shipments came as a result
       of new product trial shipments and additional production orders as a
       result of successful trials. Average price per ton for hot rolled bar
       products stayed relatively constant at $461 per ton in fiscal 1996, as
       compared to $462 per ton in fiscal 1995.

              Rebar. Rebar shipments for fiscal 1996 were 169,316 tons as
              ------ 
       compared to 161,198 tons in fiscal 1995, and the average price per ton
       increased to $293 for fiscal 1996 from a fiscal 1995 price per ton of
       $290. The increase in the tons shipped was related to additional tons
       being produced on the new rolling mill over the previous year. Rebar
       shipments were limited, however, because mill time was allocated to the
       development of new hot rolled bar product business.

              Fabricated Products. Shipments of fabricated products in fiscal
              --------------------
       1996 were 54,444 tons, up from 48,325 tons in fiscal 1995. Shipments of
       fabricated products from the Kansas City Plant were consistent with the
       prior year while shipments of fence post increased 5,786 tons. The
       average price per ton for fabricated products of $461 per ton in fiscal
       1996 was $14 per net ton higher than the average price per ton of $447 in
       fiscal 1995. This price per ton increase was due to improved market
       conditions in both the fence post and the rebar fabrication businesses.


                                      15
<PAGE>
 
              Semi-finished Steel. Shipments of semi-finished steel to third
              --------------------
       parties for fiscal 1996 were 93,557 tons as compared to fiscal 1995
       shipments of 133,017 tons. The decrease of 39,460 tons or 29.7% was
       primarily due to decreased market demand for semi-finished steel
       products, industry-wide. Demand decreased during the summer of 1995 and
       did not return to normal levels until the winter. Average sales price per
       ton for semi-finished steel decreased from $236 per ton in fiscal year
       1995 to $225 per ton in fiscal 1996. The decrease in the average price
       per ton of semi-finished steel reflected the weaker market encountered
       during the 1996 fiscal year.

       Cost of Sales. The cost of sales for fiscal year 1996 was approximately
$143 million as compared to approximately $144 million for the fiscal year ended
1995. Cost of sales on an average per-ton basis was consistent with the prior
year on a product by product comparison. The costs per ton in the aggregate
increased from $290 in fiscal year 1995 to $300 in fiscal 1996 due to a higher
percentage of finished steel product sales. In fiscal 1996 semi-finished steel
shipments dropped by 39,460 tons and the loss of these lower cost products in
the mix caused the average cost to increase. Scrap prices were fairly consistent
between years.

       Gross Profit. Gross profit for fiscal 1996 was approximately $29.2
million as compared to approximately $31.4 million for fiscal 1995, a decrease
of approximately $2.2 million or 7.4%. Gross profit as a percentage of net sales
for fiscal 1996 was 16.9% as compared to 17.8% for fiscal 1995. The decrease in
gross profit in fiscal 1996 was primarily due to reduced profitability of
semi-finished steel compared to fiscal 1995 caused by weaker market conditions
and to start up costs associated with the new rolling mill. While productivity
and yields improved over fiscal 1995, costs associated with the start up of the
new mill reduced gross profit margins.

       Selling, General and Administrative Expense. Selling, general and
administrative expense for fiscal 1996 was approximately $11.7 million,
reflecting a decrease of approximately $.5 million from 1995 levels. This
decrease is the direct result of management's efforts to control overhead costs
throughout the Company.

       Depreciation and Amortization. Depreciation and amortization for 1996 was
approximately $6.6 million as compared to approximately $5.9 million for 1995,
an increase of approximately $.7 million or 11.9%. The increase in depreciation
expense was primarily the result of capital expenditures related to the new
rolling mill.

       Operating Income. Operating income was approximately $8.1 million for
fiscal 1996 as compared to operating income of approximately $10.1 million for
fiscal 1995, a decline of approximately $2.0 million. Operating income as a
percentage of sales for fiscal 1996 was 4.7% as compared to 5.8% for fiscal
1995. The decline was primarily due to expenses associated with the new mill
start up and the weaker market for semi-finished steel.

                                      16
<PAGE>
 
     Interest Expense. Interest expense for fiscal 1996 was approximately
$11.7 million as compared to approximately $8.0 million for fiscal 1995, an
increase of approximately $3.7 million or 46%. Interest expense in fiscal 1995 a
net of $2.1 million interest capitalized in connection with the financing of the
new mill construction. The remaining increase in financing costs was primarily
caused by a slightly higher lending rate in fiscal 1996 and the build up of
inventories to support the expanding hot rolled bar product business.

     Other Income. The Company recognized other income of approximately $0.5
million which resulted from the sale of the machinery and equipment from the
idled Oklahoma City Mill.

Liquidity and Capital Resources
-------------------------------

Fiscal 1997

       As of April 30, 1997, the Company's long term indebtedness under the
First Mortgage Notes, net of unamortized discount attributable to detachable
stock warrants, was approximately $73.3 million. The Company's indebtedness
under its revolving credit agreements was approximately $21.7 million, leaving
approximately $17.8 million of borrowing availability at April 30, 1997. The
Company was in compliance with its debt covenants under its long-term debt
instruments as of April 30, 1997. See Note 5 to the Consolidated Financial
Statements for additional information.

       Net cash provided by operating activities was approximately $4.7 million
in fiscal 1997, as compared to approximately $3.1 million in 1996. Earnings
before Interest, Taxes, Depreciation, Amortization, restructuring expense and
the non-cash portion of the postretirement benefit expense ("EBITDA") was
approximately $17.6 million for the year ending April 30, 1997 as compared to
$16.4 million in the prior year. Management of the Company believes that EBITDA
is a valuable measure of operating cash flow and is an indicator of Company's
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. The Company excluded restructuring expense from EBITDA
due to its non-recurring nature. Inventories were down approximately $3.2
million from the preceding year due primarily to the decreased production of
semi-finished steel since the electric furnace transformer failure in December.
Accounts payable decreased approximately $4.0 million primarily due to making
the final retainage payment related to the acceptance of the mill and a change
in the timing of payments at the Railway Company because of implementation of an
automated settlement system. Other liabilities increased approximately $1.4
million from the prior year, primarily due to the accrual of retirement
incentives related to the hourly work force restructuring discussed above.

                                      17
<PAGE>
 
       Cash used in investing activities in fiscal 1997 was approximately $3.7
million. The Company incurred approximately $3.7 million in capital
expenditures, consisting of $2.8 million of replacement and environmental
expenditures and $0.9 million of expenditures to improve and upgrade facilities.
Construction in progress at April 30, 1997 was approximately $2.7 million.

       In fiscal 1997, approximately $1.1 million of cash flow was used for
financing activities. The primary uses were repayment of long-term debt and
payments to retired executives of the Company in respect of their stock
appreciation rights.


Fiscal 1996

       Net cash provided by operating activities was approximately $3.1 million
in fiscal 1996, as compared to approximately $0.5 million in 1995. EBITDA was
approximately $16.9 million. Accounts receivable was down approximately $1.6
million from the preceding year while inventories grew by approximately $.3
million. Of this approximate $0.3 million increase in inventories, finished
goods increased approximately $3.3 million to support the new hot rolled bar
product line in Sand Springs and work in process inventory decreased by
approximately $4.1 million as the billet inventory that had been increased while
the new mill was under construction at the end of fiscal 1995 was reduced.
Accounts payable decreased approximately $2.6 million primarily due to timing of
payments to vendors.

       Cash used in investing activities in fiscal 1996 was approximately $4.4
million, consisting principally of normal capital expenditures. The normal
capital expenditures amounted to approximately $5.0 million which was partially
offset by approximately $0.5 million received from the sale of machinery and
equipment from the Oklahoma City mill that had been held for sale. Capital
expenditures for fiscal 1996 were principally related to normal capital spending
with minor expenditures on the final elements of the new mill in Sand Springs.
Construction in progress at April 30, 1996 was approximately $3.9 million. The
outstanding commitment for retainage related to the new mill at April 30, 1996
was approximately $1.5 million.

       In fiscal 1996, approximately $1.4 million of cash flow was provided by
financing activities. These funds were provided through issuance of long-term
debt used to acquire certain capital equipment. This source was partially
consumed by the payment of dividends, payments in respect of stock appreciation
rights, repayment of long-term debt, debt issuance costs, and repurchases of
common stock warrants.

       At present the Company's cash flow from operating activities and
borrowing under the Revolving Credit Facility and Railway Credit Facility are
expected to be sufficient to fund the budget for capital improvements, and meet
any near-term working capital requirements.

                                      18
<PAGE>
 
       On a longer term basis, the Company has significant future debt service
obligations. The Company's ability to satisfy these obligations and to secure
adequate capital resources in the future will be dependent on its ability to
generate adequate operating cash flow. The Company expects that its cash flow
from operations, borrowings under its revolving credit facilities, and
refinancing options for new credit facilities will be sufficient to fund the
repayment of the First Mortgage Notes and other investing activities. This will
be dependent on its overall operating performance and be subject to general
business, financial and other factors affecting the Company and the domestic
steel industry, as well as prevailing economic conditions, certain of which are
beyond the control of the Company. The leveraged position of the Company and the
restrictive covenants contained in the Indenture related to the First Mortgage
Notes and the Revolving Credit Facility could significantly limit the Company's
ability to withstand competitive pressures or adverse economic conditions.

       The Company is 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. Expenses incurred by the Company to comply with these
regulations and requirements were approximately $2.1 million in fiscal 1997,
approximately $1.7 million in fiscal 1996, and approximately $2.2 million in
fiscal 1995. Capital expenditures incurred by the Company to comply with these
requirements were approximately $0.7 million in fiscal 1997 and approximately
$0.4 million in fiscal 1996. In addition, in the event of a release of a
hazardous substance generated by the Company, the Company could be responsible
for the remediation of contamination associated with such a release. The Company
believes that it is currently in substantial compliance with all known material
and applicable environmental regulations.

       The Company has not experienced any material adverse effects on
operations in recent years because of inflation, though margins can be affected
by inflationary conditions. The Company's primary cost components are ferrous
scrap, energy and labor, all of which are susceptible to domestic inflationary
pressures. Finished product prices, however, are influenced by general economic
conditions and competitive factors within the steel industry. While the Company
has generally been successful in passing on cost increases to its 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 the Company's ability to adjust pricing.

ITEM 8.   FINANCIAL STATEMENTS
-------   --------------------

                                      19
<PAGE>
 
                          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, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended April 30, 1997. 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, 1996 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 30, 1997, 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.

KPMG Peat Marwick LLP

Tulsa, Oklahoma
June 27, 1997

                                      20
<PAGE>
 
                  SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES

                          Consolidated Balance Sheets
                       (In thousands, except share data)

<TABLE> 
<CAPTION> 
                                                                                                 April 30,
                                                                                      ------------------------------ 
                           Assets                                                           1996            1997
                           ------                                                           ----            ----
<S>                                                                                 <C>                  <C>  
Current assets:
    Cash and cash equivalents                                                       $         46                15
    Accounts receivable, less allowance for doubtful accounts of
        $658 at April 30, 1996 and 1997                                                   21,607            20,856
    Inventories                                                                           40,321            37,112
    Prepaid expenses and other                                                               914             1,452
    Deferred income tax asset                                                              2,716             2,689
                                                                                       ---------         ---------
         Total current assets                                                             65,604            62,124

Property, plant and equipment, net                                                        68,461            65,885
Property held for sale                                                                       457               439
Intangible asset, less accumulated amortization of $1,667
    and $2,171 in 1996 and 1997, respectively                                              3,818             3,314
Other assets                                                                                 347               290
Receivable from parent                                                                     2,705             2,705
Deferred income tax asset                                                                  1,790             1,817
                                                                                       ---------         ---------

                                                                                    $    143,182           136,574
                                                                                       =========         =========
<CAPTION> 
               Liabilities and Stockholders' Equity
               ------------------------------------
<S>                                                                                 <C>                  <C> 
Current liabilities:
    Current portion of long-term debt                                               $        717               936
    Accounts payable                                                                      20,495            16,475
    Accrued interest payable                                                               4,500             4,500
    Accrued liabilities                                                                    6,281             5,601
    Due to affiliated company                                                                 47                49
                                                                                       ---------         ---------
         Total current liabilities                                                        32,040            27,561

Long-term debt, excluding current portion, less unamortized discount of
$1,840 and $1,696 at April 30, 1996 and 1997, respectively                                96,324            95,614
Accrued post-retirement benefit costs                                                      7,823             9,095
Other liabilities                                                                            610             2,148
                                                                                       ---------         ---------
         Total liabilities                                                               136,797           134,418
                                                                                       ---------         ---------

Stockholders' equity:
    Common stock, $.01 par value, authorized 10,000,000
         shares, issued and outstanding 3,375,000 shares                                      34                34
    Additional paid-in capital                                                             3,591             2,536
    Retained earnings                                                                      4,037               528
                                                                                       ---------         ---------
         Total stockholders' equity                                                        7,662             3,098
    Less loans to stockholders                                                             1,277               942
                                                                                       ---------         ---------
                                                                                           6,385             2,156

Commitments and contingencies
                                                                                       ---------         ---------
                                                                                    $    143,182           136,574
                                                                                       =========         =========
</TABLE> 
See accompanying notes to consolidated financial statements.

                                      21
<PAGE>
 
                  SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES

                      Consolidated Statements of Operations
                        (In thousands, except share data)

<TABLE> 
<CAPTION> 

                                                                                     Year Ended April 30,
                                                                        --------------------------------------------
                                                                           1995               1996             1997
                                                                           ----               ----             ----
<S>                                                                    <C>                  <C>              <C> 
Sales                                                                  $ 175,753            172,317          170,865
Cost of sales                                                            144,385            143,121          140,234
                                                                       ---------          ---------        ---------

         Gross profit                                                     31,368             29,196           30,631

Selling, general and administrative expense                               12,156             11,737           11,923
Depreciation and amortization expense                                      5,930              6,567            6,775
Postretirement benefit expense other than pensions                         3,153              2,776            2,353
Restructuring expense                                                        -                  -              1,320
                                                                       ---------          ---------        ---------

         Operating income                                                 10,129              8,116            8,260
                                                                       ---------          ---------        ---------

Other (expense) income:
    Interest expense, net                                                 (8,049)           (11,733)         (11,769)
    Other                                                                    (58)               526              -
                                                                       ---------          ---------        ---------
                                                                          (8,107)           (11,207)         (11,769)
                                                                       ---------          ---------        ---------
         Income (loss) from operations before income
            tax expense                                                    2,022             (3,091)          (3,509)

Income tax expense                                                          (197)               -                -
                                                                       ---------          ---------        ---------
         Net income (loss)                                             $   1,825             (3,091)          (3,509)
                                                                       =========          =========        =========

         Net income (loss) per common and common
             equivalent share                                          $     .50               (.92)           (1.04)
                                                                       =========          =========        =========

Dividends per common share                                             $     .18                .52              -
                                                                       =========          =========        =========

Common and common equivalent shares outstanding                        3,649,588          3,375,000        3,375,000
                                                                       =========          =========        =========

</TABLE> 
See accompanying notes to consolidated financial statements.

                                      22
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES

                Consolidated Statements of Stockholders' Equity
                                (In thousands)

<TABLE> 
<CAPTION> 
                                                              Year Ended April 30,
                                                     -------------------------------------
                                                     1995             1996            1997
                                                     ----             ----            ----
<S>                                             <C>                <C>              <C> 
Common stock                                      $    34               34              34
                                                  -------          -------         -------
Additional paid-in capital:
     Balance at beginning of year                   3,997            3,685           3,591
     Agreement to repurchase common stock              -                -           (1,055)
     Repurchase of common stock warrants             (312)             (94)             -
                                                  -------          -------         -------
     Balance at end of year                         3,685            3,591           2,536
                                                  -------          -------         ------- 

Retained earnings:
     Balance at beginning of year                   7,652            8,877           4,037
     Net income (loss)                              1,825           (3,091)         (3,509)
     Dividends                                       (600)          (1,749)             -
                                                  -------          -------         ------- 
     Balance at end of year                         8,877            4,037             528
                                                  -------          -------         -------

Total stockholders' equity                        $12,596            7,662           3,098
                                                  =======          =======         =======
</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,
                                                                          ---------------------------------------
                                                                              1995           1996            1997
                                                                              ----           ----            ----
<S>                                                                       <C>            <C>              <C> 
Cash flows from operating activities:
    Net income (loss)                                                     $  1,825         (3,091)         (3,509)
    Adjustments to reconcile net income (loss) to net cash
       provided by operating activities:
         Depreciation and amortization                                       6,317          6,711           6,919
         Loss (gain) on sale or retirement of assets                            58           (526)             -
         Accrual of postretirement benefits other than
           pensions, net of cash paid                                        2,523          1,747           1,272
         Deferred income taxes                                                  23             -               -
         Changes in assets and liabilities:
           Accounts receivable                                              (5,515)         1,564             751
           Inventories                                                      (9,024)          (303)          3,209
           Prepaid expenses and other                                         (563)          (301)           (538)
           Other assets                                                       (115)           177             (54)
           Accounts payable                                                  4,806         (2,624)         (4,020)
           Accrued interest payable                                            100             -               -
           Accrued liabilities                                                  74           (172)           (680)
           Due to affiliated company                                             4             -                2
           Income taxes payable                                                123           (123)             -
           Other liabilities                                                  (121)             8           1,377
                                                                           -------         ------          ------
                Total adjustments                                           (1,310)         6,158           8,238
                                                                           -------         ------          ------

                Net cash provided by operating activities                      515          3,067           4,729
                                                                           -------         ------          ------

Cash flows from investing activities:
    Capital expenditures                                                   (24,220)        (4,978)         (3,695)
    Proceeds from sale of fixed assets                                          30            538              18
                                                                           -------         ------          ------

             Net cash used in investing activities                         (24,190)        (4,440)         (3,677)
                                                                           -------         ------          ------
</TABLE> 

                                                                     (Continued)

                                       24
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES

               Consolidated Statements of Cash Flows, Continued
                                (In thousands)

<TABLE> 
<CAPTION> 
                                                                                    Year Ended April 30,
                                                                          --------------------------------------
                                                                               1995           1996          1997
                                                                               ----           ----          ----
<S>                                                                       <C>             <C>           <C> 
Cash flows from financing activities:
    Net increase (decrease) under revolving lines of credit               $  19,553          2,081        (1,995)
    Proceeds from issuance of long-term debt                                    659          2,195         2,075
    Repayment of long-term debt                                                 (58)          (549)         (715)
    Payment of debt issuance costs                                               -             (75)           -
    Payments in respect of stock appreciation rights                           (524)          (416)         (448)
    Dividends paid                                                             (600)        (1,749)           -
    Repurchase of common stock warrants                                        (312)           (94)           -
                                                                             ------         ------        ------
           Net cash provided by (used in) financing activities               18,718          1,393        (1,083)
                                                                             ------         ------        ------

Net (decrease) increase in cash and cash equivalents                         (4,957)            20           (31)

Cash and cash equivalents at beginning of year                                4,983             26            46
                                                                             ------         ------        ------

Cash and cash equivalents at end of year                                  $      26             46            15
                                                                             ======         ======        ====== 

Supplemental Disclosure of Cash Flow Information 
------------------------------------------------
Cash paid during the year for:
    Interest                                                              $   9,675         11,611        11,625
                                                                             ======         ======        ====== 
    Income taxes                                                          $      50            174            -
                                                                             ======         ======        ====== 

Noncash items:
    Change in unfunded accumulated benefit obligation
         included in other assets and other liabilities                   $     163            558            53
                                                                             ======         ======        ====== 
    Adjustment of property, plant and equipment to
        reflect reclassification of idle assets to property
        held for sale                                                     $     157             -             -
                                                                             ======         ======        ====== 
    Adjustment of property, plant and equipment and
        accounts payable representing amounts accrued
        for fixed asset purchases                                         $   2,301             -             -
                                                                             ======         ======        ====== 
    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
                                                                             ======         ======        ====== 
</TABLE> 


See accompanying notes to consolidated financial statements.

                                       25
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

                         April 30, 1995, 1996 and 1997
                       (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) 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), and Sand Springs Railway Company (the Railway). HMK Enterprises,
         Inc. (HMK) owns 95% of the currently issued and outstanding common
         stock. All material intercompany transactions and balances have been
         eliminated in consolidation.

         The Company's primary business is the production of concrete
         reinforcing bar, fence posts, and a range of hot rolled bar products
         including rounds, flats and squares. The Company operates in an
         economic environment wherein the commodity nature of both its products
         for sale and its 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 its products for sale and the supply and demand
         factors for its 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.

         The Company sells to customers located throughout the continental
         United States. The Company had one customer that accounted for
         approximately 10% of sales for the year ended April 30, 1996 and no
         customers that accounted for greater than 10% of sales for the years
         ended April 30, 1997 and 1995. The Company grants credit to customers
         under normal industry standards and terms. Policies and procedures have
         been established which allow for proper evaluation of each customer's
         creditworthiness as well as general economic conditions. Consequently,
         an adverse change in those factors could effect the Company's estimate
         of its bad debts.

         Cash Equivalents

         The Company considers all highly liquid debt instruments with a
         maturity of three months or less when purchased 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. It is the Company's policy to
         recognize an impairment of the carrying value of goodwill when
         management's 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. Interest costs for the construction of
         certain long-term assets are capitalized and amortized over the
         estimated useful lives of the related assets.

         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.

         The Company is a member 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 be determined as if each member
         of the Group were a separate taxpayer. All income taxes payable or
         receivable are due to or from HMK.

         Postretirement Benefits

         The Company provides postretirement benefits to certain retirees and
         their beneficiaries, generally for the remainder of their lives. The
         Company measures the cost of its obligation based on an actuarially
         determined present liability, the accumulated postretirement benefit
         obligation (APBO). The net periodic costs are recognized as employees
         render the services necessary to earn the postretirement benefits.

         Environmental Compliance Costs

         In October, 1996, the American Institute of Certified Public
         Accountants issued Statement of Position ("SOP") 96-1, Environmental
         Remediation Liabilities. SOP 96-1 was adopted by the Company on May 1,
         1997 and requires, among other things, environmental remediation
         liabilities to be accrued when the criteria of Statement of Financial
         Accounting Standards (SFAS) No. 5, Accounting for Contingencies, have
         been met. The SOP also provides guidance with respect to the
         measurement of the remediation liabilities. Such accounting is
         consistent with the Company's current method of accounting for
         environmental remediation costs and, therefore, adoption of this new
         Statement will not have a material impact on the Company's 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


         Income (Loss) per Common and Common Equivalent Share

         Income (loss) per share is based on the weighted average number of
         common shares and dilutive common stock equivalents outstanding each
         year. Outstanding stock purchase warrants (see Note 5[a]) and stock
         options (see Note 12) are common stock equivalents but were excluded
         from per-share computations in 1996 and 1997 since their effect on loss
         per common share was anti-dilutive.

         Use of Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates.

         Stock Option Plan

         Prior to May 1, 1996, the Company accounted for its stock option plan
         in accordance with the provisions of Accounting Principles Board
         ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
         related interpretations. As such, compensation expense would be
         recorded on the date of grant only if the current market price of the
         underlying stock exceeded the exercise price. On May 1, 1996, the
         Company adopted SFAS No. 123, Accounting for Stock-Based Compensation,
         which permits entities to recognize as expense over the vesting period
         the fair value of all stock-based awards on the date of grant.
         Alternatively, SFAS No. 123 also allows entities to continue to apply
         the provisions of APB Opinion No. 25 and provide pro forma net income
         and pro forma earnings per share disclosures for employee stock option
         grants as if the fair-value-based method defined in SFAS No. 123 had
         been applied. The Company has elected to continue to apply the
         provisions of APB Opinion No. 25 and provide the pro forma disclosure
         provisions of SFAS No. 123.

(2)      Fair Value of Financial Instruments

         The Company defines 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 an
         equipment financing company (see Note 5) approximates the fair value
         due to these debt instruments having variable interest rates similar to
         those that are currently available to the Company. The fair value of
         the first mortgage notes (see Note 5) at April 30, 1997, based on the
         currently offered market price, is approximately $71.6 million versus a
         carrying value of approximately $73.3 million.

                                       28
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements, Continued


3)       Inventories

         The components of inventories are as follows:
<TABLE> 
<CAPTION> 

                                                             April 30,
                                                      -----------------------
                                                        1996            1997
                                                        ----            ----
              <S>                                     <C>              <C> 
              Raw materials and storeroom supplies    $ 10,823         10,924
              Work in process                           15,640         10,978
              Finished goods                            13,858         15,210
                                                        ------         ------
                                                     
                                                      $ 40,321         37,112
                                                        ======         ======
</TABLE> 

(4)      Property, Plant and Equipment

         The components of property, plant and equipment are as follows:
<TABLE> 
<CAPTION> 

                                                           April 30,
                                                   -----------------------
                                                       1996          1997
                                                       ----          ----
            <S>                                    <C>              <C> 
            Land and buildings                     $  16,448        16,483
            Machinery and equipment                   88,096        92,607
            Roadbed and improvements                   5,129         5,197
            Construction in process                    3,899         2,727
                                                    --------      --------
                                                     113,572       117,014
            Less accumulated depreciation
                and amortization                      45,111        51,129
                                                    --------      --------

                                                  $   68,461        65,885
                                                    ========      ========
</TABLE> 

         Depreciation and amortization of property, plant and equipment charged
         to operations in 1995, 1996 and 1997 was $5,388, $6,021 and $6,271,
         respectively. Included in depreciation expense for 1995 is
         approximately $500 related to the write-down of mill equipment replaced
         during 1995. Approximately $2,078 and $25 of interest costs were
         capitalized as part of property, plant and equipment in 1995 and 1996,
         respectively. No interest costs were capitalized in 1997. Interest
         costs incurred in 1995, 1996 and 1997 were $10,127, $11,758 and
         $11,769, respectively.

         The range of estimated useful lives for determining depreciation and
         amortization of the major classes of assets are:

<TABLE> 

                           <S>                                <C>  
                           Buildings                          5-25 years
                           Machinery and equipment            3-25 years
                           Roadbed and improvements           3-40 years
</TABLE> 

                                       29
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements, Continued

(5)      Long-term Debt

         Long-term debt is comprised of the following:
<TABLE> 
<CAPTION> 

                                                                April 30,
                                                         -----------------------
                                                           1996            1997
                                                           ----            ----
          <S>                                            <C>              <C> 
          First mortgage notes, net of unamortized
              discount, effective rate 12.5% [a]         $ 73,160         73,304
          Revolving credit agreement [b]                   18,660         18,417
          Railway term loan [c]                                 -          2,000
          Railway revolving credit agreement [c]            3,019          1,267
          Equipment notes [d]                               2,202          1,562
                                                           ------         ------
                                                           97,041         96,550
          Less current portion                                717            936
                                                           ------         ------

                                                         $ 96,324         95,614
                                                           ======         ======
</TABLE> 

           [a]    On November 4, 1993, the Company issued $75 million of 12%
                  first mortgage notes due 2001 with warrants to purchase 10% of
                  the Company's common stock. The notes were sold in units
                  consisting of $1,000 principal amount and five warrants. Each
                  warrant entitles the holder to purchase one share of the
                  Company's common stock through November 1, 2001, at an
                  exercise price of $.01 per share, subject to adjustment. The
                  notes are secured by a first priority lien on substantially
                  all existing and future real property and equipment and a
                  second priority lien on inventory and accounts receivable.
                  Interest is payable semi-annually on May 1 and November 1 of
                  each year.

           [b]    The revolving credit agreement with a bank provides for
                  maximum borrowings of $40 million based on a percentage of
                  eligible accounts receivable and inventory. Borrowings are
                  secured by a first priority lien on inventory, accounts
                  receivable and related intangibles, and a second priority lien
                  on existing and future real property. 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, 1997, the interest rate was 9.5%. An
                  annual commitment fee of 1/4% is charged on the unused portion
                  of the revolving credit agreement. The agreement continues
                  through November 1, 2000 and thereafter on a year-to-year
                  basis until terminated by the Company or the lender.

           [c]    As of April 30, 1996, the Railway credit agreement with a bank
                  provided for a reducing revolving credit commitment with
                  maximum borrowings of $3 million. During 1997, the Railway
                  credit agreement was restructured and is now comprised of two
                  notes; a $2 million term loan with $0.5 million principal
                  payments each year with the final payment on July 31, 2000,
                  and a $1.5 million line of credit maturing July 31, 1998.
                  Obligations under 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, 1997, the interest rate was 9.5%.

           [d]    At April 30, 1997, the Company had $1,562 in notes payable to
                  equipment financing companies and vendors. The notes are
                  payable in monthly principal installments of $63 plus interest
                  payable at variable rates. The notes mature on various dates
                  through 2002 and are secured by equipment.

                                       30
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements, Continued

         The aggregate maturities of long-term debt for the years ended April
         30, are as follows:

<TABLE> 
                           <S>                                     <C> 
                           1998                                    $    936
                           1999                                       2,613
                           2000                                         689
                           2001                                      18,933
                           2002                                      75,075
                                                                     ------
                               Total maturities                      98,246
                                   Less unamortized discount         (1,696)
                                                                     ------
                                                                   $ 96,550
                                                                     ======
</TABLE> 

         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 levels of tangible net worth, working capital,
         cash flow and performance ratios. In the event of default of the
         restrictive covenants or failure to maintain the specified performance
         measures, the commitments related to the credit agreements can be
         withdrawn by the lender.

6)       Income Taxes

         The Company had no income tax expense or benefit for the years ended
         April 30, 1996 and 1997. Income tax expense attributable to operations
         for the year ended April 30, 1995 consists of the following:

<TABLE> 
<CAPTION> 
                                                                        Current         Deferred        Total
                                                                        -------         --------        -----
              <S>                                                       <C>             <C>             <C> 
              Year ended April 30, 1995:
                  Federal                                                $ (174)             (20)         (194)
                  State                                                       -               (3)           (3)
                                                                            ---               --           ---
                                                                         $ (174)             (23)         (197)
                                                                            ===               ==           ===
</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,
                                                                         -----------------------------------
                                                                         1995             1996          1997
                                                                         ----             ----          ----
              <S>                                                    <C>               <C>             <C> 
              Computed "expected" tax  (expense) benefit             $  (687)            1,050          1,193
              State income taxes, net of federal benefit                 (81)              124            140
              Decrease (increase) in the valuation
                  allowance for deferred tax assets                      659            (1,231)        (1,032)
              Other, net                                                 (88)               57           (301)
                                                                         ---             -----          -----

                                                                     $  (197)                -              -
                                                                         ===             =====          =====
</TABLE> 

                                       31
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements, Continued

         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,
                                                                                    -------------------------
                                                                                        1996            1997
                                                                                        ----            ----
          <S>                                                                       <C>               <C> 
          Deductible temporary differences, excluding postretirement benefit
              costs:
                 Inventories                                                        $  1,066            1,338
                 Allowance for doubtful accounts                                         250              250
                 Accrued liabilities not deductible until paid                         1,583            1,677
                 Restructuring charge                                                    559              560
                 Net operating loss carryforwards                                      8,805           10,848
                 Alternative minimum tax credit carryforwards                            962              962
                 Investment tax credit carryforwards                                     856              856
                 Other                                                                   103               12
                                                                                      ------           ------
                                                                                      14,184           16,503
                 Less valuation allowance                                              3,409            4,441
                                                                                      ------           ------
                                                                                      10,775           12,062
          Taxable temporary difference - plant and equipment                          (9,242)         (11,012)
                                                                                      ------           ------

                   Net deferred tax asset, excluding postretirement
                       benefit costs                                                   1,533            1,050

          Postretirement benefit costs                                                 2,973            3,456
                                                                                      ------           ------

                   Net deferred tax asset                                           $  4,506            4,506
                                                                                      ======           ======
</TABLE> 

         At April 30, 1997 the Company had available net operating loss (NOL)
         carryforwards for regular federal tax purposes of approximately $28,800
         which will expire as follows: $1,400, $400, $3,700, $4,200, $5,600,
         $7,400 and $6,100 in the years ended 2000, 2002, 2007, 2008, 2009, 2011
         and 2012, respectively. The Company has investment tax credit
         carryforwards for tax purposes of $856 which the Company has fully
         reserved as it is likely that those tax credits will not be utilized
         prior to their expiration. The credits expire in various periods
         through 2004. Company also has available $962 of alternative minimum
         tax (AMT) credit carryforwards which may be used indefinitely to reduce
         future federal regular income tax obligations.

         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. Fiscal 1990 capped a three-year period in which
         the Company generated approximately $19 million and $11.5 million in
         book and tax earnings, respectively. During fiscal 1991 through fiscal
         1994, the Company incurred approximately $12.4 million in taxable
         losses as a result of steel bar prices, significant losses from
         operations at Oklahoma City, and a $5.3 million loss on the early
         retirement of debt. A recovery of steel bar prices which began in
         fiscal 1994 and continued into 1995 resulted in the Company generating
         $3.6 million in taxable income. In 1995, the Company started up a new
         rolling mill which passed the required performance tests and was
         accepted during fiscal 1997. Productivity expectations of the mill are
         linked to the future operating performance of the Company. Management
         has introduced new mill products and made progress toward achieving the
         full potential of the new mill. However, there can be no assurance that
         the mill will reach the forecasted production goals or that the Company
         will achieve future profitability. Accordingly, a valuation allowance
         has been established at April 30, 1997, to reduce the deferred tax
         assets to a level which, more likely than not, will be realized.

                                       32
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           Notes to the Consolidated Financial Statements, Continued

         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. Accordingly, management did not establish a
         valuation allowance for the deferred tax asset related to future annual
         postretirement benefit costs. In order to fully realize the remaining
         net deferred tax asset, the Company will need to generate future
         taxable income of approximately $7,100 of which approximately $6,900 is
         required to fully utilize existing AMT credit carryforwards. Based upon
         historical taxable income trends and projections for future taxable
         income over the periods which the deferred tax assets are deductible,
         management believes it is more likely than not that the Company will
         realize the benefits of the net deferred assets, net of the existing
         valuation allowance, at April 30, 1997.


(7)      Employee Benefit Plans

         Sand Springs and Joliet have defined benefit plans covering
         substantially all of their employees. Benefits are generally based on
         years of service and the employee's compensation during the last ten
         years of employment. The Company's funding policy is to contribute
         annually at least the minimum amount necessary to avoid a deficiency in
         the funding standard. The Company received a waiver of the minimum
         funding standard in the amount of $776 for the plan year ended December
         31, 1984, which is being amortized over 15 years. Net periodic pension
         expense for these plans included the following:
<TABLE> 
<CAPTION> 
                                                                               Year Ended April 30,
                                                                 --------------------------------------------
                                                                   1994               1996              1997
                                                                   ----               ----              ----
         <S>                                                     <C>                 <C>               <C> 
         Service cost                                            $    619               653               747
         Interest cost                                              1,201             1,306             1,462
         Net amortization and deferral                                845             2,575               420
         Actual return on plan assets                              (1,550)           (3,420)           (1,483)
                                                                    -----             -----             -----

                                                                 $  1,115             1,114             1,146
                                                                    =====             =====             =====
</TABLE> 

     The following table sets forth the funded status of the Company's plans, as
     determined by an independent actuary:

<TABLE> 
<CAPTION> 

                                                                April 30, 1996                  April 30, 1997
                                                         ---------------------------    ---------------------------
                                                         Accumulated        Assets      Accumulated       Assets
                                                           Benefits         Exceed        Benefits        Exceed
                                                            Exceed       Accumulated       Exceed       Accumulated
                                                            Assets         Benefits        Assets        Benefits
                                                            ------         --------        ------        --------
         <S>                                            <C>              <C>            <C>             <C> 
         Actuarial present value of vested benefit
             obligation                                    $ 2,741            13,691         2,527          15,658
                                                             =====            ======         =====          ======

         Accumulated benefit obligation                    $ 2,770            14,035         2,556          15,998
                                                             =====            ======         =====          ======

         Projected benefit obligation                        2,950            16,858         2,737          18,451
         Plan assets at fair value                           2,578            16,912         2,313          19,340
                                                             -----            ------         -----          ------
         Projected benefit obligation in excess of
             plan assets                                       372              ( 54)          424            (889)
         Unrecognized net gain                                 114             2,732           151           2,371
         Unrecognized prior service cost                      (484)              101          (494)             94
         Unrecognized net transition liability                 (35)           (3,306)          (11)         (2,774)
         Adjustment required to recognize
             minimum liability                                 225             -               173           -
                                                             -----            ------         -----          ------

             Net pension liability (asset)                 $   192              (527)          243          (1,198)
                                                             =====            ======         =====          ======
</TABLE> 

                                       33
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

         Plan assets consist primarily of U.S. government obligations and
         marketable equity securities. The unrecognized net transition
         obligations are being amortized over periods of 14-15 years.

         Major assumptions used in the accounting for the pension plans were as
         follows:

<TABLE> 
<CAPTION> 
                                                                               1996                  1997
                                                                            ----------            ----------
                 <S>                                                        <C>                   <C>  
                 Discount rate                                                 7.25%                 7.50%
                 Rate of increase in compensation levels                       0%-5%                 0%-4%
                 Expected long-term rate of return on assets                    8.0%                  8.0%
</TABLE> 

         Certain divisions of the Company maintain defined contribution plans in
         which various groups of employees participate. Total Company
         contributions for these plans amounted to $57, $85, and $81 in 1995,
         1996, and 1997, respectively.

(8)      Postretirement Benefits Other Than Pensions

         The Company provides 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. The Company's
         policy is to fund accumulated postretirement benefits on a
         "pay-as-you-go" basis. Net periodic postretirement benefit costs for
         1995, 1996 and 1997 include the following components: 

<TABLE> 
<CAPTION> 
                                                          Year Ended April 30,
                                              ------------------------------------------
                                                1995              1996            1997
                                               ------            ------          ------
                 <S>                           <C>               <C>             <C> 
                 Service cost                  $  359               326             321
                 Interest cost                  1,825             1,690           1,372
                 Net amortization                 969               760             660
                                                -----             -----           -----
                                                
                                               $3,153             2,776           2,353
                                                =====             =====           =====
</TABLE> 

         The following table sets forth the APBO and the amount of the net
         postretirement benefit liability as determined by an actuary and
         recognized in the balance sheet at April 30, 1996 and 1997:

<TABLE> 
<CAPTION> 
                                                                        1996            1997
                                                                       ------          ------
                <S>                                                  <C>              <C> 
                Retirees                                             $ 12,727          10,173
                Fully eligible active plan participants                 4,245           4,522
                Other active plan participants                          8,035           4,848
                                                                       ------          ------
                      Accumulated post retirement benefit
                        obligation                                     25,007          19,543
                Unrecognized transition obligation                    (24,391)        (22,956)
                Unrecognized net gain                                   7,207          12,508
                                                                       ------          ------

                      Accrued postretirement benefit cost            $  7,823           9,095
                                                                       ======          ======
</TABLE> 

         The annual discount rate used in determining the APBO was 7.25 and 7.5%
         at April 30, 1996 and 1997, respectively. Also, for measurement
         purposes, HMO trend rates of 8.5% and 6.3% and medical trend rates of
         12.0% and 11.0% were used for the hourly and salaried medical indemnity
         plans, respectively. The medical and HMO trend rates are assumed to
         decline one-half percent per year to an ultimate level of 5.5%. The
         health care cost trend rate assumption has a significant effect on the
         amounts reported. For example, increasing the assumed health care cost
         trend rates by one percentage point in each year would increase the
         APBO as of April 30, 1997, by $2,800 and the aggregate service and
         interest cost components of net periodic postretirement benefit costs
         by $268.

                                       34
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(9)      Operating Leases

         The Company is obligated under various noncancelable operating leases
         for certain land and buildings. These leases generally contain
         inflationary rent escalations and require the Company 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 $260, $277 and $313 for the years ended April 30,
         1995, 1996 and 1997, respectively.

         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> 
                           1998                                 $  328
                           1999                                    328
                           2000                                    337
                           2001                                    353
                           2002                                    353
                           Later years                             570
                                                                 -----
                               Total                            $2,269
                                                                 =====
</TABLE> 

(10)     Commitments and Contingencies

         The Company is 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. The Company maintains letters of credit totaling
         approximately $2.0 million in accordance with workers' compensation
         arrangements.

         The Company is involved in claims and legal actions arising in the
         ordinary course of business. In the opinion of management, the ultimate
         disposition of these matters will not have a material adverse effect on
         the Company's financial position, results of operations, or liquidity.

(11)     Related Party Transactions

         An affiliated company provides management and business services to the
         Company, including, but not limited to, financial, marketing, executive
         personnel, corporate development, human resources, and limited legal
         services. The Company believes that transactions with related parties
         are at costs that could be obtained from third parties. Management fees
         charged during the years ended April 30, 1995, 1996 and 1997, were
         approximately $598, $573 and $569, respectively. In addition, the
         Company purchases general liability, workers' compensation and other
         insurance through an affiliated company which provides risk management
         services, including 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 during the years
         ended April 30, 1995, 1996 and 1997, were approximately $224, $115 and
         $115 respectively.

         During fiscal year 1993, certain minority shareholders issued $1,000 of
         notes receivable to the Company. The notes bear interest at an annual
         rate of 7.61% and are secured by common stock of the Company. Principal
         and interest are due on February 1, 2007, unless extended at the
         Company's option until February 1, 2012. The principal balance
         outstanding as of April 30, 1996 and 1997 was $1,000 and $700,
         respectively.

                                       35
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

         On September 30, 1996, the Company signed an agreement to repurchase
         50,625 shares of the Company's common stock from two minority
         shareholders who formerly were 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 said agreement. Certain payments,
         including those to reacquire the Company's common stock, are currently
         not permitted under the terms of the Company's first mortgage notes and
         revolving credit agreements. As a result of this transaction, $393 of
         notes receivable from the former shareholders was satisfied, the
         Company recorded a note payable in the amount of $662 and decreased
         paid-in capital by $1,055. The note payable will accrue simple interest
         at 6.02% and will be repaid in five annual installments beginning when,
         and only when, the purchase of the shares is permitted under the
         Company's credit agreements.

         The Company has a receivable of $2,205 from HMK related to certain tax
         attributes allocated to the Company. Under an agreement with HMK, the
         receivable will be realized by reducing future income taxes otherwise
         payable by the Company to HMK. In addition, the Company advanced $500
         to HMK to secure a letter of credit for the Joliet insurance program.

(12)     Stock Options

         On September 15, 1993, the Board of Directors adopted, and the
         stockholders of the Company approved, the Company's 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 of the Company and nonqualified stock options to key
         employees, directors, and consultants of the Company. A total of
         580,000 shares of the Company's common stock, which would represent
         approximately 13.4% of the Company's common stock on a fully diluted
         basis, have been reserved for issuance under the Stock Option Plan. The
         options vest in three years and may be exercised within 10 years from
         the grant date 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 the
         performance-based formula prescribed in the Stock Option Plan. At April
         30, 1997, there were 124,000 additional shares available for grant
         under the Plan.

         The Company applies APB Opinion No. 25 in accounting for its Plan and,
         accordingly, no compensation cost has been recognized for its stock
         options in the financial statements. Had the Company determined
         compensation cost based on the fair value at the grant date for its
         stock options under SFAS No. 123, the Company's net income would have
         been reduced to the pro forma amounts indicated below:

<TABLE> 
<CAPTION> 
                                                         1997
                                                        ------
                <S>                                   <C> 
                Net income:
                   As reported                        $ (3,509)
                                                         =====
                   Pro forma                          $ (3,578)
                                                         =====

                Earnings per share:
                   As reported                        $  (1.04)
                                                          ====
                   Pro forma                          $  (1.06)
                                                          ====
</TABLE> 

         The per share weighted-average fair value of stock options granted
         during 1997 was $4.83 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. Therefore, the full impact of calculating compensation cost
         for stock options under SFAS No. 123 is not reflected in the pro forma
         net income amounts presented above because compensation cost is
         reflected over the options' vesting 

                                       36
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

         period of three years and compensation cost for options granted prior
         to May 1, 1994 is not considered.

                                       37
<PAGE>
 
                 SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

         The options outstanding and activity during the periods indicated is as
         follows:

<TABLE> 
<CAPTION> 
                                                                   Weighted 
                                                                    Average
                                                  Options        Exercise Price
                                                  -------        --------------
                  <S>                             <C>            <C> 
                  At May 1, 1994                  474,609          $  7.41
                     Granted                            -                -
                     Exercised                          -                -
                     Canceled                           -                -
                                                  -------
                  At April 30, 1995               474,609             7.41
                     Granted                            -                -
                     Exercised                          -                -
                     Canceled                     (69,609)               -
                                                  -------
                  At April 30, 1996               405,000             7.41
                     Granted                       51,000            20.52
                     Exercised                          -                -
                     Canceled                           -                -
                                                  -------
                  At April 30, 1997               456,000          $  8.87
                                                  =======
</TABLE> 

         Exercise prices for options outstanding as of April 30, 1997 ranged
         from $7.41 to $20.52. The weighted-average remaining contractual life
         of those options is 6.34 years. There were 405,000 shares exercisable
         as of April 30, 1996 and 1997. There were no shares exercisable at
         April 30, 1995.

         In connection with the adoption of the Stock Option Plan, the Company
         elected to terminate its 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 accrued liabilities and other liabilities at April 30, 1996
         and 1997, are $873 and $368, respectively, representing the present
         value of the SAR's based on vesting and retirement dates.

(13)     Restructuring Expense

         During 1997, the Company 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. In addition, 14 salaried employees were involuntarily
         terminated in the third quarter resulting in severance costs totaling
         approximately $250.

                                       38
<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
Sheffield Steel Corporation's Proxy Statement dated July 31, 1997, with respect
to directors and executive officers of the Company is incorporated herein by
reference in response to this item.

       Because the Company does not have a class of securities registered under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), none
of its 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 the Company's executive
officers is included under the caption entitled "Executive Compensation" in
Sheffield Steel Corporation's Proxy Statement dated July 31, 1997, 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 the Company's Common
Stock by certain beneficial owners and by management is included under the
caption entitled "Share Ownership" in Sheffield Steel Corporation's Proxy
Statement dated July 31, 1997, 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 Sheffield Steel Corporation's Proxy Statement dated July 31,
1997, and is incorporated herein by reference in response to this item.

                                       39
<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, 1996 and 1997

              Consolidated Statements of Operations - Years ended April 30, 
              1995, 1996 and 1997

              Consolidated Statements of Stockholders' Equity - Years Ended 
              April 30, 1995, 1996 and 1997

              Consolidated Statements of Cash Flows - Years Ended April 30,
              1995, 1996 and 1997

              Notes to Consolidated Financial Statements - April 30, 1995, 1996 
              and 1997


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):

<TABLE> 
<CAPTION> 
     Form 10-K Schedules             Description                   Page Number
     -------------------             -----------                   -----------
              <S>         <C>                                          <C> 
              II          Valuation and Qualifying Accounts            45
</TABLE> 

       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.

                                       40
<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 the Registrant's
            Registration Statement on Form S-1, Registration No. 33-67532, filed
            with the Securities and Exchange Commission on August 17, 1993).
        
   3.2      By-Laws of the Registrant (Incorporated by reference to Exhibit 3.2 to
            the Registrant's Registration Statement on Form S-1, Registration No.
            33-67532, filed with the Securities and Exchange Commission on August
            17, 1993).
        
   4.1      Indenture for First Mortgage Notes (including form of First Mortgage
            Note registered thereunder), dated as of November 1, 1993, between
            Sheffield Steel Corporation and Shawmut Bank Connecticut, N.A., as
            Trustee (Incorporated by reference to Exhibit 4.1 to the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended October 31, 1993).

   4.2      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, Registration No. 33-67532, filed
            with the Securities and Exchange Commission on August 17, 1993).

   4.3      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,
            Registration No. 33-67532, filed with the Securities and Exchange
            Commission on August 17, 1993).

   4.4      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, Registration No. 33-67532, filed
            with the Securities and Exchange Commission on August 17, 1993).

   4.5      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, Registration No. 33-67532, filed
            with the Securities and Exchange Commission on August 17, 1993).

   4.6      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, Registration No. 33-67532, filed
            with the Securities and Exchange Commission on August 17, 1993).
</TABLE> 

                                       41
<PAGE>
 
<TABLE> 
<S>         <C>                                                                        <C> 

   4.7      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, Registration No. 33-
            67532, filed with the Securities and Exchange Commission on August
            17, 1993).

   4.8      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).

   4.9      Intercreditor Agreement, dated November 1, 1993, between Sheffield
            Steel Corporation, NationsBank of Georgia, N.A., and Shawmut Bank
            Connecticut, N.A., as Trustee (Incorporated by reference to Exhibit
            4.9 to the Registrant's Quarterly Report on Form 10-Q for the
            quarter ended October 31, 1993).

   4.10     Security Agreement, dated November 1, 1993, between Sheffield Steel
            Corporation and Shawmut Bank Connecticut, N.A., as Collateral Agent
            and Trustee (Incorporated by reference to Exhibit 4.10 to the
            Registrant's Quarterly Report on Form 10-Q for the quarter ended
            October 31, 1993).

   4.11     Mortgage, Assignment of Leases, Security Agreement and Fixture
            Filing, dated November 1, 1993, between Sheffield Steel Corporation
            and Shawmut Bank Connecticut, N.A., as Collateral Agent, Trustee and
            Mortgagee (relating to property located in Joliet, Illinois)
            (Incorporated by reference to Exhibit 4.11 to the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended October 31,
            1993).

   4.12     Mortgage, Assignment of Leases, Security Agreement and Fixture
            Filing, dated November 1, 1993, between Sheffield Steel Corporation
            and Shawmut Bank Connecticut, N.A., as Collateral Agent, Trustee and
            Mortgagee (relating to property located in Sand Springs, Oklahoma)
            (Incorporated by reference to Exhibit 4.12 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.

   10.1     Intentionally Omitted.
</TABLE> 

                                       42
<PAGE>
 
   10.2      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, Registration No. 33-67532, 
             filed with the Securities and Exchange Commission on August 17,
             1993).

   10.3      Management Services Agreement, dated October 1, 1993 between HMK
             Enterprises, Inc. and Sheffield Steel Corporation (Incorporated by
             reference to Exhibit 10.3 to the Registrant's Registration
             Statement on Form S-1, Registration No. 33-67532, filed with the
             Securities and Exchange Commission on August 17, 1993).

   10.4      Insurance Services Agreement, dated October 1, 1993 between HMK
             Enterprises, Inc. and Sheffield Steel Corporation (Incorporated by
             reference to Exhibit 10.4 to the Registrant's Registration
             Statement on Form S-1, Registration No. 33-67532, filed with the
             Securities and Exchange Commission on August 17, 1993).

   10.5      Design, Manufacturing and Installation Contract, dated 
             December 10, 1993, between Sheffield Steel Corporation and Morgan-
             Pomini Company (Incorporated by reference to Exhibit 10.5 to the
             Registrant's Quarterly Report on Form 10-Q for the quarter ended
             October 31, 1993).

   10.6      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).

   10.7      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, Registration No. 33-67532, filed with the Securities
             and Exchange Commission on August 17, 1993).

   10.8      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, Registration No. 33-67532, filed with the Securities
             and Exchange Commission on August 17, 1993).

   10.9      Promissory Note, dated April 23, 1991, executed by Sand Springs
             Railway Company in the amount of $1.9 million in favor of Bank of
             Oklahoma (Incorporated by reference to Exhibit 4.9 to the
             Registrant's Registration Statement on Form S-1, Registration 
             No. 33-67532, filed with the Securities and Exchange Commission on
             August 17, 1993).

   10.10     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, Registration 
             No. 33-67532, filed with the Securities and Exchange Commission on
             August 17, 1993).

   10.11     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, Registration No. 33-67532,
             filed with the Securities and Exchange Commission on 
             August 17, 1993).

   10.12     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, Registration No. 33-67532,
             filed with the Securities and Exchange Commission on August 17,
             1993).

                                       43
<PAGE>
 
   10.13     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, Registration No. 33-67532, filed with the
             Securities and Exchange Commission on August 17, 1993).

   10.14     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, Registration 
             No. 33-67532, filed with the Securities and Exchange Commission on
             August 17, 1993).

   10.15     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, Registration 
             No. 33-67532, filed with the Securities and Exchange Commission on
             August 17, 1993).

   10.16     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, Registration No. 33-67532,
             filed with the Securities and Exchange Commission on 
             August 17, 1993).

   10.17     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, Registration No. 33-67532, filed with the
             Securities and Exchange Commission on August 17, 1993).

   10.18     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, Registration No. 33-67532, filed with the Securities and
             Exchange Commission on August 17, 1993).

   10.19     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, Registration No. 33-67532, filed with the Securities and
             Exchange Commission on August 17, 1993).

   10.20     Real Estate Mortgage and Security Agreement, dated December 10,
             1987 between Sand Springs Railway Company and Bank of Oklahoma
             (Incorporated by reference to Exhibit 10.20 to the Registrant's
             Registration Statement on Form S-1, Registration No. 33-67532,
             filed with the Securities and Exchange Commission on August 17,
             1993).

   10.21     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, Registration No. 33-67532,
             filed with the Securities and Exchange Commission on August 17,
             1993).

   10.22     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, Registration No. 33-67532, filed with the
             Securities and Exchange Commission on August 17, 1993).

                                       44
<PAGE>
 
   10.23     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, Registration No. 33-67532, filed with the
             Securities and Exchange Commission on August 17, 1993).

   10.24     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, Registration No. 33-67532,
             filed with the Securities and Exchange Commission on August 17,
             1993).

   10.25     Subordination Agreement dated November 10, 1995, between Sheffield
             Steel Corporation and the CIT Group/Equipment Financing, Inc.

   10.26     First Amendment to Master Loan and Security Agreement between
             Sheffield Steel Corporation and the CIT Group/Equipment Financing,
             Inc. dated April 25th, 1995.

   10.27     Second Amendment to Master Loan and Security Agreement between
             Sheffield Steel Corporation and the CIT Group/Equipment Financing,
             Inc. dated July 2, 1996.

  *10.28     Sheffield Steel Corporation 1993 Employee, Director and Consultant
             Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the
             Registrant's Registration Statement on Form S-1, Registration 
             No. 33-67532, filed with the Securities and Exchange Commission on
             August 17, 1993).

   10.29     Second Amendment to Real Estate Mortgage and Security Agreement,
             dated July 31, 1996 between Sand Springs Railway Company and Bank
             of Oklahoma, N.A.

   10.30     Third Amendment to Real Estate Mortgage and Security Agreement,
             dated July 31, 1996 between Sand Springs Railway Company and Bank
             of Oklahoma, N.A.

   10.31     Fourth Amendment to Restated Credit Agreement, date July 31, 1996
             between Sand Springs Railway Company and Bank of Oklahoma, N.A.

   10.32     Promissory Note, date July 31, 1996, executed by Sand Springs
             Railway Company in the amount of $1.5 million in favor of Bank of
             Oklahoma, N.A.

   10.33     Promissory Note, date July 31, 1996, executed by Sand Springs
             Railway Company in the amount of $2 million in favor of Bank of
             Oklahoma, N.A.

   10.34     Real Time Pricing Program Agreement dated June 1, 1996 between
             Sheffield Steel Corporation and Public Service Company of Oklahoma.

** 10.35     Agreement between the United Steelworkers of America and the Sand
             Springs Division of Sheffield Steel Corporation dated 
             March 2, 1997.

**    12     Statement re Computation of Ratio of Earnings to Fixed Charges.

**    13     Statement re Computation of EBITDA.

      21     Subsidiaries of the Registrant (Incorporated by reference to
             Exhibit 21 to the Registrant's Registration Statement on Form S-1,
             Registration No. 33-67532, filed with the Securities and Exchange
             Commission on August 17, 1993).

                                       45
<PAGE>
 
      99     Proxy Statement, dated July 31, 1997, in connection with the 1997
             Annual Meeting of Stockholders


*   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, 1997.

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
----------  -----------------------------------------

                                       46
<PAGE>
 
                                                                     Schedule II

                  SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES

                        Valuation and Qualifying Accounts

                    Years ended April 30, 1997, 1996 and 1995
                                 (In thousands)

<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
                                               ===             ======           ========             ===

<CAPTION> 

                                             Balance         Charged to                            Balance
                                            April 30,        Costs and        Deductions -        April 30,
                                              1995            Expenses         Write-offs           1996
                                              ----            --------         ----------           ----
<S>                                          <C>               <C>              <C>                  <C>  
Accounts receivable - allowance for
  doubtful accounts                          $ 461                197                  -             658
                                               ===                ===           ========             ===

<CAPTION> 

                                             Balance         Charged to                            Balance
                                            April 30,        Costs and        Deductions -        April 30,
                                              1994            Expenses         Write-offs           1995
                                              ----            --------         ----------           ----
<S>                                          <C>              <C>              <C>                   <C> 
Accounts receivable - allowance for
  doubtful accounts                          $ 432                 36                 (7)            461
                                               ===               ====               ====             ===
</TABLE> 

                                       47
<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 25, 1997                                 /s/ Robert W. Ackerman
--------------------------                   -----------------------------
Date                                         Robert W. Ackerman, President
                                             and Chief Executive Officer

 July 25, 1997                                /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 25, 1997                               /s/ Robert W. Ackerman
--------------------------                   ----------------------------
Date                                         Robert W. Ackerman, Director

 July 25, 1997                               /s/ Steven E. Karol
--------------------------                   ----------------------------
Date                                         Steven E. Karol, Director

 July 25, 1997                               /s/ Dale S. Okonow
--------------------------                   ----------------------------
Date                                         Dale S. Okonow, Director

 July 25, 1997                               /s/ Jane M. Karol
--------------------------                   ----------------------------
Date                                         Jane M. Karol, Director

 July 25, 1997                               /s/ Howard H. Stevenson
--------------------------                   ----------------------------
Date                                         Howard H. Stevenson, Director

 July 25, 1997                               /s/ John D. Lefler
--------------------------                   ----------------------------
Date                                         John D. Lefler, Director

                                       48