<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File Number 1-4368
THE LTV CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
STATE OR OTHER JURISDICTION OF INCORPORATION)
25 West Prospect Avenue
Cleveland, Ohio
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
75-1070950
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
44115
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (216) 622-5000
------------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
Common Stock, par value $0.50 New York Stock Exchange
Series A Warrants New York Stock Exchange
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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 whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Approximately $1.4 Billion
(As of February 20, 1996)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
105,140,731 shares of Common Stock
(As of February 20, 1996)
Documents Incorporated by Reference: Annual Report to Shareholders for fiscal
year 1995 (Part II); Annual Proxy Statement for 1996 Annual Meeting (Part III)
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.
[X]
<PAGE> 2
PART I
ITEM 1. BUSINESS.
INTRODUCTION
The LTV Corporation ("LTV") was organized as a Delaware corporation in
November 1958 as a successor to a California corporation organized in 1953.
LTV's principal office is located at 25 West Prospect Avenue, Cleveland, Ohio
44115 and its telephone number is (216) 622-5000. LTV is engaged in the steel
industry through its subsidiaries, LTV Steel Company, Inc. ("LTV Steel") and LTV
Steel Tubular Products Company. LTV and its subsidiaries are collectively
referred to herein as "LTV" or the "Company" unless the context otherwise
requires.
LTV is a fully integrated steel producer that manufactures coated sheet and
cold rolled and hot rolled sheet and strip, as well as tubular and tin mill
products. Based on 1995 shipments (as compiled by LTV based primarily on
publicly filed data), LTV believes it is the third largest steel producer, the
second largest producer of flat rolled steel and a leading supplier of
quality-critical, flat rolled steel to the automotive, appliance and electrical
equipment industries in the United States. LTV operates two integrated steel
mills (Cleveland Works and Indiana Harbor Works) and various finishing and
processing facilities, as well as tubular and tin mill operations. The Company's
energy products group (Continental Emsco Company and Continental Emsco Company
Limited) was sold in August 1995 and is treated herein as a discontinued
operation for all periods presented.
Coated sheet and cold rolled and hot rolled sheet and strip are used to
make products such as automobile bodies, appliances and other consumer durable
goods, farm equipment, industrial machinery, office equipment, machine parts and
tubular products. Tin mill products are used by the container industry in the
manufacture of cans and closures. Tubular products are used primarily in the
electrical, automotive, construction and oil and gas industries.
SIGNIFICANT DEVELOPMENTS
In 1995, the Company formed an international joint venture with Sumitomo
Metal Industries, Ltd. ("Sumitomo") and British Steel plc ("British Steel") to
construct and operate a mini-mill in Decatur, Alabama to produce commercial and
higher quality hot rolled steel. The mini-mill's light gauge hot rolled products
will compete with a portion of the cold rolled market in the southeastern region
of the United States. The joint venture, called Trico Steel Company, L.L.C.
("Trico Steel"), is owned 50% by a subsidiary of LTV and 25% each by
subsidiaries of Sumitomo and British Steel. The mini-mill will have an estimated
annual capacity of 2.2 million tons, and construction costs are expected to
aggregate approximately $450 million. Construction began in mid-1995, and Trico
Steel expects to begin operations in 1997 and be fully operational in 1998. The
steel produced by Trico Steel will be sold by a sales force of a wholly-owned
subsidiary of LTV which will be dedicated solely to the sale of Trico Steel
product.
On August 1, 1995, LTV sold its energy products business to a third party
for $60.3 million and preferred stock with a stated value of approximately $14.3
million. LTV's energy products business had revenues totaling $299.2 million
during 1994 and $179.2 million for the first seven months of 1995.
REORGANIZATION
LTV has been operating as a reorganized company since June 28, 1993, after
having operated within Chapter 11 of the Bankruptcy Code since July 17, 1986.
While in Chapter 11 proceedings, LTV substantially reduced its debts,
restructured significant obligations, rejected unfavorable contracts, sold its
aerospace and defense and other non-core steel businesses, substantially
restructured its operations and reduced expenses. The bulk of these activities,
particularly reducing debt, restructuring obligations and rejecting unfavorable
contracts, could only have been accomplished in the context of Chapter 11. With
the adoption of fresh start reporting upon emergence from bankruptcy, LTV's
assets and liabilities were adjusted to fair values and a new reporting entity
was created with no retained earnings.
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INDUSTRY SEGMENTS
With the sale of the Company's energy products business, the Company
operates in a single industry segment - steel.
STEEL OPERATIONS
STEEL MILL PRODUCTS
During the years 1995, 1994 and 1993, LTV's operations accounted for 8.2%,
8.4% and 8.4%, respectively, of total domestic industry shipments of steel mill
products, based on American Iron and Steel Institute ("AISI") reports. The net
tons of steel mill products shipped by LTV's steel operations during these
periods were: 1995-7,961,000, 1994-7,969,000 and 1993-7,570,000.
LTV's steel mill product mix is reflected in the following table which
shows the revenue dollars for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
REVENUE REVENUE REVENUE
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Hot and cold flat rolled products............ $2,146 $2,100 $1,892
Galvanized products.......................... 1,221 1,212 1,112
Tin Mill products............................ 449 474 438
Tubular products............................. 314 293 253
All other.................................... 153 154 173
------- ------- -------
Total................................. $4,283 $4,233 $3,868
======== ======== ========
</TABLE>
The increase in revenues in 1995 and 1994 from 1993 for hot and cold flat
rolled products was due to the continued growth of the U.S. economy, stronger
demand for steel products and the realization of steel price increases in 1994
and through the first half of 1995. Flat rolled product prices declined through
the second half of 1995. The decrease in tin mill product revenue in 1995 was
due primarily to lower sales levels, lower demand primarily from the packing
industry offset partially by higher prices. Revenue in early 1993 in tin mill
products was adversely affected by a temporary reduction in production due to
modernization of LTV's tin mill product finishing facilities. Shipments of
electrical conduit increased in 1995 and 1994 due to strength in the
construction market; shipments of mechanical tubing remained strong due to
continued strength in the automotive market; shipments of electric weld pipe
products, while recovering slightly in 1995, remained depressed throughout the
periods shown due to continued weak demand.
STEEL PRODUCTION
The following table sets forth raw steel production and estimated
capability information for both LTV and the domestic steel industry during the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Capability (net tons in thousands)
LTV........................................ 8,300 8,300 9,780
Industry(a)................................ 112,500 108,200 109,900
Percent of industry........................ 7.4% 7.7% 8.9%
Production (net tons in thousands)
LTV........................................ 8,460 8,250 7,920
Industry(a)................................ 103,100 100,600 97,900
Percent of industry........................ 8.2% 8.2% 8.1%
Production as a percentage of capability
LTV(b)....................................... 102.0% 99.4% 81.0%
Industry(a)................................ 91.7% 93.0% 89.1%
</TABLE>
- ---------------
(a) The information relating to the domestic steel industry is as reported by or
is derived from data reported by the AISI and is preliminary for 1995. A net
ton is 2,000 pounds.
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(b) The annual operating capabilities indicated above for 1993 include steel
production capability related to two electric furnaces and a fourth blast
furnace at the Cleveland Works. As part of the start-up of the Direct Hot
Charge Complex, LTV removed these furnaces from its stated capability,
effective at the beginning of 1994, which reduced annual operating
capability by 1.5 million tons to 8.3 million tons. If these facilities had
been removed from stated capability for 1993, LTV's production as a
percentage of capability in that year would have been considerably higher.
LTV produces its steel requirements using the basic oxygen furnace process
at its Cleveland Works and Indiana Harbor Works. With three continuous casters,
LTV continuously casts 100% of its flat rolled steel production. LTV
supplements its production from time to time with purchases of semi-finished
steel. In 1995, 1994 and 1993, LTV purchased approximately 279,000 tons,
514,000 tons and 437,000 tons, respectively, of semi-finished slabs from other
foreign and domestic steel producers.
Individual facilities are operated at rates that best serve LTV's overall
need at the time and can be significantly higher or lower than LTV's average
operating rate. LTV does not believe data regarding the utilization of
individual facilities is necessarily meaningful.
CUSTOMERS
The following table sets forth the percentage of shipments by tonnage
distributed among LTV's various markets for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Automotive................................... 25% 26% 26%
Steel service centers........................ 29% 28% 30%
Converters and processors.................... 14% 13% 11%
Electrical, agricultural and other
machinery.................................. 9% 9% 9%
Household appliances and office equipment.... 6% 7% 8%
Containers and packaging..................... 6% 8% 8%
Construction................................. 5% 6% 5%
Exports...................................... 5% 2% 2%
All other.................................... 1% 1% 1%
---- ---- ----
Total................................. 100% 100% 100%
</TABLE>
Sales to LTV's largest unaffiliated customer, General Motors Corporation,
represented approximately 12%, 11% and 13%, respectively, of LTV's sales dollars
during 1995, 1994 and 1993.
SALES AND MARKET DISTRIBUTION
Approximately 60% to 65% of LTV's steel products are sold under contracts,
most of which are negotiated on an annual basis. Almost all of LTV's flat rolled
steel sales to its larger customers in the automotive, appliance, electrical
equipment and food and beverage can markets are made pursuant to such contracts.
These contracts generally provide for set prices for the products ordered during
the period that the contract is in effect. As a result, LTV may experience a
delay in realizing price changes related to its contract steel products
business, but such contract business can be less susceptible to (although not
necessarily unaffected by) short-term swings in spot prices. The remainder of
LTV's flat rolled product is sold in the spot market at the then prevailing
market prices for such product.
Beginning in 1996, most of the Company's flat rolled sales organization,
including all sales processing functions previously handled in the field, will
be consolidated at LTV's headquarters. As part of that
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reorganization, employees performing commercial, marketing and customer service
functions will be combined and reorganized along market lines. LTV will continue
to maintain regional offices for flat rolled line sales functions.
Tubular products and tin mill products are sold through separate sales
organizations divided into four regions.
Internationally, LTV has information and technical liaison offices for flat
rolled products in Mexico City and in Tokyo. The Tokyo office assists the flat
rolled and tubular products sales groups to service their respective Japanese
customers that have operations in the U.S. The Tokyo office has been
particularly effective in enabling LTV to become a qualified supplier to the
U.S.-based manufacturing operations of various Japanese companies.
LTV's export sales of steel product were 4.2% of total dollar sales in
1995, 2.0% in 1994 and 2.8% in 1993.
COMPETITION
LTV competes directly with domestic and foreign flat rolled carbon steel
producers and indirectly with producers of plastics, aluminum and other
materials such as ceramics and wood which sometimes can be substituted for flat
rolled carbon steel in manufactured products. The primary factors which have
affected competition include price, quality, delivery performance and customer
service. LTV targets quality-critical, value-added applications and believes it
is able to differentiate certain of its products from those of its competitors
on the basis of product quality, technology, modern facilities and customer
product and technical support. In order to further enhance the Company's
delivery performance, the Company is reengineering its business processes in an
effort to shorten customer response time and is making significant investments
in new information systems to support those reengineered business processes. All
existing and future information systems supporting these business processes will
be managed by outside information systems providers under a long-term contract.
Foreign
Domestic steel producers have faced significant competition from foreign
producers. Foreign competition is intense and has adversely affected product
prices in the United States and tonnage sold by domestic producers. The
intensity of foreign competition is affected by, among other things, worldwide
steel demand and fluctuations in the value of the U.S. dollar against foreign
currencies. Steel imports may increase should worldwide demand decline or the
value of the dollar rise in relation to foreign currencies. Many foreign steel
producers are owned, controlled or subsidized by their governments. Decisions by
these foreign producers with respect to production and sales may be influenced
to a greater degree by political and economic policy considerations than by
prevailing market conditions. Further, the U.S. has enacted legislation which
implements the GATT Uruguay Round agreement. The impact of this law, which
weakens prior U.S. trade laws in some respects, could also result in increased
steel imports from foreign producers. For a description of the final dumping and
subsidy decisions relating to foreign competition issued by the International
Trade Commission ("ITC"), some of which are the subject of pending appeals, see
"Trade Cases" below.
Based on AISI reports and other data, LTV believes that effective domestic
production capability for flat rolled steel is not sufficient to meet fully
domestic steel demand. As a result, a certain level of imports is required to
meet domestic demand. Based on AISI reports, during the three years 1995, 1994
and 1993, imports of steel mill products totaled approximately 22.8 million
(eleven months), 30.1 million and 19.5 million net tons, respectively, or
approximately 21% of total domestic steel consumption in 1995 (eleven months),
approximately 25% in 1994 and 19% in 1993. Of this amount, 4.8 million net tons
(eleven months) or 21% of the imports in 1995 and 7.9 million net tons in 1994
consisted of semi-finished product purchased by domestic steel producers for
further finishing and resale. The market for tubular products was most affected
by imports, where foreign products accounted for 34% of the market in 1995
(eleven months), 38% in 1994 and 35% in 1993. Flat rolled imports (including tin
mill products) comprised 16% of the flat rolled market in 1995 (eleven months),
19% in 1994 and 13% in 1993.
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<PAGE> 6
Domestic
LTV competes with other domestic integrated producers. Domestic integrated
producers also compete with mini-mills which are relatively efficient, low-cost
producers that generally produce steel from scrap in electric furnaces, have
lower employment and environmental costs and generally target regional markets.
Because of their technology, mini-mills are currently highly dependent upon
scrap and susceptible to fluctuating scrap prices.
Industry experts estimate that current domestic raw steel production
capacity will be increased by more than 10% in the next three years as new
mini-mills, now under construction or otherwise proposed, begin operation. See
"Significant Developments" regarding the Company's 50% participation in Trico
Steel, one of the proposed mini-mills, which will have an estimated annual
capacity of 2.2 million tons.
Recently developed thin slab casting technologies have allowed some
mini-mill producers to enter certain sectors of the flat rolled market, which
have traditionally been supplied by integrated producers, and others have
announced their intention to do the same.
TRADE CASES
U.S.-Certain ITC Determinations
In June 1992, certain members of the U.S. steel industry filed 84 cases
against 21 foreign countries alleging that steel imports from these countries
were being dumped and/or subsidized in the United States' steel market and
causing or threatening to cause material injury to U.S. steel producers. The
products involved included cut-to-length plates, hot rolled sheet, cold rolled
sheet and corrosion resistant products. In July 1993, the International Trade
Commission (the "ITC") made final determinations that material injury had
occurred in approximately 83% of the total import tonnage in 1992 of corrosion
resistant products, 36% of the total import tonnage in 1992 of cold rolled
products and none of the hot rolled products. In January 1995, these findings
were affirmed by the Court of International Trade (or, in the case of Canada, a
binational panel), although selected issues in certain cases have been appealed
further by various parties to the U.S. Court of Appeals for the Federal Circuit.
These decisions are also subject to review annually at an administrative level
with respect to the amount of the margins and review periodically by the ITC
with regard to the existence of material injury. Cash deposits equal to
estimated antidumping and/or countervailing duty margins continue to be
required, whether or not appeals are pending, from importers to pay additional
duties on those steel imports where there was a final affirmative injury
decision. A successful challenge to the trade decisions that were favorable from
the perspective of the Company may contribute to an increase in steel imports or
adoption of pricing and marketing practices in those products that are adverse
to the Company.
Since the ITC decisions, imports of hot and cold rolled product have
increased significantly while corrosion resistant imports have increased to a
lesser extent. During 1995, 29% of the Company's steel-related revenues were
derived from the shipment of corrosion resistant steel, 27% from the shipment of
cold rolled steel and 24% from the shipment of hot rolled steel.
Canada and Mexico
In Canada and Mexico, administrative orders imposing dumping duties are in
effect covering various steel product produced by LTV Steel. LTV Steel has
requested that Mexico and Canada review such orders. During 1995, LTV exported
less than 112,000 tons of such steel products into Canada and Mexico that are
subject to dumping duties. Accordingly, the effect of these orders is not
material to LTV.
EMPLOYEES AND LABOR MATTERS
As of December 31, 1995, LTV had approximately 14,400 active employees.
Approximately 11,200 active employees, primarily hourly workers, are represented
by unions. Of these employees, approximately 10,800 are represented by the
United Steelworkers of America ("USWA").
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In June 1994, the Company and the USWA entered into a labor agreement which
expires on August 1, 1999. The Agreement provides, however, for a reopening of
wage provisions effective August 1, 1996, subject to binding arbitration.
OTHER ASPECTS OF LTV
RESEARCH AND DEVELOPMENT
LTV's research and development efforts focus on developing new production
processes to improve the quality and reduce the cost of LTV's product lines,
provide product and technical support to customers and create new steel
products.
LTV operates a research and development facility and customer technical
center in Cleveland to develop new steel products, improve existing steel
products and develop more efficient operating procedures to meet the continually
increasing demands of the automotive, appliance, electrical equipment and
container markets. The employees of LTV's research and development facilities
include chemists, metallurgists and engineers. In addition, LTV offices in Tokyo
and Mexico City provide technical support to Company customers in those
countries and their U.S. manufacturing operations.
LTV also operates a product application center in Detroit that works
closely with customers in identifying optimum steel and manufacturing methods,
evaluating steel product performance and solving customer manufacturing
problems.
Expenditures for research and development totaled $14.8 million in 1995,
$15.1 million in 1994 and $15.0 million in 1993. These expenditures do not
include the efforts of sales and manufacturing employees in working to meet
customer technical demands.
ENVIRONMENTAL MATTERS
LTV is subject to changing and increasingly stringent environmental laws
and regulations concerning air emissions, water discharges and waste disposal.
The Company spent approximately $19 million in 1995 and approximately $30
million in 1994 for compliance-related capital expenditures and expects to spend
an average of approximately $30 million annually in capital expenditures for the
next five-year period to meet environmental standards (including requirements of
the 1990 Clean Air Act Amendments). Estimates for future capital expenditures
and operating costs required for environmental compliance are difficult to
determine due to numerous uncertainties, including the evolving nature of the
regulations, the possible imposition of more stringent requirements and the
availability of new technologies.
Also, the Company spent approximately $17 million during 1995 and
approximately $20 million during 1994 for environmental clean-up and related
matters at operating and idled facilities and had a recorded liability of $98
million at December 31, 1995 and $102 million at December 31, 1994 for known and
identifiable environmental clean-up and related matters that are probable to
occur, based on current law and existing technology. Most of these expenditures
are expected to be incurred over the next five-year period. Other requirements
for environmental matters, which could increase these costs, may arise in the
future. See the discussion of "Environmental Liabilities and Related Costs"
included in Management's Discussion and Analysis included in the Company's 1995
Annual Report to Shareholders which is incorporated herein by reference.
EPA AND STATE ENVIRONMENTAL SETTLEMENT AGREEMENTS
At the time of the Company's reorganization (in June 1993), the U.S.
Environmental Protection Agency ("EPA") and the Company entered into a
settlement agreement (the "Environmental Settlement Agreement") which resolved,
or provided a mechanism for resolving, the environmental claims which the EPA
had brought against the Company in its bankruptcy proceedings.
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The Environmental Settlement Agreement resolved all environmental clean-up
and natural resource damage claims of the EPA relating to specified sites
designated by the EPA as Superfund Sites (other than a Company-owned Superfund
Site). In addition, the Agreement resolved certain pending claims for civil
penalties under several environmental statutes.
Claims by the EPA under CERCLA, RCRA and TSCA relating to sites once owned
by the Company (but not owned at the time of confirmation of the Company's Joint
Plan of Reorganization ("Joint Plan")), which arise out of conduct of the
Company occurring prior to confirmation of the Joint Plan (or, in the case of
sites never owned by the Company, conduct of the Company occurring prepetition),
were given the status of unliquidated general unsecured claims in the bankruptcy
proceedings. No distribution was made by the Company at reorganization on
account of such claims. Instead, such claims, should they be liquidated in the
future pursuant to a settlement or judgment obtained through enforcement
activities of the United States pursued in the ordinary course, will be
satisfied by the payment of Common Stock in the same manner as other general
unsecured claims under the Joint Plan or, at LTV's option, an equivalent amount
of cash or a combination of stock and cash. As of February 20, 1996, no such EPA
claims had been liquidated.
Environmental claims under CERCLA, RCRA and TSCA relating to property owned
by the Company upon confirmation of the Joint Plan ("Owned Sites") were not
affected by the reorganization of the Company or the Environmental Settlement
Agreement (except for certain response costs incurred preconfirmation).
The Environmental Settlement Agreement also served as the basis for
settlement agreements covering the environmental claims of several states and
are similar in all material respects, although in the case of the states, the
agreements apply to claims arising under essentially all of the states'
environmental laws. Thus, claims in the Company's bankruptcy proceedings arising
with respect to Owned Sites were not affected by the Company's reorganization
(except for certain response costs incurred preconfirmation and penalties
assessed with respect to certain specified and prepetition activities). Also, as
with treatment of liabilities at sites which are not Owned Sites under the
Environmental Settlement Agreement, except for certain specified sites for which
claims were liquidated, the states received no distributions in the bankruptcy
proceedings on account of such liabilities at the time of confirmation, but such
claims by these states are to be liquidated in the same manner as other general
unsecured claims, if, as and when states undertake enforcement activities. As of
February 20, 1996, no such state claims had been liquidated.
Except in the case of several states which agreed to a complete discharge
of claims against the Company, the state settlement agreements and the
Environmental Settlement Agreement do not cover environmental liabilities, if
any, of the aerospace, defense and military vehicle subsidiaries of the Company,
the assets of which were sold during the pendency of the bankruptcy proceeding.
The Company believes, however, that any such claims would be subject to the
provisions on claim dischargeability under the Bankruptcy Code and the Joint
Plan, subject to judicially imposed due process requirements.
Although the Company has addressed certain of its environmental liabilities
in the reorganization process, the Company is in a business that has incurred
and will continue to incur substantial expense as a result of environmental laws
and regulations. The Company does not believe, however, that these future costs
will have a material adverse effect on its financial position, liquidity and
competitive position.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of LTV.
<TABLE>
<CAPTION>
NAME AGE* OFFICE
- ----------------------------- -------------------------------------------------------------
<S> <C> <C>
David H. Hoag 56 Chairman of the Board, President and Chief Executive Officer
J. Peter Kelly 54 Group Vice President-Steel
James F. Haeck 49 Senior Vice President-Commercial
Arthur W. Huge 50 Senior Vice President and Chief Financial Officer
Glenn J. Moran 48 Senior Vice President, General Counsel and Secretary
Richard A. Veitch 55 Senior Vice President-Flat Rolled Operations
George T. Henning 54 Vice President and Controller
Richard J. Hipple 43 Vice President-Purchasing, Engineering and Strategic Planning
John C. Skurek 51 Vice President and Treasurer
</TABLE>
- ---------------
* As of December 31, 1995.
OFFICERS
The only employee of LTV and its subsidiaries who is also a director of LTV
is Mr. Hoag, Chairman of the Board, President and Chief Executive Officer of
LTV.
All officers, except Mr. Henning, have been employed by LTV or its
subsidiaries for more than the last five years.
Mr. Hoag has been Chairman of the Board of LTV since June 1991 and
President and Chief Executive Officer of LTV since February 1991. He has also
been a director of LTV since June 1986. He also is the Chairman of the Board and
Chief Executive Officer and a director of LTV Steel Company, Inc. He also is a
director of The Lubrizol Corporation (chemical manufacturing) and The Chubb
Corporation (insurance). He also serves as Chairman of Cleveland Tomorrow, a
prominent Cleveland business group, and as Chairman of the Board of Trustees of
Allegheny College. He also is a past Chairman of the Board of the American Iron
and Steel Institute.
Mr. Kelly became a Group Vice President of LTV in February 1991. He has
been President and a director of LTV Steel since February 1991 and Chief
Operating Officer of LTV Steel since January 1993. Prior thereto, since
September 1987, Mr. Kelly was Executive Vice President of LTV Steel. He also
serves as a director of National City Bank and is Chairman of the Board of
Trustees of Notre Dame College in South Euclid, Ohio.
Mr. Haeck was elected Senior Vice President-Commercial of LTV in January
1996. During the last five years, Mr. Haeck has also served as Senior Vice
President-Commercial and Senior Vice President-Flat Rolled Operations at LTV
Steel and Vice President and General Manager of Cleveland Works at LTV Steel.
Mr. Huge became Senior Vice President and Chief Financial Officer of LTV in
June 1993. Mr. Huge has also served as Vice President and Chief Financial
Officer of LTV Steel for more than the past five years.
Mr. Moran has been Senior Vice President and General Counsel of LTV since
September 1992 and Secretary since July 1993. He has also served as Vice
President, General Counsel and Secretary of LTV Steel.
Mr. Veitch was elected Senior Vice President-Flat Rolled Operations of LTV
in January 1996. During the past five years, Mr. Veitch has also served as
Senior Vice President-Flat Rolled Operations at LTV Steel and Vice President and
General Manager of Indiana Harbor Works and Hennepin.
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Mr. Henning was elected Vice President and Controller of LTV in September
1995. Prior thereto, Mr. Henning was Vice President and Chief Financial Officer
of Pioneer Companies, Inc., a manufacturer of chlorine, caustic soda and related
products.
Mr. Hipple was elected Vice President-Purchasing, Engineering and Strategic
Planning of LTV in January 1996. During the last five years, Mr. Hipple has
served in a variety of officer positions at LTV Steel with responsibilities in
the purchasing, engineering, environmental and strategic planning areas.
Mr. Skurek has been Vice President and Treasurer of LTV since February
1993. Mr. Skurek has also served as Vice President and Treasurer of LTV Steel
since September 1992 and as Vice President-Public Affairs of LTV Steel from July
1991 to September 1992. Prior thereto, he was the Assistant Treasurer of LTV
Steel.
ITEM 2. PROPERTIES.
CORPORATE HEADQUARTERS
LTV has its corporate headquarters in 299,000 square feet of leased office
space in Cleveland, Ohio under a lease expiring at the end of 1996. Upon
expiration of such lease, LTV will move its corporate headquarters to another
location in Cleveland under a new lease expiring in 2011. The lease, which
covers approximately 238,000 square feet, also provides LTV options to extend
the lease term through 2026.
STEEL PRODUCING FACILITIES
The Company has two integrated steel mills, Cleveland Works and Indiana
Harbor Works, and various finishing, galvanizing and processing facilities as
well as stand-alone tin mill and tubular operations. During the period 1987
through 1995, the Company spent approximately $2.7 billion to modernize and
upgrade these facilities.
The Cleveland Works at Cleveland, Ohio produces a variety of flat rolled
products. Major facilities include blast furnaces, basic oxygen furnaces, two
continuous slab casters, vacuum degassing and ladle metallurgy systems, hot
strip mills, cold reducing mills, a continuous annealing line, sheet finishing
facilities and an electroplate line.
The Indiana Harbor Works at East Chicago, Indiana produces a variety of
flat rolled products. Major facilities include blast furnaces, basic oxygen
furnaces, a continuous slab caster, vacuum degassing and ladle reheating
systems, a hot strip mill, a cold reducing mill, sheet finishing facilities,
hot-dipped galvanizing lines and a tin mill.
LTV also operates a tin mill in Aliquippa, Pennsylvania. The Company's two
tin mills (which includes one at Indiana Harbor Works as described above) have a
combined operating capacity aggregating 840,000 tons and operated at a combined
rate of 96% of capacity during 1995.
LTV also operates finishing operations in Hennepin, Illinois. The Hennepin
facilities, which receive semi-finished products from the steel producing
facilities, include a cold reducing mill, a sheet finishing mill and a
hot-dipped galvanizing line. LTV also operates coke batteries in Chicago,
Illinois; Pittsburgh, Pennsylvania and Warren, Ohio.
Tubular products facilities in Ferndale, Michigan; Cleveland, Youngstown
and Elyria, Ohio; Counce, Tennessee; and Cedar Springs, Georgia manufacture
electric weld pipe and welded tubing (pressure tubing, mechanical tubing, cold
drawn tubing and electrical metallic conduit).
Joint Ventures
LTV also participates in a number of joint ventures, the largest of which
involve international partners and are described below.
9
<PAGE> 11
In May 1995, the Company formed an international joint venture with
Sumitomo and British Steel to construct and operate a mini-mill in Decatur,
Alabama to produce commercial and higher quality hot rolled steel. The joint
venture, Trico Steel, is owned 50% by a subsidiary of LTV and 25% each by
subsidiaries of Sumitomo and British Steel. Trico Steel will have an estimated
annual capacity of 2.2 million tons, and construction costs are expected to
aggregate approximately $450 million. Construction began in mid-1995, and Trico
Steel expects to begin operations in 1997 and be fully operational in 1998. The
steel produced by the mini-mill will be sold by a sales force of a wholly-owned
subsidiary of LTV which will be dedicated solely to the sale of Trico Steel
products.
LTV also owns joint venture interests in two electro-galvanizing lines. The
first, involving a joint venture owned 60% by a subsidiary of LTV and 40% by a
subsidiary of Sumitomo, was built at LTV's Cleveland Works. The line produces
one-sided and two-sided zinc-coated flat rolled steel products, utilizing an
electrolytic galvanizing process, and has an annual capacity of approximately
420,000 tons of coated products. The second line, involving a joint venture
which is owned equally by subsidiaries of LTV and Sumitomo, produces zinc,
nickel/zinc and nickel/zinc/organic-coated products and has an annual capacity
of approximately 360,000 tons of coated product. The second line is located in
Columbus, Ohio. Most of the cold rolled steel that is coated at these facilities
is produced by LTV, and LTV is responsible for all sales and marketing of coated
products processed by the joint ventures. The two electro-galvanizing lines
operated at a combined rate of 80% of capacity during 1995.
Railroads
LTV owns all of the capital stock of the following six terminal switching
railroad companies: Aliquippa and Southern Railroad Company, serving the
Aliquippa tin mill; The Cuyahoga Valley Railway Company and The River Terminal
Railway Company, serving the Cleveland Works; The Mahoning Valley Railway
Company, serving the Youngstown electric weld pipe mill; The Monongahela
Connecting Railroad Company, serving the Pittsburgh coke plant; and the Chicago
Short Line Railway Company, serving the Indiana Harbor Works. All are common
carriers subject to regulation by the Interstate Commerce Commission and are
used primarily by LTV.
Suitability
LTV's steel-related facilities are well maintained, considered adequate for
their intended purposes and being utilized for their intended purposes.
USWA Collateral Arrangement
LTV has granted liens on the plant, property and equipment at its Cleveland
West facilities and a royalty free license or sublicense with respect to
intellectual properties used in connection with the manufacture of products at
such facilities pursuant to a 1993 USWA labor agreement to secure payment of (i)
certain retiree health benefits to salaried and hourly employees and retirees
and (ii) certain employer contributions under a defined contribution plan for
hourly employees (collectively, the "Secured Obligations"). The maximum amount
recoverable to pay the Secured Obligations upon foreclosure of the collateral is
$250 million.
From time to time, either the USWA or LTV may request an appraisal of the
collateral securing the Secured Obligations. If such appraisal reveals that the
aggregate Coverage Value (as defined below) of such collateral is less than $250
million, LTV must grant or cause to be granted additional collateral with a
Coverage Value at least equal to such deficit on plant, property and equipment
of LTV and its affiliates engaged in the steel business. Alternatively, if an
appraisal reveals that the aggregate Coverage Value of the collateral is greater
than $250 million, LTV may request the release of collateral with a Coverage
Value not to exceed such excess. For purposes of plant, property and equipment,
Coverage Value means 50% of the most recent appraised value thereof (subject to
certain adjustments) less two times any obligation secured thereby to which the
Secured Obligations have been subordinated. The security interest granted may,
subject to certain conditions, be subordinated to certain subsequent security
interests including, among others, security interests created for LTV's benefit
of working capital lenders or in favor of LTV's restored pension plans.
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<PAGE> 12
RAW MATERIALS
Iron Ore
LTV owns interests in two iron ore mining operations. LTV's share of
production at these mines during 1995 was sufficient to meet 100% of its iron
ore requirements. LTV's share of reserves at these mines is sufficient to meet
its anticipated iron ore requirements in the near term.
LTV estimates that as of January 1, 1996, the total of its proven crude ore
reserves and of its proportionate share of such reserves of the companies in
which it has an ownership interest was such that, when mined and beneficiated,
there could be produced for use by LTV approximately 542,359,000 gross tons (a
gross ton is equivalent to 2,240 pounds) of merchantable ore averaging
approximately 64% iron content. These ore reserves at the end of 1995, and 1995
activity, were as follows:
<TABLE>
<CAPTION>
PROVEN 1995
NET ANNUAL SHARE OF DELIVERIES
INTEREST IN IRON ORE 1995 TO STEEL
RESERVES(a) CONTENT ENTITLEMENT PRODUCTION PLANTS(b)
----------- ------- ----------- ---------- ----------
(GROSS TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Properties:
LTV Steel Mining Company........... 511,000 64% 8,000(c) 7,757 7,498
Empire Iron Mining
Partnership(d).................. 31,359 64% 2,000 1,981 1,250
----------- ----------- ---------- ----------
Total Properties..................... 542,359 10,000 9,738 8,748
</TABLE>
- ---------------
(a) LTV's ownership interest in reserves is stated in gross tons of concentrates
or pellets.
(b) "1995 Deliveries to Steel Plants" does not include the sale of ore products
to third parties.
(c) LTV owns 100% of LTV Steel Mining Company located in Minnesota. The
entitlement is based on normal annual plant capacity, and the production
level can be reduced at LTV's discretion.
(d) LTV holds a 25% interest in Empire Iron Mining Partnership which operates an
iron ore mine and pellet facility in Michigan. LTV can reduce its annual ore
purchase requirements. Minimum ore purchase requirements in 1995 totaled
1,333,333 gross tons.
Ore reserves are expected to be exhausted prior to the expiration dates of
the various leases associated with LTV's mining properties. LTV is committed to
pay its share of the annual cost of these operations either through cash
advances or purchases of ore at market prices.
During 1995, the average blast furnace charge consisted of approximately
89% pellets and 11% sinter. During 1995, almost all of LTV's pellet and sinter
requirements came from affiliated sources.
Metallurgical Coal and Coke
Metallurgical coal is used to make coke which is used in blast furnaces to
make iron in the raw steelmaking process. All LTV's metallurgical coal
requirements are purchased from unaffiliated third parties under a number of
short and intermediate term contracts. LTV previously owned interests in a
number of coal properties, all of which have been closed, except for certain
properties leased to third parties.
LTV produced 81% of its coke requirements during 1995 and expects to
produce 79% of its anticipated requirements for 1996 at its owned coke batteries
located at Warren, Ohio; Chicago, Illinois; and Pittsburgh, Pennsylvania. LTV
anticipates that these coke batteries, combined with long-term coke supply
contracts, will meet substantially all of its near-term coke requirements.
Other Raw Materials
LTV has a 53.5% interest in Presque Isle Corporation which operates a
limestone quarry located in Michigan. LTV's share of Presque Isle Corporation's
proven limestone reserves was approximately 135,821,000 gross tons as of
December 31, 1995. In 1995, LTV used approximately 437,000 gross tons of
limestone from Presque Isle and other sources in its steelmaking operations. LTV
owns a burnt lime
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<PAGE> 13
processing plant at Grand River, Ohio, which processes limestone from Presque
Isle and other sources into burnt lime. In 1995, approximately 46% of the
328,000 net tons of high calcite burnt lime consumed by LTV came from these
sources.
Substantially all other raw materials are purchased in the open market from
domestic and foreign sources. Most of such raw materials, including scrap,
nickel, tin, zinc and ferroalloys, are expected to continue to be in sufficient
supply, although market prices have historically been subject to wide
fluctuations.
During the past two years, the Company has purchased a significant amount
of semi-finished slabs from other steel producers to supplement its own
production. The availability of such slabs, and the prices at which they can be
purchased, may vary, especially during periods of peak production in the steel
industry. See "Steel Production" above.
PROPERTY ADDITIONS AND CAPITAL EXPENDITURES
Capital expenditures and depreciation and amortization for the periods
indicated are as follows:
<TABLE>
<CAPTION>
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital Expenditures......................... $204,890 $233,936 $323,195
Depreciation and Amortization................ $251,876 $241,764 $236,737
</TABLE>
- ---------------
(1) The expenditures during 1995, 1994 and 1993 were mainly to refurbish blast
furnaces and for equipment and facilities which are designed to reduce cost,
increase production efficiency and improve quality and for environmental
control projects. In 1995, the Company also made initial expenditures for
the development of new information systems to support the Company's business
processes which are being reengineered. Capital spending for environmental
control projects constructed during 1995, 1994 and 1993 was $18,981,000,
$30,187,000 and $41,045,000, respectively.
(2) Investments by LTV in joint ventures (primarily Trico Steel) used for
construction totaled approximately $84.1 million in 1995 and $2.4 million in
1994.
ITEM 3. LEGAL PROCEEDINGS.
In addition to matters specifically discussed below, LTV is involved in
various legal proceedings occurring in the normal course of its business. LTV
cannot predict with certainty the outcome of any legal proceedings to which it
is subject. However, in the opinion of LTV's management, adequate provision has
been made for losses for which management can make a reasonable estimate of the
range of possible outcomes that are likely to result from these actions. To the
extent that such reserves prove to be inadequate, LTV would incur a charge to
earnings, which could have a material adverse effect on LTV's results of
operations for the applicable period. The outcome of these proceedings, however,
is not currently expected to have a material adverse effect on the financial
position of LTV.
Trade Cases
For information concerning trade cases covering flat rolled steel products
and other steel products, see "Business-Trade Cases."
Certain Environmental Matters Not Resolved by Environmental Settlement
Agreement or Corresponding State Environmental Agreements
Other legal and administrative actions have been taken or are being threatened
against LTV and its subsidiaries, as discussed below, by the EPA and the States
of Indiana, Ohio, Illinois and Minnesota or their state and local environmental
agencies for alleged violations of various federal, state and local
environmental laws and regulations. These matters which relate to Owned Sites
are not covered by the Environmental Settlement Agreement with the EPA and the
state settlement agreements described in "Item 1. Business - Environmental
Matters." Accordingly, any liabilities resulting from these actions will be
payable in full and
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<PAGE> 14
not as general unsecured claims. The Company has accrued for losses and costs
associated with these actions that are estimable or otherwise provided for
studies which will permit estimation upon completion of the study.
EPA -- Chicago Coke Battery. The U.S. Department of Justice has indicated
to the Company that the government is preparing on behalf of the EPA to file
litigation in federal court against LTV Steel alleging violations of the Clean
Air Act in connection with certain prior operations at LTV Steel's Chicago Coke
Plant. The threatened litigation relates to an earlier Notice of Violation
("NOV") issued by the EPA. The government has offered to settle the matter for
$1.8 million in civil penalties and unspecified injunctive relief. Discussions
with the government regarding settlement are continuing.
EPA -- Superfund Site. In July 1994, the EPA advised the Company that it
had selected a partial remedy to remediate conditions at a Superfund site owned
by the Company in Rochester Hills, Michigan. The remedy consists of placing a
cap over waste materials at the site at an estimated cost to the Company of
approximately $5 million. The EPA has also issued a unilateral order requiring
LTV Steel to implement additional remedial action with respect to groundwater
in the area, and LTV Steel could be held liable for certain response and
oversight costs of the EPA. The cost of the additional remedial action and the
reimbursement of such EPA costs, if required, is not expected to be material.
State of Indiana. In October 1990, the Indiana Department of Environmental
Management ("IDEM") filed a lawsuit against LTV Steel in the Lake County,
Indiana Circuit Court alleging that water discharges from its Indiana Harbor
Works exceeded applicable standards at various times since 1986. IDEM also asked
the court to enjoin LTV Steel from future violations of certain water quality
statutes, permits and orders which IDEM alleged applied to water discharges and
to order LTV Steel to pay a civil penalty of $25,000 per day of alleged past
violations. In December 1995, the Indiana Circuit Court approved a settlement of
the lawsuit which required LTV Steel to pay $1.5 million in civil penalties as
well as, among other things, a certification by LTV Steel that work on a waste-
water control project is complete. The civil penalty has been paid and the
certification has been issued by LTV Steel.
Also, in April 1995, LTV Steel received a NOV issued by IDEM which alleges
that releases of contaminants onto and beneath the ground have occurred at the
Indiana Harbor Works in violation of applicable environmental regulations. IDEM
is seeking to have the Company undertake a comprehensive remediation program to
clean up the alleged on-ground and below-ground contamination at the facility.
The NOV is broad-based and, depending upon the nature of the remediation program
that might be imposed upon the subsidiary and IDEM's authority to require a
comprehensive clean-up, the cost of such work could be substantial.
IDEM has also issued NOV's to LTV Steel relating to BOF precipitator stack
fugitive emissions from the BOF roof monitors at the Indiana Harbor Works. LTV
Steel is subject to a maximum statutory penalty of $25,000 per day for each
violation.
State of Illinois. After notifying the Illinois EPA (the "IEPA") of the
improper disposal of certain wastes, including hazardous wastes, at what
formerly was the ore yard at LTV Steel's Chicago plant, LTV Steel removed the
discovered wastes and disposed of them as required by law. Recently, however,
additional wastes have been discovered at another area at the site. LTV Steel is
currently investigating these deposits and developing remedial plans for the
clean-up of the deposited waste.
State of Georgia. In September 1995, Georgia Tubing Corporation, a wholly
owned subsidiary of the Company, was notified by the Georgia Department of
Environmental Protection that it will seek an unspecified civil penalty (which
is not expected to be material in amount) due to a delay in the installation of
equipment for controlling the emissions of volatile organic compounds from
coating lines at the subsidiary's plant.
U.S. Coast Guard -- Oil Spill. In June 1994, oil escaped from an intake
channel at LTV Steel's Indiana Harbor works into the Indiana Harbor. Under the
supervision of the U.S. Coast Guard, LTV Steel took
13
<PAGE> 15
emergency response actions to contain and clean up the oil spill. The U.S. Coast
Guard filed claims against LTV Steel for $96,000 in connection with the clean-up
and is seeking a $10,000 penalty which has been appealed.
Joint Plan
Remaining Proceedings Relating to Status of Claims. Aetna Casualty and
Surety Company ("Aetna") filed 10 appeals to the U.S. District Court for the
Southern District of New York ("District Court") from various orders of the U.S.
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"),
including the order confirming the Joint Plan. The State of Minnesota
("Minnesota") filed an appeal to the same court. Both Aetna and Minnesota seek
priority for certain of their claims that were classified as general unsecured
claims under the Joint Plan, and, if they were to prevail on their appeals, they
would seek cash payments for various claims that (i) were disallowed by the
Bankruptcy Court or (ii) have received distributions of non-cash consideration
(including stock, warrants and contingent value rights) in accordance with the
Joint Plan. In January 1995, the District Court affirmed the Bankruptcy Court's
decision denying administrative or excise tax priority to Aetna's claims based
upon certain bonds totaling approximately $38 million of its aggregate $45
million of claims. Aetna has appealed such decision to the U.S. Court of Appeals
for the Second Circuit. The remaining appeals have been briefed and argued but
not decided by the District Court. In November 1995, the District Court ruled
that Minnesota's claims were entitled to excise tax priority; in December 1995,
the Company appealed the ruling to the U.S. Court of Appeals for the Second
Circuit. In addition to what they have already received, if Aetna or Minnesota
were ultimately to prevail in the matters on appeal, they would seek payments on
the principal amount of their claims, in the following amounts: (i) Aetna --
approximately $27 million; and (ii) Minnesota -- approximately $6 million, plus
any interest the Court might award.
Aerospace-Related Litigation
Thomson Litigation. On August 3, 1992, the Company filed suit against
Thomson CSF, S.A. ("Thomson") in the Bankruptcy Court alleging that Thomson
breached its promise to pay the Company $20 million in the event that Thomson
was unable to purchase the missiles division from the Company by July 31, 1992
for reasons relating directly or indirectly to Thomson's failure to obtain
certain U.S. government authorizations to purchase and operate such division.
Thomson denied the allegations and countersued for damages of not less than $250
million plus costs, expenses and attorneys fees, alleging that the Company
breached the contract of sale for the missiles division by failing to use
"reasonable efforts" to assist Thomson in obtaining the necessary government
approvals. Thomson also claimed the Company breached express and implied
warranties under the purchase agreement by failing to disclose accurate
information regarding certain security requirements for missiles division
contracts and thereby fraudulently induced Thomson to enter into such agreement.
The counterclaims also sought an order declaring that Thomson was not obligated
to pay the Company the $20 million reverse break-up fee. In June 1993, the
Bankruptcy Court granted the Company's motion for summary judgment as to
Thomson's claims of breach of express and implied warranties and fraud. In
September 1995, the Bankruptcy Court ruled following a trial that Thomson had
breached its promise to pay the Company $20 million as a result of Thomson's
inability to complete the purchase of the Company's missiles division by July
31, 1992 and that the Company had not breached the contract with Thomson by
failing to use "reasonable efforts" to assist Thomson in obtaining the necessary
government approvals. Thomson has appealed the rulings to the U.S. District
Court for the Southern District of New York and provided security for the
monetary judgment, including allowed interest, pending the appeal. In connection
with the Joint Plan, the Company has provided a guarantee to contribute to an
aerospace creditor trust up to $10 million following a final judgment in this
lawsuit. The Company proposes to use the proceeds from this lawsuit to satisfy
this obligation. In the event such proceeds are less than $10 million, the
Company will be required to make a payment to the trust in the amount necessary
to make up any difference. The aerospace creditors trust is also entitled to
half of all allowed interest on any judgment against Thomson in favor of the
Company.
14
<PAGE> 16
McDonnell Douglas Litigation. On September 17, 1992, the Company filed an
action in the District Court for Dallas County, Texas against McDonnell Douglas
Corporation ("McDonnell Douglas") which sought to collect $26.3 million owed to
the Company under a technology transfer agreement and automatic riveting
technology license agreement. As part of the terms of the Joint Plan, the
Company assigned its claim against McDonnell Douglas to the aerospace creditors
trust, and the trust became a named party in the litigation. On October 26,
1992, the action was removed to the U.S. District Court for the Northern
District of Texas. On September 29, 1992, McDonnell Douglas filed an action in
the U.S. District Court for the Central District of California against the
Company alleging that the Company had breached the two above-mentioned contracts
as well as an alleged oral contract to provide additional consideration in the
event that the value of the riveting technology subject to the license was
determined to be less than $41.3 million. The complaint sought an unspecified
amount of damages for the alleged breaches as well as rescission of the
contracts on the grounds of fraud and unilateral mistake of fact and the return
of $15 million previously paid under the contracts. The parties stipulated to
the transfer of this action to the U.S. District Court for the Northern District
of Texas. In November 1995, the Company, the aerospace creditors trust and
McDonnell Douglas entered into an agreement to settle the litigation which
provided for the Company and McDonnell Douglas each to contribute $8.25 million
to the aerospace creditors trust. As a result of the settlement, the U.S.
District Court for the Northern District of Texas dismissed the action in late
1995.
Inland Steel
In July 1991, Inland Steel Company ("Inland") filed an action against LTV
Steel and another domestic steel producer in the U.S. District Court for the
Northern District of Illinois, Eastern Division, alleging defendants infringed
two of Inland's steel-related patents. Inland seeks monetary damages of up to
approximately $600 million and an injunction against future infringement. LTV
Steel in its answer and counterclaim alleges the patents are invalid and not
infringed and seeks a declaratory judgment to such effect. In May 1993, at a
jury trial, LTV Steel was found to have infringed the patents. The District
Court proceeding on the validity of the patents has been stayed informally
pending the conclusion of proceedings in the U.S. Patent Office described below,
and the decision on infringement is not appealable until the validity issue is
tried. In July 1993, the U.S. Patent Office rejected the claims of the two
Inland patents upon a reexamination at the request of LTV Steel and another
domestic steel producer, in essence concluding that the patents should not have
been granted and are invalid. Inland filed a response which sought to have the
U.S. Patent Office reverse its decision; however, in July 1994, the U.S. Patent
Office affirmed its decision. Inland is entitled to a hearing before the Patent
Office Board of Appeals, and any decision by the Board of Appeals would be
subject to a federal judicial appeal.
Employee-Related Litigation
During 1994, individuals filed 54 separate asbestos-related lawsuits in the
U.S. District Court for the Northern District of Ohio against a past affiliate
of LTV and approximately 100 other companies. Each plaintiff claims to have
suffered bodily harm as a result of exposure to asbestos fibers while sailing on
ships owned by such affiliate of LTV and alleges unspecified damages in excess
of $50,000. In November 1994, the Company commenced a proceeding in the
Bankruptcy Court seeking, among other things, a judgment declaring all such
claims to be permanently barred as a result of the Company's bankruptcy
proceedings which were concluded in June 1993.
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<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
"Shareholders' Information" on the inside back cover, "Eleven Year
Financial Summary" on page 56, "Quarterly Financial Information" on page 58 and
"Liquidity and Financial Resources" on page 33 of the 1995 Annual Report to
Shareholders are incorporated herein by reference.
Required Approval for Certain Purchases of Common Stock and Series A Warrants
For the purpose of preserving LTV's ability to utilize certain favorable
tax attributes, Article Ninth of LTV's Restated Certificate of Incorporation
prohibits, with certain limited exceptions, any unapproved acquisition of Common
Stock or Series A Warrants that would cause the ownership interest percentage of
the acquirer or any other person to increase to 4.5% or above. A person's
ownership interest percentage for purposes of Article Ninth is determined by
reference to specified federal income tax principles, including attribution of
shares from certain related parties, deemed exercise of rights to acquire stock
(such as the Company's Series A Warrants) and aggregation of shares purchased by
persons acting in concert. PURCHASES OF COMMON STOCK OR SERIES A WARRANTS FROM
ANY PERSON OTHER THAN THE COMPANY ARE SUBJECT TO THE LIMITATIONS IMPOSED BY
ARTICLE NINTH, AND ANY UNAPPROVED PURCHASE IN EXCESS OF THE AMOUNTS PERMITTED BY
ARTICLE NINTH WILL BE VOID AB INITIO. PROSPECTIVE PURCHASERS OF COMMON STOCK OR
SERIES A WARRANTS WHO BELIEVE THAT THEY MAY BE SUBJECT TO THE LIMITATIONS
IMPOSED BY ARTICLE NINTH SHOULD CONSULT WITH THEIR ADVISORS OR LTV IN ADVANCE OF
ACQUIRING SUCH SECURITIES TO DETERMINE IF ADVANCE APPROVAL MUST BE OBTAINED FROM
LTV'S BOARD OF DIRECTORS.
ITEM 6. SELECTED FINANCIAL DATA.
"Eleven Year Financial Summary" on page 56 of the 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
"Management's Discussion and Analysis" on pages 30 through 37 of the 1995
Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The listing on page F-1 lists all financial statements which are filed as a
part of this Report and which are incorporated herein by reference.
"Quarterly Financial Information" on page 58 of the 1995 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the directors of LTV to be included in LTV's Annual
Proxy Statement for the 1996 Annual Meeting of Stockholders, which LTV plans to
file with the Commission in final form in early 1996, is incorporated herein by
reference. Information relating to the executive officers of LTV is included in
"Item 1. Business-Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to management remuneration and transactions included
in LTV's Annual Proxy Statement for the 1996 Annual Meeting of Stockholders,
which LTV plans to file with the Commission in final form in early 1996, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to ownership of LTV stock by the directors and
officers of LTV and owners of more than 5% of any class of LTV stock to be
included in LTV's Annual Proxy Statement for the 1996 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
1996, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions to
be included in LTV's Annual Proxy Statement for the 1996 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
1996, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) List of Consolidated Financial Statements and Financial
Statement Schedules.
Reference is made to the listing preceding the financial statements and
financial statement schedules attached hereto on page F-1 for a list of all
financial statements and financial statement schedules filed as exhibits and
part of this Report.
(a)(3) List of Exhibits.
Reference is made to the listing in (c) below for a list of all other
exhibits filed as part of this Report.
(b) Reports on Form 8-K.
None to report.
(c) Exhibits.
Certain of the exhibits to this Report are hereby incorporated by
reference, as specified below, to other documents filed with the Commission by
LTV. Exhibit designations below correspond to the numbers assigned to exhibit
classifications in Regulation S-K.
(d) Financial Statement Schedules.
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<PAGE> 19
The response to this portion of Item 14 is submitted as a separate section
of this Report on page F-1.
<TABLE>
<C> <S>
(2)-(1) -- The LTV Second Modified Joint Plan of Reorganization (incorporated
herein by reference to Exhibit (28)(a)-(3) to LTV's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1992, filed with
the Commission (File No. 1- 4368) on March 31, 1993)
(2)-(2) -- Confirmation Order of the United States Bankruptcy Court for the
Southern District of New York entered on May 27, 1993, confirming the
LTV Second Modified Joint Plan of Reorganization (which includes,
as Exhibit C to the Confirmation Order, amendments to the LTV
Second Modified Joint Plan of Reorganization) (incorporated herein
by reference to Exhibit 2(2) to LTV's Current Report on Form 8-K,
filed with the Commission (File No. 1-4368) on June 7, 1993)
(3)-(1) -- Restated Certificate of Incorporation of LTV dated June 28, 1993
(incorporated herein by reference to Exhibit 3.1 to LTV's Registration
Statement on Form S-1 [Registration No. 33-50217])
(3)-(2) -- Certificate of Designations for Series B Preferred Stock
(incorporated herein by reference to Exhibit 4 to SMI America, Inc.'s
13D Filing)
(3)-(3) -- Amended and Restated By-laws of LTV effective June 28, 1993
(incorporated herein by reference to Exhibit D to The LTV Second
Modified Disclosure Statement and Joint Plan of Reorganization,
which is Exhibit (28)(a)-(3) to the Company's Annual Report on Form
10-K for the Fiscal Year ended December 31, 1992, filed with the
Commission (File No. 1-4368) on March 31, 1993)
(10)-(1) -- LTV Executive Benefit Plan as amended and restated effective
January 1, 1985 (incorporated herein by reference to Exhibit
(10)(c)-(2) to LTV's Report on Form 10-K for the year ended
December 31, 1985)
(10)-(2) -- Amendment to LTV Executive Benefit Plan adopted November 20, 1987
(incorporated herein by reference to Exhibit (10)(c)-(3) to LTV's
Report on Form 10-K for the year ended December 31, 1987)
(10)-(3) -- LTV Excess Benefit Plan dated as of January 1, 1985 (incorporated
herein by reference to Exhibit (10)(c)-(5) to LTV's Report on Form
10-K for the year ended December 31, 1984)
(10)-(4) -- Employment Agreement dated February 1, 1991, between LTV and David
H. Hoag (incorporated herein by reference to Exhibit (10)(c)-(9) to
LTV's Report on Form 10-K for the year ended December 31, 1990)
(10)-(5) -- Settlement Agreement dated as of June 28, 1993 between LTV, the
PBGC, the Initial LTV Group (as defined in the Settlement Agreement)
and LTV, as Administrator of the Restored Plans (incorporated
herein by reference to Exhibit 10.10 to LTV's Report on Form 10-Q
for the quarter ended June 30, 1993)
(10)-(6) -- Assignment, Pledge and Security Agreement dated as of June 28, 1993
between LTV Steel Company, Inc. and the PBGC (incorporated herein by
reference to Exhibit 10.11 to LTV's Report on Form 10-Q for the
quarter ended June 30, 1993)
(10)-(7) -- Securities Purchase Agreement dated as of May 26, 1993 by and among
LTV, LTV Steel Company, Inc. and SMI America, Inc. (incorporated
herein by reference to Exhibit 2 to SMI America, Inc.'s 13D Filing)
</TABLE>
18
<PAGE> 20
<TABLE>
<C> <S>
(10)-(8) -- Common Stock Registration Rights Agreement dated as of June 28,
1993 by and between LTV and SMI America, Inc. (incorporated herein by
reference to Exhibit 5 to SMI America, Inc.'s 13D Filing)
(10)-(9) -- Consultation and Management Participation Agreement dated as of
June 28, 1993 between LTV and Sumitomo Metal Industries, Ltd.
(incorporated herein by reference to Exhibit 6 to SMI America,
Inc.'s 13D Filing)
(10)-(10) -- L-S Exchange Right and Security Agreement dated as of June 28, 1993
by and among LTV/EGL Holding Company, Sumikin EGL Corp., LTV, SMI
America Inc., and Sumitomo Metal USA Corporation (incorporated
herein by reference to Exhibit 7 to SMI America, Inc.'s 13D Filing)
(10)-(11) -- Letter of Credit Agreement dated as of October 12, 1994 among LTV
Steel Company, Inc., Continental Emsco Company, LTV Steel Mining
Company, LTV Steel Tubular Products Company, LTV, various financial
institutions and BT Commercial Corporation (incorporated herein by
reference to Exhibit (10)-(12) to LTV's Report on Form 10-Q for the
quarter ended September 30, 1994)
(10)-(12) -- Subsidiary Guaranty dated as of October 12, 1994 by Georgia Tubing
Corporation, Youngstown Erie Corporation, Erie B Corporation and Erie
I Corporation for the benefit of BT Commercial Corporation as agent
(incorporated herein by reference to Exhibit (10)-(13) to LTV's
Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(13) -- Collateral Account Agreement dated as of October 12, 1994 among LTV
Steel Company, Inc., Continental Emsco Company, LTV Steel Mining
Company, LTV Steel Tubular Products, LTV and BT Commercial
Corporation as collateral agent (incorporated herein by reference
to Exhibit (10)-(14) to LTV's Report on Form 10-Q for the quarter
ended September 30, 1994)
(10)-(14) -- Inventory Security Agreement dated as of June 28, 1993 and amended
and restated as of October 12, 1994 among LTV, LTV Steel Company,
Inc., LTV Steel Mining Company, Continental Emsco Company, LTV
Steel Tubular Products Company and BT Commercial Corporation as
agent (incorporated herein by reference to Exhibit (10)-(15) to
LTV's Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(15) -- Inventory Intercreditor Agreement dated as of June 28, 1993 and
amended and restated as of October 12, 1994 among BT Commercial
Corporation as agent for the Lenders and SMI America, Inc. as agent
for the Noteholders (incorporated herein by reference to Exhibit
(10)-(16) to LTV's Report on Form 10-Q for the quarter ended
September 30, 1994)
(10)-(16) -- Intercreditor Collateral Account Agreement dated as of October 12,
1994 by and among LTV Steel Company, Inc., LTV and BT Commercial
Corporation (incorporated herein by reference to Exhibit (10)-(17)
to LTV's Report on Form 10-Q for the quarter ended September 30,
1994)
(10)-(17) -- Pledge Agreement dated as of October 12, 1994 between LTV, LTV
Steel Company, Inc., Continental Emsco Company, LTV Steel Tubular
Products Company, Georgia Tubing Corporation and BT Commercial
Corporation (incorporated herein by reference to Exhibit (10)-(18)
to LTV's Report on Form 10-Q for the quarter ended September 30,
1994)
(10)-(18) -- Amended and Restated Subordination Agreement dated as of June 28,
1993 and amended and restated as of October 12, 1994 among the PBGC,
BT Commercial Corporation and Chemical Bank (incorporated herein by
reference to Exhibit (10)-(19) to LTV's Report on Form 10-Q for the
quarter ended September 30, 1994)
</TABLE>
19
<PAGE> 21
<TABLE>
<C> <S>
(10)-(19) -- Amendments Nos. 1 and 2 to the Securities Purchase Agreement dated
as of May 26, 1993 among LTV, LTV Steel Company, Inc. and SMI America,
Inc. (incorporated herein by reference to Exhibit (10)-(20) to
LTV's Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(20) -- Amendments Nos. 1 through 4 to the Settlement Agreement dated as of
June 28, 1993 by and among the PBGC, LTV, the Initial LTV Group (as
defined in the Settlement Agreement) and LTV, as Administrator of
the Restored Plans (incorporated herein by reference to Exhibit
(10)-(21) to LTV's Report on Form 10-Q for the quarter ended
September 30, 1994)
(10)-(21) -- Revolving Credit Agreement dated as of October 12, 1994 among LTV
Sales Finance Company, the financial institutions parties thereto as
banks, the issuing banks, the facility agent and collateral agent
(incorporated herein by reference to Exhibit (10)-(22) to LTV's
Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(22) -- Receivables Purchase and Sale Agreement dated as of October 12,
1994 among LTV, LTV Steel Company, Inc., Continental Emsco Company,
LTV Steel Tubular Products Company, Georgia Tubing Corporation and
LTV Sales Finance Company (incorporated herein by reference to
Exhibit (10)-(23) to LTV's Report on Form 10-Q for the quarter
ended September 30, 1994)
(10)-(23) -- Accession Agreement dated as of October 12, 1994 among LTV Sales
Finance Company, the financial institutions listed on the signature
pages thereof, the issuing bank named thereon, and Bankers Trust
Company as facility agent and collateral agent (incorporated herein
by reference to Exhibit (10)-(24) to LTV's Report on Form 10-Q for
the quarter ended September 30, 1994)
(10)-(24) -- Trust Termination Acknowledgment and Agreement, dated October 12,
1994, between LTV Sales Finance Company and Wilmington Trust Company
(incorporated herein by reference to Exhibit (10)-(25) to LTV's
Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(25) -- Assignment and Transfer Agreement, dated as of October 12, 1994, by
and between LTV Master Receivables Trust and LTV Sales Finance Company
(incorporated herein by reference to Exhibit (10)-(26) to LTV's
Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(26) -- Collateral Trust Agreement dated as of May 25, 1993 among LTV, LTV
Steel Company, Inc., United Steelworkers of America and Bank One Ohio
Trust Company, N.A., as Collateral Trustee (incorporated herein by
reference to Exhibit 10.33 to LTV's Report on Form 10-Q for the
quarter ended June 30, 1993)
(10)-(27) -- Open-End Mortgage, Security Agreement and Fixture Filing dated as
of June 28, 1993 by LTV Steel Company, Inc. to Bank One Ohio Trust
Company, N.A. (incorporated herein by reference to Exhibit 10.34 to
LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(28) -- License Agreement dated as of June 28, 1993 between LTV Steel
Company, Inc. and Bank One Ohio Trust Company, N.A. (incorporated
herein by reference to Exhibit 10.35 to LTV's Report on Form 10-Q
for the quarter ended June 30, 1993)
(10)-(29) -- Warrant Agreement dated as of June 28, 1993 between LTV and Society
National Bank, as Warrant Agent (incorporated herein by reference
to Exhibit 10.37 to LTV's Report on Form 10-Q for the quarter ended
June 30, 1993)
</TABLE>
20
<PAGE> 22
<TABLE>
<C> <S>
(10)-(30) -- Settlement Agreement and Stipulated Order on behalf of the United
States of America on behalf of the United States Environmental
Protection Agency approved by the United States Bankruptcy Court,
Southern District of New York (the "Court") on April 15, 1993 and
supplemented by Exhibit 10.38 below (incorporated herein by
reference to Exhibit 10.38 to LTV's Report on Form 10-Q for the
quarter ended June 30, 1993)
(10)-(31) -- Second Settlement Agreement and Stipulated Order supplementing
10.36 above and approved by the Court on May 19, 1993 (incorporated by
reference to Exhibit 10.39 to LTV's Registration Statement on Form
S-1 [Registration No. 33-50217])
(10)-(32) -- Settlement Agreement and Stipulated Order on behalf of the State of
Minnesota approved by the Court on May 19, 1993 (incorporated herein
by reference to Exhibit 10.39 to LTV's Report on Form 10-Q for the
quarter ended June 30, 1993)
(10)-(33) -- Settlement Agreement and Stipulated Order on behalf of the State of
Indiana on behalf of the Indiana Department of Environmental
Management approved by the Court on May 24, 1993 (incorporated
herein by reference to Exhibit 10.40 to LTV's Report on Form 10-Q
for the quarter ended June 30, 1993)
(10)-(34) -- Settlement Agreement and Stipulated Order on behalf of the State of
New York and approved by the Court on May 24, 1993 (incorporated
herein by reference to Exhibit 10.42 to LTV's Report on Form 10-Q
for the quarter ended June 30, 1993)
(10)-(35) -- Settlement Agreement and Stipulated Order on behalf of the State of
Connecticut and approved by the Court on May 19, 1993 (incorporated
herein by reference to Exhibit 10.43 to LTV's Report on Form 10-Q
for the quarter ended June 30, 1993)
(10)-(36) -- Settlement Agreement and Stipulated Order on behalf of the
Commonwealth of Pennsylvania and approved by the Court on May 24, 1993
(incorporated herein by reference to Exhibit 10.44 to LTV's Report
on Form 10-Q for the quarter ended June 30, 1993)
(10)-(37) -- Settlement Agreement and Stipulated Order on behalf of the State of
Ohio on behalf of the Ohio Environmental Protection Agency and
approved by the Court on May 24, 1993 (incorporated herein by
reference to Exhibit 10.45 to LTV's Report on Form 10-Q for the
quarter ended June 30, 1993)
(10)-(38) -- Settlement Agreement and Stipulated Order on behalf of the State of
Georgia and approved by the Court on May 24, 1993 (incorporated herein
by reference to Exhibit 10.46 to LTV's Report on Form 10-Q for the
quarter ended June 30, 1993)
(10)-(39) -- Closing Agreement Between LTV, its subsidiaries and the
Commissioner of Internal Revenue as filed with the United States
Bankruptcy Court for the Southern District of New York on May 14,
1993 (incorporated herein by reference to Exhibit 10.47 to LTV's
Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(40) -- The LTV Corporation Non-Employee Directors Stock Option Plan
adopted on October 22, 1993 (incorporated herein by reference to
Exhibit 10.49 to Amendment No. 2 to LTV's Registration Statement on
Form S-1 [Registration No. 33-50217])
(10)-(41) -- Amendment to LTV Executive Benefit Plan adopted October 22, 1993
(incorporated herein by reference to Exhibit 10.50 to Amendment No. 2
to LTV's Registration Statement on Form S-1 [Registration No.
33-50217])
</TABLE>
21
<PAGE> 23
<TABLE>
<C> <S>
(10)-(42) -- LTV Executive Benefit Trust Agreement approved on October 22, 1993
(incorporated herein by reference to Exhibit 10.51 to Amendment No. 2
to LTV's Registration Statement on Form S-1 [Registration No.
33-50217])
(10)-(43) -- The LTV Corporation Supplemental Management Retirement Plan adopted
on October 22, 1993 (incorporated herein by reference to Exhibit 10.52
to Amendment No. 2 to LTV's Registration Statement on Form S-1
[Registration No. 33-50217])
(10)-(44) -- The LTV Corporation Supplemental Management Retirement Trust
Agreement approved on October 22, 1993 (incorporated herein by
reference to Exhibit 10.53 to Amendment No. 2 to LTV's Registration
Statement on Form S-1 [Registration No. 33-50217])
(10)-(45) -- The LTV Corporation Management Incentive Program as amended on
January 28, 1994 (incorporated by reference to Exhibit (10)-(53) to
LTV's Report on Form 10-K for the year ended December 31, 1993)
(10)-(46) -- Amendment to The LTV Corporation Supplemental Management Retirement
Plan adopted on January 28, 1994 (incorporated by reference to
Exhibit (10)-(54) to LTV's Report on Form 10-K for the year ended
December 31, 1993)
(10)-(47) -- Amendment to LTV Executive Benefit Plan adopted October 28, 1994
(incorporated herein by reference to Exhibit (10)-(48) to LTV's Report
on Form 10-Q for the quarter ended September 30, 1994)
(10)-(48) -- Amendment to The LTV Corporation Management Incentive Program
adopted October 28, 1994 (incorporated herein by reference to Exhibit
(10)-(49) to LTV's Report on Form 10-Q for the quarter ended
September 30, 1994)
(10)-(49) -- Amendment to The LTV Corporation Non-Employee Directors Stock
Option Plan adopted October 28, 1994 (incorporated herein by reference
to Exhibit (10)-(50) to LTV's Report on Form 10-Q for the quarter
ended September 30, 1994)
(10)-(50) -- Amendment to The LTV Corporation Supplemental Management Retirement
Plan adopted on October 28, 1994 (incorporated herein by reference
to Exhibit (10)-(51) to LTV's Report on Form 10-Q for the quarter
ended September 30, 1994)
(10)-(51) -- The LTV Corporation Non-Employee Directors' Equity Compensation
Plan (incorporated herein by reference to Exhibit 4.3 to LTV's
Registration Statement on Form S-8 [Registration No. 33-56857])
(10)-(52) -- The LTV Corporation Non-Employee Directors' Deferred Compensation
Plan (incorporated herein by reference to Exhibit (10)-(53) to LTV's
Report on Form 10-K for the year ended December 31, 1994)
(10)-(53) -- The LTV Corporation Executive Deferred Compensation Plan
(incorporated herein by reference to Exhibit (10)-(54) to LTV's Report
on Form 10-K for the year ended December 31, 1994)
(10)-(54) -- Amendment No. 5 to the Settlement Agreement dated as of June 28,
1993 by and among the PBGC, LTV, the Initial LTV Group and LTV, as
Administrator of the Restored Plans (incorporated herein by
reference to Exhibit (10)-(55) to LTV's Report on Form 10-K for the
year ended December 31, 1994)
(10)-(55) -- The Hourly Employee Stock Payment Alternative Plan (incorporated
herein by reference to Exhibit 4.3 to LTV's Registration Statement on
Form S-8 [Registration No. 33-56861])
</TABLE>
22
<PAGE> 24
<TABLE>
<C> <S>
(10)-(56) -- Amendments Nos. 1 through 4 to the Letter of Credit Agreement dated
as of October 12, 1994 among LTV Steel Company, Inc., Continental
Emsco Company, LTV Steel Mining Company, LTV Steel Tubular Products
Company, LTV, various financial institutions and BT Commercial
Corporation (incorporated herein by reference to Exhibit (10)-(56)
to LTV's Report on Form 10-Q for the quarter ended September 30,
1995)
(10)-(57) -- Amendment No. 1 to the Receivables Purchase and Sale Agreement
dated as of October 12, 1994 among LTV, LTV Steel Company, Inc.,
Continental Emsco Company, LTV Steel Tubular Products Company,
Georgia Tubing Corporation and LTV Sales Finance Company
(incorporated herein by reference to Exhibit (10)-(57) to LTV's
Report on Form 10-Q for the quarter ended September 30, 1995)
(10)-(58) -- Amendments Nos. 6 and 7 to the Settlement Agreement dated as of
June 28, 1993 by and among the PBGC, LTV, the Initial LTV Group (as
defined in the Settlement Agreement) and LTV, as Administrator of
the Restored Plans (incorporated herein by reference to Exhibit
(10)-(58) to LTV's Report on Form 10-Q for the quarter ended
September 30, 1995)
(10)-(59) -- Amendment No. 8 to the Settlement Agreement dated as of June 28,
1993 by and among the PBGC, LTV, the Initial LTV Group (as defined in
the Settlement Agreement) and LTV as Administrator of the Restated
Plans (filed herewith)
(11) -- Statement re Computation of Per Share Earnings (filed herewith)
(13) -- Portions of the 1995 Annual Report to Shareholders incorporated
into this Report by reference (filed herewith)
(21) -- List of subsidiaries (filed herewith)
(23) -- Consent of Ernst & Young LLP (filed herewith)
(27) -- Financial Data Schedule (filed herewith)
</TABLE>
23
<PAGE> 25
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF CLEVELAND, OHIO, AS OF THE 22nd DAY OF FEBRUARY 1996.
THE LTV CORPORATION
By GLENN J. MORAN
(Glenn J. Moran)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------------------- ---------------------
<S> <C> <C>
/s/DAVID H. HOAG Chairman of the Board, President, February 22, 1996
(David H. Hoag) Chief Executive Officer and
Director (Principal Executive
Officer)
/s/ARTHUR W. HUGE Senior Vice President and Chief February 22, 1996
(Arthur W. Huge) Financial Officer (Principal
Financial
Officer and Principal Accounting
Officer)
/s/GEORGE T. HENNING Vice President and Controller February 22, 1996
(George T. Henning)
/s/EDGAR L. BALL Director February 22, 1996
(Edgar L. Ball)
/s/DR. COLIN C. BLAYDON Director February 22, 1996
(Dr. Colin C. Blaydon)
/s/WILLIAM H. BRICKER Director February 22, 1996
(William H. Bricker)
/s/JOHN C. EVANS Director February 22, 1996
(John C. Evans)
/s/JOHN E. JACOB Director February 22, 1996
(John E. Jacob)
/s/EDWARD C. JOULLIAN III Director February 22, 1996
(Edward C. Joullian III)
/s/M. THOMAS MOORE Director February 22, 1996
(M. Thomas Moore)
/s/HAROLD A. POLING Director February 22, 1996
(Harold A. Poling)
/s/VINCENT A. SARNI Director February 22, 1996
(Vincent A. Sarni)
/s/SAMUEL K. SKINNER Director February 22, 1996
(Samuel K. Skinner)
/s/DR. PAUL G. STERN Director February 22, 1996
(Dr. Paul G. Stern)
/s/STEPHEN B. TIMBERS Director February 22, 1996
(Stephen B. Timbers)
/s/FARAH M. WALTERS Director February 22, 1996
(Farah M. Walters)
</TABLE>
24
<PAGE> 26
THE LTV CORPORATION
FORM 10-K -- ITEM 14(a)(1) AND (2)
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
The following is a listing of the consolidated financial statements which
are incorporated herein by reference. The consolidated financial statements of
LTV and subsidiaries and Ernst & Young LLP's report thereon, included in the
1995 Annual Report to Shareholders, are incorporated herein by reference in Item
8. With the exception of the pages listed in this index and the pages listed in
Items 5, 6, 7 and 8, the 1995 Annual Report to Shareholders is not deemed to be
filed as part of this Form 10-K.
<TABLE>
<CAPTION>
REFERENCE PAGE
--------------
1995 ANNUAL
REPORT TO
SHAREHOLDERS
INCORPORATED
BY REFERENCE
--------------
<S> <C>
Report of independent auditors.............................................. 55
At December 31, 1995 and 1994:
Consolidated balance sheet................................................ 40
For the years ended December 31, 1995 and 1994,
and the six months ended June 30 and December 31, 1993:
Consolidated statement of income.......................................... 38
Consolidated statement of cash flows...................................... 39
For the years ended December 31, 1995 and 1994,
and the six months ended December 31, 1993:
Consolidated statement of shareholders' equity............................ 49
Notes to consolidated financial statements.................................. 42
</TABLE>
All schedules for which provision is made in the applicable regulation of
the Securities and Exchange Commission have been omitted as the schedules are
not required under the related instructions, are inapplicable, or the
information required thereby is set forth in the financial statements or the
notes thereto.
<PAGE> 1
Exhibit (10)-(59)
EIGHTH AMENDMENT TO
PBGC-LTV SETTLEMENT AGREEMENT
This Eighth Amendment to the PBGC-LTV Settlement Agreement (this
"Amendment") is made as of December 12, 1995, by and among PBGC, LTV and each
other member of the LTV Controlled Group (as defined in the Settlement
Agreement), including, without limitation, LTV Steel Company, Inc., a
corporation organized under the laws of New Jersey ("LTV Steel"). Capitalized
terms used without definition herein shall have the same meanings as set forth
in the Settlement Agreement.
RECITALS
WHEREAS, on June 28, 1993, the PBGC, LTV, and each other member of the
Initial LTV Group entered into the Settlement Agreement as amended to the date
hereof (the "Settlement Agreement");
WHEREAS, Section 7.7(b)(ii) of the Settlement Agreement requires
payment of Benefit Increase Amortization Amounts in the event of an amendment
creating unfunded past service liabilities under a Restored Plan;
WHEREAS, Section 5.8 of the Settlement Agreement, added by the First
Amendment to the Settlement Agreement and as thereafter amended, provides for
the making, treatment and application of Advance Contributions;
WHEREAS, the Retirement Protection Act, enacted as part of P.L.
103-465, amended ERISA to establish new funding and other requirements, some of
which are applicable to plans maintained by LTV;
<PAGE> 2
WHEREAS, LTV has determined and communicated to PBGC that it wishes to
make certain amendments to two of the Restored Plans in response to the
applicability of the Retirement Protection Act;
WHEREAS, LTV desires the ability to apply Advance Contributions to the
Benefit Increase Amortization Amount payments resulting from such amendments to
such Restored Plans;
WHEREAS, the Settlement Agreement authorizes the amendment of that
Agreement pursuant to an agreement entered into by the PBGC and LTV evidenced
by written instrument signed by their authorized representatives; and
WHEREAS, subject to the terms and conditions contained herein, the
PBGC consents and is willing to agree to such amendments to the Settlement
Agreement as provided below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENT OF SETTLEMENT AGREEMENT
---------------------------------
Section 5.8(b) is amended in its entirety to read as follows:
(b) LTV shall have the right to apply any amounts in the
Advance Contribution Credit Account toward (i) the full or partial payment of
any Annual Fixed Contribution required under Section 5.4, (ii) any variable
annual contribution required under Section 5.5(a), (iii) any contribution
required by the last sentence of the first paragraph of Section 5.2(b);
PROVIDED, HOWEVER, that no amounts in the Advance Contribution Credit Account
may be applied to the Annual Fixed Contribution for 1994, including all Fixed
Periodic Contributions relating thereto, nor to the variable annual
contribution due March 31, 1994 relating to Available Cash Flow for the portion
of Fiscal Year 1993 following the last day of the calendar month immediately
preceding the Effective Date as set forth in the first sentence of Section
5.5(a), or) (iv) the full or partial payment of any Benefit Increase
Amortization Amount resulting from the adoption of Amendment No. 1 to the LTV
Steel (J&L) Hourly Pension Plan or Amendment No. 1 to the LTV Steel (Republic)
Hourly Pension Plan. Immediately upon the exercise of such right, LTV shall (i)
notify the PBGC of the application of amounts in the Advance Contribution
Credit Account, together with a summary, in reasonable detail, of the amount of
such application and the type, amount and date of the contribution to which
such application relates, and (ii) reduce the amount in the Advance
Contribution Credit Account by the amount so applied.
-2-
<PAGE> 3
SECTION 2. SATISFACTION OF SECURITY REQUIREMENT
------------------------------------
The requirement of Section 12.3(g)(ii) of the Settlement Agreement shall be
deemed to be satisfied on the condition that LTV shall retain in the Advance
Contribution Credit Account an amount equal to the portion of the Benefit
Increase Amortization Amounts described in Section 1 hereof which has not been
paid. Such retained amount shall be reduced only as amounts in the Advance
Contribution Credit Account, or cash contributions, are applied to the payment
of such Benefit Increase Amortization Amounts, and shall not be available for
any other purpose.
SECTION 3. EFFECTIVENESS AND MISCELLANEOUS PROVISIONS
------------------------------------------
A. EFFECTIVENESS. This Amendment shall become effective as of the
effective date of the plan amendments referred to in Section 1 hereof (the
"Eighth Amendment Effective Date") when it, or a counterpart thereof, is
executed by a duly authorized officer of each of the PBGC and LTV and LTV
Steel.
B. REFERENCE TO AND EFFECT ON THE SETTLEMENT AGREEMENT.
(i) On and after the Eighth Amendment Effective Date, each reference in
the Settlement Agreement to "this Agreement", "hereunder", "hereof", or words
of like import referring to the Settlement Agreement shall mean and be a
reference to the Settlement Agreement as amended by this Amendment.
(ii) Except as specifically amended by this Amendment, the Settlement
Agreement shall remain in full force and effect.
C. APPLICABLE LAW. This Amendment shall be interpreted in accordance with
and governed by the law of the State of New York, except to the extent
preempted by federal law.
-3-
<PAGE> 4
D. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties to this Amendment have caused this Eighth
Amendment to be duly executed and delivered by their respective duly authorized
officers or representatives as of the day and year first written above.
PENSION BENEFIT GUARANTY
CORPORATION
By: /s/ Ellen A. Hennessy
---------------------------------
Deputy Executive Director
Title: and Chief Negotiator
------------------------------
Date: December 12, 1995
-------------------------------
THE LTV CORPORATION, on behalf of
itself and the other members of the LTV
Controlled Group
By: /s/ A. W. Huge
---------------------------------
Senior Vice President and
Title: Chief Financial Officer
------------------------------
Date: December 8, 1995
-------------------------------
LTV STEEL COMPANY, INC.
By: /s/ A. W. Huge
---------------------------------
Senior Vice President and
Title: Chief Financial Officer
------------------------------
Date: December 8, 1995
-------------------------------
-4-
<PAGE> 1
THE LTV CORPORATION
Calculation of Primary Earnings Per Share (EPS)
(Dollar amounts in millions except for EPS)
(Share data in thousands)
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
--------------------------------
Shares Amount EPS
-------- --------- --------
<S> <C> <C> <C>
Net Income $184.8
Preferred stock dividend requirements (2.2)
---------
182.6
Share base:
Shares deemed issued pursuant to Joint Plan 60,409
Shares issued through public offerings 36,610
Shares issued upon exercise of Series A Warrants
and stock options 121
Common Stock issued (or obligated to issue)
on June 28, 1994:
Common Stock held for issuance 3,328
Series A Preferred Stock 3,328
LTV Steel ESOP 1,498
IRS Settlement Agreement 65
--------
8,219
--------
Common Stock equivalent shares resulting from
outstanding Series A Warrants, Stock Options
and Restricted Stock 13
Common Stock issuable upon conversion of
Series B Preferred Stock 2,926 2.2
-------- ---------
108,298 $184.8
======== =========
PRIMARY EARNINGS PER SHARE $ 1.71
========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
---------------------------------
Shares Amount EPS
-------- ---------- ---------
<S> <C> <C> <C>
Net Income $127.1
Preferred stock dividend requirements (2.3)
----------
124.8
Share base:
Shares deemed issued pursuant to Joint Plan 60,838
Shares issued through public offerings 26,542
Shares issued upon exercise of Series A Warrants
and stock options 54
Common Stock issued (or obligated to issue)
on June 28, 1994:
Common Stock held for issuance 3,328
Series A Preferred Stock 3,328
LTV Steel ESOP 1,308
IRS Settlement Agreement 33
--------
7,997
--------
Common Stock equivalent shares resulting from
outstanding Series A Warrants, Stock Options
and Restricted Stock 349
Common Stock issuable upon conversion of
Series B Preferred Stock 2,926 2.3
-------- ----------
98,706 $127.1
======== ==========
PRIMARY EARNINGS PER SHARE $ 1.29
=========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1993
---------------------------------
Shares Amount EPS
-------- ---------- ---------
<S> <C> <C> <C>
Net Income $247.2
Preferred stock dividend requirements (1.1)
----------
246.1
Share base:
Shares deemed issued pursuant to Joint Plan 60,846
Shares issued through public offerings 5,500
Shares issued upon exercise of Series A Warrants
and stock options -
Common Stock issued (or obligated to issue)
on June 28, 1994:
Common Stock held for issuance 3,328
Series A Preferred Stock 3,328
LTV Steel ESOP 1,108
IRS Settlement Agreement -
--------
7,764
--------
Common Stock equivalent shares resulting from
outstanding Series A Warrants, Stock Options
and Restricted Stock -
Common Stock issuable upon conversion of
Series B Preferred Stock 2,926 1.1
-------- -------
77,036 $247.2
======== =======
PRIMARY EARNINGS PER SHARE $ 3.21
========
</TABLE>
<PAGE> 2
THE LTV CORPORATION
Calculation of Fully Diluted Earnings Per Share (EPS)
(Dollar amounts in millions except for EPS)
(Share data in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------------------- ---------------------------------
Shares Amount EPS Shares Amount EPS
-------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 184.8 $ 127.1
Preferred stock dividend requirements (2.2) (2.3)
--------- ----------
182.6 124.8
Share base:
Shares deemed issued pursuant
to Joint Plan 60,409 60,838
Shares issued through public
offerings 36,610 26,542
Shares issued upon exercise of
Series A Warrants
and stock options 121 54
Common Stock issued (or obligated
to issue) on June 28, 1994:
Common Stock held for issuance 3,328 3,328
Series A Preferred Stock 3,328 3,328
LTV Steel ESOP 1,498 1,308
IRS Settlement Agreement 65 33
-------- --------
8,219 7,997
-------- --------
Common Stock equivalent shares
resulting from outstanding
Series A Warrants,
Stock Options
and Restricted Stock 18 352
Common Stock issuable upon
conversion of
Series B Preferred Stock 2,926 2.2 2,926 2.3
Common Stock issuable upon
conversion of
Senior Secured Convertible
Notes 5,128 5.3 5,128 5.2
-------- --------- -------- ----------
113,431 $ 190.1 103,837 $ 132.3
======== ========= ======== ==========
FULLY DILUTED EARNINGS PER SHARE $ 1.68 $ 1.27
======== =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1993
---------------------------------
Shares Amount EPS
-------- ---------- ---------
<S> <C> <C> <C>
Net Income $ 247.2
Preferred stock dividend requirements (1.1)
----------
246.1
Share base:
Shares deemed issued pursuant
to Joint Plan 60,846
Shares issued through public
offerings 5,500
Shares issued upon exercise of
Series A Warrants
and stock options -
Common Stock issued (or obligated
to issue) on June 28, 1994:
Common Stock held for issuance 3,328
Series A Preferred Stock 3,328
LTV Steel ESOP 1,108
IRS Settlement Agreement -
--------
7,764
--------
Common Stock equivalent shares
resulting from
outstanding Series A Warrants,
Stock Options
and Restricted Stock -
Common Stock issuable upon
conversion of
Series B Preferred Stock 2,926 1.1
Common Stock issuable upon
conversion of
Senior Secured Convertible
Notes 5,515 2.6
-------- ----------
82,551 $ 249.8
======== ==========
FULLY DILUTED EARNINGS PER SHARE $ 3.03
=========
</TABLE>
<PAGE> 1
30
MANAGEMENT'S DISCUSSION AND ANALYSIS
_______________________________________________________________________________
The LTV Corporation ("LTV" or the "Company") is a fully integrated steel
producer that manufactures a diversified line of carbon steel products
consisting of hot rolled and cold rolled sheet, galvanized, tin mill and
tubular products. The Company operates two integrated steel mills (Cleveland
Works and Indiana Harbor Works) and various finishing, galvanizing and
processing facilities as well as tin mill and tubular operations. The Company
is a major supplier of flat rolled steel for the domestic automotive, appliance
and electrical equipment markets.
LTV adopted "fresh start" reporting in which the Company's assets and
liabilities were adjusted to reflect their estimated fair values and the
remaining accumulated deficit was eliminated, resulting in a new reporting
entity as of June 30, 1993 (refer to the Company Reorganization note on page
53). Accordingly, the results of operations, cash flows and financial condition
of the Company subsequent to the date of emergence are not necessarily
comparable with those prior to emergence, and comments on the major differences
are provided as necessary for an understanding of the financial results.
<TABLE>
<CAPTION>
Year ended December 31,
RESULTS OF OPERATIONS 1995 1994 1993
______________________________________________________________________________________________________
(in millions)
<S> <C> <C> <C>
Sales $ 4,283.2 $ 4,233.3 $ 3,868.2
Costs and expenses:
Cost of products sold 3,620.9 3,668.6 3,578.5
Depreciation and amortization 251.9 241.8 236.8
Selling, general and administrative 142.2 133.2 129.3
Net interest and other income (42.6) (13.0) (1.9)
Special credits -- -- (591.6)
----------- ----------- -----------
Total 3,972.4 4,030.6 3,351.1
----------- ----------- -----------
Income from continuing operations before items below 310.8 202.7 517.1
Reorganization items -- -- 30.7
----------- ----------- -----------
Income from continuing operations before income taxes 310.8 202.7 547.8
Income tax provision:
Taxes payable (refundable) 2.0 (1.5) 3.2
Taxes not payable in cash 115.3 74.7 158.2
----------- ----------- -----------
Total 117.3 73.2 161.4
----------- ----------- -----------
Income from continuing operations 193.5 129.5 386.4
Discontinued operations (8.7) (2.4) 0.5
Extraordinary item -- -- 3,928.0
----------- ----------- -----------
Net income $ 184.8 $ 127.1 $ 4,314.9
=========== =========== ===========
OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------
Raw steel production (thousands of tons) 8,462 8,253 7,921
Steel shipments (thousands of tons) 7,961 7,969 7,570
Active employees (thousands) 14.4 15.3 15.7
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
======================================================================================
(in millions)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
1995 82.1 105.2 70.2 $53.3
1994 18.4 62.9 55.3 66.1
1993* $(49.8) (29.8) 0.2 4.9
<FN>
* Before special credits and reorganization items
</TABLE>
THE LTV CORPORATION
<PAGE> 2
31
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
_______________________________________________________________________________
SALES Sales of $4.283 billion in 1995 increased by $50 million (1%) from
1994, and steel shipments of 7.96 million tons approximated the previous year's
total. The increase in sales during 1995 was primarily due to higher average
selling prices.
Hot and cold flat rolled product sales of $2.146 billion were 2% higher in 1995
versus 1994, reflecting an increase in shipments and selling prices, partially
offset by a change in the mix of products sold which reflected higher shipments
of lower-priced hot rolled steel to the export markets. Galvanized product
sales of $1.221 billion were 1% higher in 1995, reflecting a 5% decrease in
shipments which was more than offset by an increase in average selling prices.
Tin mill product sales of $449 million were 5% lower in 1995, reflecting a 7%
decrease in shipments, partially offset by an increase in average selling
prices. Tubular product sales of $314 million were 7% higher in 1995 than in
1994, reflecting a 2% increase in shipments and an increase in average selling
prices. Nonsteel and other sales in 1995 of $153 million were relatively
unchanged from 1994.
PRODUCTION AND COSTS Raw steel production increased by 209,000 tons to
8.46 million tons in 1995 compared with 1994. The average operating rate at the
Company's steelmaking facilities during 1995 was 102%, compared with 99% in
1994. The 1994 production was impacted by the extremely cold weather conditions
experienced at the operating units in the first quarter of 1994 and the
start-up of the Direct Hot Charge Complex ("DHCC") at the Cleveland Works,
which became fully operational in the second quarter of 1994. The Company
follows industry standards in calculating its operating rate and such rate is
based on 95% of blast furnace capacity. The 5% adjustment recognizes the
average effect of blast furnace relines. Steel production is supplemented with
purchases of semifinished steel when demand for the Company's products exceeds
production capability.
Cost of products sold as a percentage of sales improved to 84.5% in 1995 from
86.7% in 1994, primarily due to higher average selling prices. The 1995
results were also favorably impacted by productivity and operating performance
improvements, including those achieved through the Cleveland Works' DHCC,
partially offset by additional costs incurred in 1995 arising from the June
1994 labor agreement with the United Steelworkers of America ("USWA") and
higher purchased material prices.
The Company is continuing its comprehensive redesign of business processes
to strengthen customer service, increase productivity and reduce costs.
In 1995, LTV reached a long-term agreement with a large technology
service organization to manage LTV's information systems and data processing
functions. Also, during 1995, LTV began a reorganization and centralization of
certain sales and marketing functions. One-time transitional and personnel costs
related to these actions totaled $9.5 million in 1995, of which $1.7 million was
paid in 1995 and the remainder is expected to be paid in 1996. A portion of
these costs was included in selling, general and administrative expenses and was
the primary reason for the increase in these expenses in 1995 versus 1994.
1994 COMPARED WITH 1993
________________________________________________________________________________
SALES Sales of $4.233 billion in 1994 increased by $365 million (9%) from
1993, and steel shipments of 7.97 million tons increased by 399,000 tons (5%)
from 1993. The increases in sales and shipments in 1994 were across most of the
markets the Company serves.
Hot and cold flat rolled product sales of $2.100 billion were approximately 11%
higher in 1994 than in 1993, reflecting a 4% increase in shipments and an
increase in average selling prices. Galvanized product sales of $1.212 billion
were 9% higher in 1994, reflecting an increase in shipments of 6% and an
increase in average selling prices. Tin mill product sales of $474 million were
8% higher in 1994, primarily reflecting increases in shipments. Tubular product
sales of $293 million were 16% higher in 1994 than in 1993, reflecting an
increase in shipments of 12% and an increase in average selling prices.
Nonsteel and other sales in 1994 of $154 million were $16 million less than in
1993, principally due to lower outside sales of iron ore.
<TABLE>
<CAPTION>
SALES
==============================================================
(in millions)
1993 1994 1995
<S> <C> <C> <C>
Hot and Cold Flat Rolled 49% 50% 50%
Galvanized 29% 29% 29%
Tin Mill 11% 11% 11%
Tubular 7% 7% 7%
All Other 4% 3% 3%
----- ----- -----
$3,868 $4,233 $4,283
</TABLE>
<PAGE> 3
32
PRODUCTION AND COSTS The average operating rate at the Company's
steelmaking facilities during 1994 was 99%, versus 95% on a comparable basis in
1993. Raw steel production increased by 332,000 tons to 8.25 million tons in
1994 compared with 1993, primarily a result of the 1993 scheduled production
interruptions for a blast furnace reline and significant modifications
associated with the construction of the DHCC at the Cleveland Works. The 1994
production was unfavorably impacted by the extremely cold weather conditions
experienced at the operating units in the first quarter.
Cost of products sold as a percentage of sales improved to 86.7% in 1994 from
92.5% in 1993, primarily due to higher average selling prices, increased
shipments and lower costs. The 1994 results were favorably impacted by
operating performance improvements due to the Cleveland Works' DHCC, lower
postemployment expenses and gains related to various tax settlements and
divestitures. However, these benefits were partially offset by additional costs
related to higher purchased scrap prices, the 1994 labor agreement with the
USWA and the first quarter's extremely cold weather conditions.
The special credits in 1993 included a $370.6 million gain related to an
antitrust settlement, and a $221.0 million gain from the anticipated receipt of
assets held in trust and the collection of a note receivable related to a 1989
divestiture.
OTHER INCOME AND EXPENSE ITEMS 1995, 1994 AND 1993
________________________________________________________________________________
NET INTEREST AND OTHER INCOME Net interest and other income of $42.6
million in 1995 increased by $29.6 million from 1994, primarily due to increased
interest income on higher levels of investments coupled with a higher earnings
rate, as well as lower credit facilities' fees. The Company also recorded a $5.8
million gain in 1995 related to unclaimed bankruptcy distributions.
Net interest and other income of $13.0 million in 1994 increased by $11.1
million from 1993, primarily due to pre-reorganization interest income being
recorded in reorganization items.
REORGANIZATION ITEMS Reorganization items of $30.7 million in 1993
consisted of a $1.002 billion increase to allowed claims for pension plans in
excess of recorded amounts, a $1.143 billion gain on fair value adjustments to
the Company's assets and liabilities, $132.6 million of professional fees and
expenses, and $22.3 million of interest earned on accumulated excess cash. The
reorganization items were related to the periods that the Company was operating
under the protection of Chapter 11; therefore, no reorganization items have
occurred after the first half of 1993 (refer to the Company Reorganization note
on page 53).
INCOME TAXES The Company's federal and state income tax expense from
continuing operations was $117.3 million in 1995, $73.2 million in 1994 and
$160.0 million in the post-reorganization period in 1993, although $115.3
million, $74.7 million and $158.2 million of such expense amounts,
respectively, did not result in cash payments. This accounting treatment is
required under fresh start reporting in that the tax benefits associated with
the utilization of pre-reorganization net operating loss carryforwards ($2.6
billion at December 31, 1995) and net deductible temporary differences ($1.2
billion at December 31, 1995) do not increase net income, but rather such
benefits first eliminate the Company's intangible asset and then increase
shareholders' equity. Upon reorganization, the intangible asset, representing
reorganization value in excess of amounts allocable to identifiable assets,
amounted to $267.7 million and was reduced to zero in 1995 due to the
realization of these pre-reorganization tax benefits and amortization.
Subsequent utilization of pre-reorganization tax benefits totaling $84.9
million in 1995 increased the additional paid-in capital account of
shareholders' equity. The Company's cash payments for income taxes will
continue to be significantly less than the income tax expense amounts in the
financial statements until these tax attributes are fully utilized.
Consequently, income before income taxes represents an important indicator of
the Company's earnings capability.
The Company's effective tax rate was 37.7% in 1995, 36.1% in 1994 and 39.4% for
the post-reorganization period in 1993. The 1994 effective tax rate reflects
the Company reaching a settlement on certain state income tax issues and
recording a benefit of $5.0 million. Taxes payable in cash during the past
three years consist primarily of state and federal (for a less than 80% owned
subsidiary) taxes. The Company's ability to reduce its future income tax
payments through the use of net operating loss carryforwards could be
significantly limited on an annual basis if the Company were to undergo an
"ownership change" within the meaning of Section 382 of the Internal Revenue
Code of 1986. For the purpose of preserving LTV's ability to utilize its net
operating loss carryforwards, Article Ninth of LTV's Restated Certificate of
Incorporation prohibits, with certain limited exceptions, any unapproved
acquisition of Common Stock or Series A Warrants that would cause the ownership
interest percentage of the acquirer or any other person to increase to 4.5% or
above.
<PAGE> 4
33
DISCONTINUED OPERATIONS On August 1, 1995, LTV sold its energy products
segment, Continental Emsco Company ("Continental Emsco"), for $74.6 million. A
portion of the proceeds was used to reduce LTV's long-term debt by $38.6
million. The loss on the sale of the segment was recorded in the second quarter
of 1995, and Continental Emsco is reflected as a discontinued operation in
LTV's financial statements for all periods presented. The applicable net assets
held for sale at December 31, 1994, totaling $85.2 million, are included in
current prepaid expenses, deposits and other assets.
The 1995 results from discontinued operations included income from the energy
products segment operations of $1.3 million, net of income tax expense of $1.1
million, and the loss on the sale of the business of $10.0 million, net of
income tax benefits of $6.0 million. The 1994 results from discontinued
operations included losses from the energy products segment of $2.4 million,
net of income tax benefits of $1.0 million. The 1993 results from discontinued
operations included income from the energy products segment of $0.5 million,
net of income tax expense of $1.7 million. The improvement in operating results
during 1995 versus 1994 was due to higher-margin sales and lower selling,
general and administrative expenses. The reduction in results during 1994
versus 1993 was due to a higher percentage of sales of lower-margin products,
lower international sales of drilling equipment parts and higher than expected
costs incurred in connection with the construction of cranes used on an
offshore drilling project.
EXTRAORDINARY ITEM Upon reorganization, certain recorded claims and
liabilities totaling $5.745 billion were discharged for consideration of $1.555
billion in cash, $52 million in other assets and the issuance of new LTV Common
Stock and Series A Warrants. A nontaxable extraordinary gain of $3.928 billion
was recorded on this debt discharge because the consideration was less than the
recorded liabilities (refer to the Company Reorganization note on page 53).
LIQUIDITY AND FINANCIAL RESOURCES
________________________________________________________________________________
The Company's sources of liquidity include cash and cash equivalents,
marketable securities, cash from operations, amounts available under credit
facilities and other external sources of funds. Management believes that these
sources are sufficient to fund the current requirements of working capital,
capital expenditures, investment in a joint venture, pensions and other
postemployment benefits.
<TABLE>
<CAPTION>
CASH FLOW 1995 1994
- -----------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Cash and cash equivalents at beginning of year $ 335 $ 406
----------- ------------
Cash flow from operations 756 716
Issuance of Common Stock -- 257
Proceeds from dispositions of discontinued operations,
businesses and properties 94 184
Pension funding to restored plans (473) (642)
Net purchases of marketable securities
(reflected in end of year balance-see below) (100) (358)
Capital expenditures (205) (234)
Investment in Trico Steel Company (89) (1)
Payments on long-term debt (41) (2)
Other (11) 9
----------- ------------
Decrease in cash and cash equivalents (69) (71)
----------- ------------
Cash and cash equivalents at end of year 266 335
Marketable securities at end of year 457 358
----------- ------------
Total cash, cash equivalents and marketable securities at end of year $ 723 $ 693
=========== ============
</TABLE>
<PAGE> 5
34
Since December 31, 1994, total cash, cash equivalents and marketable securities
have increased by $30 million to $723 million at December 31, 1995. During
1995, cash provided by operating activities amounted to $756 million. The other
major source of cash during 1995 consisted of $94 million in proceeds from the
dispositions of discontinued operations, businesses and properties. Major uses
of cash during 1995 included $473 million in funding to the restored pension
plans, the conversion of $100 million of cash equivalents to highly liquid
marketable securities to improve the return on those funds, $205 million in
capital expenditures, $89 million investment in the Trico Steel Company, L.L.C.
("Trico Steel Company") joint venture and $41 million of long-term debt
payments.
From December 31, 1993, total cash, cash equivalents and marketable securities
increased by $287 million to $693 million at December 31, 1994. During 1994,
cash provided by operating activities, which included the remaining $171
million from the settlement of an antitrust lawsuit, amounted to $716 million.
Other major 1994 sources of cash consisted of $257 million from the Company's
equity offering and $184 million relating to dispositions of businesses and
properties. Major uses of cash during 1994 included $642 million in funding to
the restored pension plans, the conversion of $358 million of cash equivalents
to highly liquid marketable securities and $234 million in capital
expenditures.
Cash and cash equivalents increased to $406 million at December 31, 1993 from
$200 million at June 30, 1993. During the second six months of 1993, cash
provided by operating activities, which included $200 million from the
settlement of an antitrust lawsuit, amounted to $432 million. Other major
sources of cash included $299 million from the Company's equity offering and
$123 million relating to the dispositions of businesses and properties. The
major uses of cash during this period included $512 million in contributions
and cash restricted for contributions to the restored pension plans and $127
million in capital expenditures.
During the first six months of 1993, cash usage, excluding the effects of
reorganization-related items, was $136 million, principally due to capital
expenditures of $196 million. As part of the Company's reorganization on June
28, 1993, Sumitomo Metal Industries, Ltd. made a cash investment and loan
totaling $200 million and the Pension Benefit Guaranty Corporation ("PBGC")
made a cash investment of $50 million. The Company paid out $1.555 billion of
cash, $52 million in other assets and issued Common Stock and Series A Warrants
to accomplish the reorganization.
In October 1994, the Company entered into two five-year credit facilities (the
"Receivables Facility" and the "Letter of Credit Facility") which provide the
Company with up to $470 million for working capital requirements. The
Receivables Facility permits borrowings of up to $320 million for working
capital requirements and general corporate purposes, $100 million of which may
be used to issue letters of credit. At December 31, 1995, $264 million was
permitted to be borrowed; however, no borrowings were outstanding and letters
of credit outstanding amounted to $25.8 million under this facility. The Letter
of Credit Facility is a separate credit facility that provides for the issuance
of up to $150 million in letters of credit. At December 31, 1995, letters of
credit totaling $89.8 million were outstanding under this facility.
The Company's long-term debt and Letter of Credit Facility agreements contain
various covenants which require the Company to maintain certain financial
ratios and amounts. These agreements as well as the Company's agreement with
the PBGC ("PBGC Agreement" as further discussed in the Company Reorganization
note on page 53) place certain restrictions on payments of dividends, capital
expenditures, investments in subsidiaries and borrowings. Under the terms of
the most restrictive covenant, $107 million of retained earnings are available
for Common Stock dividend payments at December 31, 1995. Substantially all of
the Company's receivables and inventories are pledged as collateral under
certain of these agreements. The Company does not believe that the restrictions
contained in these covenants will cause significant limitations on its
financial flexibility.
CAPITAL EXPENDITURES AND REQUIREMENTS
________________________________________________________________________________
The Company invested $205 million in capital expenditures during 1995,
including the rehabilitation of two blast furnaces at the Cleveland Works, a
rehabilitation of the Chicago coke facility and the initial development of new
information systems to be used throughout the Company. LTV's capital
expenditures are directed toward market-driven requirements, customer service,
productivity improvements, cost-reduction programs, new technology, replacement
projects and environmental requirements. The Company anticipates capital
expenditures will approximate $277 million during 1996.
<PAGE> 6
35
INVESTMENT IN JOINT VENTURE
________________________________________________________________________________
In 1995, LTV formed a joint venture with Sumitomo Metal Industries, Ltd. and
British Steel plc to build and operate a new flat rolled steel minimill
company, known as Trico Steel Company. LTV has a 50% interest in the joint
venture with the other members having interests of 25% each. Trico Steel
Company is locating its new facility in Decatur, Alabama, which is in the
growing steel market of the southeastern United States. Construction began
during the second quarter of 1995 and operations are scheduled to begin in
early 1997. The mill will have an estimated annual production capacity of 2.2
million tons. The estimated construction cost of the project will approximate
$450 million, a portion of which will be financed by project debt without
recourse to the members of the joint venture. LTV's investment in Trico Steel
Company totaled $90 million at December 31, 1995, and LTV plans to make an
additional investment of approximately $60 million in 1996.
<TABLE>
<CAPTION>
PENSION PLAN ASSETS
====================================================================
(in millions)
At December 31,
1993 1994 1995
<S> <C> <C> <C>
Pension plan assets at end of year $1,566 $2,003 $2,566
<FN>
Pension plan assets pricipally consist of equity securities listed on
national exchanges, fixed income securities and cash equivalents. The
actual return on plan assets in 1995 was $461 million, or 23.5%.
</TABLE>
PENSION AND OTHER POSTEMPLOYMENT BENEFITS
_______________________________________________________________________________
The expense for all pension plans was $172 million in 1995, increasing from
$163 million in 1994, primarily due to using a higher discount rate (an
accounting requirement) to determine the December 1994 value of the pension
obligation and the pension benefit enhancements under the Company's 1994 USWA
labor agreement, partially offset by the effects of the Company's significant
funding of the plans. The pension expense in 1994 was $24 million higher than
the 1993 pension expense of $139 million, primarily because of the
pre-reorganization accounting for the major defined benefit pension plans
during 1993.
Pension expense for all plans is expected to be reduced to approximately $121
million in 1996, which primarily reflects the benefit of the significant
pension plan contributions made by the Company and the required decrease in the
discount rate used to determine the December 31, 1995 value of the pension
obligation.
The Company's cash funding of its major defined benefit pension plans is based
on a flexible payment schedule as determined under the PBGC Agreement requiring
minimum annual fixed payments of $30 million in 1994 through 1997, and $50
million in subsequent years. Also, if cash flow exceeds certain levels, the
Company is obligated each year to make additional payments to these plans.
Under the PBGC Agreement, the pension contributions due in 1996 total $321
million, of which $278 million was prepaid in 1995 and the remainder was paid
in early 1996. The Company has also made other "advance payments" to the
pension plans totaling $365 million at December 31, 1995, which can be used at
the Company's option as credits against future required payments.
Other postemployment benefit expense, consisting primarily of health care and
life insurance benefits, decreased to $137 million in 1995 from $149 million in
1994, primarily due to more favorable claims experience, partially offset by a
higher discount rate used to determine the December 1994 value of the other
postemployment benefit obligation. Other postemployment benefit expense in 1994
was $64 million less than the 1993 expense of $213 million, which resulted from
fresh start reporting, whereby the Company recorded a reduction in the
liability for postemployment benefits of $503 million. Other postemployment
benefit expense is expected to approximate $136 million in 1996, which takes
into consideration the lower discount rate used to determine the December 31,
1995 value of the other postemployment obligation. Cash payments amounted to
$144 million in 1995, $130 million in 1994 and $143 million in 1993.
Movements in the rate of interest on long-term high-quality corporate bonds
necessitated a required change in the discount rate used to calculate the
actuarial present value of the benefit obligations for pensions and other
postemployment benefits from a 9.0% discount rate in 1994 to 7.25% at December
31, 1995. At December 31, 1995, this adjustment of the discount rate increased
the benefit obligation for pensions by $457 million and such adjustment was
also the primary reason for the increases in the minimum pension liability
adjustment account of $179 million and the intangible asset minimum pension
liability adjustment account of $45 million. The decreases in the discount rate
and related health care cost trend rate increased the benefit obligation for
other postemployment benefits by $178 million at December 31, 1995. However,
the application of these lower rates does not require an adjustment to the
related other postemployment benefits liability on the Company's consolidated
balance sheet. The changes have no impact on near-term cash flows, and their
impact on future operating results is included in the previously disclosed 1996
estimated expense amounts.
<PAGE> 7
36
The accounting requirement to reset annually the discount rate used to
calculate the actuarial present value of the pension and other postemployment
benefit obligations, consistent with movements in market interest rates,
results in volatility of the recorded amount of the Company's obligations. This
volatility is highlighted in the adjacent graph which displays LTV's unfunded
projected pension benefit obligation at each annual required discount rate and
at a constant 8.5% discount rate. An 8.5% rate has been used by LTV during the
prior three years in determining the assumed long-term rate of return on
pension plan assets.
<TABLE>
<CAPTION>
UNFUNDED PROJECTED PENSION BENEFIT OBLIGATION
====================================================================
(in millions)
At December 31,
1993 1994 1995
<S> <C> <C> <C>
Actual discount rate used
(7.0% in 1993, 9.0% in 1994
and 7.25% in 1995) $2,107 $1,174 $1,042
Constant discount rate of 8.5% 1,709 1,299 711
</TABLE>
As part of the 1994 USWA labor agreement, the Company began making
contributions to a Voluntary Employee Beneficiary Association ("VEBA") Trust to
prefund other postemployment benefits for retirees covered under the agreement.
The Company is required to contribute to the VEBA Trust a minimum of $5 million
annually and additional amounts based on defined cash flow as set forth in the
labor agreement. The Company may also make additional discretionary
contributions. The initial required contribution made in 1995 was $19 million,
and the required 1996 contribution is expected to be $11 million.
A 1993 agreement with the USWA provided that a portion of the requirements with
respect to certain postemployment benefits would be secured by a junior lien of
$250 million on collateral with an unencumbered fair market value of at least
$500 million. The initial security was provided by the grant of a mortgage on
facilities having a carrying value of approximately $500 million.
COMPETITION AND STEEL PRICES
________________________________________________________________________________
LTV competes directly with domestic and foreign integrated flat rolled carbon
steel producers, minimills and indirectly with producers of plastics, aluminum
and other materials such as ceramics and wood, which sometimes can be
substituted for flat rolled carbon steel in manufacturing and construction.
Certain companies have announced plans or begun construction of additional
minimills to produce flat rolled products. Thin slab casting technologies have
allowed some minimills to enter certain flat rolled markets which have
traditionally been supplied by integrated producers. The primary factors which
affect competition include price, quality, delivery and customer service. LTV
targets quality-critical, value-added applications and believes it is able to
differentiate some of its products from those of competitors on the basis of
product quality, on-time delivery performance, and product and technical
support to customers.
Significant competition from foreign producers has adversely affected product
prices in the United States and tonnage sold by domestic producers. The
intensity of foreign competition is affected by fluctuations in the value of
the U.S. dollar against foreign currencies and demand within the domestic steel
market. Many foreign steel producers are owned, controlled or subsidized by
their governments, and decisions with respect to production and sales may be
influenced to a greater degree by political and economic policy considerations
than by prevailing market conditions. In 1992, the Company and certain domestic
steel producers filed unfair trade petitions against foreign producers of
certain steel products. During 1993, the International Trade Commission ("ITC")
upheld final subsidy and dumping margins on approximately 26% of the volume of
all 1993 flat rolled carbon steel imports under investigation. The U.S. Court
of International Trade has affirmed these decisions. Appeals on selected
issues have been filed in the U.S. Court of Appeals for the Federal Circuit.
These decisions are also subject to review annually at an administrative level
with respect to the amount of the margins and review periodically by the ITC
with regard to the existence of material injury. Based on American Iron and
Steel Institute reports, steel imports of flat rolled products (including tin
mill products) during the first 11 months of 1995 totaled 10.6 million tons, a
decrease of 2.5 million tons, or 19%, from the year-ago period. The outcome of
the trade cases, as well as the 1995 legislation implementing the Uruguay Round
agreements under the General Agreement on Tariffs and Trade, may result in
increased imports of steel products into the United States.
The Company's results of operations are substantially affected by small
variations in the realized prices of its products, which are significantly
influenced by prevailing prices for steel and demand for particular products.
The Company's steel operations shipped 7.96 million tons of steel products and
recorded sales of $4.283 billion during 1995. A 1% increase or decrease in the
average realized price during 1995 would, on a pro forma basis, have resulted
in an increase or decrease in pretax income of approximately $37 million. While
the Company and the steel industry in general realized price increases in 1994
and the first six months of 1995, the Company's average realized steel selling
price per ton during the second six months of 1995 was lower than the average
price realized during the first six months of 1995. Competitive pressures in
the steel industry could limit the Company's ability to maintain or increase
current prices.
<PAGE> 8
37
LABOR MATTERS
________________________________________________________________________________
Effective June 1, 1994, the USWA entered into a five-year and two-month labor
agreement with the Company on terms consistent with those negotiated with other
major integrated steel producers. The agreement provides for a reopening of
wage provisions, which is subject to binding arbitration and becomes effective
August 1, 1996.
ENVIRONMENTAL LIABILITIES AND RELATED COSTS
________________________________________________________________________________
LTV is subject to changing and increasingly stringent environmental laws and
regulations concerning air emissions, water discharges and waste disposal, as
well as remediation activities that involve the clean-up of environmental media
such as soils and groundwater ("remediation liabilities"). As a consequence,
the Company has incurred, and will continue to incur, substantial capital
expenditures and operating and maintenance expenses in order to comply with
such requirements. Additionally, if any of the Company's facilities are unable
to meet required environmental standards or laws, those operations could be
temporarily or permanently closed.
Important examples of laws referred to above are the 1990 Clean Air Act
Amendments ("CAA Amendments"), the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"), and related state and local laws. The CAA Amendments
and its state and local counterparts require progressively more stringent air
emission quality standards in the future. RCRA and related state laws include
so-called "corrective action" provisions that grant the environmental agencies
authority to require the Company to clean up environmental media, such as soils
and groundwater, under certain prescribed conditions. These corrective action
provisions, in most instances, are not self-implementing and, in the Company's
view, create no current legal obligation. If, in the future, the Company were
required to implement corrective actions, the Company could be required to
record additional liabilities which cannot be estimated at this time, but could
be substantial.
In 1993, as part of the Company's reorganization, LTV entered into an agreement
with the U.S. Environmental Protection Agency ("EPA") and several state
environmental agencies, which settled a significant portion of the Company's
pending remediation liabilities and certain other environmental-related
liabilities. The agreement also established a mechanism to resolve specified
environmental claims subsequently identified (if any).
During 1995, the Company spent approximately $17 million for environmental
clean-up and related matters at operating and idled facilities, and at December
31, 1995, has a recorded liability of $98 million for known and identifiable
environmental and related matters. As the Company becomes aware of additional
matters or obtains more information, it may be required to record additional
liabilities for environmental remediation. The Company also spent approximately
$19 million in 1995 for environmental compliance-related capital expenditures
and expects it will be required to spend an average of approximately $30
million annually in capital expenditures during the next five years to meet
environmental standards.
NEW ACCOUNTING PRONOUNCEMENT
________________________________________________________________________________
In 1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present, and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The Company will adopt Statement No. 121 in the
first quarter of 1996 and, based on current circumstances, it does not believe
the effect of adoption will be material.
<PAGE> 9
38
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 4,283.2 $ 4,233.3 $ 2,010.5 $ 1,857.7
------------ ------------ ----------- -----------
Costs and expenses
Cost of products sold 3,620.9 3,668.6 1,817.4 1,761.1
Depreciation and amortization 251.9 241.8 124.4 112.4
Selling, general and administrative 142.2 133.2 63.5 65.8
Net interest and other income (42.6) (13.0) 0.1 (2.0)
Special credits -- -- (400.6) (191.0)
------------ ------------ ----------- -----------
Total 3,972.4 4,030.6 1,604.8 1,746.3
------------ ------------ ----------- -----------
Income from continuing operations
before items below 310.8 202.7 405.7 111.4
Reorganization items -- -- -- 30.7
------------ ------------ ----------- -----------
Income from continuing operations
before income taxes 310.8 202.7 405.7 142.1
Income tax provision
Taxes payable (refundable) 2.0 (1.5) 1.8 1.4
Taxes not payable in cash 115.3 74.7 158.2 --
------------ ------------ ----------- -----------
Total 117.3 73.2 160.0 1.4
------------ ------------ ----------- -----------
Income from continuing operations 193.5 129.5 245.7 140.7
Discontinued operations (8.7) (2.4) 1.5 (1.0)
Extraordinary item -- -- -- 3,928.0
------------ ------------ ----------- -----------
Net income $ 184.8 $ 127.1 $ 247.2 $ 4,067.7
Earnings per share ============ ============ =========== ===========
Primary:
Continuing operations $ 1.79 $ 1.31 $ 3.19
Discontinued operations (0.08) (0.02) 0.02
------------ ------------- ------------
Net income $ 1.71 $ 1.29 $ 3.21 *
============= ============= ============
Fully diluted:
Continuing operations $ 1.76 $ 1.29 $ 3.01
Discontinued operations (0.08) (0.02) 0.02
------------- ------------- ------------
Net income $ 1.68 $ 1.27 $ 3.03 *
============= ============= ============
</TABLE>
* Per share amounts are not meaningful due to reorganization.
See notes to consolidated financial statements.
THE LTV CORPORATION
<PAGE> 10
39
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions)
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities
Income from continuing operations $ 193.5 $ 129.5 $ 245.7 $ 140.7
Adjustments to reconcile income to net cash
provided by (used in) operating activities:
Special credits -- 171.0 (200.6) (191.0)
Depreciation and amortization 251.9 241.8 124.4 112.4
Income tax provision not payable in cash 115.3 74.7 158.2 --
Defined benefit pension expense 124.0 119.8 84.9 13.0
Postemployment benefit payments (more) less
than related expense (7.6) 18.5 9.1 61.5
VEBA Trust (contributions) payments (19.1) -- -- 22.3
Changes in assets and liabilities 104.0 (31.0) 6.7 (8.4)
Other (5.8) (8.2) 3.5 (11.7)
Cash used to discharge prepetition liabilities -- -- -- (774.7)
------------ ------------ ----------- -----------
Net cash provided by (used in)
operating activities 756.2 716.1 431.9 (635.9)
------------ ------------ ----------- -----------
Investing activities
Capital expenditures (204.8) (234.0) (127.2) (195.9)
Investment in Trico Steel Company (89.2) (0.9) -- --
Net purchases of marketable securities (99.7) (357.5) -- --
Proceeds from dispositions of discontinued
operations, businesses and properties 94.4 184.2 123.5 10.2
Other (9.5) (13.6) (4.0) (4.5)
------------ ------------ ----------- -----------
Net cash used in investing activities (308.8) (421.8) (7.7) (190.2)
------------ ------------ ----------- -----------
Financing activities
Issuance of Common Stock -- 257.2 298.5 --
Pension funding to restored plans (472.6) (642.2) (512.4) (862.1)
Receipt of escrowed funds -- 25.8 -- --
Payments on long-term debt (41.1) (2.5) (2.5) --
Issuance of long-term debt -- -- -- 7.1
Preferred dividends paid (2.2) (2.3) (1.1) --
Other (1.0) (1.2) (0.8) (0.7)
Other reorganization-related items -- -- -- 250.0
------------ ------------ ----------- -----------
Net cash used in financing activities (516.9) (365.2) (218.3) (605.7)
------------ ------------ ----------- -----------
Net (decrease) increase in cash and
cash equivalents (69.5) (70.9) 205.9 (1,431.8)
Cash and cash equivalents at beginning of period 335.4 406.3 200.4 1,632.2
------------ ------------ ----------- -----------
Cash and cash equivalents at end of period $ 265.9 $ 335.4 $ 406.3 $ 200.4
============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
THE LTV CORPORATION
<PAGE> 11
40
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
December 31,
ASSETS 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 265.9 $ 335.4
Marketable securities 457.2 357.5
------------ ----------
723.1 692.9
Receivables, less allowance for doubtful accounts of $17.1 in 1995
and $17.8 in 1994 396.1 464.5
Inventories:
Products 512.6 512.6
Materials, purchased parts and supplies 229.9 239.0
------------ ----------
Total inventories 742.5 751.6
Prepaid expenses, deposits and other 8.7 118.5
------------ ----------
Total current assets 1,870.4 2,027.5
------------ ----------
Investments and other noncurrent assets 369.5 308.6
Property, plant and equipment
Land and land improvements 69.5 71.2
Buildings 144.9 142.9
Machinery and equipment 3,322.2 3,164.8
Construction in progress 121.6 106.1
------------ ----------
3,658.2 3,485.0
Less allowance for depreciation (518.0) (296.0)
------------ ----------
Total property, plant and equipment 3,140.2 3,189.0
------------ ----------
$ 5,380.1 $ 5,525.1
============ ===========
</TABLE>
See notes to consolidated financial statements.
THE LTV CORPORATION
<PAGE> 12
41
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities
Accounts payable $ 255.0 $ 267.2
Accrued employee compensation and benefits 408.4 394.0
Other accrued liabilities 183.3 175.9
------------ -----------
Total current liabilities 846.7 837.1
------------ -----------
Noncurrent liabilities
Long-term debt 150.4 183.1
Postemployment health care and other insurance benefits 1,598.4 1,633.4
Pension benefits 988.7 1,138.7
Other 420.7 450.0
------------ -----------
Total noncurrent liabilities 3,158.2 3,405.2
------------ -----------
Shareholders' equity
Convertible preferred stock -- stated value $50.0 0.5 0.5
Common stock -- par value $0.50 per share; authorized 150.0 shares;
issued and outstanding 105.5 shares in 1995 and 106.0 shares in 1994 52.8 53.0
Additional paid-in capital 958.0 872.8
Retained earnings 549.3 366.7
Minimum pension liability adjustment (184.8) (5.8)
Other (0.6) (4.4)
------------ -----------
Total shareholders' equity 1,375.2 1,282.8
------------ -----------
$ 5,380.1 $ 5,525.1
============ ===========
</TABLE>
<PAGE> 13
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
December 31, 1995
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------------------------------------------------
DESCRIPTION OF BUSINESS The LTV Corporation ("LTV" or the "Company") is a
fully integrated steel producer that manufactures a diversified line of carbon
steel products consisting of hot rolled and cold rolled sheet, galvanized, tin
mill and tubular products. The Company operates two integrated steel mills
(Cleveland Works and Indiana Harbor Works) and various finishing, galvanizing
and processing facilities as well as tin mill and tubular operations. The
Company is a major supplier of flat rolled steel for the domestic automotive,
appliance and electrical equipment markets.
BASIS OF PRESENTATION LTV adopted "fresh start" reporting in which the
Company's assets and liabilities were adjusted to reflect their estimated fair
values and the remaining accumulated deficit was eliminated, resulting in a new
reporting entity as of June 30, 1993. Accordingly, the Company's consolidated
financial statements prior to June 30, 1993 are not necessarily comparable to
consolidated financial statements presented subsequent to that date. A vertical
line has been placed on the consolidated financial statements to distinguish
between pre-reorganization and post-reorganization activity. Certain prior year
amounts have been reclassified to conform with the current year presentation.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
LTV and its majority-owned subsidiaries. Investments in joint ventures and
companies owned 20% to 50% are accounted for by the equity method. The
Company's interest in the cumulative undistributed earnings of its
unconsolidated affiliates was $13.8 million at December 31, 1995, all of which
was available for dividend or other distribution to the Company.
Cost of products sold has been reduced by the equity in earnings of raw
material and other affiliates of $17.2 million, $14.7 million, $1.7 million and
$9.5 million for the years ended December 31, 1995 and 1994, and the six months
ended December 31 and June 30, 1993, respectively.
MARKETABLE SECURITIES The Company determines the appropriate classification
of marketable securities at the time of purchase and reevaluates such
designation at each balance sheet date. Marketable securities have been
classified as available-for-sale and are carried at fair value, with unrealized
holding gains and losses reported as a separate component of shareholders'
equity.
The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization, interest income,
realized gains and losses and declines in value judged to be other than
temporary are included in net interest and other income. The cost of securities
sold is based on specific identification.
INVENTORIES Inventories were recorded at their estimated fair values at
June 30, 1993. Inventories are valued at the lower of cost or market, with cost
determined primarily by the "last-in, first-out" ("LIFO") method. The amount by
which inventory is reduced to state inventory at LIFO value is $26.2 million at
December 31, 1995 and $20.8 million at December 31, 1994. Liquidation of LIFO
inventory quantities, carried at costs which prevailed in earlier years,
reduced cost of products sold by $4.2 million and $1.8 million during the years
ended December 31, 1995 and 1994, respectively, and increased cost of products
sold by $1.8 million and $2.5 million during the six months ended December 31
and June 30, 1993, respectively. The current replacement value of inventories
is $742.0 million and $745.6 million at December 31, 1995 and 1994,
respectively.
PROPERTY COSTS AND DEPRECIATION AND AMORTIZATION Property costs were
recorded at their estimated fair values at June 30, 1993. Property additions
after June 30, 1993 are recorded at cost. Depreciation is computed principally
using a modified straight-line method based upon estimated economic lives of
assets and the levels of production providing depreciation within a range of
80% to 120% of the straight-line amount on individual major production
facilities with decreased depreciation at lower and increased depreciation at
higher operating levels. During each of the previous three years, depreciation
expense under this method has approximated the computed straight-line amounts.
In addition, a units-of-production method is used for blast furnaces.
When properties are retired or sold, their carrying value and the related
allowance for depreciation are eliminated from the property and allowance for
depreciation accounts, respectively. Generally, for normal retirements, gains
or losses are credited or charged to allowance for depreciation accounts; for
abnormal retirements, gains or losses are included in income in the year of
disposal.
THE LTV CORPORATION
<PAGE> 14
43
ENVIRONMENTAL REMEDIATION LIABILITIES The Company's policy is to
accrue environmental remediation liabilities when it is probable a liability
exists and the costs can be reasonably estimated. The Company's estimates of
these costs are based on existing technology, current enacted laws and
regulations, its current legal obligations regarding remediation and
site-specific costs. The liabilities are adjusted when the effect of new facts
or changes in law or technology are determinable. The Company's liability for
environmental remediation totaled $98 million and $102 million at December 31,
1995 and 1994, respectively.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENT In 1995, the Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present, and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. The
Company will adopt Statement No. 121 in the first quarter of 1996 and, based on
current circumstances, it does not believe the effect of adoption will be
material.
<TABLE>
MARKETABLE SECURITIES
- -------------------------------------------------------------------------------------------
The following is a summary of marketable securities at December 31 (in millions):
<CAPTION>
Unrealized Unrealized
Cost Holding Gains Holding Losses Fair Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
U. S. Government obligations $ 291.3 $ 1.6 $ -- $ 292.9
Corporate obligations 144.1 0.2 -- 144.3
Other 20.0 -- -- 20.0
------- ------- ------ -------
$ 455.4 $ 1.8 $ -- $ 457.2
======= ======= ====== =======
1994
U. S. Government obligations $ 158.9 $ -- $ (1.0) $ 157.9
Corporate obligations 189.7 -- (0.2) 189.5
Other 10.1 -- -- 10.1
------- ------- ------ -------
$ 358.7 $ -- $ (1.2) $ 357.5
======= ======= ====== =======
</TABLE>
<TABLE>
The cost and estimated fair value of marketable securities by contractual
maturity at December 31, 1995 are as follows (in millions):
<CAPTION>
Cost Fair Value
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 308.9 $ 310.0
Due after one year through two years 119.4 119.9
Due after two years 27.1 27.3
------- -------
$ 455.4 $ 457.2
======= =======
</TABLE>
<TABLE>
OTHER LIABILITIES
- -------------------------------------------------------------------------------------------
Current accrued employee compensation and benefits included the following at
December 31 (in millions):
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Pension benefits $ 59.3 $ 58.5
Postemployment health care and other insurance benefits 137.6 129.3
Compensated absences 49.6 50.7
Other 161.9 155.5
------- -------
$ 408.4 $ 394.0
======= =======
</TABLE>
<PAGE> 15
44
<TABLE>
Current other accrued liabilities included the following at December 31 (in millions):
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Accrued taxes other than income $ 83.7 $ 77.6
Accrued income taxes 13.1 12.8
Other 86.5 85.5
------ ------
$183.3 $175.9
====== ======
</TABLE>
<TABLE>
Noncurrent other liabilities included the following at December 31 (in millions):
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Benefits under the Coal Industry Retiree Health Benefit
Act of 1992 $ 135.6 $ 130.2
Other employee benefits 126.3 132.2
Environmental and plant rationalization 105.6 120.9
Other 53.2 66.7
------- -------
$ 420.7 $ 450.0
======= =======
</TABLE>
<TABLE>
DEBT AND CREDIT FACILITIES
- --------------------------------------------------------------------------------------
<CAPTION>
Long-term debt consisted of the following at December 31 (in millions):
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Senior secured convertible notes due June 2003 $ 100.0 $ 100.0
Notes due December 2020 50.4 83.1
Note payable -- 2.4
------- -------
150.4 185.5
Less current portion (included in accounts payable) -- (2.4)
------- -------
$ 150.4 $ 183.1
======= =======
</TABLE>
The senior secured convertible notes bear interest at the rate of 8.5% if paid
in cash or 10.5% if paid with additional convertible notes. The holders of the
convertible notes have the right to convert such notes, in whole or in part,
into shares of LTV Common Stock at a conversion price of $19.50 per share
(potentially 5,128,205 shares).
The notes due December 2020 are required to be prepaid within 120 days after
the restored pension plans become fully funded. LTV also has the option to
partially or fully prepay the notes. The notes bear interest at 8.5%, which can
be paid in cash or in additional notes. During 1995, the Company prepaid $38.6
million of the notes.
The Company has no required long-term debt maturities occurring within the next
five years.
In October 1994, the Company entered into two five-year credit facilities (the
"Receivables Facility" and the "Letter of Credit Facility") which provide the
Company with up to $470 million of financing resources at prevailing market
rates.
The Receivables Facility permits borrowings of up to $320 million for working
capital requirements and general corporate purposes, $100 million of which may
be used to issue letters of credit. At December 31, 1995, $264.2 million was
permitted to be borrowed; however, no borrowings were outstanding and letters
of credit outstanding amounted to $25.8 million under this facility. The
borrower under the Receivables Facility is LTV Sales Finance Company, a
structured finance special purpose subsidiary wholly owned by LTV, which on a
daily basis purchases and pledges essentially all of the receivables generated
by LTV. The creditors of LTV Sales Finance Company have a claim on the assets
of that company prior to those assets becoming available to other creditors of
LTV or its affiliates.
The Letter of Credit Facility is a separate credit facility that provides for
the issuance of up to $150 million in letters of credit. At December 31, 1995,
letters of credit totaling $89.8 million were outstanding under this facility.
The long-term debt and Letter of Credit Facility agreements contain various
covenants that require the Company to maintain certain financial ratios and
amounts. These agreements, as well as an agreement with the Pension Benefit
Guaranty Corporation ("PBGC") regarding the restored pension plans ("PBGC
Agreement"), place certain restrictions on payments of dividends, capital
expenditures, investments in subsidiaries and borrowings. Under the terms of
the most restrictive covenant, $107 million of retained earnings are available
for Common Stock dividend payments at December 31, 1995. Substantially all of
the Company's receivables and inventories are pledged as collateral under the
convertible notes and credit facilities agreements.
<PAGE> 16
45
OPERATING LEASES
- -------------------------------------------------------------------------------
The Company leases certain manufacturing facilities and equipment, office space
and computer equipment under cancelable and noncancelable leases which expire
at various dates. Minimum future operating lease obligations in effect at
December 31, 1995 are as follows (in millions):
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
1996 $ 35.8
1997 33.9
1998 33.8
1999 21.2
2000 9.0
Later years 62.4
------
Total payments $196.1
======
</TABLE>
Rental expense on operating leases was $58.4 million, $59.0 million, $29.6
million and $30.1 million for the years ended December 31, 1995 and 1994, and
the six months ended December 31 and June 30, 1993, respectively.
POSTEMPLOYMENT HEALTH CARE AND OTHER INSURANCE BENEFITS
- -------------------------------------------------------------------------------
The Company provides health care and other insurance benefits, primarily life,
for substantially all active, inactive and retired employees. The health care
plans are contributory and contain other cost-sharing features such as
deductibles, lifetime maximums and copayment requirements. The components of
periodic expense and cash payments for postemployment benefits are as follows
(in millions):
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Service cost -- benefits earned during the period $ 14.7 $ 18.7 $ 7.9 $ 13.6
Interest cost on accumulated benefit obligation 131.9 130.2 70.5 106.3
Actual return on plan assets (0.1) -- -- --
Net amortization and deferral (10.0) -- -- 15.1
------- ------- ------- -------
Total expense $ 136.5 $ 148.9 $ 78.4 $ 135.0
======= ======= ======= =======
Total cash payments $ 144.1 $ 130.4 $ 69.3 $ 73.5
======= ======= ======= =======
</TABLE>
The actuarial and recorded liabilities for postemployment benefits are as
follows at December 31 (in millions):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------------
Accumulated benefit obligation:
Retirees $1,275.6 $1,331.8
Fully eligible active plan participants 123.9 120.4
Other active plan participants 323.4 246.1
-------- --------
Total 1,722.9 1,698.3
Unrecognized net actuarial gains (losses) 32.3 64.4
Plan assets at fair value (19.2) --
-------- --------
Total liability included in the consolidated balance sheet 1,736.0 1,762.7
Less current portion (137.6) (129.3)
-------- --------
Noncurrent liability $1,598.4 $1,633.4
======== ========
</TABLE>
As part of the 1994 United Steelworkers of America ("USWA") labor agreement,
the Company began making contributions to a Voluntary Employee Beneficiary
Association ("VEBA") Trust to prefund postemployment health care and other
insurance benefits for covered retirees in addition to making cash payments for
such benefits on a current basis. The Company is required to contribute to the
VEBA Trust a minimum of $5 million annually and additional amounts based on
defined cash flow as set forth in the labor agreement. The initial required
contribution made in 1995 was $19.1 million, and the 1996 required contribution
is expected to be $11.3 million. Plan assets are invested in a mutual fund,
which primarily consists of equity securities listed on national exchanges, and
the assumed long-term rate of return on plan assets was 8.5% for 1995.
<PAGE> 17
46
The December 31, 1995 accumulated benefit obligation was determined under an
actuarial assumption using a health care cost trend rate of 8.0% in 1996,
gradually declining to 4.5% in the year 2002 and thereafter over the projected
payout period of the benefits. The effect on the present value of the
accumulated benefit obligation at December 31, 1995 of a 1% increase each year
in the health care cost trend rate used would result in an increase of $149
million in the accumulated benefit obligation, and a $14 million increase in
the total 1995 service and interest components of expense. At December 31,
1994, the accumulated benefit obligation was determined under an actuarial
assumption using a health care cost trend rate of 8.9% in 1995, gradually
declining to 5.5% in the year 2001 and thereafter over the projected payout
period of the benefits.
The accumulated benefit obligations were determined using an assumed discount
rate of 7.25% at December 31, 1995 and 9.0% at December 31, 1994. The assumed
discount rate was adjusted at December 31, 1995 to recognize the decrease in
interest rates relating to high-quality debt instruments. The assumed discount
rate decrease and related health care cost trend rate decrease resulted in a
net increase in the accumulated benefit obligation of $178 million, partially
offset by more favorable claims experience, with the net offsetting amount
classified as an unrecognized net actuarial loss. The adjustment of these rates
will result in a decrease in 1996 annual expense of approximately $1 million.
However, the changes will have no impact on near-term cash flows.
Postemployment benefits were adjusted to their estimated fair values at June
30, 1993. The adjustment resulted in a reduction of the liability of $503
million due to using more current experience information, the recognition of
prior service costs and actuarial losses, and giving effect to changes in the
Company's health care plans.
PENSION BENEFITS
- -------------------------------------------------------------------------------
The Company has various pension plans covering substantially all of its
employees. Current benefits for most employees are provided through defined
contribution plans with benefits based on age and compensation levels. Pension
costs for the defined contribution plans are accrued and funded on a current
basis.
The Company also has defined benefit plans, the benefits of which are primarily
for past service only, based on years of service and on average compensation
for certain years. The majority of these plans' obligations are required to be
funded by the year 2020 in accordance with the PBGC Agreement. The increase in
post-reorganization pension costs is due to the increase in the pension
liability required under the Company's reorganization.
The components of pension cost are as follows (in millions):
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Defined benefit plans:
Service cost -- benefits earned during the period $ 6.6 $ 3.5 $ 2.1 $ 1.6
Interest cost on projected benefit obligation 274.3 250.2 136.2 20.2
Actual return on plan assets (461.0) (14.8) (64.2) (15.4)
Net amortization and deferral 304.1 (119.1) 10.8 6.6
------- ------- ------ ------
Net pension cost of defined benefit plans 124.0 119.8 84.9 13.0
Defined contribution plans 48.4 42.8 20.5 20.5
------- ------- ------ ------
Total expense $ 172.4 $ 162.6 $105.4 $ 33.5
======= ======= ====== ======
</TABLE>
Plan assets consist substantially of equity securities listed on national
exchanges, fixed income securities and cash equivalents. The assumed long-term
rate of return on plan assets was 8.5% for 1995, 1994 and 1993.
<PAGE> 18
47
The following table sets forth the funded status of the Company's defined
benefit pension plans (in millions):
<TABLE>
<CAPTION>
At December 31, 1995 At December 31, 1994
Plans With Plans With Plans With Plans With
Assets In Excess Obligations In Assets In Excess Obligations In
of Obligations Excess of Assets of Obligations Excess of Assets
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Actuarial present value:
Vested benefit obligation $ 16.5 $ 3,300.8 $ 183.3 $ 2,743.0
Nonvested benefit obligation 0.5 275.9 33.1 210.8
-------- --------- -------- ---------
Accumulated benefit obligation $ 17.0 $ 3,576.7 $ 216.4 $ 2,953.8
======== ========= ======== =========
Projected benefit obligation $ 19.2 $ 3,588.3 $ 224.1 $ 2,953.8
Plan assets at fair value 26.9 2,538.7 238.6 1,764.9
-------- --------- -------- ---------
Plan assets in excess of (less than)
projected benefit obligation 7.7 (1,049.6) 14.5 (1,188.9)
Unrecognized initial net asset existing
at transition (1.0) -- (1.1) --
Unrecognized prior service cost 0.4 156.3 14.9 162.2
Unrecognized net actuarial (gains) losses (1.7) 190.6 (1.5) (49.2)
Adjustment required to recognize
minimum liability -- shareholders' equity -- (184.8) -- (5.8)
-- intangible asset -- (154.4) -- (109.5)
-------- --------- -------- ---------
Prepaid (accrued) pension costs included
in the consolidated balance sheet $ 5.4 $(1,041.9) $ 26.8 $(1,191.2)
======== ========= ======== =========
</TABLE>
Accumulated benefit obligations and projected benefit obligations for defined
benefit pension plans were determined using an assumed discount rate of 7.25%
at December 31, 1995 and 9.0% at December 31, 1994. The assumed discount rate
was adjusted at December 31, 1995 to recognize the decrease in interest rates
relating to high-quality debt instruments. The decrease in the assumed discount
rate increased the accumulated benefit obligation by $456.6 million, and such
adjustment was also the primary reason for the increases in the shareholders'
equity minimum pension liability adjustment account of $179.0 million and the
intangible asset minimum pension liability account of $44.9 million.
Pension expense for all defined benefit and defined contribution plans is
expected to approximate $121 million in 1996, primarily reflecting the benefit
of the significant pension contributions made by the Company and the required
decrease in the discount rate used to determine the December 31, 1995 value of
the pension obligation.
<TABLE>
<CAPTION>
T A X E S
- -----------------------------------------------------------------------------------------------------
The provision for income taxes from continuing operations is as follows (in millions):
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Current:
Federal $ 0.4 $ 0.8 $ 0.5 $ (0.2)
State 2.0 (2.0) 1.9 1.6
Deferred (0.4) (0.3) (0.6) --
Amount not payable in cash 115.3 74.7 158.2 --
------- ------- ------- -------
$ 117.3 $ 73.2 $ 160.0 $ 1.4
======= ======= ======= =======
</TABLE>
The Company reports federal income tax expense before consideration of
pre-reorganization net deferred tax assets ($1.500 billion at December 31,
1995). As LTV realizes the benefits (through reduced cash tax payments) from
pre-reorganization net deferred tax assets, such benefit amounts first reduce
the intangible asset resulting from the reorganization; and when the intangible
asset was eliminated in 1995, subsequent tax benefits have increased additional
paid-in capital. The Company's actual income tax cash payments are, and will
continue to be, significantly less than the total financial statement expense
amounts as the benefits of pre-reorganization net deferred tax assets are
realized. During 1995, tax benefits of $115.3 million were realized, a portion
of which was used to reduce the intangible asset to zero, with $84.9 million
used to increase the additional paid-in capital account of shareholders'
equity.
<PAGE> 19
48
The income tax effects of the factors accounting for the differences between
federal income tax computed at the statutory rate and the recorded provision
are as follows (in millions):
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax provision at statutory rates $ 108.8 $ 70.9 $ 142.0 $ 48.3
Increases (decreases) resulting from:
Deductible reorganization-related items -- -- -- (95.4)
Net operating loss for which no benefit
was recognized -- -- -- 44.3
Alternative minimum tax -- -- -- (0.3)
Nondeductible Chapter 11 administrative
expenses -- -- -- 8.1
Percentage depletion deduction (7.0) (6.4) (5.2) (5.2)
State taxes 16.7 7.3 21.6 1.6
Other (1.2) 1.4 1.6 --
------- ------- ------- --------
Tax provision $ 117.3 $ 73.2 $ 160.0 $ 1.4
======= ======= ======= ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows at December 31 (in millions):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Postemployment health care facility $ 692.2 $ 702.1
Net operating loss carryforwards 935.0 870.0
Pension liability 356.6 423.0
Other employee benefits 175.0 163.9
Plant rationalization 70.2 60.4
Safe harbor tax leases 126.1 134.2
Other 94.9 96.4
-------- ---------
Subtotal 2,450.0 2,450.0
Deferred tax liabilities:
Tax over book depreciation (846.7) (807.1)
Inventory and other (103.3) (92.9)
-------- ---------
Subtotal (950.0) (900.0)
Valuation allowance (1,500.0) (1,550.0)
--------- ---------
Total deferred taxes -- net $ 0.0 $ 0.0
========= =========
</TABLE>
The evaluation of the realizability of the Company's net deferred tax assets in
future periods is made based upon historical and projected operating
performance and other factors for generating future taxable income, such as
intent and ability to sell assets. At this time, the Company has established a
valuation reserve for all of its net deferred tax assets.
For income tax reporting purposes, LTV has a net operating loss carryforward of
$2.6 billion for regular income taxes, $2.5 billion of which is not restricted
as to use and will expire in the years 2000 through 2009. The balance of the
regular income tax net operating loss carryforward expires in 1996 through 1998
and is restricted to offsetting future taxable income of the respective
companies which generated the losses. LTV has a federal alternative minimum tax
net operating loss carryforward of $1.5 billion that is unrestricted as to its
use and will expire in the years 2000 through 2009. The Company's ability to
reduce future income tax payments through the use of net operating loss
carryforwards could be significantly limited on an annual basis if the Company
were to undergo an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986.
Alternative minimum taxes paid through 1995 of approximately $42 million are
available as a credit carryforward, and the period is not limited. Investment
tax credit carryforwards of approximately $14 million at December 31, 1995 are
recognized using the "flow through" method and expire in 1996 through 2003.
<PAGE> 20
49
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
The shareholders' equity activity for the period from June 30, 1993 through
December 31, 1995 is presented below (in millions). Information for the period
prior to reorganization is not presented due to the general lack of
comparability and because the revised capital structure of the Company consists
of entirely new issues of Common and Preferred Stock.
<TABLE>
<CAPTION>
Common Common Stock Minimum
Convertible Stock Additional Pension Total
Preferred Held for Number Paid-In Retained Liability Restricted Marketable Shareholders'
Stock Issuance of Shares Amount Capital Earnings Adjustment Stock Securities Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
June 30, 1993 $ 1.0 $ 54.3 60.8 $ 30.4 $ 274.3 $ 360.0
Net income $ 247.2 247.2
Shares issued through
public offering 23.0 11.5 287.0 298.5
Minimum pension
liability adjustment $(364.8) (364.8)
Preferred dividends paid (1.1) (1.1)
----- ------- ---------- -------- --------- -------- -------- ------- ------ ----------
Balance,
December 31, 1993 1.0 54.3 83.8 41.9 561.3 246.1 (364.8) 539.8
Net income 127.1 127.1
Shares issued:
Public offering 13.6 6.8 250.4 257.2
Stock plans and other 1.9 1.0 5.4 $ (3.2) 3.2
Conversion of stock (0.5) (54.3) 6.4 3.2 51.6 --
Unrealized losses $ (1.2) (1.2)
Minimum pension
liability adjustment 359.0 359.0
Preferred dividends paid 0.3 0.1 4.1 (6.5) (2.3)
----- ------- ---------- -------- --------- -------- -------- ------- ------ ----------
Balance,
December 31, 1994 0.5 -- 106.0 53.0 872.8 366.7 (5.8) (3.2) (1.2) 1,282.8
Net income 184.8 184.8
Benefits realized from
pre-reorganization
deferred tax assets 84.9 84.9
Shares issued through
stock plans and other 0.1 0.8 0.9
Unrealized gains 3.0 3.0
Minimum pension
liability adjustment (179.0) (179.0)
Preferred dividends paid (2.2) (2.2)
Other (0.5) (0.2) 0.2 --
----- ------- ---------- -------- --------- -------- -------- ------- ------ ----------
Balance,
December 31, 1995 $ 0.5 $ -- 105.5 $ 52.8 $ 958.0 $ 549.3 $(184.8) $ (2.4) $ 1.8 $ 1,375.2
===== ======= ========== ======== ========= ======== ======== ======= ====== ==========
</TABLE>
LTV has authorized for issuance 20 million shares of Preferred Stock with a
$1.00 par value. At December 31, 1995, the Company has 500,000 outstanding
shares of Series B Convertible Preferred Stock ("Series B Preferred Stock").
This issue has a stated liquidation preference value of $50 million, is senior
to all Common Stock and has weighted voting rights equal to that number of
shares of Common Stock into which it can be converted. Dividends on the Series B
Preferred Stock are payable quarterly in either cash or Common Stock, at the
election of LTV, at the rate of 4.5% per annum on the stated value. Holders of
the Series B Preferred Stock have the right to convert the stated value of their
shares, in whole or in part, into Common Stock at a conversion price of $17.09
per share (potentially 2,925,688 shares). LTV has the right to redeem the Series
B Preferred Stock on and after June 28, 1996 at $52.3 million, declining to
$50.0 million at June 28, 2000.
On June 28, 1994, the Series A Convertible Preferred Stock, and accrued
dividends thereon, were mandatorily converted into 3.3 million shares of Common
Stock. The Common Stock held for issuance represented a $50.0 million cash
investment in LTV on June 28, 1993, which resulted in 3.3 million shares of
Common Stock being issued on June 28, 1994.
During 1994, LTV issued 13.6 million shares of Common Stock pursuant to a public
offering. The Company's net proceeds of $257.2 million from the offering were
contributed to the Company's pension plans. During 1993, LTV issued 23.0 million
shares of Common Stock pursuant to a public offering. The net proceeds from the
offering were $298.5 million, of which $150.0 million was contributed
to the Company's pension plans.
The Company has a nonleveraged Employee Stock Ownership Plan ("ESOP"), for
employees covered by the USWA labor agreement, that effectively holds 4.3
million shares of Common Stock at December 31, 1995.
<PAGE> 21
50
Common Stock reserved for potential future issuance includes the following
(refer to the Company Reorganization note on page 53):
a. Conversion of the Series B Preferred Stock and the convertible notes as
previously discussed.
b. In accordance with a settlement agreement ("Federal Tax
Agreement") with the Internal Revenue Service ("IRS"), payments in six equal
annual installments of cash or shares of Common Stock with an aggregate value of
$6.5 million are required to be made to the IRS commencing on June 28, 1994. The
first of these payments was satisfied with the issuance of 65,183 shares of
Common Stock, and the 1995 payment was satisfied in cash.
c. In accordance with an agreement with the U.S. Environmental
Protection Agency ("EPA"), certain (if any) future environmental claims can be
settled in cash or Common Stock. Also, through June 28, 1997, if and when shares
are actually issued under this agreement, the ESOP is to receive additional
shares approximating 7.5% of such issued shares.
d. The Company's Joint Plan of Reorganization ("Joint Plan")
provided for the issuance of 8.5 million Series A Warrants. Each Series A
Warrant is exercisable for 0.5582 of a share of Common Stock at $16.28 per each
full share purchased. The Series A Warrants are exercisable through June 28,
1998. Through December 31, 1995, 30,265 warrants have been exercised.
The Company has also reserved for future issuance 3.5 million shares of LTV
Common Stock under incentive programs authorizing the granting of stock options
and restricted stock awards to directors, officers and other key employees. The
stock incentive programs are designed to encourage a personal investment in LTV
Common Stock from participating individuals. The options to purchase Common
Stock are primarily outstanding for terms of ten years from date of grant and
are granted at prices not lower than market price at date of grant. The market
value of restricted stock awarded has been recorded as unearned compensation
and is shown as a separate component of shareholders' equity. Unearned
compensation is primarily being amortized to expense over the five-year vesting
period. Expense recognition under these programs has been and will continue to
be accounted for in accordance with Accounting Principles Board Opinion No. 25.
Transactions under these programs are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended
1995 1994 December 31, 1993
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock options:
Options outstanding at
beginning of period 1,147,639 $ 15.38 - $19.33 934,000 - $15.38 -- --
Granted 398,700 14.17 - 16.13 272,705 $16.53- 19.33 934,000 $15.38
Exercised (5,000) 15.38 (22,066) 15.38 -- --
Canceled (121,389) 15.38 - 19.33 (37,000) 15.38 -- --
--------- ------------------ --------- -------------- ------- ------
Options outstanding at
end of period 1,419,950 $ 14.17 - $19.33 1,147,639 $15.38- $19.33 934,000 $15.38
========= ================== ========= ============== ======= ======
Options exercisable at
end of period 684,614 $ 14.74 - $19.33 297,896 $15.38- $16.53 -- --
========= ================== ========= ============== ======= ======
Restricted Stock:
Shares outstanding at
beginning of period 191,430 $ 15.75 - $18.88 -- -- --
Granted 10,856 14.00 - 15.25 191,430 $15.75- $18.88
Unrestricted (16,100) 18.88 -- --
Canceled -- -- -- --
--------- ------------------ --------- --------------
Shares outstanding at
end of period 186,186 $ 14.00 - $18.88 191,430 $15.75- $18.88
========= ================== ========= ==============
</TABLE>
EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Earnings per share data prior to emergence from Chapter 11 proceedings are not
presented due to the general lack of comparability and because the revised
capital structure of the Company consists of entirely new issues of Common and
Preferred Stock.
Primary earnings per share calculations for the years ended December 31, 1995
and 1994, and the six months ended December 31, 1993 are based on average common
and common equivalent shares outstanding of 108.3 million, 98.7 million and 77.0
million, respectively. Common equivalent shares principally included Common
Stock that is issuable in exchange for the Series B Preferred Stock and for
outstanding Series A Warrants.
Fully diluted earnings per share calculations for the years ended December 31,
1995 and 1994, and the six months ended December 31, 1993 are based on fully
diluted shares outstanding of 113.4 million, 103.8 million and 82.6 million,
respectively. Fully diluted shares were determined by increasing the primary
shares outstanding to reflect the Common Stock issuable upon conversion of the
convertible notes.
<PAGE> 22
51
COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------
The Company is the subject of various threatened or pending legal actions,
contingencies and commitments in the normal course of conducting its business.
The Company provides for costs relating to these matters when a loss is probable
and the amount is reasonably estimable. The effect of the outcome of these
matters on the Company's future results of operations and liquidity cannot be
predicted because any such effect depends on future results of operations and
the amount and timing of the resolution of such matters. While it is not
possible to predict with certainty, management believes that the ultimate
resolution of such matters will not have a material adverse effect on the
consolidated financial position of the Company.
LTV is subject to changing and increasingly stringent environmental laws and
regulations concerning air emissions, water discharges, and waste disposal, as
well as remediation activities that involve the clean-up of environmental media
such as soils and groundwater ("remediation liabilities"). As a consequence, the
Company has incurred, and will continue to incur, substantial capital
expenditures and operating and maintenance expenses in order to comply with such
requirements. Additionally, if any of the Company's facilities are unable to
meet required environmental standards or laws, those operations could be
temporarily or permanently closed.
Important examples of laws referred to above are the 1990 Clean Air Act
Amendments ("CAA Amendments"), the Resource Conservation and Recovery Act of
1976, as amended ("RCRA"), and related state and local laws. The CAA Amendments
and its state and local counterparts require progressively more stringent air
emission quality standards in the future. RCRA and related state laws include
so-called "corrective action" provisions that grant the environmental agencies
authority to require the Company to clean up environmental media, such as soils
and groundwater, under certain prescribed conditions. These corrective action
provisions, in most instances, are not self-implementing and, in the Company's
view, create no current legal obligation. If, in the future, the Company were
required to implement corrective actions, the Company could be required to
record additional liabilities which cannot be estimated at this time, but could
be substantial.
As part of LTV's reorganization in 1993, an agreement ("Environmental Settlement
Agreement" or "ESA") with the EPA was reached. The ESA resolved or provided the
means to resolve a significant portion of the Company's environmental-related
liabilities and also provided a basis for settlement agreements concerning the
environmental claims of several states. The ESA settled certain Superfund Site
liabilities identified at the time of reorganization for $33 million as general
unsecured claims. Management believes that future prepetition environmental
claims, if any, that are not covered by the ESA will be subject to the
dischargeability provisions of the Federal Bankruptcy Code or to the provisions
of the Joint Plan, subject to judicially imposed due process requirements.
General liabilities from postpetition acts were not discharged or in any manner
affected by the reorganization. In addition, the Company retains responsibility
for environmental obligations for properties owned at confirmation of the Joint
Plan regardless of when the conduct that gives rise to the liability occurred.
A 1993 agreement with the USWA provided that a portion of the requirements with
respect to certain postemployment benefits would be secured by a junior lien of
$250 million on collateral with an unencumbered fair market value of at least
$500 million. The initial security was provided by the grant of a mortgage on
facilities having a carrying value of approximately $500 million.
FINANCIAL INSTRUMENTS
- -------------------------------------------------------------------------------
Cash equivalents are investments in highly liquid, low-risk money market mutual
funds and commercial paper with maturities of three months or less and are
classified as held-to-maturity. The carrying amount of these assets approximates
fair value. The Company carries marketable securities at fair value. The
carrying amount of the Company's long-term debt approximates fair value at
December 31, 1995 and 1994, based on current market interest rates.
The Company has entered into futures contracts to reduce its exposure to
fluctuations in costs caused by the price volatility of certain metal
commodities and natural gas supplies. The Company does not engage in speculation
and the results of these hedging transactions become part of the cost of the
commodity or supply being hedged. At December 31, 1995 and 1994, the purchase
value of these contracts totaled $10 million and $12 million, respectively. The
contracts extend for periods of up to two years. At December 31, 1995 and 1994,
the fair value of the contracts, which is based on quoted market prices,
approximated the carrying value of zero.
LTV owns a preferred stock asset related to the sale of its energy products
segment with an aggregate redemption price and liquidation preference of $14.3
million, plus accrued and unpaid dividends. The preferred stock is subject to
redemption at the option of LTV or the issuer beginning August 2000. The
estimated discounted cash flow value of the preferred stock asset approximates
its stated and carrying value at December 31, 1995.
<PAGE> 23
52
Outstanding letters of credit totaled $118.6 million and $124.7 million at
December 31, 1995 and 1994, respectively. The letters of credit guarantee
performance to third parties of various trade activities and tax benefit
transfer agreements. LTV has guaranteed approximately $13 million per year
through January 1999 for a joint venture's operating lease rental obligation.
The Company has guaranteed $2 million of debt of a company whose facilities are
leased by the Company. The Company does not believe it is practicable to
estimate the fair value of the guarantees and does not believe exposure to loss
is likely.
SPECIAL CREDITS
- -------------------------------------------------------------------------------
The Company recorded special credits of $400.6 million and $191.0 million during
the six months ended December 31 and June 30, 1993, respectively. The $400.6
million included $370.6 million which is a gain from a settlement related to an
antitrust judgment against the Bessemer and Lake Erie Railroad Company. The
other special credits related to a note receivable and revertible trusts which
were established in connection with the sale of the bar division in 1989 and the
Warren, Ohio facility in 1988. Upon selling these steel facilities, the Company
placed assets in revertible trusts to provide funds under specific circumstances
to pay for certain former employees' benefits. The required specific
circumstances did not occur and the trusts reverted to the Company. Proceeds
from these items were contributed to the Company's pension plans.
DISCONTINUED OPERATIONS
- -------------------------------------------------------------------------------
On August 1, 1995, LTV sold its energy products segment, Continental Emsco
Company ("Continental Emsco"), for $74.6 million. A portion of the proceeds was
used to reduce LTV's long-term debt by $38.6 million. The loss on the sale of
the segment was recorded in the second quarter of 1995, and Continental Emsco is
reflected as a discontinued operation in LTV's financial statements for all
periods presented. The applicable net assets held for sale at December 31, 1994
are included in current prepaid expenses, deposits and other assets. Net assets
held for sale, which consist principally of receivables, inventories and
property, plant and equipment, less current liabilities, postemployment health
care liabilities and other liabilities, totaled $85.2 million at December 31,
1994. Sales by the energy products segment were $179.2 million through August 1,
1995, $299.2 million in 1994 and $296.9 million in 1993.
The 1995 results from discontinued operations included income from the energy
products segment operations of $1.3 million, net of income tax expense of $1.1
million, and the loss on the sale of the business of $10.0 million, net of
income tax benefits of $6.0 million. The 1994 results from discontinued
operations included losses from the energy products segment of $2.4 million, net
of income tax benefits of $1.0 million. The 1993 results from discontinued
operations included income from the energy products segment of $0.5 million, net
of income tax expense of $1.7 million.
OTHER FINANCIAL DATA
- -------------------------------------------------------------------------------
Net interest and other income include the following (in millions):
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and other income $ 53.8 $ 27.4 $ 7.7 $ 3.2
Interest expense (11.2) (14.4) (7.8) (1.2)
--------- ---------- --------- -----------
Total $ 42.6 $ 13.0 $ (0.1) $ 2.0
========= ========== ========= ===========
</TABLE>
Through the reorganization period, the Company followed the accounting practice
of accruing interest only on those debt issues that were believed to be fully
secured. Interest expense would have been $120 million for the six months ended
June 30, 1993 if interest had been accrued and recorded on all outstanding debt.
However, this greater amount is not representative of interest expense or
accruals for periods subsequent to the reorganization of the Company.
The Company's sales to the automotive market have approximated 30% of sales over
each of the last three years. The Company also sells to the steel service center
and converter markets which, in turn, sell to the automotive and other
industries. Management does not believe significant credit risk exists at
December 31, 1995. Sales for the years ended December 31, 1995 and 1994, and the
six months ended December 31 and June 30, 1993 to the Company's largest
customer, General Motors Corporation, represented approximately 12%, 11%, 11%
and 15%, respectively, of total sales.
<PAGE> 24
53
The Company has incurred research and development costs of $14.8 million, $15.1
million, $7.5 million and $7.5 million for the years ended December 31, 1995 and
1994, and the six months ended December 31 and June 30, 1993, respectively.
Supplemental cash flow information is presented as follows (in millions):
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, December 31, June 30,
1995 1994 1993 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Changes in assets and liabilities which
provided (used) net cash:
Receivables $ 68.5 $ (38.8) $ (53.9) $ (11.8)
Inventories 9.1 13.0 48.4 37.1
Other assets 39.4 0.5 18.5 5.4
Accounts payable (12.2) 27.3 31.7 15.6
Other liabilities (0.8) (33.0) (38.0) (54.7)
--------- ---------- --------- -------------
Total $ 104.0 $ (31.0) $ 6.7 $ (8.4)
========= ========== ========= =============
Interest Payments $ 11.4 $ 17.1 $ 4.8 $ 1.2
Income tax payments 2.2 0.6 1.0 2.9
Capitalized interest 7.6 7.7 4.6 7.4
</TABLE>
Purchases of marketable securities totaled $8,734.8 million, and maturities and
sales totaled $8,636.9 million during 1995. Purchases of marketable securities
totaled $1,719.0 million, and maturities and sales totaled $1,360.3 million
during 1994. There was no 1993 activity in marketable securities.
COMPANY REORGANIZATION
- -------------------------------------------------------------------------------
The Company filed petitions for bankruptcy under Chapter 11 of the Bankruptcy
Code in July 1986 and, until June 28, 1993, operated under the protection of the
Bankruptcy Court. While in Chapter 11 proceedings, the Company experienced
certain financial flexibility including a significant reduction in pension
contributions, relief from paying certain prepetition obligations, and the
earning of substantial interest income on cash balances. These benefits were
partially offset by higher professional fees and expenses.
The Company's emergence from Chapter 11 proceedings was accomplished through a
series of mutually dependent transactions and agreements. The Joint Plan
provided for, among other things, recoveries for certain creditors that included
cash, shares of newly issued LTV Common Stock, Series A Warrants and a variety
of other assets. Special agreements were negotiated in order to satisfy certain
claims, including, among others, the PBGC Agreement regarding the amount and the
timing of funding of LTV's restored pension plans, the Environmental Settlement
Agreement and the Federal Tax Agreement.
Claims and liabilities totaling $5.745 billion on June 28, 1993 were discharged
for consideration of $1.555 billion in cash, $52 million in other assets, and
the issuance of LTV Common Stock and Series A Warrants. A nontaxable
extraordinary gain of $3.928 billion was recorded on this debt discharge because
the consideration was less than the recorded liabilities. Certain prepetition
claims and liabilities, the most significant of which was the Company's
obligation for the restored pension plans, were not discharged as part of the
Joint Plan and were reclassified to their respective consolidated balance sheet
accounts.
Reorganization items recognized on the consolidated statement of income of $30.7
million in the six months ended June 30, 1993 consist of a $1.002 billion
increase to allowed claims for pension plans in excess of recorded amounts, a
$1.143 billion net gain on fair value adjustments to the Company's assets and
liabilities, $132.6 million of professional fees and expenses and $22.3 million
of interest earned on accumulated cash.
LTV's financial advisors assisted the Company and the Bankruptcy Court in
determining the reorganization value and the resulting beginning equity value.
In determining the overall reorganization value, the trading value of comparable
U.S. integrated steel companies (adjusted for long-term obligations) was the
major factor utilized. This method was used due to the highly cyclical nature of
the steel industry and was viewed as providing a more accurate estimate than
would have been provided through the use of a discounted cash flow analysis or
other methodologies. Adjustments to reflect the fair value of individual assets
and liabilities were based on independent reviews and valuations, discounted
cash flows, actuarial valuations and other studies.
The portion of reorganization value not attributable to specific tangible or
identified intangible assets had been reflected as an intangible asset which
totaled $267.7 million at June 30, 1993. The intangible asset was reduced to
zero during 1995 by the realization of pre-reorganization tax benefits and
amortization.
<PAGE> 25
54
REPORT OF MANAGEMENT
- -------------------------------------------------------------------------------
January 25, 1996
The management of The LTV Corporation is responsible for the preparation of the
accompanying consolidated financial statements in conformity with generally
accepted accounting principles appropriate in the circumstances. Management is
also responsible for the determination of estimates and judgments used in the
financial statements, and the preparation of other financial information
included in this annual report to shareholders. The financial statements have
been audited by Ernst & Young LLP, independent auditors.
The management of the Company is responsible for and maintains an accounting
system and related internal controls that it believes are sufficient to provide
reasonable assurance that assets are safeguarded against unauthorized
acquisition, use or disposition, that transactions are executed and recorded in
accordance with management's authorization and that the financial records are
reliable for preparing financial statements. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control must
be related to the benefits derived and that the balancing of those factors
requires estimates and judgments. The system is tested and evaluated regularly
by the Company's internal auditors as well as by the independent auditors in
connection with their annual audit. Management responds to all significant
recommendations of the internal and independent auditors and makes changes to
the systems when appropriate.
The Board of Directors has an Audit Committee of Directors who are not members
of management. The Committee meets with management, the internal auditors and
the independent auditors in connection with its review of matters relating to
the Company's annual financial statements; the Company's internal audit program;
the Company's system of internal accounting controls; and the services of the
independent auditors. The Committee also periodically meets with internal
auditors as well as the independent auditors, without management present, to
discuss appropriate matters. In addition, the internal auditors and the
independent auditors have full and free access to meet with the Committee, with
or without management representatives present, to discuss the results of their
audits, the adequacy of internal accounting controls and the quality of
financial reporting.
/s/ David H. Hoag
- -----------------
David H. Hoag
Chairman of the Board,
President and Chief Executive Officer
/s/ Arthur W. Huge
- ------------------
Arthur W. Huge
Senior Vice President and
Chief Financial Officer
<PAGE> 26
55
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- -------------------------------------------------------------------------------
January 25, 1996
To the Shareholders and Board of Directors
The LTV Corporation
We have audited the accompanying consolidated balance sheet of The LTV
Corporation ("the Company") as of December 31, 1995 and 1994, and the related
consolidated statements of income and cash flows for the years ended December
31, 1995 and 1994, and the six months ended December 31 and June 30, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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.
As more fully described in the Summary of Significant Accounting Policies and
Company Reorganization notes to consolidated financial statements, effective
June 28, 1993, the Company emerged from bankruptcy. In accordance with an
American Institute of Certified Public Accountants' Statement of Position, the
Company has adopted "fresh start" reporting whereby its assets, liabilities and
new capital structure have been adjusted to reflect estimated fair values as of
June 30, 1993. As a result, the consolidated financial statements for periods
subsequent to June 30, 1993, reflect this basis of reporting and are not
necessarily comparable to the Company's pre-reorganization consolidated
financial statements.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The LTV
Corporation at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1995 and 1994,
and the six months ended December 31 and June 30, 1993, in conformity with
generally accepted accounting principles.
/S/Ernst & Young LLP
- --------------------
Ernst & Young LLP
Cleveland, Ohio
<PAGE> 27
56
ELEVEN-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share data)
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations for the Year
Steel sales $4,283.2 $4,233.3 $3,868.2 $ 3,564.9 $ 3,392.5
Income (loss) from continuing
operations before income taxes 310.8 202.7 517.1 (97.7) (165.0)
Income tax provision:
Taxes payable (refundable) 2.0 (1.5) 3.2 4.9 (125.3)
Taxes not payable in cash 115.3 74.7 158.2 -- --
-------- -------- -------- --------- ---------
Total 117.3 73.2 161.4 4.9 (125.3)
-------- -------- -------- --------- ---------
Income (loss) from continuing
operations $ 193.5 $ 129.5 $ 355.7 $ (102.6) $ (39.7)
======== ======== ======== ========= =========
Net income (loss) $ 184.8 $ 127.1 $4,314.9 $ 598.7 $ 74.1
======== ======== ======== ========= =========
Earnings per share (fully diluted):
Continuing operations $ 1.76 $ 1.29 NM NM NM
Net income 1.68 1.27 NM NM NM
Cash dividends per common share -- -- -- -- --
Financial Position at Year End
Working capital $1,023.7 $1,190.4 $ 882.7 $ 2,048.4 $ 1,975.2
Total assets 5,380.1 5,525.1 5,795.1 6,223.1 6,685.2
Property, net 3,140.2 3,189.0 3,216.8 2,953.2 3,121.0
Long-term debt 150.4 183.1 186.3 7.7 9.0
Other noncurrent obligations 3,007.8 3,222.1 3,668.6 9,487.0 10,307.8
Shareholders' equity (deficit) 1,375.2 1,282.8 539.8 (4,129.3) (4,731.6)
Other Financial Information
Property additions $ 204.8 $ 234.0 $ 323.1 $ 311.0 $ 333.5
Depreciation 251.9 241.8 236.8 208.6 177.6
Other Operating Data
Raw steel production (millions of tons) 8.5 8.3 7.9 8.3 7.7
Continuous cast 100% 100% 86% 77% 80%
Shipment (millions of tons) 8.0 8.0 7.6 7.2 6.6
Operating rate 102% 99% 95% 85% 78%
Employees 14,400 15,300 15,700 16,400 17,200
Note Refer to "Company Reorganization" note to the consolidated financial statements for a discussion of the Company's emergence
from Chapter 11 proceedings. The fully diluted earnings per share totaled $3.01 on continuing operations and $3.03 on net income for
the six months ended December 31, 1993. Earnings per share data prior to the Company's mid-1993 emergence from Chapter 11
proceedings are not presented due to the general lack of comparability and because the revised capital structure of the Company
consists of entirely new issues of Common and Preferred Stock. Reorganization items have been excluded from income statement
information in the summary above other than the net income line as this presentation is more meaningful with respect to an
understanding of the post-reorganization operating results, since no reorganization items have occurred after June 1993.
Data presented above is restated to reflect the sale of Continental Emsco Company, which is accounted for as a discontinued
operation.
NM Not meaningful.
</TABLE>
THE LTV CORPORATION
<PAGE> 28
57
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(dollars in millions, except per share data)
1990 1989 1988 1987 1986 1985
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3,860.4 $4,086.0 $ 4,874.4 $ 4,805.9 $ 4,469.0 $ 5,375.4
87.8 343.1 (847.3) 344.3 (3,197.0) (903.5)
16.6 20.8 20.3 14.4 8.2 1.1
-- -- -- -- -- --
-------- -------- ---------- ---------- ------------- -------------
16.6 20.8 20.3 14.4 8.2 1.1
-------- -------- ---------- ---------- ------------- -------------
$ 71.2 $ 322.3 $ (867.6) $ 329.9 $ (3,205.2) $ (904.6)
======== ======== ========== ========= ============= =============
$ 70.9 $ 264.9 $(3,153.6) $ 502.6 $ (3,268.3) $ (723.9)
======== ======== ========== ========= ============= =============
NM NM NM NM NM NM
NM NM NM NM NM NM
-- -- -- -- -- --
$1,922.1 $1,860.2 $ 1,794.8 $ 1,616.7 $ 1,763.9 $ 185.3
6,511.2 6,336.2 6,163.0 5,706.1 5,498.7 6,306.7
3,051.2 2,894.9 2,640.5 2,693.3 2,621.6 3,222.6
12.6 16.8 18.5 25.2 108.2 2,142.4
10,191.6 10,009.4 10,097.6 6,537.6 7,023.7 1,171.3
(4,845.3) (4,919.8) (5,183.4) (2,041.5) (2,575.6) 652.2
$ 336.5 $ 355.5 $ 351.8 $ 286.6 $ 102.1 $ 112.1
184.0 182.6 201.1 216.1 207.1 218.7
8.2 8.4 10.5 11.5 11.1 13.1
76% 74% 60% 54% 54% 45%
7.3 7.6 9.0 9.7 9.2 10.7
84% 86% 91% 91% 61% 62%
16,800 17,800 18,400 26,700 26,800 33,600
</TABLE>
<PAGE> 29
58
<TABLE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The following table presents quarterly financial information (in millions, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
1995 $1,084.9 $1,113.2 $1,040.2 $1,044.9
1994 995.1 1,056.1 1,051.7 1,130.4
Gross margin
1995 172.1 193.7 150.4 146.1
1994 112.6 159.0 144.5 148.6
Income from continuing operations
1995 82.1 105.2 70.2 53.3
1994 18.4 62.9 55.3 66.1
Net income
1995 51.2 55.6 43.2 34.8
1994 15.3 37.5 34.1 40.2
Market price per share
1995 -- High 17.88 15.25 17.25 15.25
Low 12.63 13.25 13.63 13.25
1994 -- High 18.25 17.63 21.25 21.00
Low 14.38 14.00 15.38 15.38
Market price per Series A Warrant
1995 -- High 4.13 3.50 3.88 3.13
Low 2.75 2.63 2.88 2.25
1994 -- High 6.25 4.75 5.75 5.63
Low 3.50 3.50 3.63 3.50
Earnings per share (1)
1995 -- Primary:
Continuing operations $ 0.47 $ 0.59 $ 0.40 $ 0.32
Discontinued operations -- (0.08) -- --
-------- -------- -------- --------
Net income $ 0.47 $ 0.51 $ 0.40 $ 0.32
======== ======== ======== ========
1995 -- Fully diluted:
Continuing operations $ 0.46 $ 0.58 $ 0.39 $ 0.32
Discontinued operations -- (0.08) -- --
-------- -------- -------- --------
Net income $ 0.46 $ 0.50 $ 0.39 $ 0.32
======== ======== ======== ========
1994 -- Primary:
Continuing operations $ 0.17 $ 0.41 $ 0.35 $ 0.37
Discontinued operations (0.01) (0.01) -- --
-------- -------- -------- --------
Net income $ 0.16 $ 0.40 $ 0.35 $ 0.37
======== ======== ======== ========
1994 -- Fully diluted:
Continuing operations $ 0.17 $ 0.40 $ 0.35 $ 0.36
Discontinued operations (0.01) (0.01) -- --
-------- -------- -------- --------
Net income $ 0.16 $ 0.39 $ 0.35 $ 0.36
======== ======== ======== ========
(1) Earnings per share are computed independently for each of the quarters based
on the weighted average number of shares outstanding for each period, and the sum
of the quarters may not necessarily be equal to the full year earnings per share
amount.
</TABLE>
THE LTV CORPORATION
<PAGE> 30
SHAREHOLDERS INFORMATION
- ----------------------------------------------------------------------------
ANNUAL MEETING The LTV Corporation's 1996 annual meeting will be held on
Monday, April 15, 1996, from 9:00 a.m. to 10:00 a.m., in the auditorium of the
Forum Conference Center, One Cleveland Center, 1375 East 9th Street,
Cleveland, Ohio.
10-K REPORT AVAILABLE A copy of LTV's 1995 Annual Report on Form 10-K, filed
with the Securities and Exchange Commission, is available without charge upon
request.
Address requests to: Secretary, The LTV Corporation,
P.O. Box 6778, Cleveland, OH 44101.
SHAREHOLDER COMMUNICATIONS Information is mailed to registered shareholders
from time to time to keep them informed of the Company's activities and
financial status. All such information is available to any person interested in
LTV.
Address requests to: Investor Relations, The LTV Corporation,
P.O. Box 6778, Cleveland, OH 44101.
COMPANY CONTACTS The following individuals may be contacted in writing at The
LTV Corporation, P.O. Box 6778, Cleveland, OH 44101.
Financial Community Contacts
John C. Skurek, Vice President and Treasurer, or
Joel L. Hawthorne, Manager, Investor Relations
Media Contact
Mark R. Tomasch, Senior Director, Corporate Affairs
QUARTERLY REPORTING LTV typically releases earnings announcements on the last
Friday of the month immediately following each quarter end. The Company does
not publish quarterly reports due to the expense and lack of timeliness of
traditional quarterly reports. Instead, LTV's quarterly earnings releases
contain all of the financial information typically found in quarterly reports.
LTV issues all of its corporate news releases through PR Newswire (PRN), which
can be accessed through PRN's site on the Internet's World Wide Web, or by
fax-on-demand. To access LTV news releases through the World Wide Web using
web-browser software, enter http://www.prnewswire.com/cnoc/exec/menu?516787.
PRN releases are also available through America Online, Compuserve, Prodigy,
Lexis/Nexis, Dialog, Dow Jones News/Retrieval and Bloomberg.
To obtain faxed copies of LTV news releases, call Company News On-Call at
1-800-758-5804. This electronic, menu-driven system will ask for a six-digit
code (516787) and allows you to request LTV releases to be sent to your fax
machine. LTV also maintains a supplemental mailing list of shareholders wishing
to receive copies of the Company's quarterly earnings releases.
COMMON STOCK AND SERIES A WARRANT INFORMATION
LTV's Common Stock and Series A Warrants are listed on the New York Stock
Exchange ("NYSE") under the stock symbols: LTV and LTVWS. The number of holders
of record of LTV's Common Stock and Series A Warrants as of December 31, 1995,
was 24,390 and 27,183, respectively.
A holder of Series A Warrants is entitled to purchase 0.5582 shares of LTV
Common Stock for each Series A Warrant held at an exercise price of $16.28 per
each full share of LTV Common Stock purchased. The Series A Warrants expire on
June 28, 1998.
REQUIRED APPROVAL FOR CERTAIN PURCHASES OF COMMON STOCK AND SERIES A WARRANTS
For the purpose of preserving LTV's ability to utilize certain favorable tax
attributes, Article Ninth of LTV's Restated Certificate of Incorporation
prohibits, with certain limited exceptions, any unapproved acquisition of
Common Stock or Series A Warrants that would cause the ownership interest
percentage of the acquirer or any other person to increase to 4.5% or above. A
person's ownership interest percentage for purposes of Article Ninth is
determined by reference to specified federal income tax principles, including
attribution of shares from certain related parties, deemed exercise of rights
to acquire stock (such as the Company's Series A Warrants) and aggregation of
shares purchased by persons acting in concert. Purchases of Common Stock or
Series A Warrants from any other person other than the Company are subject to
the limitations imposed by Article Ninth, and any unapproved purchase in excess
of the amounts permitted by Article Ninth will be void ab initio. A prospective
purchaser of Common Stock or Series A Warrants who believes that they may be
subject to the limitations imposed by Article Ninth should consult with their
advisors or LTV in advance of acquiring such securities to determine if advance
approval must be obtained from LTV's Board of Directors.
NEW TRANSFER AGENT
- ------------------
Mail
Chemical Mellon Shareholder Services
Stock Transfer Department
P.O. Box 469, Washington Bridge Station, New York, NY 10033
Hand Deliver
Chemical Mellon Shareholder Services
Stock Transfer Department
85 Challenger Road, Overpeck Centre, Ridgefield Park, NJ 07660
DUPLICATE MAILINGS Shareholders occasionally receive duplicate mailings,
usually because the shareholder owns more than one class of security or because
shares are held in slightly different names. Duplicate mailings may also result
when other members of a household own stock in their own names. The Company is
required by law to mail to each name on the shareholder list unless the
shareholder requests that duplicate mailings be eliminated. To eliminate
duplicate mailings, forward mailing labels indicating which name to retain on
the mailing list and which name(s) to delete. A request for deletion of name
from the mailing list will not affect proxy mailings.
Address requests: Secretary, The LTV Corporation,
P.O. Box 6778, Cleveland, OH 44101.
<PAGE> 1
Exhibit (21)
------------
LIST OF SUBSIDIARIES
--------------------
<TABLE>
<CAPTION>
NAME OF COMPANY PERCENTAGE OWNED
- --------------- ----------------
<S> <C>
THE LTV CORPORATION Parent
Georgia Tubing Corporation 100%
Vought Arabia 49%
Investment Bankers, Inc. 100%
Inmobiliaria Nueva Icacos, S.A. de C.V. 100%
(Intentionally left dormant)
Jones & Laughlin Steel Incorporated 100%
Kingsley International Insurance Ltd. 100%
LTV Corporation, The (Wyoming) 100%
LTV/EGL Holding Company 100%
L-S Electro-Galvanizing Company 60%
LTV Electro-Galvanizing, Inc. 100%
LTV Holdings, Inc. 100%
Reomar, Inc. 100%
Chateaugay Corporation 100%
Republic Buildings Corporation 100%
LTV International N.V. 100%
LTV Properties, Inc. 100%
LTV Sales Finance Company 100%
LTV Steel Company, Inc. 100%
Aliquippa and Southern Railroad Company 100%
Black River Lime Company 37.5%
25.0% owned by Jalcite I, Inc.
12.5% owned by Jalcite II, Inc.
Chicago Short Line Railway Company 100%
Crystalane, Inc. 100%
Cuyahoga Valley Railway Company, The 100%
Mahoning Valley Railway Company, The 100%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Name of Company Percentage Owned
- --------------- ----------------
<S> <C>
THE LTV CORPORATION (Continued) Parent
LTV Steel Company, Inc. (Continued) 100%
Dearborn Leasing Company 100%
LS-II Electro-Galvanizing Company 50%
Erie B Corporation 100%
Erie I Corporation 100%
J&L Empire, Inc. 100%
Empire Iron Mining Partnership 25%
Jalcite I, Inc. 100%
Jalcite II, Inc. 100%
Jalore Mining Company, Ltd. 100%
L.A.S. Resources, Inc. 53%
LTV Steel Mining Company 100%
45% owned by Erie B Corporation
10% owned by Erie I Corporation
45% owned by Youngstown Erie Corporation
Lorain Pellet Terminal Company 100%
Monongahela Connecting Railroad Company, The 100%
Nemacolin Mines Corporation 100%
Northern Land Company 50%
Olga Coal Company 53%
Presque Isle Corporation 53.5%
Processing Technology, Inc. 33.3%
Prospect Corporation, The 100%
Republic Technology Corporation 100%
Reserve Mining Company 50%
River Terminal Railway Company, The 100%
Youngstown Erie Corporation 100%
YST Erie Corporation 100%
LTV Steel Tubular Products Company 100%
LTV-Trico, Inc. 100%
Trico Steel Company, L.L.C. 50%
RepSteel Overseas Finance N.V. 100%
Trico Steel Company, Inc. 100%
</TABLE>
<PAGE> 1
Ex. (23)
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-52543, Form S-8 No. 33-52545, Form S-8 No. 33-54229, Form S-8
No. 33-56857, Form S-8 No. 33-56861 and Form S-8 No. 33-61399) pertaining to
the Non-Employee Director Stock Option Plan, Management Incentive Program, LTV
Steel Group Employee Stock Ownership Plan, Non-Employee Directors' Equity
Compensation Plan, The Hourly Employee Stock Payment Alternative Plan and
Non-Qualified Stock Option Plan for Certain Key Executives of Continental Emsco
Company, respectively, of The LTV Corporation of our report dated January 25,
1996, with respect to the consolidated financial statements of The LTV
Corporation incorporated by reference in the Annual Report (Form 10-K) for the
year ended December 31, 1995.
ERNST & YOUNG LLP
Cleveland, Ohio
February 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 266
<SECURITIES> 457
<RECEIVABLES> 413
<ALLOWANCES> 17
<INVENTORY> 743
<CURRENT-ASSETS> 1,870
<PP&E> 3,658
<DEPRECIATION> 518
<TOTAL-ASSETS> 5,380
<CURRENT-LIABILITIES> 847
<BONDS> 0
<COMMON> 53
0
1
<OTHER-SE> 1,321
<TOTAL-LIABILITY-AND-EQUITY> 5,380
<SALES> 4,283
<TOTAL-REVENUES> 4,283
<CGS> 3,621
<TOTAL-COSTS> 4,015
<OTHER-EXPENSES> (54)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 311
<INCOME-TAX> 117
<INCOME-CONTINUING> 194
<DISCONTINUED> 9
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.68
</TABLE>
