<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, 1997 Commission File Number 1-4368
----------------
THE LTV CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1070950
(State or other jurisdiction of incorporation) (I.R.S. Employer
200 Public Square Identification Number)
Cleveland, Ohio 44114-2308
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (216) 622-5000
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $0.50 New York Stock Exchange
Series A Warrants New York Stock Exchange
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 $ 1.15 Billion
(As of February 11, 1998)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
99,814,787 shares of Common Stock
(As of February 11, 1998)
Documents Incorporated by Reference: Annual Report to Shareholders for fiscal
year 1997 (Part II); Annual Proxy Statement for 1998 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 200 Public Square, Cleveland, Ohio
44114-2308 and its telephone number is (216) 622-5000. LTV and its subsidiaries
are collectively referred to herein as "LTV" or the "Company" unless the context
otherwise requires.
LTV is a leading integrated steel producer that manufactures and sells
coated sheet and cold rolled and hot rolled sheet and strip, as well as tubular
and tin mill products and, beginning in July 1997, metal building systems. LTV
is engaged in the steel industry principally through its subsidiary, LTV Steel
Company, Inc. ("LTV Steel"). Based on 1997 shipments (as compiled by LTV based
primarily on publicly filed data), LTV believes it is the third largest domestic
integrated steel producer, the second largest producer of flat rolled steel and
a leading supplier of quality-critical, flat rolled steel to the domestic
transportation, appliance and electrical equipment industries in the United
States. LTV operates two domestic integrated steel mills (Cleveland Works and
Indiana Harbor Works) and various finishing, galvanizing and processing
facilities, as well as tubular, tin mill and metal buildings operations.
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
Acquisition of Metal Buildings Business
On July 2, 1997, a wholly-owned subsidiary of the Company, acquired the
Varco-Pruden metal buildings division ("VP Buildings") of United Dominion
Industries, Inc. for approximately $188 million. VP Buildings, the second
largest domestic participant in the growing metal buildings industry, engineers
and manufactures non-residential, low-rise steel building systems for
manufacturing, warehousing, school and commercial applications. In 1997, VP
Buildings had revenues of $321 million ($177 million under LTV ownership).
New Tubular Facility
In August 1997, the Company announced its intention to build a new
tubing manufacturing facility in Marion, Ohio at an initial project cost of
approximately $66 million. The facility will manufacture high-quality tubing for
the automotive mechanical tubing market, including for the manufacture of
hydroformed parts. The automotive mechanical tubing market is expected to grow
as automobile manufacturers increase their use of tubular products in order to
reduce the weight of vehicles and the cost of vehicle construction. The
facility, which is scheduled to begin operations in late 1998, is expected to
have a processing capacity of 146,000 tons of steel annually.
-1-
<PAGE> 3
Shutdown of Pittsburgh Coke Plant
In July 1997, the Company announced its intention to close permanently
its Pittsburgh coke and by-product plant. The Company's plan regarding closure
of the plant resulted in a special charge recorded against income in the third
quarter of 1997 of $150 million.
In August 1997, the United Steelworkers of America ("USWA") filed a
grievance that resulted in binding arbitration under its labor agreement with
the Company, alleging that the Company's actions relating to the Pittsburgh
coke plant violated a local agreement. The arbitrator's decision on January 12,
1998 upheld the Company's positions in the arbitration proceedings that it is
not required to spend "major construction or rehabilitation" funds to keep the
plant operating and that the Company has in the past properly maintained the
plant to the extent required by the local agreement. The Company continues to
believe that only a complete $400 to $500 million pad-up rebuild would restore
the plant's operational capabilities, and the arbitrator has clearly ruled that
such action is not required under the labor agreement. The arbitrator did find,
however, that the local agreement required the Company to submit an
environmental remediation proposal to the United States Environmental
Protection Agency ("EPA") proposing maintenance type actions which would at
least attempt to address a Notice of Violation ("NOV") issued by the EPA in
March 1997, and which, if accepted by the EPA, would allow the continued
operation of the plant. In requiring the Company to make such a proposal to the
EPA, the arbitrator conceded that, "Such a proposal would not be a 'compliance
plan' in the formal sense because it cannot reasonably be projected that such
maintenance actions can lead to full compliance."
The Company submitted a proposal to the EPA based on the arbitrator's
decision in January. The submission was later amended in February pursuant to a
subsequent decision by the arbitrator. On February 13, 1998 the EPA stated that
the operating and maintenance proposal submitted by the Company "would not
result in sustainable compliance with Allegheny County State Implementation
Plan at the facility and, therefore, is inadequate." The Company announced on
February 13, 1998 that it will curtail production and begin the plant closure
process.
Also, in January 1998, LTV Steel received a notice that the Group
Against Smog and Pollution intends to commence a civil action against LTV Steel
alleging various past and on-going violations of applicable air emission
standards in connection with the operation of the Pittsburgh coke and by-product
plant.
FORWARD LOOKING STATEMENTS
Item 1. Business, Item 2. Properties and Item 3. Legal Proceedings of
this report include forward-looking statements. The use of the words "outlook,"
"anticipates," "believes," "estimate,"
-2-
<PAGE> 4
"expect" and similar words are intended to identify these statements as forward
looking. These statements represent the Company's current judgment on what the
future holds. While the Company believes them to be reasonable, a number of
important factors could cause actual results to differ materially from those
projected. These factors include relatively small changes in market price or
market demand; changes in domestic capacity; changes in raw material costs;
increased operating costs; loss of business from major customers, especially for
high value-added product; unanticipated expenses; substantial changes in
financial markets; labor unrest; unfair foreign competition; major equipment
failure; unanticipated results in pending legal proceedings or difficulties in
implementing information technology, including Year 2000 compliant systems.
INDUSTRY SEGMENTS
In 1997, the Company operated in a single industry segment--steel.
Financial Accounting Standard's Board Statement No. 131, which becomes effective
for year-end 1998, revises the requirements for segment reporting. LTV is
currently evaluating the effect of this pronouncement on its financial statement
disclosure.
STEEL OPERATIONS
STEEL MILL PRODUCTS
During the years 1997, 1996 and 1995, LTV's operations accounted for
7.8%, 8.0% and 8.2%, 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: 1997-8,173,000; 1996-8,080,000 and 1995-7,961,000.
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,
-----------------------
(DOLLARS IN MILLIONS)
1997 1996 1995
REVENUE REVENUE REVENUE
------- ------- -------
<S> <C> <C> <C>
Hot and cold flat rolled products $2,036 $2,017 $2,146
Galvanized products 1,230 1,203 1,221
Tin mill products 502 453 449
Tubular products 360 319 314
VP Buildings and all other 318 143 153
------ ------ ------
Total $4,446 $4,135 $4,283
</TABLE>
Hot and cold rolled and galvanized product are used in the manufacture
of 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.
Demand for hot and cold flat rolled products and galvanized products
was strong during the three years shown due to strength in the U.S. economy. LTV
realized increases in steel prices in 1994 through the first half of 1995.
During the second half of 1995, however, flat rolled steel prices declined,
-3-
<PAGE> 5
recovering only partially during the latter half of 1996 and in 1997. Shipments
of electrical conduit tubular product continued strong during the three years
due to strength in the construction market. Shipments of tubular and tin mill
products increased in 1997 over the 1996 period due to continued strength in
tubular and tin mill markets and a tin mill product outage at a competitor.
Shipments of electric weld pipe products recovered in 1996 from the depressed
levels in prior years and such recovery continued in 1997.
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,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Capability (net tons in thousands)
LTV 8,400 8,400 8,300
Industry(b) 121,400 116,100 112,500
Percent of industry 6.9% 7.2% 7.4%
Production (net tons in thousands)
LTV 8,900 8,780 8,460
Industry(b) 107,500 104,400 104,900
Percent of industry 8.3% 8.4% 8.1%
Production as a percentage of capability
LTV(a) 106.0% 105.0% 102.0%
Industry(b) 88.5% 89.9% 93.3%
</TABLE>
(a) The Company follows industry standards in calculating its maximum
operating rate which is based on 95% of blast furnace capacity, which
recognizes the average effect of blast furnace relines.
(b) 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
1997. A net ton is 2,000 pounds.
LTV produces its steel 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 has
supplemented its own steel production in recent years with purchases of
semi-finished steel. In 1997, 1996 and 1995, LTV purchased approximately 322,000
tons, 168,000 tons and 279,000 tons, respectively, of semi-finished slabs from
other domestic and foreign 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.
-4-
<PAGE> 6
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,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Steel service centers 27% 32% 29%
Transportation 24 22 25
Converters and processors 18 16 14
Electrical, agricultural and other machinery 10 10 9
Household appliances and office equipment 6 6 6
Containers and packaging 8 7 6
Construction 5 5 5
Exports 2 2 5
All other --- --- 1
----- ----- -----
Total 100% 100% 100%
</TABLE>
Direct sales to General Motors, the Company's largest customer,
accounted for approximately 11%, 11% and 12% of the Company's steel-related
sales in 1997, 1996 and 1995, respectively.
SALES AND MARKET DISTRIBUTION
Approximately 60% of LTV's steel products are sold under long-term
sales arrangements, most of which are negotiated on an annual basis. Almost all
of LTV's flat rolled steel sales to its larger customers in the transportation,
appliance, electrical equipment and food and beverage can markets are made
pursuant to such sales arrangements. LTV's sales arrangements generally provide
for set prices for the products ordered during the period they are in effect. As
a result, LTV may experience a delay in realizing price changes related to its
long-term business. Much of the remainder of LTV's flat rolled product is sold
under contracts covering shorter periods at the then prevailing market prices
for such product.
The Company's flat rolled sales organization is located at LTV's
headquarters. Employees performing commercial, marketing and customer service
functions are organized along market lines. LTV also maintains regional offices
for flat rolled sales functions. Tubular products are sold through a separate
sales organization divided into four regions and through independent sales
representatives.
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 serve 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 Japanese companies.
LTV's export sales of steel product were 2.2% of total dollar steel
sales in 1997, 2.1% in 1996 and 4.2% in 1995.
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
-5-
<PAGE> 7
sometimes can be substituted for flat rolled carbon steel in manufactured
products. The primary factors that 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 customer service,
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.
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. The intensity of foreign competition is
affected by the relative strength of foreign economies and fluctuations in the
value of the U.S. dollar against foreign currencies. Steel imports may increase
in the future due to the rise in the value of the dollar in relation to certain
foreign currencies and a weakening of certain economies in Asia and in Pacific
Rim countries. Further, many foreign steel producers are owned, controlled or
subsidized by their governments. Decisions by such 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.
Based on AISI reports, imports of flat rolled products increased
significantly during each of the last two years. Based on AISI reports, during
the three years 1997, 1996 and 1995, imports of steel mill products totaled
approximately 29 million (eleven months), 29 million and 24 million net tons,
respectively, or approximately 24% of total domestic steel consumption in 1997
(eleven months), approximately 23% in 1996 and 21% in 1995. Of this amount, 6
million net tons (eleven months) or 21% of the imports in 1997 compared with 8
million net tons in 1996 and 5 million tons in 1995 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 38% of the market in 1997 (eleven months), 34% in 1996
and 35% in 1995. Flat rolled imports (including tin mill products) comprised 19%
of the flat rolled market in 1997 (eleven months), 17% in 1996 and 16% in 1995.
Recent economic volatility and currency devaluations in Asia may result in
further increases in the levels of imports of steel product into the U.S. 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.
Domestic
LTV also competes with other domestic integrated producers, some of
which have greater resources than the Company, and 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. 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. 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 5% by the
end of 2000 as new mini-mills, now under construction, engaged in start-up
operations or otherwise proposed, begin operation. See "Item 2. Properties-Joint
Ventures" for information regarding LTV's 50% participation in Trico Steel, a
new mini-mill joint venture.
-6-
<PAGE> 8
TRADE CASES
United States Trade Cases
As a result of the 1992 filing of numerous anti-dumping and
countervailing duty cases by United States steel producers, including LTV Steel,
there are orders imposing dumping and countervailing duties on imports of cold
rolled steel coils from three countries and on coated steel coils from six
countries. For the most part, these additional duties have reduced the volume of
imports of the dutiable products from these countries. The orders under which
these additional duties have been imposed will remain in effect until changed as
a result of a periodic "Administrative Review," which would consider the
appropriateness of the existing duty margin, or by an order following a "Sunset
Review." Sunset Reviews of the orders will begin in 1999. Under the Sunset
Review provisions, dumping and countervailing duties will be eliminated unless
it is determined that revocation of the order is likely to lead to a
continuation or recurrence of dumping or countervailable subsidies and a
continuation or recurrence of injury to United States steel producers. There are
no dumping or countervailing duties on imports of hot rolled steel coils or hot
rolled plate-in-coil products.
In 1997, anti-dumping cases on imports of cut-to-length carbon steel
plate from four countries were decided in favor of the United States steel
industry. Pursuant to suspension agreements entered into as part of these
proceedings, the volumes and/or prices of imports from these four countries will
be tightly controlled. Such products comprised less than 1% of the revenues of
the Company in 1997.
Canada and Mexico Trade Cases
In Canada, dumping duties have been imposed on LTV Steel exports of
cold rolled steel coils and hot dipped galvanized steel coils, except for hot
dipped galvanized steel used for exterior auto bodies, that are sold to Canadian
customers. Canadian administrative reviews have established "normal values" for
the dutiable LTV Steel products exported to Canada. "Normal value" is the price
at which goods can be sold without incurring dumping penalties.
In Mexico, dumping duties were established for LTV Steel on hot rolled
steel and plate-in-coil exports. However, the Mexican courts have found that
these dumping duties were imposed illegally. The decisions voiding the dumping
duties have been appealed by the Mexican government, and LTV Steel and other
importers of record must continue to post a bond to cover possible dumping
duties in the event these decisions are reversed by an Appellate Court.
Because the total LTV Steel shipments of these products to Canada and
Mexico are relatively small, these duties should have an insignificant effect on
the Company's results of operations.
EMPLOYEES AND LABOR MATTERS
As of December 31, 1997, LTV had approximately 15,500 active employees.
Approximately 11,100 active employees, primarily hourly workers, are represented
by unions. Of these employees, approximately 10,200 are represented by the
USWA.
In June 1994, the Company and the USWA entered into a labor agreement
(the "Labor Agreement") which expires on August 1, 1999. The USWA's labor
agreements with several other domestic integrated steel producers also expire on
August 1, 1999.
-7-
<PAGE> 9
In September 1997, USWA-represented employees ratified new labor
agreements covering approximately 230 USWA-represented employees at LTV's two
electro-galvanizing joint ventures which expire on August 1, 1999.
See "Significant Developments--Shutdown of Pittsburgh Coke Plant" for
information regarding the Company's labor dispute with the USWA concerning the
shutdown of the plant.
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 transportation, 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 has a product application office 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 million in 1997
and $15 million in 1996 and 1995. These expenditures do not include the efforts
of sales and manufacturing employees in working to meet customer technical
demands.
ENVIRONMENTAL LIABILITIES
LTV is subject to changing and increasingly stringent environmental
laws and regulations concerning air emissions, water discharges and waste
disposal.
The Company spent approximately $32 million in 1997 and $27 million in
1996 for compliance-related capital expenditures and expects to spend an average
of approximately $35 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, however, 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 $16 million in 1997 and $18
million during 1996 for environmental clean-up and related matters at operating
and idled facilities and had a recorded liability of $154 million at December
31, 1997 (including costs related to the planned closure of the Pittsburgh coke
and by product plant) and $84 million at December 31, 1996 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
-8-
<PAGE> 10
the discussion of "Environmental Liabilities and Related Costs" included in
Management's Discussion and Analysis included in the Company's 1997 Annual
Report to Shareholders which is incorporated herein by reference.
EPA AND STATE ENVIRONMENTAL SETTLEMENT AGREEMENTS
At the time of the Company's reorganization, the EPA, several states
and the Company entered into settlement agreements which resolved, or provided
a mechanism for resolving, environmental claims arising from prior activities
at previously owned Company properties and superfund sites. However,
environmental claims relating to property owned by the Company on or after the
date of reorganization were not affected, and 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.
YEAR 2000 ISSUES
As is the case with most other companies using computers in their
operations, the Company is faced with the task of addressing the Year 2000
problem during the next two years. The Company is currently engaged in a
comprehensive project to upgrade its computer software in its information
technology, manufacturing and facilities systems to programs that will be Year
2000 compliant. In addition, over a two-year period, the Company currently
estimates that it will expense approximately $55 million related to Year 2000
compliant work. Approximately $8 million was expensed in 1997. LTV expects to
be Year 2000 compliant in early 1999. Failure by the Company and/or vendors
working on this project to complete the Year 2000 compliance work in a timely
manner could have a material adverse effect on the Company's operations.
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 58 Chairman of the Board and Chief Executive Officer
J. Peter Kelly 56 President and Chief Operating Officer
James F. Haeck 51 Senior Vice President-Commercial
Richard J. Hipple 45 Senior Vice President-Purchasing, Engineering and Strategic Planning
Arthur W. Huge 52 Senior Vice President and Chief Financial Officer
Glenn J. Moran 50 Senior Vice President, General Counsel and Secretary
Richard A. Veitch 57 Senior Vice President-Flat Rolled Operations
George T. Henning 56 Vice President and Controller
John C. Skurek 53 Vice President and Treasurer
</TABLE>
* As of December 31, 1997.
OFFICERS
The only employees of LTV and its subsidiaries who are also directors
of LTV are Mr. Hoag, Chairman of the Board and Chief Executive Officer of LTV
and Mr. Kelly, President and Chief Operating Officer of LTV.
-9-
<PAGE> 11
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
Chief Executive Officer of LTV since February 1991. He was also President of LTV
from February 1991 until July 1997. 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), Karrington Health, Inc. and The Chubb
Corporation (insurance).
Mr. Kelly became President and Chief Operating Officer and a director
of LTV in July 1997. Prior thereto, since February 1991, he was a Group Vice
President of LTV. He has been President and a director of LTV Steel since
February 1991 and Chief Operating Officer of LTV Steel since January 1993. He
also serves as a director of National City Bank.
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, Vice President and General Manager of Cleveland Works and Vice
President and General Manager of Tubular Products at LTV Steel.
Mr. Hipple was elected Senior Vice President-Purchasing, Engineering
and Strategic Planning of LTV in February 1997. Prior thereto, from January
1996, he served as Vice President-Purchasing, Engineering and Strategic Planning
of LTV. 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. 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 for the
last five years as Vice President and Group Counsel 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.
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. 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.
ITEM 2. PROPERTIES.
CORPORATE HEADQUARTERS
LTV's corporate headquarters is in Cleveland, Ohio and occupies 238,000
square feet under a lease expiring in 2011. The lease provides LTV three
consecutive five-year renewal 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 last five years,
the Company has spent approximately $1.3 billion to modernize and upgrade these
core facilities.
-10-
<PAGE> 12
The Cleveland Works at Cleveland, Ohio produces a variety of flat
rolled products. Major facilities include three blast furnaces, two basic oxygen
furnaces, two continuous slab casters, one vacuum degassing and two ladle
metallurgy systems, two hot strip mills, two cold reducing mills, a continuous
anneal line, three 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 two blast furnaces, a basic
oxygen furnace, two continuous slab casters, a vacuum degassing and ladle
reheating system, a hot strip mill, a cold reducing mill, two sheet finishing
facilities, two 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 113% of capacity during 1997.
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 currently operates coke batteries in
Chicago, Illinois 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).
Electro-Galvanizing Lines
LTV owns 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, is located at LTV's Cleveland Works. The line produces
one-sided and two-sided zinc-coated flat rolled steel products and has an annual
capacity of approximately 420,000 tons of coated products. The second line,
located in Columbus, Ohio and involving a joint venture that 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. Substantially all 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 venture. The two
electro-galvanizing lines operated at a combined rate of 84% of capacity during
1997.
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, connected to the Pittsburgh coke plant
(which is being shut down); 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
except for the Pittsburgh coke and by-product plant which is being shut down.
See Item 1.
-11-
<PAGE> 13
Business-Significant Developments - Shutdown of Pittsburgh Coke Plant for
information regarding the Company's labor dispute with the USWA concerning its
previously announced shutdown of the plant.
USWA Collateral Arrangement
LTV has agreed with the USWA to grant liens on property with an
appraised value of $500 million 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.
Pursuant to such agreement, LTV has granted liens on certain plant, property and
equipment at its Cleveland Works and a royalty free license or sublicense with
respect to intellectual properties used in connection with the manufacture of
products at such facilities.
RAW MATERIALS
Iron Ore
LTV owns interests in two iron ore mining operations. LTV's share of
production at these mines during 1997 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, 1998, 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 455 million 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 1997, and 1997
activity, were as follows:
<TABLE>
<CAPTION>
PROVEN 1997
NET ANNUAL SHARE OF DELIVERIES
INTEREST IN IRON ORE 1997 TO STEEL
RESERVES(a) CONTENT ENTITLEMENT PRODUCTION PLANTS(b)
----------- ------- ----------- ---------- ---------
(GROSS TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Properties:
LTV Steel Mining Company(c) ............... 413,000 64% 7,500(c) 7,709 7,231
Empire Iron Mining Partnership(d).......... 42,250 64% 2,000 2,071 2,042
------- ------- ------- -------
Total Properties ............................... 455,250 9,500 9,780 9,273
<FN>
(a) LTV's ownership interest in reserves is stated in gross tons of
concentrates or pellets.
(b) "1997 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 1997 totaled 1,333,333 gross tons.
</TABLE>
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 the Empire Iron Mining operations either
through cash advances or purchases of ore at market prices.
-12-
<PAGE> 14
During 1997, the average blast furnace charge consisted of
approximately 89% pellets and 11% sinter. During 1997, 92.8% 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 produced 75% of its coke requirements during 1997 and expects to
produce 38% of its anticipated requirements for 1998 at its owned coke
batteries. The operational life of LTV's batteries located at Warren, Ohio and
Chicago, Illinois could be adversely affected by increasingly stringent
environmental regulations or their inability to continue to meet existing
environmental standards. LTV currently is in the process of shutting down
its coke plant in Pittsburgh, Pennsylvania. LTV anticipates, however, that its
internal coke supply, together with coke purchased from third parties
(approximately 65%), will meet substantially all of its near-term coke
requirements. See Item 1. Business--Significant Developments-- Shutdown of
Pittsburgh Coke Plant for information regarding the Company's labor dispute
with the USWA concerning the Company's shutdown of the plant. Also see Item 1.
Business -- Significant Developments and Item 3. Legal Proceedings for
information relating to existing and threatened environmental proceedings
involving the Company's coke batteries.
Energy
The Company uses substantial amounts of electricity, natural gas, fuel
oil and coal, particularly in its steelmaking operations, all of which are
purchased at competitive or prevailing market prices. Adequate sources of supply
exist for all the Company's 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 128,196,000 gross tons as of
December 31, 1997. In 1997, LTV used approximately 485,000 gross tons of
limestone from Presque Isle and other sources in its steelmaking operations. LTV
owns a burnt lime processing plant at Grand River, Ohio, which processes
limestone from Presque Isle and other sources into burnt lime. In 1997,
approximately 41% of the 333,000 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 three 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.
-13-
<PAGE> 15
METAL BUILDING OPERATIONS
On July 2, the Company acquired the Varco-Pruden metal buildings
division ("VP Buildings") of United Dominion Industries, Inc. See "Item 1
Business-Significant Developments." VP Buildings is a leading United States
manufacturer of metal building systems. It designs and manufactures metal
building systems at eight domestic locations and markets them through
approximately 1,000 builders and distributors in the United States and Canada,
and directly to large national and international accounts. VP Buildings competes
generally in the low-rise, commercial, industrial and warehouse construction
market.
The operation has a national presence, with 1997 sales of approximately
$321 million ($177 million under LTV ownership), representing approximately 13%
of total domestic sales by members of the Metal Building Manufacturers
Association ("MBMA"). LTV believes, based on MBMA data, that VP Buildings has
the second largest market share in the domestic industry. VP Buildings also has
metal building systems production joint ventures or licensing arrangements in
China, Brazil, Argentina, South Korea, Japan, Spain and Egypt.
Metal buildings are typically custom designed or pre-engineered, one to
two story metal buildings for commercial, community, industrial and agricultural
uses, such as office buildings, aircraft hangars, manufacturing facilities,
warehouses, schools, shopping centers, churches and farm buildings. Principal
metal building systems components are primary structural members, secondary
structural components and a variety of wall and roof components. The components
are fabricated according to specifications and shipped to building sites for
assembly by independent builders.
Generally, metal building systems offer a cost advantage over
conventional construction methods (e.g., structural steel, wood structures,
concrete/masonry, etc.) in the low-rise, non-residential segment of the market.
Steel building systems can be erected faster and, in some instances, are more
versatile than conventionally constructed buildings. In addition, they have low
maintenance requirements and high thermal efficiency when compared to concrete,
wood and conventional steel methods of construction. The current desire for a
replicated building approach (e.g., warehouse stores, fast food outlets and
service stations) also favors metal building systems.
Metal buildings compete with conventional forms of non-residential
building construction, with competition primarily based on cost, construction
time, appearance, thermal efficiency and other customer requirements. VP
Buildings also competes with numerous other metal building systems
manufacturers. The largest five such manufacturers (including VP Buildings)
account for approximately 70% of industry sales, according to MBMA. Competition
among metal building systems companies is based primarily on price, service,
product design and performance, and marketing capabilities.
Metal building systems components are manufactured by VP Buildings at
plants located in Alabama, Arkansas, California, Missouri, North Carolina, Ohio,
Texas and Wisconsin. VP Buildings is a major user of flat rolled steel, but is
not currently a customer of LTV Steel. VP Buildings has developed a proprietary
software system intended to significantly improve the ability of customers to
develop engineering designs, obtain immediate pricing and order various building
design configurations.
As of December 31, 1997, VP Buildings had approximately 1,800 active
employees. Approximately 480 active employees are represented by the teamsters
union or by the sheet metal workers union. The Company's labor agreement with
the teamsters union is scheduled to expire at year-end 1999, and the Company's
two labor agreements with the sheet metal workers union are scheduled to expire
in April 1998 and January 2000, respectively. The USWA has been engaged in an
organizing effort to represent non-management employees at certain plants of VP
Buildings. The USWA has recently secured representation rights for
non-management hourly plant employees at the Evansville, Wisconsin plant.
-14-
<PAGE> 16
JOINT VENTURES
LTV also participates in a number of joint ventures (in addition to
Presque Isle, Empire Iron Mining Partnership and the two joint ventures
involving two electro-galvanizing lines described above), the largest of which
involve international partners and are described below.
Minimill. The Company through a subsidiary owns a 50% interest in a new
minimill, Trico, in Decatur, Alabama, which began commercial operations in the
second quarter of 1997. The joint venture, which is also owned 25% each by
subsidiaries of Sumitomo and British Steel, produces commercial and higher
quality hot rolled steel. While the melt shop has experienced some problems that
have negatively affected throughput during the start up curve, the minimill is
still expected to be fully operational in 1998. When fully operational, the
minimill, which will include a pickle line currently under construction, is
expected to have an annual capacity of 2.2 million tons. The steel produced by
Trico is sold by a sales force of a wholly-owned subsidiary of LTV which is
dedicated solely to the sale of Trico product. The Trico investment is expected
to provide LTV and its partners with a low cost, modern facility and improved
market access to the southeastern portion of the United States.
Reduced Iron Facility. This international joint venture with
Cleveland-Cliffs Inc and Lurgi AG was formed to construct and operate a facility
in the Republic of Trinidad and Tobago to produce reduced iron briquettes (a
substitute for steel scrap) for use in electric furnace steelmaking operations.
The joint venture, Cliffs and Associates Limited, is 46.5% owned by a subsidiary
of LTV with the remainder owned by subsidiaries of Cleveland-Cliffs Inc (46.5%)
and Lurgi AG (7%). The project, which will utilize the new CIRCORED(R) process,
is expected to have an annual capacity of 500,000 metric tons. The cost of
construction is expected to aggregate approximately $160 million. Site
preparation activities began in late 1996, and production is scheduled to begin
in the fourth quarter of 1998. The facility will be operated by Cliffs Reduced
Iron Management Company, a subsidiary of Cleveland-Cliffs Inc.
Tailor Welded Blanking Venture. In 1997, the Company also acquired an
approximate 11% interest in a tailor welded blanking operation in Monroe,
Michigan which adds value to product sold to domestic automotive customers. The
operation uses new technology to weld together two or more steel blanks which
may be of different grade or thickness. Other partners in the venture are
Worthington Industries, Inc., Thyssen Krupp A.G. and two domestic steel
producers.
Mexican Steel Processing Venture. In 1997, LTV acquired a 25% interest
in Lagermex, a joint venture to construct and operate an automotive steel
processing and blanking operation in Puebla, Mexico. Thyssen Krupp A.G. has a
65% interest in the venture, with the remaining 10% owned by management. The
venture is intended to supply to Volkswagen de Mexico and its parts suppliers
in Puebla inventory, management, slitting and blanking products and services
required to produce the plant's steel stampings.
LTV continues to study opportunities to invest in domestic and
international growth opportunities with attractive profit potential, including
opportunities designed to support and enhance its core business. A number of the
joint venture opportunities that the Company has pursued, however, are start-up
operations and require significant investments before becoming operational. The
development, construction and start-up of such operations are themselves subject
to numerous risks. After start-up, further investments may be required and
significant losses could be incurred before any profits are realized.
-15-
<PAGE> 17
PROPERTY ADDITIONS AND CAPITAL EXPENDITURES
Capital expenditures and depreciation and amortization for the periods
indicated are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Capital Expenditures....................... $326 $243 $205
Depreciation and Amortization.............. $263 $266 $252
</TABLE>
The expenditures during 1997, 1996 and 1995 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. During this three year period, the Company also made
substantial expenditures for the development of a new information systems
project to support the Company's business processes. LTV is currently engaged in
the implementation phase of the project which is expected to extend through
April 1999 and will require substantial additional funds in 1998 and 1999 as LTV
integrates its information technology. All existing and future information
systems supporting these business processes are being maintained by outside
information systems providers under a long-term contract. LTV also made
investments in affiliates in steel related businesses totaling $101 million in
1997, $79 million in 1996 and $89 million in 1995 primarily for construction.
Capital spending for environmental control projects constructed during 1997,
1996 and 1995 was $32 million, $27 million and $19 million, respectively.
Capital expenditures in 1998 are expected to aggregate approximately
$400 million, which include the cost of a blast furnace reline at Indiana Harbor
and the construction of the new tubular mill in Marion, Ohio.
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."
Environmental Proceedings
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 and Illinois or their state and local environmental
agencies for alleged violations of various federal, state and local
environmental laws and regulations. The Company has accrued for losses and
costs associated with these actions that are probable and estimable or
otherwise provided for studies which will provide a basis for estimation.
-16-
<PAGE> 18
EPA - Cleveland Works. In February 1997, LTV Steel received a Notice of
Violation ("NOV") issued by the EPA alleging violations of certain air emission
standards at three of its blast furnaces, the precipitator stacks at a basic
oxygen furnace shop and a boiler located at LTV Steel's Cleveland Works. The NOV
alleges numerous violations over various periods of time extending in some cases
as far back as 1992. LTV Steel is subject to a maximum statutory penalty of
$27,500 per day for each violation.
EPA - Pittsburgh Coke Plant. In October 1997, the Company was notified
that the EPA had recommended that a lawsuit be filed by the U.S. Department of
Justice in federal court against LTV Steel alleging past violations at the
Company's Pittsburgh Coke Plant of particulate matter emission limits under the
Clean Air Act. The EPA indicated that the government would seek both injunctive
relief to prevent future violations and substantial civil penalties and that it
would be willing to enter into settlement negotiations with the Company. LTV
Steel is subject to a maximum statutory penalty of $27,500 per day for each
violation. The Company currently is in the process of shutting down the
Pittsburgh Coke Plant. See Item 1. Business-Significant Developments-Shutdown
of Pittsburgh Coke Plant for information regarding the Company's labor dispute
with the USWA concerning its shutdown of the plant as well as a civil action
under the Clean Air Act that might be brought against LTV Steel by a local
environmental group alleging violations of applicable emission standards in
connection with the operation of the plant.
State of Indiana. In April 1995, LTV Steel received a NOV issued by the
Indiana Department of Environmental Management ("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 NOVs to LTV Steel relating to basic oxygen furnace
("BOF") precipitator stack emissions and fugitive emissions from the BOF roof
monitors at the Indiana Harbor Works. The NOVs have been resolved pursuant to an
Agreed Order entered into between LTV Steel and IDEM. The Order provides for a
civil penalty of $426,750, all but $85,350 of which will be satisfied by the
construction of certain environmental projects. In addition, LTV Steel is
required to demonstrate compliance through July 1, 1998 with applicable air
quality standards at the BOF roof monitors or install further controls if
compliance is not demonstrated.
In November 1996, IDEM and the United States Department of Interior
informed the Company and 15 other companies of their intent to perform a
National Resource Damage Assessment ("NRDA") of the Grand Calumet River System.
Each of the 16 entities was asked to contribute an unspecified amount of funding
for the study, which will cover a significant area that has been used for
industrial purposes for over a century. No cost estimate or schedule for
implementation of the study has been provided. IDEM also indicated that the
Company has been identified as a potentially responsible party in connection
with the release of hazardous substances and oil and the subsequent damages
resulting from natural resource injury. Because of the preliminary nature of
this matter, the Company is unable to predict whether any action might be
recommended or required as a result of this study or the potential cost to the
Company of any such action. In addition, the Army Corps of Engineers is planning
to dredge sections of the Grand Calumet River and may seek permission to dispose
of contaminated river sediments from the area that is the subject of the NRDA
study. Preliminary estimates of the cost of the dredging are approximately
$90-$160 million. The Company has not been asked to contribute to the cost of
the project.
State of Illinois. After notifying the Illinois EPA ("IEPA") of two
separate deposits of hazardous wastes discovered at LTV Steel's Chicago plant,
LTV submitted to IEPA remediation plans for clean-up at both sites. The Company
and the IEPA have reached an agreement on one of the
-17-
<PAGE> 19
remediation plans, which is expected to cost less than $3 million, and clean-up
work is nearing completion. The cost of the other plan, now being reviewed by
IEPA, is expected to be immaterial.
Joint Plan
Remaining Proceedings Relating to Status of Claims. Aetna Casualty and
Surety Company ("Aetna") filed 10 appeals to the United States District Court
for the Southern District of New York ("District Court") from various orders of
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"), including the order confirming the Joint Plan of
Reorganization (the "Joint Plan"). In some of these appeals, Aetna sought
priority for certain of its claims that were classified as general unsecured
claims under the Joint Plan of Reorganization, and, if Aetna had prevailed on
these appeals, Aetna would have sought 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. As of October 1997, all but three of these
matters had been resolved. In November 1997, after a series of meetings with a
court-appointed mediator, Aetna and the Company settled the three remaining
matters with a payment by LTV to Aetna of $2 million.
Patent Litigation
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's appeal to the Patent Office Board of
Appeals has been heard, and a decision by the Board of Appeals is pending.
Other
Also in 1996, LTV Steel filed an action in the U.S. Court of Federal
Claims seeking recovery of approximately $25 million in Federal Insurance
Contribution Act ("FICA") and Federal Unemployment Tax Act ("FUTA") taxes which
were paid by LTV Steel to the U.S. government during the period 1987 through
1993 in connection with certain pension make-up payments made to certain hourly
and salaried retirees. The Company's position is that these pension payments are
not subject to FICA and FUTA taxes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-18-
<PAGE> 20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
"Shareholders' Information" on the inside back cover, "Five Year
Financial Summary" on page 45, "Quarterly Financial Information" on page 46 and
"Liquidity and Financial Resources" on page 19 of the 1997 Annual Report to
Shareholders are incorporated herein by reference.
BY-LAW AMENDMENTS:
ADVANCE STOCKHOLDER NOTICE REQUIREMENTS AND OTHER PROVISIONS
LTV has provisions in its By-Laws intended to promote the efficient
functioning of its annual meetings. The provisions describe LTV's right to
determine the time, place and conduct of stockholder meetings, require advance
notice by mail or delivery to LTV of stockholder proposals or director
nominations for annual meetings and require persons wishing to conduct a
solicitation of written consents of stockholders or to call a special meeting of
stockholders to apply to the Board of Directors to set a record date for the
consent solicitation or to determine whether the requisite number of
stockholders desire to call a special meeting.
Under the By-Laws, stockholders must provide LTV with at least 60 days,
but no more than 90 days, notice prior to the announced Tentative Meeting Date
of (i) business the stockholder is proposing for consideration at that meeting
and (ii) persons the stockholder intends to nominate for election as directors
at that meeting.
The LTV Board of Directors has selected April 24, 1998 as the Tentative
Meeting Date for the next Annual Meeting of Stockholders. Accordingly,
stockholders who intend to propose business for consideration, or to nominate
persons for election as directors at the 1998 Annual Meeting, were required to
provide notice and the required information to the Company no earlier than
January 24, 1998 and no later than February 23, 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 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 IT 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.
-19-
<PAGE> 21
LTV's Board of Directors was required by Article Ninth of LTV's
Restated Certificate of Incorporation to consider during 1996 whether to waive
the transfer restrictions in Article Ninth with respect to all future transfers
of securities. At its October 1996 meeting, the Board of Directors, after
considering all relevant factors, determined not to waive Article Ninth at that
time.
ITEM 6. SELECTED FINANCIAL DATA.
"Five Year Financial Summary" on page 45 of the 1997 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 18 through 23 of the
1997 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 46 of the 1997 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
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 1998 Annual Meeting of Stockholders, which LTV
plans to file with the Commission in final form in early 1998, 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 1998 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
1998, 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 1998
-20-
<PAGE> 22
Annual Meeting of Stockholders, which LTV plans to file with the Commission in
final form in early 1998, 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 1998 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
1998, 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.
The response to this portion of Item 14 is submitted as a separate
section of this Report on page F-1.
(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
-21-
<PAGE> 23
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) - Amendments to LTV's By-Laws adopted on October 25, 1996
(incorporated herein by reference to Exhibit (3)-(1) to
LTV's Report on Form 10-Q for the quarter ended September
30, 1996)
(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) - 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)-(5) - 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)-(6) - 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)
(10)-(7) - 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)-(8) - 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)
-22-
<PAGE> 24
(10)-(9) - 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)-(10) - 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)-(11) - 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)-(12) - 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)-(13) - 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)-(14) - 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)-(15) - 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)-(16) - 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)
-23-
<PAGE> 25
(10)-(17) - 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)
(10)-(18) - 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)-(19) - 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)-(20) - 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)-(21) - 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)-(22) - 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)-(23) - 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)-(24) - 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)
-24-
<PAGE> 26
(10)-(25) - 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, NA, 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)-(26) - Open-2nd 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)-(27) - 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)-(28) - 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)
(10)-(29) - 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)-(30) - 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)-(31) - 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)-(32) - 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)-(33) - 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)
-25-
<PAGE> 27
(10)-(34) - 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)-(35) - 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)-(36) - 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)-(37) - 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)-(38) - 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)-(39) - 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)-(40) - 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])
(10)-(41) - 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)-(42) - 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)-(43) - 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])
-26-
<PAGE> 28
(10)-(44) - 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)-(45) - 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)-(46) - 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)-(47) - 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)-(48) - 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)-(49) - 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)-(50) - 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])
(10)-(51) - 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)-(52) - 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)
-27-
<PAGE> 29
(10)-(53) - 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)-(54) - 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 (incorporated herein
by reference to Exhibit (10)-(59) to LTV's Report on Form
10-K for the year ended December 31, 1995)
(10)-(55) - Amendment No. 5 dated as of November 15, 1995 to the
Letter of Credit Agreement dated as of October 12, 1994
among LTV, LTV Steel Company, Inc., Continental Emsco
Company, LTV Steel Mining Company, LTV Steel Tubular
Products Company, various financial institutions and BT
Commercial Corporation (incorporated herein by reference
to Exhibit (10)-(60) to LTV's Report on Form 10-Q for the
quarter ended March 31, 1996)
(10)-(56) - Amendment No. 6 dated as of February 14, 1996 to the
Letter of Credit Agreement dated as of October 12, 1994
among LTV, LTV Steel Company, Inc., Continental Emsco
Company, LTV Steel Mining Company, LTV Steel Tubular
Products Company, various financial institutions and BT
Commercial Corporation (incorporated herein by reference
to Exhibit (10)-(61) to LTV's Report on Form 10-Q for the
quarter ended March 31, 1996)
(10)-(57) - Amendment No. 7 dated as of June 30, 1996 to the Letter
of Credit Agreement dated as of October 12, 1994 among
LTV, LTV Steel Company, Inc., Continental Emsco Company,
LTV Steel Mining Company, LTV Steel Tubular Products
Company, various financial institutions and BT Commercial
Corporation (incorporated herein by reference to Exhibit
(10)-(61) to LTV's Report on Form 10-Q for the quarter
ended June 30, 1996)
(10)-(58) - The LTV Corporation Amended and Restated Non-Employee
Directors' Equity Compensation Plan adopted on November
22, 1996 (incorporated herein by reference to Exhibit
(10)-(58) to LTV's Report on Form 10-K for the year ended
December 31, 1996)
(10)-(59) - The LTV Corporation Amended and Restated Non-Employee
Directors' Deferred Compensation Plan adopted on November
22, 1996 (incorporated herein by reference to Exhibit
(10)-(59) to LTV's Report on Form 10-K for the year ended
December 31, 1996)
(10)-(60) - The LTV Corporation Amended and Restated Executive
Deferred Compensation Plan adopted on October 25, 1996
(incorporated herein by reference to Exhibit (10)-(60) to
LTV's Report on Form 10-K for the year ended December 31,
1996)
-28-
<PAGE> 30
(10)-(61) - Amendment No. 9 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 (incorporated herein
by reference to Exhibit (10)-(61) to LTV's Report on Form
10-K for the year ended December 31, 1996)
(10)-(62) - Amendment No. 10 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 (incorporated
herein by reference to Exhibit (10)-(62) to LTV's Report
on Form 10-Q for the quarter ended March 31, 1997)
(10)-(63) - Amendments Nos. 8, 9 and 10 to the Letter of Credit
Agreement dated as of October 12, 1994 among LTV, LTV
Steel Company, Inc., LTV Steel Mining Company, LTV Steel
Tubular Products Company, various financial institutions
and BT Commercial Corporation (incorporated herein by
reference to Exhibit (10)-(63) to LTV's Report on Form
10-Q for the quarter ended September 30, 1997
(10)-(64) - The LTV Change in Control and Severance Pay Plan I
(filed as Exhibit 10.1 to Amendment No. 1 to LTV's
Registration Statement on Form S-4 [Registration No.
333-40425])
(11) - Statement re Computation of Per Share Earnings (filed
herewith)
(13) - Portions of the 1997 Annual Report to Shareholders
incorporated into this Report by reference (filed
herewith)
(18) - Letter regarding change in accounting principles (filed
herewith)
(21) - List of subsidiaries (filed herewith)
(23) - Consent of Ernst & Young LLP (filed herewith)
(27) - Financial Data Schedule (filed herewith)
-29-
<PAGE> 31
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, as of the
17th day of February 1998.
THE LTV CORPORATION
By /s/ 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, February 17, 1998
- -------------------------- Chief Executive Officer and a Director
(David H. Hoag) (Principal Executive Officer)
/s/ ARTHUR W. HUGE Senior Vice President and Chief February 17, 1998
- -------------------------- Financial Officer
(Arthur W. Huge) (Principal Financial Officer and
Principal Accounting Officer)
/s/ GEORGE T. HENNING Vice President and Controller February 17, 1998
- --------------------------
(George T. Henning)
/s/ J. PETER KELLY President, Chief Operating Officer February 17, 1998
- -------------------- and a Director
(J. Peter Kelly)
/s/ EDGAR L. BALL Director February 17, 1998
- --------------------------
(Edgar L. Ball)
/s/ COLIN C. BLAYDON Director February 17, 1998
- --------------------
(Colin C. Blaydon)
</TABLE>
-30-
<PAGE> 32
<TABLE>
<S> <C> <C>
/s/ WILLIAM H. BRICKER Director February 17, 1998
- --------------------------
(William H. Bricker)
/s/ JOHN E. JACOB Director February 17, 1998
- --------------------
(John E. Jacob)
/s/ EDWARD C. JOULLIAN III Director February 17, 1998
- --------------------------
(Edward C. Joullian III)
/s/ M. THOMAS MOORE Director February 17, 1998
- --------------------------
(M. Thomas Moore)
/s/ HAROLD A. POLING Director February 17, 1998
- ---------------------------
(Harold A. Poling)
/s/ VINCENT A. SARNI Director February 17, 1998
- ---------------------------
(Vincent A. Sarni)
/s/ SAMUEL K. SKINNER Director February 17, 1998
- ---------------------------
(Samuel K. Skinner)
/s/ PAUL G. STERN Director February 17, 1998
- ---------------------------
(Paul G. Stern)
/s/ STEPHEN B. TIMBERS Director February 17, 1998
- ---------------------------
(Stephen B. Timbers)
/s/ FARAH M. WALTERS Director February 17, 1998
- ---------------------------
(Farah M. Walters)
</TABLE>
-31-
<PAGE> 33
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, as of the
17th day of February 1998.
THE LTV CORPORATION
By
----------------------
(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>
Chairman of the Board, February 17, 1998
- ---------------------------- Chief Executive Officer and a Director
(David H. Hoag) (Principal Executive Officer)
Senior Vice President and Chief February 17, 1998
- ---------------------------- Financial Officer
(Arthur W. Huge) (Principal Financial Officer and
Principal Accounting Officer)
Vice President and Controller February 17, 1998
- ----------------------------
(George T. Henning)
President, Chief Operating Officer February 17, 1998
- ---------------------------- and a Director
(J. Peter Kelly)
Director February 17, 1998
- ----------------------------
(Edgar L. Ball)
Director February 17, 1998
- ----------------------------
(Colin C. Blaydon)
</TABLE>
<PAGE> 34
<TABLE>
<S> <C> <C>
Director February 17, 1998
- ----------------------------
(William H. Bricker)
Director February 17, 1998
- ----------------------------
(John E. Jacob)
Director February 17, 1998
- ----------------------------
(Edward C. Joullian III)
Director February 17, 1998
- ----------------------------
(M. Thomas Moore)
Director February 17, 1998
- ----------------------------
(Harold A. Poling)
Director February 17, 1998
- ----------------------------
(Vincent A. Sarni)
Director February 17, 1998
- ----------------------------
(Samuel K. Skinner)
Director February 17, 1998
- ----------------------------
(Paul G. Stern)
Director February 17, 1998
- ----------------------------
(Stephen B. Timbers)
Director February 17, 1998
- ----------------------------
(Farah M. Walters)
</TABLE>
<PAGE> 1
Page 1 of 2
Exhibit (11)
THE LTV CORPORATION
Calculation of Basic Earnings Per Share (EPS)
(Dollar amounts in millions except for EPS)
(Share data in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
----------------------------- ----------------------------- ----------------------------
Shares Amount EPS Shares Amount EPS Shares Amount EPS
--------- --------- --------- ---------- --------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations $ 30 $ 109 $ 185
Preferred stock dividend requirements (2) (2) (2)
------- ------ -------
28 107 183
Weighted average share base:
Shares deemed issued pursuant to Joint Plan 60,413 60,413 60,409
Shares issued through public offerings 36,610 36,610 36,610
Shares issued upon exercise of Series A
Warrants and stock options 123 122 121
Shares repurchased pursuant to share
repurchase program (1,923) - -
Common Stock issued (or obligated to issue)
on June 28, 1994:
Common Stock held for issuance 3,328 3,328 3,328
Series A Preferred Stock 3,328 3,328 3,328
LTV Steel ESOP 1,494 1,494 1,498
IRS Settlement Agreement 65 65 65
--------- ---------- ----------
8,215 8,215 8,219
--------- ------- ---------- ------ ---------- -------
103,438 $ 28 105,360 $ 107 105,359 $ 183
========= ======= ========== ====== ========== =======
BASIC EARNINGS PER SHARE $ 0.27 $ 1.01 $ 1.73
======= ====== ======
</TABLE>
<PAGE> 2
Page 2 of 2
Exhibit (11)
THE LTV CORPORATION
Calculation of Dilutive Earnings Per Share (EPS)
(Dollar amounts in millions except for EPS)
(Share data in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
------------------------ ---------------------------- -------------------------
Shares Amount EPS Shares Amount EPS Shares Amount EPS
------- ------- ------ --------- ------- -------- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations $ 30 $ 109 $ 185
Preferred stock dividend requirements (2) (2) (2)
----- ------ ------
28 107 183
Weighted average share base:
Shares deemed issued pursuant to Joint Plan 60,413 60,413 60,409
Shares issued through public offerings 36,610 36,610 36,610
Shares issued upon exercise of Series A
Warrants and stock options 123 122 121
Shares repurchased pursuant to share
repurchase program (1,923) - -
Common Stock issued (or obligated to issue)
on June 28, 1994:
Common Stock held for issuance 3,328 3,328 3,328
Series A Preferred Stock 3,328 3,328 3,328
LTV Steel ESOP 1,494 1,494 1,498
IRS Settlement Agreement 65 65 65
-------- --------- ----------
8,215 8,215 8,219
-------- --------- ----------
Common Stock equivalent shares resulting from
outstanding Series A Warrants, Stock
Options and Restricted Stock 141 66 32
Common Stock issuable upon conversion of
Series B Preferred Stock (A) (A) 2,926 2 2,926 2
Common Stock issuable upon conversion of
Senior Secured Convertible Notes - - (B) - 5,128 5
-------- ----- --------- ------ ---------- ------
103,579 $ 28 108,352 $ 109 113,445 $ 190
======== ===== ========= ====== ========== ======
DILUTIVE EARNINGS PER SHARE $ 0.27 $ 1.01 $ 1.68
====== ====== =====
<FN>
(A) Shares are antidilutive in 1997.
(B) Senior Secured Convertible Notes are antidilutive in 1996. These Notes were
redeemed in 1997 and are not outstanding at year end.
</TABLE>
-34-
<PAGE> 1
Exhibit 13
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 1997 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 1997 Annual Report to Shareholders
is not deemed to be filed as part of this Form 10-K.
Reference Page
--------------
1997 Annual
Report to
Shareholders
Incorporated
by Reference
------------
Report of independent auditors................................ 44
At December 31, 1997 and 1996:
Consolidated balance sheet............................... 26-27
For the years ended December 31, 1997, 1996 and 1995:
Consolidated statement of income......................... 24
Consolidated statement of cash flows..................... 25
Consolidated statement of changes in equity.............. 28
Notes to consolidated financial statements.................... 29
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> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
The LTV Corporation ("LTV" or the "Company") manufactures and sells a
diversified line of carbon steel products consisting of hot rolled and cold
rolled sheet, galvanized, tin mill and tubular products and beginning in July
1997, metal building systems. 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, tubular and metal buildings
operations. The Company is a major supplier of flat rolled steel for the
domestic transportation, appliance and electrical equipment markets.
<TABLE>
<CAPTION>
Year Ended December 31,
RESULTS OF OPERATIONS ---------------------------
(in millions, except per share data) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales $ 4,446 $ 4,135 $ 4,283
Costs and expenses 4,227 3,962 3,972
Special charge 150 - -
------- ------- -------
Total 4,377 3,962 3,972
------- ------- -------
Income from continuing operations before income taxes 69 173 311
Income tax provision (primarily noncash taxes) 28 64 117
------- ------- -------
Income from continuing operations 41 109 194
Discontinued operations - - (9)
------- ------- -------
Income before items below 41 109 185
Extraordinary charge on early extinguishment of debt (4) - -
Cumulative effect of change in accounting for start-up costs (7) - -
------- ------- -------
Net income $ 30 $ 109 $ 185
======= ======= =======
Dilutive earnings per share from continuing operations $ 0.37 $ 1.01 $ 1.76
======= ======= =======
Dividends paid per common share $ 0.12 $ 0.09 $ -
======= ======= =======
OPERATING DATA
Raw steel production (thousands of tons) 8,904 8,784 8,462
Steel product shipments (thousands of tons) 8,173 8,080 7,961
Active employees at year-end (thousands) 15.5 14.0 14.4
</TABLE>
-1-
<PAGE> 3
Sales By Product (chart)
($ in millions)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Hot and cold rolled $2,036 $2,017 $2,146
Galvanized 1,230 1,203 1,221
Tin 502 453 449
Tubular 360 319 314
VP Buildings and other 318 143 153
------ ------ ------
Total $4,446 $4,135 $4,283
====== ====== ======
</TABLE>
-2-
<PAGE> 4
RESULTS OF OPERATIONS
Sales
- -----
Sales in 1997 of $4.45 billion increased by $311 million (8%), primarily due to
the July 2, 1997 acquisition of VP Buildings, Inc. ("VP Buildings"), which had
sales of $177 million since its acquisition. Average steel selling prices
increased over the prior year, and steel product shipments (excluding metal
building systems shipments) increased by 93,000 tons (1%) over 1996 to 8.2
million tons.
In 1996, sales of $4.14 billion decreased by $148 million (3%) from 1995,
primarily due to 5% lower average selling prices, partially offset by an
improved mix of products sold. Steel product shipments of 8.1 million tons
increased by 119,000 tons (1%) over the previous year's total.
Production and Costs
- --------------------
Raw steel production at the Company's steelmaking facilities increased in 1997
by 120,000 tons to 8.9 million tons over the prior year. The average operating
rate was 106% in 1997.
Raw steel production increased by 322,000 tons to 8.8 million tons in 1996
compared with 1995. The average operating rate during 1996 was 105%, compared
with 102% in 1995. The Company follows industry standards in calculating its
maximum operating rate based on 95% of blast furnace capacity, which recognizes
the average effect of blast furnace relines. Steel production may be
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 decreased to 85% in 1997 as a
result of an improved mix of steel products shipped and slightly higher average
selling prices. The addition of VP Buildings also contributed to the improved
gross margin. Cost of products sold as a percentage of sales increased to 87% in
1996 from 85% in 1995, primarily due to lower average selling prices.
Selling, general and administrative expenses increased in 1997 primarily due to
the VP Buildings acquisition. Selling, general and administrative costs
increased in 1996, which included higher legal and professional fees related to
labor contract negotiations and the redesign of business processes.
Results of affiliates' operations includes primarily LTV's share of the
operating losses of Trico Steel Company L.L.C. ("Trico Steel"). LTV recognized a
cumulative effect change in accounting principle adjustment of $7 million net of
tax, expensing previously deferred start-up costs.
Special Charge
- --------------
The special charge of $150 million for the closure of the Pittsburgh coke
facility includes $51 million for facilities write-down, employee costs of $34
million and demolition, environmental matters and other costs of $65 million.
Approximately $100 million would be payable in cash over a period of several
years.
-3-
<PAGE> 5
Other Income and Expense Items
Net Interest and Other Income
- -----------------------------
Net interest and other income of $42 million in 1997 approximated 1996.
Decreased interest income on lower levels of investments and higher interest
expense related to the newly issued Senior Notes was offset by proceeds from the
settlement of litigation.
Net interest and other income of $43 million in 1996 was the same as 1995.
Decreased interest income on lower levels of investments and lower earnings
rates was offset by increased capitalized interest expense in 1996.
Income Taxes
- ------------
Of the Company's total federal and state income tax expense from continuing
operations, $18 million, $64 million and $115 million of such expense amounts in
1997, 1996 and 1995, respectively, did not result in cash payments because of
net deductible temporary differences. 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 the deferred tax assets are fully utilized or
expire. Under fresh-start financial statement reporting rules, tax benefits
associated with pre-reorganization net deductible temporary differences and net
operating loss carryforwards increase additional paid-in capital, but cannot be
recognized as a reduction to the tax provision. Consequently, income before
income taxes represents an important indicator of the Company's true earnings.
The Company's effective tax rate for financial statement reporting purposes was
40% in 1997, 37% in 1996 and 38% in 1995. Taxes payable in cash during the past
three years consist primarily of state and federal taxes (for a less than 80%
owned subsidiary) and alternative minimum 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.
LIQUIDITY AND FINANCIAL RESOURCES
The Company's sources of liquidity include cash and cash equivalents, marketable
securities, cash from operations, long-term borrowings, amounts available under
credit facilities and other external sources of funds.
In 1997, total cash, cash equivalents and marketable securities decreased by
$154 million to $520 million as of December 31, 1997. During 1997, cash provided
by operating activities amounted to $397 million and cash provided by net
financing activities added $40 million. Major uses of cash during 1997 included
$326 million in capital expenditures, $188 million for the VP Buildings
acquisition, $101 million for investments in steel-related businesses, the
redemption of $100 million principal
-4-
<PAGE> 6
amount of Senior Secured Convertible Notes due 2003, the repurchase of common
stock for $68 million and $61 million in funding to the restored pension plans.
In September 1997, LTV issued $298 million of 8.2% Senior Notes ($300 million
face value) due September 2007 with interest payable semiannually and guaranteed
by LTV's wholly owned subsidiary, LTV Steel Company, Inc. Proceeds of the
offering were used to finance the acquisition of VP Buildings and to redeem the
$100 million principal amount of Senior Secured Convertible Notes due June 2003.
The $100 million principal was redeemed at a premium and resulted in an
extraordinary loss of $4 million net of tax.
The Company has three credit facilities with banks, a "Receivables Facility,"
"Letter of Credit Facility," and a "Secured Demand Facility," which provide the
Company with up to $490 million of financing resources at prevailing market
rates. Management believes that cash provided by operations, along with its
credit facilities, are sufficient to fund the current requirements of working
capital, capital expenditures, investment in businesses and joint ventures,
pensions and other postemployment benefits.
The Company's Senior Notes 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 the Company's agreement with the
Pension Benefit Guaranty Corporation ("PBGC Agreement"), place certain
restrictions on payments of dividends, share repurchases, capital expenditures,
investments in subsidiaries and borrowings. Under the terms of the most
restrictive covenant, $97 million of retained earnings are available for common
stock dividend payments and share repurchases at December 31, 1997.
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.
Since the second quarter of 1996, the Company has paid quarterly common stock
dividends of $0.03 per share. LTV completed its stock repurchase program by
repurchasing 5.5 million shares for $68 million and by redeeming the $100
million Senior Secured Convertible Notes, which eliminated an additional 5.1
million potentially dilutive shares.
On July 14, 1997, the Company announced its plan to close its Pittsburgh coke
facility, which resulted in a special charge of $150 million in the third
quarter of 1997. Approximately two-thirds of this charge is payable in cash over
a period of several years while the balance is a noncash charge for property,
plant and equipment. The Company has entered into long-term supply contracts,
which, when combined with the Company's own coke production capability, will
fulfill all the Company's coke requirements.
In August 1997, the United Steelworkers of America ("USWA") filed a grievance
that resulted in binding arbitration under its labor agreement with the Company,
alleging that the Company's actions relating to the Pittsburgh coke plant
violated a local agreement. The arbitrator's decision on January 12, 1998 upheld
the Company's positions in the arbitration proceedings that it is not required
to spend "major construction or rehabilitation" funds to keep the plant
operating and that the Company has, in the past, properly maintained the plant
to the extent required by the local agreement. The Company continues to believe
that only a complete $400 to $500 million pad-up rebuild would restore the
plant's operational capabilities, and the arbitrator has clearly ruled that
such action is not required under the labor agrrement. The arbitrator did find,
however, that the local agreement required the Company to submit an
environmental remediation proposal to the United States Environmental
Protection Agency ("EPA") proposing maintenance type actions which would at
least attempt to address a Notice of Violation ("NOV") issued by the EPA in
March 1997, and which, if accepted by the EPA, would allow the continued
operation of the plant. In requiring the Company to make such a proposal to the
EPA, the arbitrator conceded that, "Such a
-5-
<PAGE> 7
proposal would not be a `compliance plan' in the formal sense because it cannot
reasonably be projected that such maintenance actions can lead to full
compliance."
The Company submitted a proposal to the EPA based on the arbitrator's decision
in January. The submission was later amended in February pursuant to a
subsequent decision by the arbitrator. On February 13, 1998, the EPA stated that
the operating and maintenance proposal submitted by the Company "would not
result in sustainable compliance with Allegheny County State Implementation
Plan at the facility and, therefore, is inadequate." The Company announced on
February 13, 1998, that it will curtail production and begin the plant closure
process.
CAPITAL EXPENDITURES AND REQUIREMENTS
The Company invested $326 million in property, plant and equipment during 1997.
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 $400 million during 1998
including the new tubular facility.
NEW TUBULAR FACILITY
In August 1997, the Company announced its intention to build a new tubing
manufacturing facility in Marion, Ohio at an initial project cost of
approximately $66 million and is expected to have annual processing capacity of
146,000 tons. The facility will manufacture high-quality tubing for the
automotive mechanical tubing market, including for the manufacture of
hydroformed parts. The automotive mechanical tubing market is expected to grow
as automobile manufacturers increase their use of tubular products in order to
reduce the weight of vehicles and the cost of vehicle construction.
-6-
<PAGE> 8
INVESTMENTS IN STEEL-RELATED BUSINESSES
Investments in affiliates totaled $101 million in 1997, $79 million in 1996 and
$89 million in 1995. The Company's strategy has been to invest in industries
complementing its core steelmaking business. The recent investments implementing
this strategy resulted in acquiring interests in companies engaged in metal
fabrication and in companies with technologies providing new techniques and
processes in the steelmaking process and products.
In April 1997, Trico Steel, a joint venture operating a flat rolled steel
minimill in which LTV has a 50% interest, commenced commercial operations. The
joint venture continues to make progress through the start-up process but
expenses exceeded revenues in 1997.
In 1996, LTV entered into a joint venture, Cliffs and Associates Limited, to
produce and market high purity reduced iron briquettes as a scrap steel
substitute for use in electric furnace steelmaking operations. The total
construction costs are estimated to be $160 million, and LTV's investment will
be 46.5% of the total. Construction has begun with production scheduled to begin
in the fourth quarter of 1998, and the venture is expected to be producing at
the design level of 500,000 tons per year by mid-1999.
In 1997, the Company entered into two new joint ventures engaged in metal
fabrication. It acquired an approximate 11% interest in TWB Company, L.L.C., a
tailor-welded blanking operation that uses new technology to weld together two
or more flat rolled steel blanks that may be of different grade or thickness.
This venture responds to the demand by domestic automobile assemblers for such
products. The second is a 25% interest in Lagermex SA de CV, a joint venture to
construct and operate an automotive steel processing and blanking operation in
Puebla, Mexico. The venture is intended to supply the Volkswagen de Mexico and
its parts supplier's assembly plant in Puebla with the blanking products and
services used to produce the plant's steel stampings.
Three international joint ventures, located in Argentina, Brazil and China, for
the manufacture and distribution of pre-engineered metal buildings were added
with the VP Buildings acquisition.
PENSION AND OTHER POSTEMPLOYMENT BENEFITS
Pension plan expense of $77 million in 1997 decreased from $112 million in 1996,
primarily due to increased earnings on higher plan assets and other favorable
experience. Pension expense in 1996 was $60 million lower than the 1995 pension
expense of $172 million, primarily due to increased pension plan assets and
earnings.
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 1998 total $98 million, $50
million of which was prepaid in 1997. Contributions to major defined benefit
pension plans have totaled over $2.7 billion since June 28, 1993. As of December
31, 1997, "advance payments" to the pension plans total $541 million, which,
together with future cumulative earnings, can be used at the Company's option as
credits against future required payments.
-7-
<PAGE> 9
Pension Plan Assets at December 31, (chart)
($ in millions)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
$3,080 $2,836 $2,566
</TABLE>
Pension plan assets principally consist of equity securities listed on national
exchanges, fixed income securities and cash equivalents. The actual return on
plan assets in 1997 was $504 million, or 19%.
Overfunded/Underfunded Projected Benefit Obligation at December 31, (chart)
($ in millions)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
$ 68 $ (297) $ (711)
</TABLE>
Constant discount rate of 8.5%
Other postemployment benefit expense consists primarily of health care and life
insurance benefits with the expense of $102 million in 1997 decreasing from $136
million in 1996, primarily due to better claims experience. Cash payments
amounted to $129 million in 1997, $131 million in 1996 and $144 million in 1995.
COMPETITION AND PRICES
Domestic steel producers face 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 substantially affected by the relative strength of foreign
economies and fluctuations in the value of the United States dollar against
foreign currencies. Steel imports have increased as the value of the dollar has
risen in relation to foreign currencies, and some foreign steel producers are
owned, controlled or subsidized by their governments. Decisions by some 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. The volatility experienced in the financial markets of Asia in 1997
and the corresponding currency fluctuations may result in a significant increase
in imports from Asia in the future. Based on reports by the American Iron and
Steel Institute ("AISI"), imports of flat rolled product from all foreign
countries increased 19% for the first eleven months of 1997 from the comparable
period in 1996 to approximately 13 million tons, or 19% of domestic steel
consumption.
-8-
<PAGE> 10
LTV also competes with other domestic integrated producers, some of which have
greater resources than the Company, and with minimills, 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. Recently developed thin slab casting technologies have
allowed some minimill producers to enter certain sectors of the flat rolled
market that have traditionally been supplied by integrated producers, and other
producers have announced their intention to do the same. Industry experts
estimate that current domestic raw steel production capacity will be increased
by more than 5% by the end of 2000 as new minimills now under construction
engage in start-up operations or begin operation.
Many steel products face substantial competition from manufacturers of other
products, including plastics, aluminum, ceramics, glass, wood and concrete.
The Company's results of operations are substantially affected by small
variations in the realized prices of its steel products, which are significantly
influenced by prevailing prices for steel and demand for particular products.
The Company shipped 8.2 million tons of steel products and recorded sales of
$4.45 billion during 1997. A 1% increase or decrease in the average realized
price during 1997 would, on a pro forma basis, result in an increase or decrease
in pretax income of approximately $37 million. The Company and the steel
industry in general realized lower steel selling prices in the latter half of
1995. In 1997 and 1996, the Company implemented several price increases that
partially offset the price decreases experienced in the second half of 1995, but
average steel selling prices in 1997 were below 1995 levels. Competitive
pressures, including increased domestic steelmaking capacity and rising import
levels, could limit the Company's ability to maintain or increase current
prices.
VP Buildings, as a leading manufacturer of pre-engineered metal buildings, is
competitive with respect to market prices and has been less sensitive to pricing
pressure compared to flat rolled steel products.
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 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 that cannot be estimated at this time, but would
be substantial.
-9-
<PAGE> 11
During 1997, the Company spent approximately $16 million for environmental
clean-up and related matters at operating and idled facilities, and at December
31, 1997, has a recorded liability of $154 million for known and identifiable
environmental and related matters, including costs related to the demolition and
closure of the Pittsburgh coke plant. 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
$32 million in 1997 for environmental compliance-related capital expenditures
and expects it will be required to spend an average of approximately $35 million
annually in capital expenditures during the next five years to meet
environmental standards.
YEAR 2000 COMPLIANCE
As is the case with most other companies using computers in their operations,
the Company is faced with the task of addressing the Year 2000 problem during
the next two years. The Company is currently engaged in a comprehensive project
to upgrade its computer software in its information technology, manufacturing
and facilities systems to programs that will be Year 2000 compliant. In
addition, over a two-year period, the Company currently estimates that it will
expense approximately $55 million related to Year 2000 compliant work, of which
$8 million was expensed in 1997. Failure by the Company and/or vendors working
on this project to complete the Year 2000 compliance work in a timely manner
could have a material adverse effect on the Company's operations. LTV expects to
be Year 2000 compliant in early 1999.
OUTLOOK
The Company continues to experience a high demand for its products and a strong
rate of incoming orders. This level of business may not continue in the future
due to the potential for rising flat rolled product import levels, which have
increased 19% through November 1997 over comparable 1996 levels. Foreign
competition, some of which is owned or subsidized by governments, may increase
further with the rise in the value of the U.S. dollar against certain foreign
currencies and a weakening of certain economies in Asia and in Pacific Rim
countries. These factors, along with industry capacity additions, could affect
future market prices. Also, the blast furnace reline scheduled in 1998 will
reduce the Company's steelmaking capacity and result in increased costs.
This report includes forward-looking statements. Our use of the words "outlook,"
"anticipate," "believes," "estimate," "expect" and similar words are intended to
identify these statements as forward-looking. These statements represent our
current judgment on what the future holds. While we believe them to be
reasonable, a number of important factors could cause actual results to differ
materially from those projected. These factors include relatively small changes
in market price or market demand; changes in domestic capacity; changes in raw
material costs; increased operating costs; loss of business from major
customers, especially for high value-added product; unanticipated expenses;
substantial changes in financial markets; labor unrest; unfair foreign
competition; major equipment failure; unanticipated results in pending legal
proceedings; or difficulties in implementing information technology, including
Year 2000 compliant systems. In this regard, we also direct your attention to
factors discussed above in the Management's Discussion and Analysis.
-10-
<PAGE> 12
CONSOLIDATED STATEMENT OF INCOME
The LTV Corporation
(in millions, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Sales $ 4,446 $ 4,135 $ 4,283
COSTS AND EXPENSES:
Cost of products sold 3,801 3,596 3,621
Depreciation and amortization 263 266 252
Selling, general and administrative 164 143 142
Results of affiliates' operations 41 - -
Net interest and other income (42) (43) (43)
Special charge 150 - -
------- ------- --------
Total 4,377 3,962 3,972
------- ------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 69 173 311
INCOME TAX PROVISION:
Taxes payable 10 - 2
Taxes not payable in cash 18 64 115
------- ------- --------
Total 28 64 117
------- ------- --------
INCOME FROM CONTINUING OPERATIONS 41 109 194
Discontinued operations - - (9)
------- ------- --------
INCOME BEFORE ITEMS BELOW 41 109 185
Extraordinary charge on early extinguishment of debt (4) - -
Cumulative effect of change in accounting for start-up costs (7) - -
------- ------- --------
NET INCOME $ 30 $ 109 $ 185
======= ======= ========
EARNINGS (LOSS) PER SHARE
Basic:
Continuing operations $ 0.37 $ 1.01 $ 1.81
Discontinued operations - - (0.08)
Extraordinary charge (0.04) - -
Cumulative effect of change in accounting (0.06) - -
------- ------- --------
Net income $ 0.27 $ 1.01 $ 1.73
======= ======= ========
Dilutive:
Continuing operations $ 0.37 $ 1.01 $ 1.76
Discontinued operations - - (0.08)
Extraordinary charge (0.04) - -
Cumulative effect of change in accounting (0.06) - -
------- ------- --------
Net income $ 0.27 $ 1.01 $ 1.68
======= ======= ========
DIVIDENDS PAID PER COMMON SHARE $ 0.12 $ 0.09 $ -
======= ======= ========
</TABLE>
- ------
See notes to consolidated financial statements.
-11-
<PAGE> 13
CONSOLIDATED STATEMENT OF CASH FLOWS
The LTV Corporation
(in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 41 $ 109 $ 194
Adjustments to reconcile income to net cash
provided by operating activities:
Noncash losses of affiliates 41 - -
Special charge 150 - -
Depreciation and amortization 263 266 252
Income tax provision not payable in cash 18 64 115
Defined benefit pension expense 28 64 124
Postemployment benefit payments
(more) less than related expense (27) 5 (7)
VEBA Trust contributions (10) (11) (19)
Changes in assets, liabilities and other (107) (2) 97
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES 397 495 756
----- ----- -----
INVESTING ACTIVITIES
Capital expenditures (326) (243) (205)
VP Buildings acquisition (188) - -
Investments in steel-related businesses (101) (79) (89)
Net sales (purchases) of marketable securities 207 (109) (100)
Proceeds from dispositions of discontinued
operations, businesses and properties 24 11 94
Other - (17) (9)
----- ----- -----
NET CASH USED IN INVESTING ACTIVITIES (384) (437) (309)
----- ----- -----
FINANCING ACTIVITIES
Net proceeds from debt offering 290 - -
Payments on long-term debt (106) - (41)
Pension funding to restored plans (61) (205) (473)
Repurchases of common stock (68) - -
Dividends paid and other (15) (12) (3)
----- ----- -----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 40 (217) (517)
----- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 53 (159) (70)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 107 266 336
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 160 $ 107 $ 266
===== ===== =====
</TABLE>
- -----
See notes to consolidated financial statements.
-12-
<PAGE> 14
CONSOLIDATED BALANCE SHEET
The LTV Corporation
(in millions, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 160 $ 107
Marketable securities 360 567
------- -------
520 674
Receivables, less allowance for doubtful accounts of
$18 in 1997 and 1996 470 400
Inventories:
Products 656 570
Materials, purchased parts and supplies 246 232
------- -------
Total inventories 902 802
Prepaid expenses, deposits and other 12 12
------- -------
Total current assets 1,904 1,888
------- -------
INVESTMENTS IN AFFILIATES 312 256
OTHER NONCURRENT ASSETS 169 149
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 68 69
Buildings 150 148
Machinery and equipment 3,526 3,443
Construction in progress 352 211
------- -------
4,096 3,871
Less allowance for depreciation (935) (754)
------- -------
Total property, plant and equipment 3,161 3,117
------- -------
$ 5,546 $ 5,410
======= =======
</TABLE>
- ----
See notes to consolidated financial statements.
-13-
<PAGE> 15
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
------- -------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 354 $ 351
Accrued employee compensation and
benefits 365 373
Other accrued liabilities 219 175
------- -------
Total current liabilities 938 899
------- -------
NONCURRENT LIABILITIES
Long-term debt 355 153
Postemployment health care and
other insurance benefits 1,570 1,596
Pension benefits 548 648
Other 459 404
------- -------
Total noncurrent liabilities 2,932 2,801
------- -------
SHAREHOLDERS' EQUITY
Convertible preferred stock - aggregate
liquidation value $50; par value
$1.00 per share 1 1
Common stock - par value $0.50 per share;
authorized 150 million shares; issued
105 million shares; 100 million shares
in 1997 and 105 million shares in 1996
outstanding 53 53
Additional paid-in capital 1,032 1,021
Retained earnings 661 646
Treasury stock at cost (5 million shares) (68) -
Accumulated other comprehensive loss (3) (9)
Other - (2)
------- -------
Total shareholders' equity 1,676 1,710
------- -------
$ 5,546 $ 5,410
======= =======
</TABLE>
-14-
<PAGE> 16
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED DECEMBER 31, 1997
The LTV Corporation
(in millions)
<TABLE>
<CAPTION>
Common Stock
Convertible ------------------- Additional
Preferred Number Paid-In Retained Treasury Comprehensive
Stock of Shares Amount Capital Earnings Stock and Other Total
----- --------- ------ ------- -------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 $ 1 105 $ 53 $ 873 $ 366 $ (10) $1,283
Comprehensive income
Net income 185 185
Other comprehensive income, net of tax
Unrealized gain (loss) on securities 3 3
Minimum pension liability (179) (179)
-------
Total comprehensive income 9
Dividends paid (2) (2)
Other 1 1
Taxes not payable in cash 84 84
----- ----- ----- ------ ------ ------- ------ ------
December 31, 1995 1 105 53 957 549 (185) 1,375
Comprehensive income
Net income 109 109
Other comprehensive income, net of tax
Unrealized gain (loss) on securities (2) (2)
Minimum pension liability 176 176
-------
Total comprehensive income 283
Dividends paid (12) (12)
Taxes not payable in cash 64 64
----- ----- ----- ------ ------ ------- ------ ------
December 31, 1996 1 105 53 1,021 646 (11) 1,710
Comprehensive income
Net income 30 30
Other comprehensive income, net of tax
Minimum pension liability 6 6
-------
Total comprehensive income 36
Dividends paid (15) (15)
Treasury stock (5) $ (68) (68)
Other 2 2
Taxes not payable in cash 11 11
----- ----- ----- ------ ------ ------- ------ ------
December 31, 1997 $ 1 100 $ 53 $1,032 $ 661 $ (68) $ (3) $1,676
===== ===== ===== ====== ====== ======= ====== ======
</TABLE>
- -----
See notes to consolidated financial statements.
-15-
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The LTV Corporation
December 31, 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
- -----------------------
The LTV Corporation ("LTV" or the "Company") manufactures and sells a
diversified line of carbon steel products consisting of hot rolled and cold
rolled sheet, galvanized, tin mill and tubular products and beginning in July
1997, metal building systems. 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, tubular and metal buildings
operations. The Company is a major supplier of flat rolled steel for the
domestic transportation, appliance and electrical equipment markets.
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 $22 million at
December 31, 1997, all of which was available for dividend or other distribution
to the Company.
Equity in earnings of raw material affiliates, recorded as a reduction of cost
of products sold, was $17 million, $16 million and $17 million for 1997, 1996
and 1995, respectively. The equity in earnings of metal fabrication and steel
technology affiliates is recorded in the results of affiliates' operations.
Certain prior period amounts have been reclassified to conform with the current
period presentation.
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.
-16-
<PAGE> 18
Inventories
- -----------
Inventories are valued at the lower of cost or market, with cost determined
primarily by the "last-in, first-out" ("LIFO") method for approximately 95% and
96% of the inventories at December 31, 1997 and 1996, respectively. The amount
by which inventory is reduced to state inventory at LIFO value is $22 million at
December 31, 1997 and $26 million at December 31, 1996. Liquidation of LIFO
inventory quantities, carried at costs that prevailed in earlier years, reduced
cost of products sold by $3 million, $2 million and $4 million in 1997, 1996 and
1995, respectively. The current replacement value of inventories is $898 million
and $802 million at December 31, 1997 and 1996, respectively.
Property Costs, Depreciation and Amortization
- ---------------------------------------------
Fixed assets are recorded on the cost basis and include land, buildings,
machinery and equipment, and software and associated costs. 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 last 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. The cost of buildings is depreciated over 45 years, and
machinery and equipment is depreciated over an average life of approximately 17
years. Goodwill and other intangible assets are amortized on a straight-line
basis over periods ranging from 5 to 35 years.
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 Company periodically reviews long-lived assets used in operations and
related goodwill when indicators of impairment are present. Impairment losses
are recorded when the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount.
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 undiscounted 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 is determinable.
Insurance recoveries, if any, are recorded as a reduction of environmental
costs. The Company's liability for environmental remediation totaled $154
million, including costs related to the demolition and closure of the Pittsburgh
coke plant, and $84 million at December 31, 1997 and 1996, respectively.
-17-
<PAGE> 19
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 Pronouncements
- -----------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share," which was adopted by the Company in
December 1997. Statement No. 128 replaces the previous method of reporting
earnings per share under Accounting Principles Board ("APB") Opinion No. 15. LTV
now reports "Basic" and "Dilutive" earnings per share, which replaced primary
and fully diluted earnings per share under APB Opinion No. 15 and resulted in no
material change to earnings per share.
In June 1997, FASB issued Statement No. 130, "Reporting Comprehensive Income,"
and Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company adopted Statement No. 130 in December 1997, and the
required disclosures are included in the Consolidated Statement of Changes in
Equity and related footnotes. Statement No. 131, which becomes effective in
1998, establishes standards for reporting segment information in annual and
interim financial statements including disclosures about products and services,
geographic areas and major customers. While the Company has not yet determined
the impact of adopting Statement No. 131 on its financial statement disclosures,
LTV does not expect any change to its primary financial statements.
In December 1997, FASB approved Statement No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which revises the current footnote
disclosure on the Company's pensions and other retiree benefits. LTV has not
determined the impact of adopting Statement No. 132 on its financial statement
disclosures, but does not expect any change to its primary financial statements.
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants approved a proposed Statement of
Position ("SOP") "Reporting on the Costs of Start-up Activities," subject to
review of the FASB, which is expected to require the expensing of start-up
activities as incurred. LTV recognized a cumulative effect change in accounting
principle adjustment of $7 million, net of income taxes of $4 million, expensing
previously deferred start-up costs. The pro forma effect on 1996 would have
reduced net income by $5 million ($0.04 per share) and was not significant in
1995.
-18-
<PAGE> 20
MARKETABLE SECURITIES
The cost approximated estimated fair value of marketable securities at December
31, 1997 and 1996. The cost and estimated fair value of marketable securities by
contractual maturity at December 31, 1997 are as follows (in millions):
<TABLE>
<S> <C>
Due in one year or less $ 187
Due after one year through two years 47
Due after two years 126
-----
$ 360
=====
</TABLE>
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company has a 50% interest in an unconsolidated joint venture, Trico Steel
Company, L.L.C. ("Trico Steel"), which is accounted for under the equity method.
Commercial operations of this flat rolled minimill located in Decatur, Alabama
began in April 1997. Included in LTV's consolidated results is a loss of $44
million representing the Company's share of Trico Steel operating results and
the $7 million cumulative effect adjustment for a change in accounting for
start-up costs. The following is a summary of the financial information related
to Trico Steel (in millions):
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Results of operations
Net sales $ 98
Costs and expenses 185
-----
Loss before cumulative effect (87)
Cumulative effect of change in accounting for start-up costs (15)
-----
Pretax loss $(102)
=====
Financial position at December 31,
Current assets $ 76
Noncurrent assets 526
Current liabilities (38)
Noncurrent liabilities (273)
-----
Net assets $ 291
=====
</TABLE>
-19-
<PAGE> 21
OTHER LIABILITIES
Current accrued employee compensation and benefits included the following at
December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pension benefits $ 17 $ 24
Postemployment health care and other insurance benefits 129 135
Compensated absences 51 50
Other 168 164
---- ----
$365 $373
==== ====
</TABLE>
Current other accrued liabilities included the following at December 31 (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued taxes other than income $ 96 $ 91
Accrued income taxes 15 12
Environmental and plant rationalization 53 28
Other 55 44
---- ----
$219 $175
==== ====
</TABLE>
Noncurrent other liabilities included the following at December 31 (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Benefits under the Coal Industry Retiree Health
Benefit Act of 1992 $135 $134
Other employee benefits 119 126
Environmental and plant rationalization 159 87
Other 46 57
---- ----
$459 $404
==== ====
</TABLE>
DEBT AND CREDIT FACILITIES
Long-term debt consisted of the following at December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Senior Notes due 2007 $298 $ -
Senior Secured Convertible Notes due June 2003 - 100
Notes due December 2020 57 53
---- ----
$355 $153
==== ====
</TABLE>
The Company has no required long-term debt maturities occurring within the next
five years.
-20-
<PAGE> 22
In September 1997, LTV issued $298 million Senior Secured Notes ($300 million
face value) due September 2007 at 8.2% interest payable semiannually and
guaranteed by LTV's wholly owned subsidiary, LTV Steel Company, Inc. The
unamortized original issue discount results in an effective interest rate of
8.25%. The notes are redeemable at the option of the Company in whole or in
part, at any time after September 2002. At any time prior to September 2000, the
Company may redeem in the aggregate up to 35% of the original principal amount
with proceeds from any public equity offerings. Proceeds of the offering were
used to finance the acquisition of VP Buildings, Inc. ("VP Buildings") and to
redeem the $100 million principal amount of Senior Secured Convertible Notes due
June 2003 at a premium of $6 million, which resulted in an extraordinary charge
of $4 million, net of taxes of $2 million.
The notes due December 2020 are required to be prepaid within 120 days after
the restored pension plans become fully funded as defined in the Pension
Benefit Guaranty Corporation agreement ("PBGC Agreement"). 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.
The Company has three credit facilities with banks (the "Receivables Facility"
expiring in 2000, the "Letter of Credit Facility" expiring in 1999 and a
"Secured Demand Facility" expiring in 1998) that provide the Company with up to
$490 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, 1997, $305 million was
permitted to be borrowed; however, no borrowings were outstanding and letters of
credit outstanding amounted to $24 million under this facility. The borrower
under the Receivables Facility is LTV Sales Finance Company, a structured
finance special purpose entity 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, 1997,
letters of credit totaling $75 million were outstanding under this facility.
The Company's wholly owned subsidiary, VP Buildings, has a Secured Demand
Facility that expires August 1998 and is secured by the accounts receivable of
VP Buildings. The facility permits borrowings of up to $20 million for working
capital and general corporate purposes and for letters of credit. At December
31, 1997, $20 million was permitted to be borrowed; no letters of credit or
borrowings were outstanding under this facility.
The Senior Notes 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 the PBGC Agreement regarding the restored
pension plans, place certain restrictions on payments of dividends, stock
repurchases, capital expenditures, investments in subsidiaries and borrowings.
Under the terms of the most restrictive covenant, $97 million of retained
earnings are available for common stock dividend payments and stock repurchases
at December 31, 1997. Substantially all of the Company's receivables and
inventories are pledged as collateral under the credit facilities agreements.
-21-
<PAGE> 23
OPERATING LEASES
The Company leases certain manufacturing facilities and equipment, office space
and computer equipment under cancelable and noncancelable leases that expire at
various dates. Minimum future operating lease obligations in effect at December
31, 1997 are as follows (in millions):
<TABLE>
<S> <C>
1998 $ 51
1999 37
2000 21
2001 18
2002 12
Later years 79
-----
Total obligations $ 218
=====
</TABLE>
Rental expense on operating leases was $71 million, $62 million and $58 million
in 1997, 1996 and 1995, 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 December 31,
--------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 14 $ 18 $ 15
Interest cost on accumulated benefit obligation 106 120 132
Actual return on plan assets (11) (6) -
Net amortization and deferral (7) 4 (10)
----- ----- -----
Total expense $ 102 $ 136 $ 137
===== ===== =====
Total cash payments $ 129 $ 131 $ 144
===== ===== =====
</TABLE>
-22-
<PAGE> 24
The actuarial and recorded liabilities for postemployment benefits are as
follows at December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ 1,140 $ 1,254
Fully eligible active plan participants 135 121
Other active plan participants 245 312
------- -------
Total 1,520 1,687
Unrecognized net actuarial gains 241 80
Plan assets at fair value (62) (36)
------- -------
Total liability included in the consolidated balance sheet 1,699 1,731
Less current portion (129) (135)
------- -------
Noncurrent liability $ 1,570 $ 1,596
======= =======
</TABLE>
The actuarial assumptions used in the calculation of the liability for
postemployment benefits are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7.25%
Long-term rate of return on plan assets 9.0% 9.0% 8.5%
Projected health care cost trend rate 6.7% 7.5% 8.0%
Ultimate trend rate 4.5% 4.5% 4.5%
Year ultimate trend rate is achieved 2003 2003 2002
</TABLE>
During 1997, the Company's actuary computed the accumulated benefit obligation
using refined assumptions with more recent experience data, which reduced 1997
expense by approximately $34 million.
As part of the 1994 United Steelworkers of America ("USWA") labor agreement, the
Company is required to contribute to a Voluntary Employee Beneficiary
Association ("VEBA") Trust to prefund postemployment health care and other
insurance benefits for covered employees and 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 ($10 million in
years when common stock dividends are declared) and additional amounts based on
defined cash flow as set forth in the labor agreement. The required contribution
made in 1997 was $10 million. Plan assets are invested primarily in equity
securities listed on national exchanges.
The effect on the present value of the accumulated benefit obligation at
December 31, 1997 of a 1% increase each year in the health care cost trend rate
used would result in an increase of $145 million in the accumulated benefit
obligation, and a $12 million increase in the total 1997 service and interest
components of expense.
-23-
<PAGE> 25
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 components of pension expense are as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Defined benefit plans:
Service cost - benefits earned during the year $ 1 $ 6 $ 7
Interest cost on projected benefit obligation 237 247 274
Actual return on plan assets (504) (405) (461)
Net amortization and deferral 294 216 304
----- ----- -----
Net pension cost of defined benefit plans 28 64 124
Defined contribution plans 49 48 48
----- ----- -----
Total expense $ 77 $ 112 $ 172
===== ===== =====
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit pension plans (in millions):
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
---------------------------- ------------------------
Plans With Plans With Plans With Plans With
Assets in Obligations Assets in Obligations
Excess of in Excess Excess of in Excess
Obligations of Assets Obligations of Assets
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Actuarial present value:
Vested benefit obligation $ 236 $ 2,915 $ 215 $ 2,919
Nonvested benefit obligation 20 124 27 221
------- ------- ------- -------
Accumulated benefit obligation $ 256 $ 3,039 $ 242 $ 3,140
======= ======= ======= =======
Projected benefit obligation $ 271 $ 3,056 $ 255 $ 3,140
Plan assets at fair value 302 2,778 266 2,570
------- ------- ------- -------
Plan assets in excess of (less than)
projected benefit obligation 31 (278) 11 (570)
Unrecognized prior service cost 12 107 12 127
Unrecognized net actuarial gains (22) (380) (3) (124)
Adjustment required to recognize
minimum liability - shareholders' equity - (3) - (9)
- intangible asset - (1) - (87)
------- ------- ------- -------
Prepaid (accrued) pension expense included
in the consolidated balance sheet $ 21 $ (555) $ 20 $ (663)
======= ======= ======= =======
</TABLE>
-24-
<PAGE> 26
The actuarial assumptions used to determine the pension asset (liability) are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7.25%
Long-term rate of return on plan assets 9.0% 9.0% 8.5%
</TABLE>
During 1997, the Company's actuary computed the projected benefit obligation
using refined assumptions with more recent experience data, which reduced 1997
expense by approximately $17 million.
Plan assets consist substantially of equity securities listed on national
exchanges, fixed income securities and cash equivalents.
TAXES
The provision for income taxes from continuing operations is as follows (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 7 $ - $ -
State 3 - 2
Amount not payable in cash 18 64 115
---- ---- ----
Tax provision $ 28 $ 64 $117
==== ==== ====
</TABLE>
The Company reports federal income tax expense before consideration of
pre-reorganization net deferred tax assets ($1.3 billion at December 31, 1997).
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 tax
provision required by fresh-start financial statement reporting is in excess of
the Company's actual tax payments. As LTV realizes the benefits (through reduced
cash tax payments) from pre-reorganization net deferred tax assets, such
benefits increase additional paid-in capital and are represented by the "Amount
not payable in cash" in the above table.
-25-
<PAGE> 27
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 December 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax provision at statutory rates $ 24 $ 61 $ 109
Increases (decreases) resulting from:
Percentage depletion deduction (7) (5) (7)
Federal alternative minimum tax 7 - -
State taxes 5 8 17
Other (1) - (2)
----- ----- -----
Tax provision $ 28 $ 64 $ 117
===== ===== =====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities are
as follows at December 31 (in millions):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Postemployment health care liability $ 678 $ 690
Net operating loss carryforwards 880 937
Pension liability 218 228
Other employee benefits 159 166
Plant rationalization and environmental 104 63
Safe harbor tax leases 107 117
Other 129 99
------- -------
Subtotal 2,275 2,300
Deferred tax liabilities:
Tax over book depreciation (833) (847)
Inventory and other (117) (103)
------- -------
Subtotal (950) (950)
Valuation allowance (1,325) (1,350)
------- -------
Total deferred taxes - net $ - $ -
======= =======
</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 regular tax net operating loss
carryforward of $2.5 billion and a federal alternative minimum tax net operating
loss carryforward of $1.3 billion that are not restricted as to use and will
expire in the years 2000 through 2010. 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 1997 of approximately $48 million are
available as a credit carryforward, and the period is not limited. Investment
tax credit carryforwards of approximately
-26-
<PAGE> 28
$9 million at December 31, 1997 are recognized using the "flow through" method
and expire in 1998 through 2003.
SHAREHOLDERS' EQUITY
LTV has authorized for issuance 20 million shares of preferred stock with a
$1.00 par value. At December 31, 1997, the Company has 500,000 outstanding
shares of Series B Convertible Preferred Stock ("Series B "). 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 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 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 2.9 million shares). LTV
has the right to redeem the Series B for $52 million at December 31, 1997,
declining to $50 million at June 28, 2000.
The Company completed its share repurchase program by purchasing 5.5 million
shares in the open market for $68 million and by redeeming the $100 million
Senior Secured Convertible Notes, which eliminated an additional 5.1 million of
potentially dilutive shares.
The Company has a nonleveraged Employee Stock Ownership Plan ("ESOP"), for
employees covered by the USWA labor agreement, that effectively holds 3.7
million shares of common stock at December 31, 1997.
In June 1993, the Company was reorganized and common stock reserved for
potential future issuance includes the following:
a. Conversion of the Series B as previously discussed.
b. In accordance with a settlement agreement with the Internal Revenue Service
("IRS"), certain payments with an aggregate value of $2 million at December
31, 1997 can be satisfied in cash or common stock.
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.
d. In June 1993, 8.5 million Series A Warrants were issued. 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. There have been 33,008 warrants exercised through December
31, 1997.
-27-
<PAGE> 29
The Company has also reserved for future issuance 9.7 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 included in "Other" in shareholders' equity. Unearned compensation is
primarily being amortized to expense over the five-year vesting period.
Transactions under these programs are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- --------------------------- -------------------------
Shares Price Shares Price Shares Price
------ ------------------ ------ ------------------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock options:
(shares in millions)
Options outstanding at
beginning of year 1,691 $ 12.21 - $ 19.33 1,420 $ 14.17 - $ 19.33 1,148 $ 15.38 - $ 19.33
Granted 1,828 11.19 - 14.38 322 12.21 - 14.31 399 14.17 - 16.13
Exercised - - - - (5) 15.38
Canceled (165) 12.21 - 19.33 (51) 14.78 - 19.33 (122) 15.38 - 19.33
------ ------------------ ----- ------------------ ----- -----------------
Options outstanding at
end of year 3,354 $ 11.19 - $ 19.33 1,691 $ 12.21 - $ 19.33 1,420 $ 14.17 - $ 19.33
====== ================== ===== ================== ===== =================
Options exercisable at
end of year 1,295 $ 12.21 - $ 19.33 1,093 $ 14.74 - $ 19.33 685 $ 14.74 - $ 19.33
====== ================== ===== ================== ===== =================
Restricted Stock:
Shares outstanding at
beginning of year 184 $ 14.00 - $ 18.88 186 $ 14.00 - $ 18.88 191 $ 15.75 - $ 18.88
Granted - - 2 14.13 11 14.00 - 15.25
Unrestricted (1) 18.88 (4) 18.88 (16) 18.88
Canceled (4) 18.88 - - - -
------ ------------------ ----- ------------------ ----- -----------------
Shares outstanding at
end of year 179 $ 14.00 - $ 18.88 184 $ 14.00 - $ 18.88 186 $ 14.00 - $ 18.88
====== ================== ===== ================== ===== =================
</TABLE>
In 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation," which permits companies to recognize expense for stock-based
awards beginning in 1995 based on their fair value on the date of grant or to
continue to follow APB Opinion No. 25 with pro forma disclosures. The Company
continues recognition of stock option programs in accordance with APB Opinion
No. 25. As required by Statement No. 123, the Company has determined the pro
forma information under the fair value method using the Black-Scholes option
pricing module with the following weighted average assumptions used in 1997,
1996 and 1995: risk-free rate of return of 6.5%; dividend yield of 1%;
volatility of 25%; and 7 years as the expected life for all years presented.
The pro forma effect of these options was reduced earnings of $3 million ($0.02
per share) in 1997 and no effect in 1996 and 1995.
-28-
<PAGE> 30
COMPREHENSIVE INCOME
The following table reflects the accumulated balances of other comprehensive
income (in millions):
<TABLE>
<CAPTION>
Gains Accumulated
(Losses) On Minimum Other
Marketable Pension Comprehensive
Securities Liability Income (Loss)
---------- --------- -------------
<S> <C> <C> <C>
Balance at January 1, 1995 $ (1) $ (6) $ (7)
Current year change 3 (179) (176)
----- ----- -----
Balance at December 31, 1995 2 (185) (183)
Current year change (2) 176 174
----- ----- -----
Balance at December 31, 1996 - (9) (9)
Current year change - 6 6
----- ----- -----
Balance at December 31, 1997 $ - $ (3) $ (3)
===== ===== =====
</TABLE>
The tax expense (benefit) associated with items included in comprehensive income
were $2 million, $64 million and $(67) million for 1997, 1996 and 1995,
respectively.
-29-
<PAGE> 31
EARNINGS PER SHARE
The following table provides a reconciliation of net income and shares
outstanding for computing basic and dilutive earnings per share. Prior year
amounts have been restated to comply with Statement No. 128.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in millions, except per share data)
BASIC
<S> <C> <C> <C>
Net income $ 30 $ 109 $ 185
Less: Preferred dividends (2) (2) (2)
----- ----- -----
Income available to common shareholders $ 28 $ 107 $ 183
===== ===== =====
Weighted average shares outstanding 103 105 105
===== ===== =====
Earnings per share $0.27 $1.01 $1.73
===== ===== =====
DILUTIVE
Net income $ 30 $ 109 $ 185
Less: Preferred dividends (2) (2) (2)
Add: Conversion of preferred shares (1) - 2 2
Convertible Senior Secured Notes (2) - - 5
----- ----- -----
Income available to common shareholders
and assumed conversions $ 28 $ 109 $ 190
===== ===== =====
Weighted average shares outstanding 103 105 105
Add: Conversion of warrants 1 - -
Convertible preferred stock (1) - 3 3
Convertible Senior Secured Notes (2) - - 5
----- ----- -----
104 108 113
===== ===== =====
Earnings per share $0.27 $1.01 $1.68
===== ===== =====
<FN>
(1) Preferred shares are antidilutive in 1997.
(2) Convertible Senior Secured Notes were antidilutive in 1996. These
Notes were redeemed in 1997 and are not outstanding at year end.
</TABLE>
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 related 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.
-30-
<PAGE> 32
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.
The Company has commitments to purchase approximately $200 million of its coke
and coal requirements for the years 1998 through 2001.
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, 1997 and 1996, based on current market interest rates.
-31-
<PAGE> 33
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, 1997 and 1996, the purchase
value of these contracts totaled $6 million and $10 million, respectively. The
contracts extend for periods of up to two years. At December 31, 1997 and 1996,
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
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, 1997.
Outstanding letters of credit totaled $101 million and $108 million at December
31, 1997 and 1996, 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 does not believe
it is practicable to estimate the fair value of the guarantees and does not
believe exposure to loss is likely.
VP BUILDINGS ACQUISITION
On July 2, 1997, the Company, through its new wholly owned subsidiary VP
Buildings, purchased substantially all of the assets and certain liabilities of
Varco-Pruden Building Products Division of United Dominion Industries, Inc. for
cash of approximately $188 million. VP Buildings engineers and manufactures
pre-engineered, non-residential, low-rise steel building systems for
manufacturing, warehousing, school and commercial applications. This transaction
was accounted for under the purchase method of accounting and, accordingly, the
results of operations of the acquired company are included in the consolidated
financial statements from the date of acquisition.
The following unaudited pro forma financial information for the Company gives
effect to the VP Buildings acquisition as if it had occurred on January 1, 1997
and 1996. These pro forma results have been prepared for comparative purposes
only and are not necessarily representative of the results of operations that
would have resulted if the acquisition occurred at the beginning of the year or
that may result in the future. The pro forma results for the Company are as
follows (in millions, except per share data):
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $4,590 $4,440
Income before extraordinary charge 44 124
Net income 33 124
Earnings per share:
Basic $ 0.30 $ 1.15
Dilutive $ 0.30 $ 1.14
</TABLE>
-32-
<PAGE> 34
The following information reflects the results of operations for VP Buildings
since its acquisition on July 2, 1997 (in millions):
<TABLE>
<CAPTION>
<S> <C>
Net sales $177
Cost of goods sold 140
Depreciation 4
Selling, general and administrative 15
----
Operating income $ 18
====
Total assets $244
Capital expenditures 7
</TABLE>
PITTSBURGH COKE PLANT SHUTDOWN
In July 1997, LTV announced its plan to close permanently its Pittsburgh coke
and by-product plant. The Company's approval of an exit plan involving closure
of the plant, which has been in operation for over forty years and has reached
the end of its useful life, resulted in a special charge of $150 million in the
third quarter. The charge includes $51 million for facilities write-down,
employee costs of $34 million covering approximately 750 hourly and 100 salaried
employees, and demolition, environmental matters and other costs of $65 million.
Approximately $100 million would be payable in cash over a period of several
years.
In August 1997, the USWA filed a grievance that resulted in binding arbitration
under its labor agreement with the Company, alleging that the Company's actions
relating to the Pittsburgh coke plant violated a local agreement. The
arbitrator's decision on January 12, 1998 upheld the Company's positions in the
arbitration proceedings that it is not required to spend "major construction or
rehabilitation" funds to keep the plant operating and that the Company has, in
the past, properly maintained the plant to the extent required by the local
agreement. The arbitrator did find, however, that the local agreement required
the Company to submit an environmental remediation proposal to the EPA
proposing maintenance type actions which would at least attempt to address a
Notice of Violation ("NOV") issued by the EPA in March 1997, and which, if
accepted by the EPA, would allow the continued operation of the plant. In
requiring the Company to make such a proposal to the EPA, the arbitrator
conceded that, "Such a proposal would not be a `compliance plan' in the formal
sense because it cannot reasonably be projected that such maintenance actions
can lead to full compliance."
The Company does not believe that any such remediation proposal will result in
any agreement with the EPA that would allow the continued operation of the
plant. The Company continues to believe that only a complete $400 to $500
million pad-up rebuild would restore the plant's operational capabilities, and
the arbitrator has clearly ruled that such action is not required under the
labor agreement. Accordingly, while the Company has submitted a proposal to the
EPA in January 1998 as required by the decision, the Company expects to
complete its shutdown plan at the plant. The Company, at the request of local
and union leaders, continues to discuss the possible sale of the coke plant
with prospective buyers but believes that the deteriorated condition of the
plant, which the Company believes has reached the end of its useful
-33-
<PAGE> 35
life, and its high capital investment needs make it unlikely that a
financially responsible buyer can be found to operate the plant.
DISCONTINUED OPERATIONS
On August 1, 1995, LTV sold its energy products segment, Continental Emsco
Company, for $75 million, with $39 million of the proceeds used to reduce LTV's
long-term debt. The loss of $9 million on the sale of the segment was recorded
as a discontinued operation. Sales by the energy products segment were $179
million through August 1, 1995.
OTHER FINANCIAL DATA
Net interest and other income included the following (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest and other income $ 45 $ 44 $ 54
Interest expense (3) (1) (11)
---- ---- ----
Total $ 42 $ 43 $ 43
==== ==== ====
</TABLE>
The Company's sales to the transportation market approximated 30% of sales over
each of the last three years. The Company also sells to the steel service center
and converter markets that, in turn, sell to the transportation and other
industries. Management does not believe significant credit risk exists at
December 31, 1997. Sales for the years 1997, 1996 and 1995 to the Company's
largest customer, General Motors Corporation, represented approximately 11%, 11%
and 12%, respectively, of total sales.
The Company has incurred research and development expense of $14 million, $15
million and $15 million for 1997, 1996 and 1995, respectively.
-34-
<PAGE> 36
Supplemental cash flow information is presented as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Changes in assets and liabilities which provided (used) net cash:
Receivables $ (26) $ (7) $ 69
Inventories (89) (60) 9
Other assets 34 13 39
Accounts payable (19) 96 (12)
Other liabilities (6) (31) (1)
Other (1) (13) (7)
-------- -------- --------
Total $ (107) $ (2) $ 97
======== ======== ========
Interest payments $ 11 $ 13 $ 11
Income tax payments 8 2 2
Capitalized interest 19 15 8
Purchases of marketable securities 10,443 4,682 8,735
Sales of marketable securities 10,650 4,575 8,637
</TABLE>
SUPPLEMENTAL GUARANTOR INFORMATION
LTV's wholly owned subsidiary, LTV Steel Company, Inc., has fully and
unconditionally guaranteed the Company's obligation to pay principal, premium,
if any, and interest with respect to the Senior Notes.
The following supplemental consolidating condensed financial statements of The
LTV Corporation present (in millions): balance sheets as of December 31, 1997
and 1996; statements of income for the years ended December 31, 1997, 1996 and
1995; and statements of cash flows for the years ended December 31, 1997, 1996
and 1995. The LTV Corporation (Parent), LTV Steel Company, Inc. (Guarantor) and
the combined Non-Guarantor Subsidiaries' investments in subsidiaries are
accounted for using the equity method. Necessary elimination entries have been
made to consolidate the Parent and all of its subsidiaries. Management does not
believe that separate financial statements of the Guarantor are material to
investors. Therefore, separate financial statements and other disclosures
concerning the Guarantor are not presented.
-35-
<PAGE> 37
CONSOLIDATING CONDENSED BALANCE SHEET
(in millions)
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------ --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable securities $ 467 $ (15) $ 68 $ - $ 520
Receivables 4 (23) 489 - 470
Inventories:
Finished goods - 650 6 - 656
Raw materials and supplies - 209 37 - 246
Other current assets 4 7 1 - 12
------ ------- ------ ------- -------
Total current assets 475 828 601 - 1,904
Intercompany, net 83 475 (558) - -
Investments and other noncurrent assets 1,470 186 432 (1,607) 481
Property, plant and equipment - 2,939 222 - 3,161
------ ------- ------ ------- -------
Total assets $2,028 $ 4,428 $ 697 $(1,607) $ 5,546
====== ======= ====== ======= =======
Total current liabilities $ 37 $ 776 $ 125 $ - $ 938
Long-term debt 298 57 - - 355
Postemployment health care and other insurance
benefits - 1,458 112 - 1,570
Pension benefits - 538 10 - 548
Other 17 419 23 - 459
Shareholders' equity 1,676 1,180 427 (1,607) 1,676
------ ------- ------ ------- -------
Total liabilities and shareholders' equity $2,028 $ 4,428 $ 697 $(1,607) $ 5,546
====== ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------ --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable securities $ 629 $ (15) $ 60 $ - $ 674
Receivables 5 (16) 411 - 400
Inventories:
Finished goods - 531 39 - 570
Raw materials and supplies - 208 24 - 232
Other current assets 3 7 2 - 12
------ ------- ------ ------- -------
Total current assets 637 715 536 - 1,888
Intercompany, net 15 476 (491) - -
Investments and other noncurrent assets 1,200 359 282 (1,436) 405
Property, plant and equipment - 2,934 183 - 3,117
------ ------- ------ ------- -------
Total assets $1,852 $ 4,484 $ 510 $(1,436) $ 5,410
====== ======= ====== ======= =======
Total current liabilities $ 25 $ 759 $ 115 $ - $ 899
Long-term debt 100 53 - - 153
Postemployment health care and other insurance
benefits - 1,431 165 - 1,596
Pension benefits - 621 27 - 648
Other 17 362 25 - 404
Shareholders' equity 1,710 1,258 178 (1,436) 1,710
------ ------- ------ ------- -------
Total liabilities and shareholders' equity $1,852 $ 4,484 $ 510 $(1,436) $ 5,410
====== ======= ====== ======= =======
</TABLE>
-36-
<PAGE> 38
CONSOLIDATING CONDENSED STATEMENT OF INCOME
(in millions)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 3,965 $ 1,179 $ (698) $ 4,446
Costs and expenses:
Cost of products sold - 3,460 1,039 (698) 3,801
Depreciation and amortization - 241 22 - 263
Selling, general and administrative 11 120 33 - 164
Results of affiliates' operations (41) (40) 41 81 41
Net interest and other (39) 8 (11) - (42)
Special charge - 148 2 - 150
------- ------- ------- ------- -------
Total (69) 3,937 1,126 (617) 4,377
------- ------- ------- ------- -------
Income before income taxes 69 28 53 (81) 69
Tax provision (28) (11) (21) 32 (28)
------- ------- ------- ------- -------
Income before items below 41 17 32 (49) 41
Extraordinary charge (4) - - - (4)
Cumulative effect of accounting change (7) - - - (7)
------- ------- ------- ------- -------
Net income $ 30 $ 17 $ 32 $ (49) $ 30
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 3,872 $ 947 $ (684) $ 4,135
Costs and expenses:
Cost of products sold - 3,404 876 (684) 3,596
Depreciation and amortization - 250 16 - 266
Selling, general and administrative 10 117 16 - 143
Results of affiliates' operations (138) (7) - 145 -
Net interest and other (45) 5 (3) - (43)
------- ------- ------- ------- -------
Total (173) 3,769 905 (539) 3,962
------- ------- ------- ------- -------
Income before income taxes 173 103 42 (145) 173
Income tax provision 64 38 15 (53) 64
------- ------- ------- ------- -------
Net income $ 109 $ 65 $ 27 $ (92) $ 109
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
--------------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 4,068 $ 958 $ (743) $ 4,283
Costs and expenses:
Cost of products sold - 3,496 868 (743) 3,621
Depreciation and amortization - 237 15 - 252
Selling, general and administrative 13 115 14 - 142
Results of affiliates' operations (270) (36) - 306 -
Net interest and other (54) 15 (4) - (43)
------- ------- ------- ------- -------
Total (311) 3,827 893 (437) 3,972
------- ------- ------- ------- -------
Income from continuing operations before
income taxes 311 241 65 (306)
311
Income tax provision 117 91 24 (115) 117
------- ------- ------- ------- -------
Income from continuing operations 194 150 41 (191) 194
Discontinued operations (9) - - - (9)
------- ------- ------- ------- -------
Net income $ 185 $ 150 $ 41 $ (191) $ 185
======= ======= ======= ======= =======
</TABLE>
-37-
<PAGE> 39
CONSOLIDATING CONDENSED CASH FLOWS STATEMENT
(in millions)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by operating activities $ (74) $ 376 $ 95 $ - $ 397
------- ------- ------- ------- -------
Investing activities:
Capital expenditures - (319) (7) - (326)
VP Buildings acquisition (188) - - - (188)
Investment in steel-related businesses - - (101) - (101)
Net sales of marketable securities 207 - - - 207
Proceeds from dispositions of discontinued
operations, businesses and properties - 1 23 - 24
------- ------- ------- ------- -------
Net cash used in investing activities 19 (318) (85) - (384)
------- ------- ------- ------- -------
Financing activities:
Net proceeds from debt offering 290 - - - 290
Payments on long-term debt (106) - - - (106)
Pension funding to restored plans - (59) (2) - (61)
Repurchases of common stock (68) - - - (68)
Dividends paid (15) - - - (15)
------- ------- ------- ------- -------
Net cash provided in financing activities 101 (59) (2) - 40
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 46 (1) 8 - 53
Cash and cash equivalents at beginning of year 62 (15) 60 - 107
------- ------- ------- ------- -------
Cash and cash equivalents at end of year $ 108 $ (16) $ 68 $ - $ 160
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash provided by operating activities $ (92) $ 494 $ 93 $ - $ 495
------- ------- ------- ------- -------
Investing activities:
Capital expenditures - (222) (21) - (243)
Investment in steel-related businesses - - (79) - (79)
Net purchases of marketable securities (109) - - - (109)
Proceeds from dispositions of discontinued
operations, businesses and properties - 2 9 - 11
Other (2) - (15) - (17)
------- ------- ------- ------- -------
Net cash used in investing activities (111) (220) (106) - (437)
------- ------- ------- ------- -------
Financing activities:
Pension funding to restored plans - (199) (6) - (205)
Dividends paid (12) - - - (12)
------- ------- ------- ------- -------
Net cash used in financing activities (12) (199) (6) - (217)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents (215) 75 (19) - (159)
Cash and cash equivalents at beginning of year 277 (90) 79 - 266
------- ------- ------- ------- -------
Cash and cash equivalents at end of year $ 62 $ (15) $ 60 $ - $ 107
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-----------------------------------------------------------------------
Non-Guarantor
Parent Guarantor Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Cash provided by operating activities $ 70 $ 649 $ 37 $ - $ 756
------- ------- ------- ------- -------
Investing activities:
Capital expenditures - (192) (13) - (205)
Investment in steel-related businesses - - (89) - (89)
Net purchases of marketable securities (100) - - - (100)
Proceeds from dispositions of discontinued
operations, businesses and properties - 12 82 - 94
Other 4 - (13) - (9)
------- ------- ------- ------- -------
Net cash used in investing activities (96) (180) (33) - (309)
------- ------- ------- ------- -------
Financing activities:
Pension funding to restored plans - (459) (14) - (473)
Payments on long-term debt (33) (6) (2) - (41)
Dividends paid and other (2) - (1) - (3)
------- ------- ------- ------- -------
Net cash used in financing activities (35) (465) (17) - (517)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents (61) 4 (13) - (70)
Cash and cash equivalents at beginning of year 338 (94) 92 - 336
------- ------- ------- ------- -------
Cash and cash equivalents at end of year $ 277 $ (90) $ 79 $ - $ 266
======= ======= ======= ======= =======
</TABLE>
-38-
<PAGE> 40
REPORT OF MANAGEMENT
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.
David H. Hoag
Chairman of the Board
and Chief Executive Officer
Arthur W. Huge
Senior Vice President and
Chief Financial Officer
January 29, 1998
-39-
<PAGE> 41
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
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, 1997 and 1996, and the related
consolidated statements of income, changes in equity and cash flows for each of
the three years in the period ended December 31, 1997. 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.
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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As discussed in the "Summary of Significant Accounting Policies" notes to the
financial statements, in 1997, the Company changed its method of accounting for
start-up costs.
Cleveland, Ohio Ernst & Young LLP
January 29, 1998
-40-
<PAGE> 42
FIVE YEAR FINANCIAL SUMMARY
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS FOR THE YEAR
Sales $ 4,446 $ 4,135 $ 4,283 $ 4,233 $ 3,868
Income (loss) from continuing
operations before special items 219 173 311 203 (75)
Special (charge) credits (150) - - - 592
Income tax provision:
Taxes payable (refundable) 10 - 2 (2) 3
Taxes not payable in cash 18 64 115 75 158
------- ------- ------- ------- -------
Total 28 64 117 73 161
------- ------- ------- ------- -------
Income from continuing
operations 41 109 194 130 356
Reorganization items - - - - 31
Discontinued operations - - (9) (3) -
Extraordinary (charge) credit (4) - - - 3,928
Cumulative effect of a change in
accounting for start-up costs (7) - - - -
------- ------- ------- ------- -------
Net income $ 30 $ 109 $ 185 $ 127 $ 4,315
======= ======= ======= ======= =======
Earnings per share (dilutive):
Continuing operations $ 0.37 $ 1.01 $ 1.76 $ 1.30 NM
Net income 0.27 1.01 1.68 1.27 NM
Dividends paid per common share $ 0.12 $ 0.09 - - -
FINANCIAL POSITION AT YEAR END
Working capital $ 966 $ 989 $ 1,024 $ 1,190 $ 883
Total assets 5,546 5,410 5,380 5,525 5,795
Property, net 3,161 3,117 3,140 3,189 3,217
Long-term debt 355 153 150 183 186
Other noncurrent obligations 2,577 2,648 3,008 3,222 3,669
Shareholders' equity 1,676 1,710 1,375 1,283 540
OTHER FINANCIAL INFORMATION
Property additions $ 326 $ 243 $ 205 $ 234 $ 323
Depreciation 263 266 252 242 237
OTHER OPERATING DATA
Raw steel production
(millions of tons) 8.9 8.8 8.5 8.3 7.9
Continuous cast 100% 100% 100% 100% 86%
Steel product shipments
(millions of tons) 8.2 8.1 8.0 8.0 7.6
Operating rate 106% 105% 102% 99% 95%
Employees 15,500 14,000 14,400 15,300 15,700
</TABLE>
NM Not meaningful. 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. Dilutive earnings per share totaled $3.01 on continuing operations
and $3.03 on net income for the six months ended December 31, 1993.
-41-
<PAGE> 43
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents quarterly financial information (in millions,
except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales
1997 $ 1,072 $ 1,092 $ 1,135 $ 1,147
1996 993 1,075 1,049 1,018
Gross margin
1997 141 153 177 174
1996 113 146 137 143
Income (loss) from continuing operations
1997 45 45 (86) 65
1996 21 51 45 56
Extraordinary charge on early extinguishment of debt
1997 - - (4) -
Cumulative effect of a change in accounting for
start-up costs
1997 - - - (7)
Net income (loss)
1997 27 27 (56) 32
1996 13 32 29 35
Market price per share
1997 - High $ 13.63 $ 14.56 $ 14.38 $ 13.13
Low 11.63 12.50 11.94 9.38
1996 - High 15.88 14.50 13.50 12.13
Low 12.25 11.38 10.63 10.00
Market price per Series A Warrant
1997 - High $ 0.94 $ 0.81 $ 0.63 $ 0.38
Low 0.56 0.50 0.25 0.03
1996 - High 3.13 2.25 1.63 1.13
Low 2.00 1.50 0.94 0.56
Earnings per share (1)
1997 - Basic $ 0.25 $ 0.25 $ (0.54) $ 0.31
- Dilutive $ 0.25 $ 0.25 $ (0.54) $ 0.31
1996 - Basic $ 0.12 $ 0.30 $ 0.27 $ 0.32
- Dilutive $ 0.12 $ 0.29 $ 0.27 $ 0.32
Dividends paid per common share
1997 $ 0.03 $ 0.03 $ 0.03 $ 0.03
1996 $ - $ 0.03 $ 0.03 $ 0.03
<FN>
(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>
<PAGE> 1
Exhibit 18
January 29, 1998
Mr. Arthur W. Huge
Senior Vice President & Chief Financial Officer
The LTV Corporation
200 Public Square
Cleveland, Ohio 44115
Dear Art:
The "Summary of Significant Accounting Policies" note of Notes to the
Consolidated Financial Statements of The LTV Corporation included in its Form
10-K for the year ended December 31, 1997, describes a change in the method of
accounting for start-up costs from deferral to expensing start-up costs as
incurred. You have advised us that you believe that the change is to a
preferable method in your circumstances because such method presents a more
accurate reflection of assets and is an accepted industry practice.
While there are no authoritative criteria for determining a "preferable"
accounting method for start-up costs, we are aware that the Accounting
Standards Executive Committee has approved a proposed Statement of Position
(subject to review of the Financial Accounting Standards Board) which would
require that companies expense all start-up costs as they are incurred. We
conclude that the change in the method of accounting for start-up costs from
deferral to expensing start-up costs as incurred is a change to an acceptable
alternative method which, based on your business judgment to make this change
for the reason cited above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
<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%
Jalcite I, Inc. 100%
Black River Lime Company 25%
Cliffs and Associates Limited 46.5%
Jones & Laughlin Steel Incorporated 100%
Kingsley International Insurance Ltd. 100%
LTV Blanking Corporation 100%
TWB Company, L.L.C. 11.1%
LTV Corporation, The (Wyoming) 100%
LTV/EGL Holding Company 100%
L-S Electro-Galvanizing Company 60%
LTV Electro-Galvanizing, Inc. 100%
LTV International, 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%
Cayman Mineracao do Brasil Ltda 97.5%
Chicago Short Line Railway Company 100%
Crystalane, Inc. 100%
Cuyahoga Valley Railway Company, The 100%
Mahoning Valley Railway Company, The 100%
Dearborn Leasing Company 100%
LS-II Electro-Galvanizing Company 50%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
NAME OF COMPANY PERCENTAGE OWNED
- --------------- ----------------
<S> <C>
THE LTV CORPORATION (Continued) Parent
LTV Steel Company, Inc. (Continued) 100%
Erie B Corporation 100%
LTV Steel Mining Company 45%
Erie I Corporation 100%
LTV Steel Mining Company 10%
Fox Trail, Inc. 100%
Cayman Mineracao do Brasil Ltda 2.5%
J&L Empire, Inc. 100%
Empire Iron Mining Partnership 25%
Marquette Range Coal Service Company 48.5%
Jalcite II, Inc. 100%
Black River Lime Company 12.5%
Jalore Mining Company, Ltd. 100%
L.A.S. Resources, Inc. 53%
LTV Pickle, Inc. 100%
Monongahela Connecting Railroad Company, The 100%
Nemacolin Mines Corporation 100%
Northern Land Company 50%
O'Hare Group, Inc., The 10%
Olga Coal Company 53%
Presque Isle Corporation 53.5%
Processing Technology, Inc. 47.6%
Republic Technology Corporation 100%
Reserve Mining Company 50%
River Terminal Railway Company, The 100%
Youngstown Erie Corporation 100%
LTV Steel Mining Company 45%
YST Erie Corporation 100%
LTV Steel de Mexico, Ltd. 100%
Lagermex S.A. de C.V. 25%
LTV-Trico, Inc. 100%
Trico Steel Company, L.L.C. 50%
RepSteel Overseas Finance N.V. 100%
Trico Steel Company, Inc. 100%
VP Buildings, Inc. 100%
Varco-Pruden Exports, Ltd. 100%
Varco Pruden International, Inc. 100%
VP Buildings - Wisconsin, Inc. 100%
</TABLE>
<PAGE> 1
Exhibit (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, Form S-8 No. 33-61399, Form S-8 No.
33-20431 and Form S-8 No. 333-25865) 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, Non-Qualified Stock Option Plan for
Certain Key Executives of Continental Emsco Company, Salaried Employee Stock
Option Plan and The LTV Corporation Amended and Restated Management Incentive
Program, respectively, of The LTV Corporation of our report dated January 29,
1998, 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, 1997.
Cleveland, Ohio /S/ ERNST & YOUNG LLP
February 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 160
<SECURITIES> 360
<RECEIVABLES> 488
<ALLOWANCES> 18
<INVENTORY> 902
<CURRENT-ASSETS> 1,904
<PP&E> 4,096
<DEPRECIATION> 935
<TOTAL-ASSETS> 5,546
<CURRENT-LIABILITIES> 938
<BONDS> 355
0
1
<COMMON> 53
<OTHER-SE> 1,622
<TOTAL-LIABILITY-AND-EQUITY> 5,546
<SALES> 4,446
<TOTAL-REVENUES> 4,446
<CGS> 3,801
<TOTAL-COSTS> 4,419
<OTHER-EXPENSES> (45)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 69
<INCOME-TAX> 28
<INCOME-CONTINUING> 41
<DISCONTINUED> 0
<EXTRAORDINARY> (4)
<CHANGES> (7)
<NET-INCOME> 30
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
