<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON --, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
THE LTV CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 331 75-1070950
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
200 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216) 622-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------------
GLENN J. MORAN
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
THE LTV CORPORATION
200 PUBLIC SQUARE
CLEVELAND, OHIO 44114
(216) 622-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------
COPIES TO:
JAMES A. FLORACK
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier registration
statement for the same offering. [ ]____
If this Form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration number for the same
offering. [ ]____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TITLE OF SHARES TO BE REGISTERED REGISTERED PER UNIT(1)(2) PRICE(1)(2) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
8 1/4% Series A Cumulative Convertible
Preferred Stock............................ 1,600,000 shares $50.00 $80,000,000 $21,120
Common Stock, par value $0.50 per share
underlying Preferred Stock................... (4),(5) Not applicable Not applicable Not applicable
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee.
(2) Exclusive of accrued interest and distributions, if any.
(3) Calculated pursuant to Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended.
(4) Under Rule 457(i), no additional registration fee is required in connection
with the registration of our Common Stock issuable upon conversion of the
Preferred Stock being registered hereunder.
(5) 21,768,000 shares of Common Stock are issuable initially upon conversion of
the Preferred Stock being registered hereunder at the conversion rate of
13.605 shares of Common Stock for each Preferred Stock. An indeterminate
number of shares of Common Stock as may be issuable upon conversion of the
Preferred Stock are registered hereunder, including such shares as may be
issuable pursuant to antidilution adjustments. The Common Stock issuable
upon conversion of the Preferred Stock, if issued, will be issued for no
additional consideration.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED --
PROSPECTUS
[LTV LOGO]
THE LTV CORPORATION
1,600,000 SHARES OF
8 1/4% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
CONVERTIBLE INTO COMMON STOCK OF THE LTV CORPORATION
-------------------------
This prospectus covers:
- the resale by certain holders named in this prospectus or in an
accompanying supplement to this prospectus (the "Selling Stockholders")
of an aggregate of 1,600,000 shares of our outstanding Series A Preferred
Stock (the "Preferred Stock"); and
- the issuance and sale of up to 21,768,000 shares of our common stock upon
conversion of the Preferred Stock and such additional indeterminate
number of common stock as may become issuable upon conversion by reason
of adjustment to the conversion price (the "Common Stock" and together
with the Preferred Stock, the "Securities").
All of the Securities being registered may be offered and sold from time to
time by the Selling Stockholders. See "Plan of Distribution."
We will not receive any proceeds from the sale of the Preferred Stock or
the sale or issuance of the Common Stock. The Preferred Stock was initially sold
in transactions permitted by Rule 144A and Regulation S under the Securities Act
of 1933, as amended (the "Initial Offering") to the initial purchasers of the
Preferred Stock (the "Initial Purchasers") and therefore not registered with the
SEC. The Securities are being registered by us pursuant to registration rights
granted in connection with the Initial Offering of the Preferred Stock.
-------------------------
Our common stock is quoted on the New York Stock Exchange under the symbol
"LTV." On December 28, 1999, the last reported sale price of our common stock on
the New York Stock Exchange was $3 3/4 per share.
-------------------------
For a more detailed description of the shares, see "Description of
Preferred Stock" beginning on page 77.
-------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is --, 2000
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith are required to file
reports and other information with the Securities and Exchange Commission. All
reports and other information filed by us with the SEC may be inspected without
charge at the public reference facilities maintained by the SEC at 450 Fifth
Street, NW, Washington, D.C. 20549, and at the regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such documents can be obtained from the public reference section of
the SEC, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. The
SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
us, that file electronically with the SEC. In addition, such reports and other
information concerning us may also be inspected at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with the SEC. This permits us to disclose important information to you by
referring to these filed documents. Any information referred to in this way is
considered part of this prospectus, and any information filed with the SEC by us
after the date of this prospectus will automatically be deemed to update and
supersede this information. We incorporate by reference the following documents:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Reports on Form 10-Q for the three months ended March 31, 1999,
June 30, 1999 and September 30, 1999; and
- Current Report on Form 8-K filed on November 22, 1999
We also incorporate by reference any future filings made with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until the
termination of the offering under this prospectus.
We will provide without charge upon written or oral request, a copy of any
or all of the documents that are incorporated by reference into this prospectus,
other than exhibits which are specifically incorporated by reference into such
documents. Requests should be directed to The LTV Corporation, 200 Public
Square, Cleveland, Ohio, 44114; (216) 622-5631; Attention: Senior Vice
President, General Counsel and Secretary.
While any Preferred Stock remains outstanding, we will make available, upon
request, to any holder and any prospective purchaser of Preferred Stock the
information pursuant to Rule 144A(d)(4) under the Securities Act during any
period in which we are not subject to Section 13 or 15(d) of the Exchange Act.
Any such request should be directed to our Senior Vice President, General
Counsel and Secretary at 200 Public Square, Cleveland, Ohio 44114-2308, (216)
622-5631.
FORWARD-LOOKING STATEMENTS
Statements we make in this prospectus that are not historical facts
constitute "forward-looking statements" intended to qualify for the safe harbor
from liability
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established by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology, including "believes," "expects," "anticipates,"
"intends," "pro forma," "estimates" or by discussions of strategy or intentions.
Forward-looking statements, by their nature, involve risk and uncertainty. A
variety of factors could cause business conditions and our actual results and
experience to differ materially from those that we expect and have expressed in
our forward-looking statements. These factors include, but are not limited to,
the following:
- changes in market price or market demand, even if relatively small;
- changes in domestic capacity;
- changes in raw material costs;
- increased environmental and other operating costs;
- loss of business from major customers, especially for high value-added
products;
- unanticipated expenses;
- substantial changes in financial markets;
- labor unrest;
- increased foreign competition;
- major equipment failure;
- unanticipated results in pending legal proceedings; and
- difficulties in implementing information technology, including Year 2000
compliant systems.
The forward-looking statements included in this prospectus are made only as
of the date of this prospectus and we undertake no obligation to publicly update
the forward-looking statements to reflect subsequent events or circumstances.
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<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the Securities being offered and the
financial statements appearing elsewhere in the prospectus. In this prospectus,
except as otherwise indicated, the words "LTV," "we," "us," "our" and "ours"
refer to The LTV Corporation together with its subsidiaries, including the
acquired companies, Welded Tube Company of America and Copperweld Corporation
and Copperweld Canada Inc. We refer to Welded Tube Company of America as "Welded
Tube" and to Copperweld Corporation and Copperweld Canada, Inc. together as
"Copperweld" and to our acquisition of Welded Tube and Copperweld together as
the "Acquisitions." References in this prospectus to "pro forma" at any date or
for any period mean, except as otherwise indicated, pro forma as adjusted to
give effect to the Acquisitions and related financings as of such date or at the
beginning of the relevant period.
LTV
OVERVIEW
LTV is a leading North American producer of flat rolled steel and
steel-related products such as pipe, tubing and pre-engineered metal buildings.
Based on 1998 shipments, we are the third largest North American integrated
steel producer, the second largest producer of flat rolled steel and a leading
supplier of "quality-critical" flat rolled steel to the automotive, appliance
and electrical equipment and service center industries in the United States. We
are also the second largest manufacturer of pre-engineered metal buildings
systems in North America. We operate two integrated steel mills, Cleveland Works
and Indiana Harbor Works, various steel finishing and processing facilities and
numerous tubular and metal buildings operations.
We believe that with the acquisitions of Welded Tube and Copperweld,
described below, and their combination with our current tubular business, we are
the largest producer of mechanical and structural steel tubing products in North
America and the world's largest producer of bimetallic wire products, primarily
consisting of copper-clad aluminum and steel wire for telecommunications.
We believe that our emphasis on value-added products and quality in our
integrated steel operations has allowed us to become a leading supplier to
quality-critical steel-consuming industries. We are a qualified supplier to all
domestic automobile manufacturers, including foreign-owned transplant automobile
assemblers. Our metal fabrication businesses are generally considered to be
among the leaders in their respective industries and are highly competitive in
terms of quality, service and cost. On a pro forma basis for 1998, we would have
generated revenues of approximately $5.1 billion and EBITDA, before special
charges, of approximately $389 million.
We operate in three segments:
- INTEGRATED STEEL, consisting of our operations to manufacture and sell
carbon flat rolled steel-related products including hot rolled, cold
rolled and galvanized sheet and tin mill products.
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<PAGE> 6
- METAL FABRICATION, consisting of our operations to manufacture and sell
tubular and metal buildings products. Our tubular operations produce
pipe, conduit and other tubular products for use primarily in the
transportation, agricultural and construction industries. This segment
has been expanded through our acquisition of Welded Tube and Copperweld.
Metal buildings systems and components are manufactured through our
subsidiary, VP Buildings, Inc.
- CORPORATE AND OTHER, consisting of joint ventures that utilize new
steel-related technologies, and corporate investments and related income
and expenses. Our joint ventures are Trico Steel Company (a flat rolled
steel mini-mill) and Cliffs and Associates Limited (a venture which will
produce direct reduced iron briquettes).
BUSINESS STRATEGY
Key elements of our strategy include:
- MAXIMIZING THE PERFORMANCE OF OUR INTEGRATED STEEL OPERATIONS. We seek
to maximize returns from our integrated steel facilities by focusing on
value-added flat rolled steel products, reducing production costs and
improving productivity and product quality. Our continuing reinvestment
in this segment is intended to maintain our quality, product and
cost-competitive position in value-added flat rolled steel applications.
- GROWING OUR METAL FABRICATION BUSINESSES. We are actively pursuing
profitable growth opportunities in metal fabrication businesses that are
complementary to our existing steel-related manufacturing capabilities.
Through acquisitions and internal growth in metal fabrication, we are
continuing to diversify our overall product mix and are increasing the
contribution these businesses make to our financial results. As part of
this strategy, we are focused on integrating Welded Tube and Copperweld
in order to realize the operational synergies and growth opportunities we
believe the Acquisitions can provide.
- DEVELOPING OUR STEEL-RELATED BUSINESSES. We have entered into two
steel-related joint ventures, Trico Steel and Cliffs and Associates, that
utilize new technologies to produce flat rolled steel and direct reduced
iron. These ventures are intended to leverage LTV's steelmaking expertise
to achieve growth. We are continuing to support the start-up of our
existing joint venture operations to achieve satisfactory operational and
financial performance. We will also continue to evaluate new steel-
related technologies as they become available to determine if additional
investments in this area are attractive.
ACQUISITIONS OF WELDED TUBE AND COPPERWELD
On October 1, 1999, we acquired Welded Tube for an aggregate cash purchase
price of $113.5 million, subject to finalization of working capital adjustments.
Welded Tube is the second largest structural tube producer in North America and
produces the broadest range of structural tubing, used primarily for
construction and for the industrial, transportation and agricultural equipment
industries.
On November 10, 1999, we acquired all the capital stock of Copperweld for
an aggregate cash purchase price of approximately $650 million, subject to
finalization of shareholder equity adjustments. We believe that, based on 1998
shipments, Copperweld is
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<PAGE> 7
the largest North American manufacturer of mechanical and structural steel
tubing and the world's largest producer of bimetallic wire products.
LTV operates its tubular business, which consists of LTV Tubular, Welded
Tube and Copperweld, as "LTV Copperweld" under a common management with
headquarters in Pittsburgh, Pennsylvania.
LTV Copperweld is a leading presence in what we consider to be among the
most attractive segments of the tubular products industry. We believe LTV
Copperweld, which offers products including mechanical tubing, structural tubing
and electrical conduit, is attractive because these products offer relatively
higher margins and continuing growth opportunities, and are less susceptible to
competition from imports. LTV Copperweld operates 23 plants and employs
approximately 3,500 people in the United States and Canada. On a pro forma basis
for 1998, LTV Copperweld would have shipped in excess of 1.5 million tons and
would have generated revenues of approximately $1.2 billion.
We anticipate the Acquisitions to provide us with the following benefits:
- BROADEST PRODUCT LINE IN NORTH AMERICA. LTV Copperweld will have the
broadest product line of any tubular products company in North America.
This product line breadth is of increasing importance to steel service
centers (which are estimated to account for approximately 50% of tubular
product distribution) and original equipment manufacturers, or OEMs, both
of which are consolidating their supplier bases.
- MARKET LEADERSHIP IN PRINCIPAL PRODUCT AREAS. LTV Copperweld is North
America's largest and most diverse manufacturer of steel tubular products
and the largest producer of mechanical and structural tubing. Combining
the businesses will enhance our ability to develop and support
sophisticated vendor managed inventory systems, customer service and
technical support and product development activities. We also expect the
broad geographic reach of the combined businesses to allow us to offer
enhanced delivery and service to national customers. These advantages
should enhance our status as a preferred supplier of tubular products to
steel service centers, OEMs and other customers.
- OPERATIONAL SYNERGIES. We expect to reduce costs by, among other things,
optimizing our capital spending, coordinating raw material purchasing,
sharing best operating practices to improve operating efficiency,
improving overall productivity by more efficient plant scheduling and
reducing administrative costs. We expect that the metallurgical and
automotive research and development capabilities of our integrated steel
operations will be a valuable resource for our tubular operations. We
will also draw on our expertise at VP Buildings to develop ways to
differentiate applications for our structural tubing products.
- SIGNIFICANT NEW TUBULAR MANUFACTURING CAPACITY. We will seek to grow
sales by capitalizing on the new tubular manufacturing capacity recently
added through the expansion of the Copperweld mechanical tubing plant in
Shelby, Ohio and the construction of the Welded Tube structural tubing
plant in Portland, Oregon, the Copperweld stainless tubing plant in
Elizabethtown, Kentucky, and the LTV Tubular mechanical tubing plant in
Marion, Ohio. These projects, which had a total combined capital cost in
excess of $150 million through September 30, 1999, are still in the
start-up phase. As a result, they have made minimal contributions to our
pro forma financial results.
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- TUBULAR GROWTH POTENTIAL. Sales of structural and mechanical tubing have
grown in the United States over the last five years at compound average
growth rates of 8% and 5%, respectively. This growth has been driven by
increasing tubular product usage by the automotive, agricultural and
construction industries as a result of strong economic growth and
increasing market penetration of tubular products versus competing
materials.
As a result of the Acquisitions, our metal fabrication segment comprises a
significant part of LTV's overall economic results. On a pro forma basis, the
metal fabrication segment would have contributed 30% of revenues and 44% of
EBITDA before special charges in 1998 to our overall results. The combined metal
fabrication segment will also be a major purchaser of flat rolled steel and
would have consumed a total of approximately 2 million tons in 1998 on a pro
forma basis.
Financing of the Acquisitions. In addition to using the proceeds from the
Initial Offering of the Preferred Stock, we financed the Acquisitions by
entering into a new bank financing, issuing the 11 3/4% Senior Notes due 2009
and borrowing under our existing working capital facilities.
<TABLE>
<CAPTION>
SOURCES USES
------- ----
(IN MILLIONS)
<S> <C> <C> <C>
Preferred Stock.................. $ 80 Copperweld acquisition(a)........ $650
New Bank Financing............... 225 Welded Tube acquisition(a)....... 114
New Senior Notes................. 275 Expected purchase price
adjustments(b)................. 6
Receivables and Inventory Estimated transaction fees and
Facilities..................... 215 expenses....................... 25
---- ----
Total sources............... $795 Total uses....................... $795
==== ====
</TABLE>
- -------------------------
(a) The initial purchase price paid for Copperweld on November 10, 1999 was $650
million. The initial purchase price paid for Welded Tube on October 1, 1999
was $113.5 million.
(b) Expected adjustments related to the Welded Tube acquisitions for working
capital and the Portland, Oregon facility which recently began start-up
operations. Expected adjustments related to the Copperweld Acquisitions are
for shareholder equity adjustments.
RECENT DEVELOPMENTS
STEEL IMPORTS AND TRADE CASES
During the last half of 1998, imports of flat rolled product surged to
record levels, accounting for approximately 30% of total domestic consumption
during this period. We believe that a significant portion of these imports has
been unfairly traded. Following the issuance of final dumping determinations in
the hot rolled trade cases described below, the level of imports of flat rolled
steel receded during the first nine months of 1999 to 18% of total domestic
consumption.
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In September 1998, we and other domestic integrated steel producers filed
unfair trade cases covering certain hot rolled steel products against Japan,
Russia and Brazil. In early 1999, the Department of Commerce set significant
margin requirements on steel imports from these countries. Subsequently, the
Department of Commerce entered into agreements with Brazil and Russia suspending
the duties and setting maximum volumes and minimum prices. We also joined other
U.S. steel producers on June 21, 1999 in filing cold rolled trade cases against
dumped and subsidized imports from Argentina, Brazil, China, Indonesia, Japan,
Russia, Slovakia, South Africa, Taiwan, Thailand, Turkey and Venezuela. The U.S.
International Trade Commission made a preliminary determination that dumped cold
rolled steel imports from these twelve countries caused or threatened material
injury. This represents the initial phase of a process that will culminate in
final determinations of whether injury exists by the U.S. International Trade
Commission and the setting of margins (if any) by the Department of Commerce.
For more information on these trade cases, see "Business -- Trade Cases."
LABOR RELATIONS
On September 2, 1999, USWA-represented LTV employees ratified a five-year
labor agreement with LTV covering approximately 9,500 active employees. We
believe this agreement is competitive with other USWA integrated steel labor
agreements. It provides for, among other things, an aggregate of $2.00 in hourly
wage increases, substantial pension improvements, increased sickness and
accident benefits and a revised "neutrality" provision making it easier for the
USWA to organize employees at LTV's non-union plants in any steel-related
operation. This five-year labor agreement includes a "no strike" clause and puts
in place a mechanism for resolving a long-standing dispute with the USWA
relating to our Trico Steel mini-mill. See "Business -- Employee and Labor
Matters."
Our principal executive offices are located at 200 Public Square,
Cleveland, Ohio 44114. Our telephone number is (216) 622-5000.
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<PAGE> 10
THE OFFERING
Issuer.......................... The LTV Corporation.
Securities Offered.............. $80,000,000 aggregate liquidation preference
of 8 1/4% Series A Cumulative Convertible
Preferred Stock and Common Stock issuable
upon conversion of the Preferred Stock.
Issue Price..................... $50.00 per share of the Preferred Stock.
Ranking......................... The Preferred Stock ranks (1) senior to all
Junior Securities; (2) on a parity with any
Parity Securities; and (3) junior to each
class of Senior Securities. In addition, the
Preferred Stock ranks junior in right of
payment to all indebtedness and other
obligations of LTV and its subsidiaries. See
"Description of Preferred Stock -- Ranking."
Dividends....................... Dividends on the Preferred Stock will accrue
at the rate of 8.25% per annum. Dividends
will be computed on the basis of a 360-day
year consisting of twelve 30-day months and
will be payable quarterly in arrears on
February 15, May 15, August 15 and November
15 of each year (each a "Dividend Payment
Date"), commencing on February 15, 2000. In
the event we do not declare or pay dividends
for an aggregate of six quarterly periods,
holders of the Preferred Stock will have the
rights described under "Description of
Preferred Stock -- Voting Rights" below.
Optional Redemption by LTV...... Commencing November 18, 2004, we may redeem
the Preferred Stock at any time, in whole or
from time to time in part, at our election
(the "Optional Redemption"), at a redemption
price equal to the percentage of the
liquidation preference set forth below plus
accrued and unpaid dividends and Preferred
Stock Liquidated Damages, if any, to the
date of redemption (the "Optional Redemption
Date"), if redeemed during the 12-month
period commencing on November 8 of the years
set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C> <C>
2004....................... 104.13%
2005....................... 103.30
2006....................... 102.48
2007....................... 101.65
2008....................... 100.83
2009 and thereafter........ 100.00
</TABLE>
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Method of Payments.............. We may only make payments due on the
Preferred Stock including redemption
payments and dividend payments, in cash.
Optional Conversion by
Holders....................... The Preferred Stock is convertible at any
time, in whole or from time to time in part,
at the option of the holders (unless earlier
redeemed by LTV), initially at the
conversion price of $3.675 per share
(equivalent to 13.605 shares of common stock
for each $50.00 liquidation preference of
the Preferred Stock). Holders will not be
entitled to any accumulated unpaid dividends
upon conversion. The conversion price is
subject to adjustment upon the occurrence of
certain events.
Fundamental Change Conversion
Price Adjustment.............. In the event we announce a Fundamental
Change, the conversion price on the
Preferred Stock will automatically be
adjusted to equal the Fundamental Change
Average Market Price, unless the resulting
conversion price would be higher (in which
case no adjustment will be made).
Voting Rights................... Except as required by law, the holders of
the Preferred Stock will not be entitled to
any voting rights unless we have not
declared or paid dividends for an aggregate
of six quarterly periods (a "Voting Rights
Trigger Event"), in which case the holders
of a majority of the outstanding Preferred
Stock will be entitled to elect one member,
or, if the Board of Directors then has more
than five members, two members of the Board
of Directors of The LTV Corporation, and the
number of members of LTV's Board of
Directors will be immediately and
automatically increased by one or two, as
the case may be. Voting rights arising as a
result of the foregoing will continue until
such time as all dividends in arrears on the
Preferred Stock are paid in full, at which
time the term of office of any such members
of the Board of Directors so elected shall
terminate and such directors shall be deemed
to have resigned.
Trading......................... We have not applied and do not intend to
apply for the listing of the Preferred Stock
on any securities exchange.
Use of Proceeds................. We will not receive any proceeds from the
sale of the Preferred Stock or Common Stock
pursuant to this prospectus.
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RISK FACTORS
See "Risk Factors" beginning on page 13 for a discussion of certain factors
that you should consider in evaluating an investment in the Securities.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION AND
CERTAIN OPERATING DATA OF THE LTV CORPORATION
The following table sets forth for the periods and as of the dates
indicated summary consolidated financial data for The LTV Corporation. The
historical consolidated financial data for the years ended December 31, 1998,
1997 and 1996 are derived from audited financial statements. The historical
consolidated financial data for the nine months ended September 30, 1999 and
1998 are derived from unaudited financial statements. Both the audited and
unaudited financial statements are contained elsewhere in this prospectus and
should be read in conjunction with this summary. The pro forma summary combined
financial data is derived from the unaudited pro forma combined financial
statements contained elsewhere in this prospectus.
The principal pro forma adjustments reflected in the data presented below
include (1) the issuance of $795 million of debt and convertible preferred stock
to finance the Acquisitions and the related increased interest expense and
preferred dividends, (2) reduction of debt not assumed by LTV in the
Acquisitions and the related decrease in interest expense, (3) adjustments of
the net assets of Welded Tube and Copperweld to estimated fair values, (4) the
excess of acquisition cost over the fair value of net assets acquired
("goodwill") and related amortization and (5) the incremental tax effects of the
pro forma adjustments.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------------- --------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED LTV HISTORICAL AS ADJUSTED LTV HISTORICAL
----------- --------------- ----------- ------------------------
1999 1999 1998 1998 1998 1997 1996
----------- ------ ------ ----------- ------ ------ ------
(IN MILLIONS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Sales...................................... $3,609 $2,985 $3,284 $5,092 $4,273 $4,446 $4,135
Operating income (loss) before special
charges.................................. (38) (71) 66 120 57 218 130
Special charges(a)......................... 39 39 -- 55 55 150 --
Interest expense(b)........................ 61 10 2 71 3 3 2
Income (loss) before income taxes.......... (157) (139) 53 (29) (24) 69 173
Net income (loss).......................... (170) (145) 34 (38) (27) 30 109
OTHER FINANCIAL DATA:
Capital expenditures....................... $ 198 $ 156 $ 290 $ 485 $ 362 $ 326 $ 243
Depreciation and amortization.............. 228 197 193 292 259 263 266
EBITDA..................................... 133 69 249 334 238 335 440
Ratio of EBITDA to interest expense........ 1.8x 3.1x 9.5x 3.2x 6.9x 15.4x 26.4x
EBITDA before special charges.............. $ 172 $ 108 $ 249 $ 389 $ 293 $ 485 $ 440
Ratio of EBITDA before special charges to
interest expense......................... 2.3x 4.8x 9.5x 3.7x 8.5x 22.2x 26.4x
Ratio of earnings to fixed charges(d)...... -- -- 2.3x 1.0x 1.0x 2.8x 5.1x
Ratio of earnings to combined fixed charges
and preferred dividends(e)............... -- -- 2.2x -- 1.0x 2.5x 4.6x
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------
PRO FORMA LTV
AS ADJUSTED HISTORICAL
----------- ----------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 175 $ 167
Working capital............................................. 805 650
Property, plant and equipment, net.......................... 3,492 3,099
Total assets................................................ 6,112 5,235
Total long-term debt........................................ 1,017 402
Total postemployment health care and other insurance benefit
liabilities (including current portion)................... 1,699 1,648
Total pension benefit liabilities (including current
portion).................................................. 575 575
Shareholders' equity........................................ 1,548 1,471
</TABLE>
- -------------------------
(a) In the first nine months of 1999 we recorded a special charge of $39 million
for the suspension of a pilot business systems project being installed at
our Hennepin, Illinois plant and a salaried work force reduction already
implemented. In 1998, we recorded a $55 million special charge for the
closure of a finishing facility at the Cleveland Works, recognition of an
asset impairment of an electro-galvanizing joint venture of which we own
50%, a shutdown of a production line for electric-weld pipe and a salaried
force reduction. In 1997, we recorded a special charge of $150 million for
the closure of the Pittsburgh coke plant. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition of The LTV
Corporation" for further discussion.
(b) Excludes capitalized interest of $12 million for the nine months ended
September 30, 1999, pro forma as adjusted, $12 million and $24 million for
the nine months ended September 30, 1999 and 1998, respectively, $33 million
for the year ended December 31, 1998, pro forma as adjusted, and $31
million, $19 million and $15 million for the years ended December 31, 1998,
1997 and 1996, respectively.
(c) In 1997, we recognized a cumulative effect change in accounting principle
adjustment of $7 million, net of income taxes of $4 million and an
extraordinary charge of $4 million, for the premium paid for the early
redemption of $100 million principal amount of Senior Secured Convertible
Notes due 2003.
(d) This ratio is determined by dividing the sum of earnings from continuing
operations before extraordinary items, discontinued operations, interest
expense, taxes and the portion of rent expense representative of interest,
by the sum of interest expense (including capitalized interest) and the
portion of rent expense representative of interest. Earnings were
insufficient to cover fixed charges for the nine months ended September 30,
1999, pro forma as adjusted, by $146 million and for the nine months ended
September 30, 1999 by $129 million.
(e) Earnings were insufficient to cover the combined fixed charges and preferred
dividends for the nine months ended September 30, 1999, pro forma as
adjusted, by $153 million, for the nine months ended September 30, 1999 by
$131 million and for the year ended December 31, 1998, pro forma as
adjusted, by $16 million.
12
<PAGE> 15
RISK FACTORS
You should carefully consider the following risk factors, as well as the
other information contained in this prospectus, before making an investment in
the Securities.
RISK FACTORS RELATING TO LTV
OUR SUBSTANTIAL OBLIGATIONS MAY ADVERSELY AFFECT OUR LIQUIDITY AND FINANCIAL
CONDITION
As of September 30, 1999, on a pro forma basis, our total consolidated
debt, pension and other postemployment health care and insurance benefit
liabilities would have been approximately $3.3 billion (excluding approximately
$90 million of outstanding letters of credit), and we (together with all our
subsidiaries) would have had approximately $240 million of additional available
borrowing capacity under our existing working capital facilities. As a result of
our new labor agreement with the United Steel Workers of America ("USWA"), our
projected benefit obligations for pensions as of January 1, 1999 would have
increased by approximately $300 million assuming the discount rate utilized at
January 1, 1999. Our substantial fixed obligations and leverage and the
resulting limitations on additional sources of liquidity could limit our ability
to, among other things, (1) service our debt and fund our pension and other
postemployment benefit obligations, (2) make capital investments, (3) take
advantage of business opportunities, including making acquisitions and joint
venture investments, or (4) obtain additional financing.
Our annual expense for pensions and other postemployment benefit
obligations is currently higher on a per-ton-shipped basis than that of some
other domestic integrated steel producers that publicly report such data. Cash
obligations include (1) postemployment health care and other insurance benefits
and (2) required contributions to a Voluntary Employees' Beneficiary Association
Trust to prefund postemployment health care and other insurance benefits. The
amount of these expenses depends on a variety of factors and, in particular,
could increase if:
- we become subject to new federal legislation changing our postemployment
benefit and pension-related obligations or increasing our annual cash
flow requirements related to current pension funding requirements or
pension insurance premiums;
- the actual retirement or other termination of active employees is
significantly earlier than projected (for plant closings or other
reasons), or other similar assumptions prove inaccurate; or
- any of our obligations are modified after August 2004 because of
contractual changes with the USWA.
Our liquidity needs could force us to restructure or refinance our debt or
seek additional equity capital, and we may not be able to do so in a timely
fashion or on favorable terms. In addition, the terms of our existing and future
debt and Pension Benefit Guaranty Corporation ("PBGC") agreements, including the
indenture under which our New Senior Notes are governed, may prohibit us from
taking such actions. Our ability to obtain equity financing is separately
affected by certain tax considerations. See "-- We may not be able to use past
net operating losses to reduce our future income tax liabilities."
13
<PAGE> 16
THE RESTRICTIVE COVENANTS IN OUR DEBT AGREEMENTS MAY LIMIT OUR CORPORATE
ACTIVITIES
The indenture governing our New Senior Notes, the indenture for our
existing 8.20% senior notes due 2007, which we refer to as the "1997 Notes," our
settlement agreement with PBGC and our existing working capital facilities will
and do contain various covenants that limit our ability to engage in certain
transactions. See "Description of Certain Other Indebtedness" and "Description
of New Senior Notes."
Our new bank financing will also contain other and more restrictive
covenants, including requirements to maintain specific financial ratios and
satisfy other financial tests. Our ability to meet those financial ratios and
tests can be affected by events beyond our control, and we may not be able to
meet them.
The breach of a covenant or the occurrence of a default under our new bank
financing and/or our other financing arrangements would permit the relevant
creditors to declare all outstanding amounts under the relevant facility to be
immediately due and payable and terminate all commitments to extend further
credit. In such event, cross-default provisions in our other debt instruments
may permit such creditors to declare that other debt to also be immediately due
and payable. It is unlikely that we would have sufficient assets to repay our
new bank financing and our other debt upon any such acceleration. If we were
unable to repay those amounts, lenders under the new bank financing and existing
working capital facilities, as well as any other secured debt, could proceed
against collateral granted to them to secure that indebtedness.
WE MAY NOT BE ABLE TO SATISFY THE SUBSTANTIAL CAPITAL INVESTMENT AND MAINTENANCE
THAT OUR BUSINESS REQUIRES
Our integrated steel operations are capital intensive. We cannot assure you
that (1) we will have adequate funds to make all such capital expenditures or
(2) the amount of future capital expenditures will be adequate to preserve our
competitive position or to comply with environmental regulations. Further, our
capital requirements may, subject to covenant restrictions, require us to borrow
additional funds under our financing arrangements, thereby exacerbating the
risks described in the risk factors above. Over the last ten years, our
consolidated capital expenditures have totaled approximately $3 billion and over
the last three years, our consolidated capital expenditures have totaled
approximately $931 million.
We have, from time to time, permanently shut down a portion or all of
various steel facilities because of market conditions, facility obsolescence or
environmental or other factors. There can be no assurances that such shut downs
will not occur in the future.
WE MAY NOT BE ABLE TO ACHIEVE THE EXPECTED BENEFITS FROM THE ACQUISITIONS
The anticipated operating advantages and cost savings as a result of our
combination of LTV Tubular, Welded Tube and Copperweld may never be realized.
The integration and consolidation of two or more businesses requires substantial
management time and other resources, and the combined entity is not always more
successful than the businesses would have been if they had remained independent.
For example, we could find it difficult to combine three management teams,
coordinate production schedules and coordinate production and administrative
services for the combined operations. We cannot assure you that our efforts at
integration will produce the efficiencies that we expect.
14
<PAGE> 17
OUR DIVERSIFICATION STRATEGIES MAY NOT BE SUCCESSFUL, AND WE COULD SUFFER LOSSES
FROM NEW OR RECENT INVESTMENTS
Through the Acquisitions and other recent investments, we have expanded
beyond our existing integrated steel operations. We expect to continue to
diversify our business by investing in our metal fabrication business and making
additional steel-related investments. We cannot guarantee that this
diversification strategy will be successful.
We have expanded our operations in part through joint venture investments
and expect to continue to make similar investments. There are a number of risks
associated with joint ventures, including the risks that our venture partners
may:
- have economic or business interests that are inconsistent with our
interests; or
- be unable to meet their economic or other obligations and we may be
required or choose to fulfill those obligations.
In addition, many of the opportunities we are pursuing are, or have
investments in, start-up operations and may require significant additional
investments before becoming operational. The development, construction and
start-up of these operations are subject to numerous risks. Cliffs and
Associates, for example, our 46.5% owned joint venture to produce reduced iron
briquettes, has experienced some difficulties in start-up that, although being
addressed, have caused some delays in its full operation. After start-up of
these operations, we may be required to make further investments and we could
incur significant losses before any profits are realized. For example, Trico
Steel, our 50% owned mini-mill operation, has experienced substantial equipment
problems, including but not limited to transformer outages, that have prevented
it from reaching satisfactory levels of performance. Further, assuming these
equipment problems can be fully resolved, additional capital expenditures may be
required to permit Trico Steel to operate at its rated capacity of 2.2 million
tons, and there can be no assurance that Trico Steel would have the funds
necessary to make these expenditures.
WE COULD BE FORCED TO SELL OUR TRICO STEEL JOINT VENTURE INVESTMENT AT A LOSS
Our new labor agreement with the USWA requires us to take a neutral stance
with respect to, as well as take certain steps to facilitate, the USWA's efforts
to organize employees at any U.S. or Canadian raw materials or steel-related
venture in which we have a material interest, including our Trico Steel
mini-mill joint venture. Although we own only a 50% interest in Trico Steel and
are unable unilaterally to ensure that Trico Steel observes a similar position
of neutrality, we have agreed with the USWA to cause Trico Steel to execute a
similar neutrality agreement with the USWA by August 1, 2000 or to take all
necessary steps to expeditiously exit from our partnership interest in Trico
Steel. We and the USWA have further agreed that money damages are inadequate and
that the USWA may seek court-ordered specific performance of our agreement.
Accordingly, if we are unable to obtain Trico Steel's agreement regarding
neutrality, we may be forced to sell our investment in Trico Steel at a loss
that could be substantial.
In addition, the Trico Steel joint venture agreement provides its members a
mechanism to buy or sell their investment in Trico Steel if Trico Steel's
accumulated net negative cash flow from operations after May 2, 1995 is greater
than $200 million and the members determine that financing without recourse to
third parties is not available to Trico Steel on market terms to fund the
accumulated net negative cash flow. Unless operating results improve, Trico
Steel's accumulated negative cash flow could soon be
15
<PAGE> 18
greater than $200 million, allowing any member, subject to the financing
condition described above, to trigger these buy/sell provisions. These buy/sell
provisions could result in any member selling its interest in Trico Steel either
to another member or, if no member is willing to buy at the specified price, to
a third party. Any decision of a member to sell its investment would likely
require the consent of certain of Trico Steel's creditors. We cannot now predict
the result of any exercise of these provisions, including whether we would
choose to sell our investment in Trico Steel or purchase additional investments.
WE RELY HEAVILY ON THE AUTOMOTIVE INDUSTRY AND OTHER KEY CUSTOMERS TO PURCHASE
OUR PRODUCTS
Demand for much of our steel products is affected by, among other things,
the strength or weakness of the automotive industry. The automotive industry can
be highly cyclical and is dependent on, among other things, consumer spending,
labor relations and the impact of international trade. Direct sales of our
products to the automotive market accounted for approximately 35% of our
steel-related sales in the first nine months of 1999, 30% in 1998, 28% in 1997
and 26% in 1996. We also sell to the steel service center and converter markets
which, in turn, sell a portion of their product to the automotive industry.
Direct sales to General Motors Corporation, our largest customer, accounted for
approximately 12% of our consolidated sales in the first nine months of 1999, 9%
in 1998, 11% in 1997 and 11% in 1996. Our current sales arrangement with General
Motors expires at year-end 1999 and future sales to General Motors may not
continue at these historic levels.
Automotive manufacturers that sell passenger cars and light-duty trucks in
the United States are required to comply with increasingly stringent federally
mandated corporate average fuel economy standards. Increases in fuel economy
standards from their current levels could require vehicle manufacturers to
reduce the average weight of vehicles sold in the United States by reducing the
average amount of steel used in such vehicles. A reduction of the amount of
steel used in a vehicle could have a material adverse effect on our business.
OUR PRODUCTION MAY BE LIMITED OR INTERRUPTED DURING ROUTINE MAINTENANCE, REPAIRS
OR REPLACEMENT OF CRITICAL STEELMAKING EQUIPMENT
Our integrated steel operations depend upon certain critical pieces of
steelmaking equipment, such as our blast furnaces and continuous casters, that
may occasionally be out of service due to routine scheduled maintenance or
equipment failures. Interruptions in our production capabilities could result in
fluctuations in our sales and income, and we may be forced to purchase steel to
satisfy our customers' requirements, which could adversely affect our
profitability. Although we have not experienced any recent equipment failures or
scheduled maintenance outages that have resulted in the complete shutdown of a
major portion of our steelmaking production for a significant period, we have
experienced unscheduled equipment outages and we cannot assure you that a
material shutdown will not occur in the future.
The most significant scheduled maintenance outages involve the relining of
our five blast furnaces. The relining of each furnace is scheduled approximately
once every seven to ten years and typically takes nine to twelve weeks. We have
scheduled our five blast furnaces to be relined at the rate of approximately one
a year. The relining of one of the blast furnaces at our Cleveland Works
facility, which we began in the third quarter of
16
<PAGE> 19
1999, and was completed in November 1999, has reduced production at that
facility during this period. Depending upon market conditions, we may plan to
offset lost production from furnace relinings with purchased steel and this may
adversely affect our overall profitability. Other routine scheduled maintenance
outages or equipment failures could limit our production for a period of several
days to several weeks.
OUR ACTUAL LIABILITIES RELATED TO PENDING LAWSUITS MAY EXCEED OUR EXPECTATIONS
We are a defendant in pending lawsuits and other proceedings involving
environmental matters, asbestos claims and patent infringement. We cannot assure
you that we will succeed in defending these claims or that judgments will not be
rendered against us with respect to any or all of these proceedings. We could
incur a charge to earnings if our reserves prove to be inadequate, which could
have a material adverse effect on our results of operations and liquidity for
the period in which that charge is taken. See "Business -- Legal Proceedings."
Partly as a result of certain trade cases relating to steel imports, since
1992 we have benefitted from a decline in unfairly traded imports. These cases
remain subject to annual reviews and the result of these annual reviews may
adversely affect these benefits. See "Business -- Trade Cases."
WE MAY NOT BE ABLE TO USE PAST NET OPERATING LOSSES TO REDUCE OUR FUTURE INCOME
TAX LIABILITIES
Our ability to reduce our future income tax liability, if any, through the
use of our net operating loss carryforwards and other favorable tax attributes
could be significantly limited if we were to undergo an "ownership change"
within the meaning of Section 382 of the Internal Revenue Code of 1986, as
amended. Any limitations on our ability to use these favorable tax attributes
could have a material adverse effect on our financial results. Our Restated
Certificate of Incorporation provides a measure of protection against an
ownership change by prohibiting certain ownership accumulations without the
approval of our board of directors. However, our future ability to issue
additional shares of stock or equity-related instruments convertible into stock
may be limited because of the constraints imposed by the Internal Revenue Code,
which could reduce the availability of net operating loss carryforwards in
future periods. See our Consolidated Financial Statements included elsewhere in
this prospectus.
MOST OF OUR EMPLOYEES BELONG TO UNIONS, WHOSE COLLECTIVE BARGAINING AGREEMENTS
WE PERIODICALLY RENEGOTIATE
While we have recently reached a five-year labor agreement with the USWA
covering employees at our integrated steel operations, we are or will soon be
negotiating renewals of union contracts covering employees at our railroads and
some of our VP Buildings operations. Furthermore, the USWA recently was
recognized as the collective bargaining representative for production and
maintenance employees at the VP Buildings facilities in Missouri and Arkansas.
Negotiations at the Arkansas facility have recently been completed with a new
labor agreement. Negotiations at the Missouri facility have begun and are
continuing. We have also recently ratified an agreement with the Teamsters at VP
Building's North Carolina facility, and are negotiating with the Sheet Metal
Workers union at its Ohio plant. We cannot predict the results of any of these
labor negotiations that are ongoing, including whether they will have a negative
effect on our financial condition or
17
<PAGE> 20
results of operations and whether we will be able to reach agreement at all with
the relevant unions. Any failure to reach agreement on new labor agreements when
required might result in a work stoppage that could, depending upon the
operations affected and the length of the work stoppage, have a material adverse
effect on our operations, except at the Missouri and Arkansas plants where
failure to negotiate a labor agreement would result in final "best offer"
arbitration.
OUR SYSTEMS MAY NOT BE COMPLETELY YEAR 2000 COMPLIANT
As is the case with most other companies using computers in their
operations, we are continuing to address the Year 2000 problem. This problem
results from the past practice of using only two digits in computer software to
designate the calendar year with the assumption being the first two digits would
be "19." If not corrected, this practice may result in incorrect results when
computer software programs perform arithmetic operations, comparisons or data
field sorting involving years later than 1999.
We are currently engaged in a comprehensive project to upgrade our computer
software in our information technology, manufacturing and facilities systems to
programs which will be Year 2000 compliant. Although we are working towards
modifying or replacing our affected systems so as to minimize any detrimental
effects on our operations, we cannot assure you we will be able to prevent
disruption to our operations. Through September 30, 1999, LTV has spent
approximately $57 million on Year 2000 projects. We estimate that we will spend
an additional $6 million to complete our Year 2000 compliance effort, including
modifications to our payroll software. We cannot be sure that the actual costs
required to become Year 2000 compliant will not exceed our estimates. We also
cannot be sure that our customers, vendors, suppliers and other third parties
conducting business with us will be Year 2000 compliant. Any failure by us or
our customers, vendors, suppliers or other third parties conducting business
with us to become Year 2000 compliant by the beginning of 2000 could have a
material adverse effect on our operations. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition of the LTV
Corporation -- Year 2000 Readiness."
RISK FACTORS RELATING TO THE STEEL INDUSTRY AND RELATED INDUSTRIES
THE CYCLICALITY OF THE STEEL INDUSTRY MAY MAKE OUR OPERATING RESULTS FLUCTUATE
The domestic steel industry is highly cyclical due primarily to (1) the
cyclicality of the automotive, construction and other industries the domestic
steel industry serves and (2) changes in total industry capacity. Our results of
operations are substantially affected by small variations in the realized prices
of our products and we therefore experience significant volatility in our
financial results.
Our integrated steel operations shipped 7.5 million tons of integrated
steel products and recorded sales of $3.7 billion during 1998. A 1% increase or
decrease in the average realized price during 1998 would have resulted in an
increase or decrease in pre-tax income of approximately $32 million. Steel
prices declined materially during 1998, and we were unable to implement price
increases to offset these price decreases in the first nine months of 1999. As a
result, our average realized integrated steel selling prices during the first
nine months of 1999 were 9% below those of a decade ago. We have suffered losses
due to this drop in prices and there is no assurance that prices will not
continue to decline and that we will not continue to suffer losses.
18
<PAGE> 21
RECENT INCREASES OF STEEL EXPORTS TO THE UNITED STATES, SOMETIMES AT DEPRESSED
PRICES, HAVE PUT DOWNWARD PRICING PRESSURE ON OUR PRODUCTS
A number of foreign economies, particularly those in Asia, Eastern Europe
and Latin America, have experienced difficulties, resulting in significantly
lower demand for steel products in their countries and causing an increase in
steel exports to the United States at depressed prices. These difficulties have
included one or several of the following factors: (1) decline in the value of
the local currency versus the U.S. dollar; (2) decline in gross domestic
product; (3) decline in corporate earnings; (4) political turmoil and
instability; and (5) stock market volatility. To the extent that these economic
difficulties continue, there could be continued downward pricing pressures on
our products that could have a material adverse effect on our results of
operations and financial condition.
Some foreign steel producers are owned, controlled or subsidized by foreign
governments. Decisions by these foreign producers to continue production at
marginal facilities may be influenced to a greater degree by political and
economic policy considerations than by prevailing market conditions and may
further contribute to excess global capacity. In response to what we believe are
unfairly traded imports, we have filed a number of trade cases in recent years.
We cannot assure you that we will be successful in the final outcome of these
cases. See "Business -- Trade Cases."
The existing overcapacity has been further perpetuated by (1) the continued
operation, modernization and upgrading of marginal domestic facilities through
bankruptcy reorganization proceedings, (2) the sale of marginal domestic
facilities to new owners, which operate such facilities with lower cost
structures, and (3) the start-up or planned start-up of new mini-mills and other
production facilities.
THE TIN INDUSTRY HAS BEEN SUBJECT TO CONTINUING PRICING PRESSURES
Sales of tin mill products constitute approximately 10% of our revenues.
Recently, consolidation of the customer base has left customers with greater
purchasing power. Furthermore, domestic production capacity of tin product
exceeds market demand, which has been declining somewhat due to increased market
penetration by competing materials. Increased imports of tin mill products
during the first nine months of 1999 have also increased supply. As a result,
tin prices have been subject to downward pressures, and domestic tin shipments
have declined. Our capacity utilization in our tin mills was 88% in 1998 and 85%
in the first nine months of 1999. Continued weak pricing and shipments in this
segment could have an adverse effect on our results of operations and financial
condition.
WE COMPETE WITH OTHER DOMESTIC PRODUCERS OF STEEL AND STEEL SUBSTITUTES, WHICH
MAY REDUCE DEMAND FOR OUR PRODUCTS
We face competition from other domestic integrated steel producers, some of
which have greater resources than we do, and from flat rolled mini-mills, which
are relatively efficient low-cost producers. Mini-mills generally produce steel
from scrap in electric furnaces, have lower employment and environmental costs
and generally target regional markets. 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. In the
case of many steel products, there is also substantial competition from
manufacturers of other products, such as plastics, aluminum, ceramics, glass,
wood and concrete. See "Business -- Integrated Steel -- Competition."
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<PAGE> 22
WE MAY INCUR MATERIAL COSTS TO COMPLY WITH ENVIRONMENTAL REGULATIONS
We are subject to numerous laws and regulations relating to the protection
of human health and the environment which are quite stringent and are generally
becoming more stringent. Accordingly, we have incurred, and expect to continue
to incur, substantial capital and operating costs to comply with these
environmental laws and regulations. In addition, we may be required to make
material expenditures or we may incur material liabilities that we currently do
not anticipate as a result of:
- amended, new or more stringent requirements;
- stricter interpretations of existing requirements;
- the future discovery of contamination; or
- third-party suits alleging exposure to hazardous materials used in our
operations.
These potential expenditures and liabilities could place us at a competitive
disadvantage with respect to foreign steel producers that are subject to less
stringent environmental requirements. Further, domestic mini-mills and
manufacturers of steel substitutes may use processes that do not require the
same high level of capital expenditures for environmental control equipment.
In particular, the Clean Air Act will continue to require additional
significant expenditures for air pollution control or major changes in the
production of steel. New federal environmental regulations adopted in the past
few years impose significantly more stringent ambient air quality standards,
some of which are currently the subject of litigation. State governments, in
exercising their authority under the Clean Air Act, have, in some instances,
also proposed regulations establishing more stringent limitations on certain
emissions. Such regulations could add significantly to our expenditure levels.
The U.S. Environmental Protection Agency ("U.S. EPA") has interpreted the
Resource Conservation and Recovery Act of 1976 as granting it authority to
require companies to clean up plant sites where hazardous wastes have been used
(and are being or may be released into the environment), even if such sites are
not currently subject to the permitting requirements of the Resource
Conservation and Recovery Act. If we were required to clean up our facilities
under that Act, our costs associated with the cleanup, including extensive
facility-wide environmental investigations, could be substantial.
RISK FACTORS RELATING TO THE METAL FABRICATION BUSINESS SEGMENT
SIGNIFICANT RECENT INCREASES IN STRUCTURAL TUBING PRODUCTION CAPACITY COULD
CONTINUE TO DEPRESS PRICES
The industry trend toward regional expansion has resulted in large
investments in capacity by participants and has caused capacity to exceed
demand. As a result of these investments, new mill capacity in North America has
increased approximately 25% since 1996, and U.S. capacity utilization has been
reduced to below 60%. In addition, weakness in the oil drilling market or other
markets for tubular products may cause certain producers to attempt to shift
more product sales into our target markets until demand for their core products
returns. Excess industry capacity could put downward pressure on prices.
20
<PAGE> 23
CYCLICALITY IN OUR TARGET MARKETS COULD AFFECT OUR METAL FABRICATION BUSINESS
Our metal fabrication business is and will continue to be subject to the
cyclicality of our target markets, particularly the non-residential construction
market. This market is affected by a variety of factors, including changes in
interest rates, tax laws, vacancy rates, manufacturing capacity utilization,
government spending, as well as other national and local economic conditions.
Any weakness in relevant portions of this market can adversely affect sales of
our tubular and metal buildings products. We cannot predict the timing, region
or severity of future economic or industry downturns, but any such downturn,
particularly within regions where we have significant sales volume, could
adversely affect our metal fabrication business.
Revenues from the sale of structural and mechanical tubing segments
directly and indirectly to the agricultural industry would have accounted for
approximately 19% of our pro forma tubular sales for 1998. Demand for these
products depends primarily on strong agricultural yields, price and sales. The
agricultural market is cyclical and is affected by factors such as an oversupply
of grain, unfavorable weather conditions, reduced exports due to a stronger
dollar, increased foreign competition and economic difficulties abroad reducing
demand for farm products. A weak agricultural market could have an adverse
effect on the sales from our metal fabrication business.
OUR BIMETALLICS BUSINESS UNIT RELIES HEAVILY ON ONE CUSTOMER
In 1998, CommScope, Inc. accounted for approximately $40 million, or 45% of
Copperweld's bimetallics business unit revenues. CommScope and Copperweld are
parties to a multi-year supply agreement that expires in March 2000. CommScope
uses the bimetallic wire as the center core conductor in its coaxial cable sold
to the telecommunications industry. In February 1999, CommScope acquired the
assets of the only other significant U.S. producer of bimetallic wire, and as a
result can now satisfy a substantial portion of its needs internally. Although
Copperweld is in discussions with CommScope about a new supply agreement, the
loss of any or all of the CommScope business could have a material adverse
effect on the results of operations of our metal fabrication business.
RISK FACTORS RELATING TO THE SECURITIES
OUR ABILITY TO PAY DIVIDENDS ON OUR CAPITAL STOCK IS LIMITED
Our ability to pay dividends on our capital stock is subject to applicable
provisions of state law and is restricted by our debt agreements, including the
indentures governing the New Senior Notes and our 1997 Notes and the terms of
our new bank financing. In particular, if a default shall occur and be
continuing under these agreements, we will not be able to pay cash dividends on
either the Preferred Stock or our common stock. Moreover, if we fail to pay
dividends on the Preferred Stock, we will be prohibited from paying dividends on
the common stock until all unpaid dividends on the Preferred Stock have been
paid in full. Since the second quarter of 1996, we have paid quarterly dividends
of $0.03 per share on our outstanding common stock. In the future, our board of
directors will determine whether we pay dividends on the Preferred Stock or on
our common stock. We cannot assure you that we will pay dividends on the
Preferred Stock or on our common stock that you may acquire upon the conversion
of the Preferred Stock.
21
<PAGE> 24
CERTAIN TAX CONSIDERATIONS RELATING TO THE PREFERRED STOCK
We do not expect to have significant current or accumulated earnings and
profits and cannot accurately predict when we will have current or accumulated
earnings and profits. In the absence of current or accumulated earnings and
profits, we anticipate that distributions on the Preferred Stock will constitute
tax-free returns of capital to the extent of the holder's tax basis in the
Preferred Stock and thereafter capital gain, and will not be eligible for the
dividends-received deduction. See "United States Federal Income Tax
Considerations."
THE PREFERRED STOCK IS JUNIOR TO ALL OF OUR LIABILITIES
In the event of our bankruptcy, liquidation or winding-up, our assets will
be available to pay obligations on the Preferred Stock only after all
indebtedness and other liabilities, including our New Senior Notes, our 1997
Senior Notes, our new bank financing and our existing working capital
facilities, have been paid. Our existing series B preferred stock, any
additional Preferred Stock we may issue in the future and all other subsequent
series of preferred stock designated as equal to the Preferred Stock will rank
equally in right of payment with the Preferred Stock. As a result, there may not
be sufficient assets remaining to pay amounts due on any or all of the Preferred
Stock then outstanding. As of September 30, 1999, on a pro forma basis, we had
approximately $4.6 billion of liabilities on a consolidated basis.
THERE IS NO PUBLIC TRADING MARKET FOR THE PREFERRED STOCK; THE PREFERRED STOCK
CONTAINS RESTRICTIONS ON TRANSFER
There is no established trading market for the Preferred Stock and we
cannot assure you that an active trading market for the Preferred Stock will
develop or, if a market develops, as to the liquidity of that market. Although
we expect the Preferred Stock to be eligible for trading in The PORTAL Market of
The Nasdaq Stock Market, Inc., we do not intend to list the Preferred Stock on
any securities exchange or to arrange for them to be quoted on the Nasdaq
National Market or any other quotation system. If a trading market does develop,
the Preferred Stock may trade at a discount from its initial offering price,
depending upon prevailing interest rates, the market for similar securities, our
financial condition and results of operations and certain other factors.
22
<PAGE> 25
USE OF PROCEEDS
We will not receive any of the proceeds from any resale of the Preferred
Stock or any sale of our common stock issued upon the conversion of the
Preferred Stock. The Preferred Stock is being sold by the stockholders described
in "Selling Stockholders."
23
<PAGE> 26
THE ACQUISITIONS
OVERVIEW
On November 10, 1999, we acquired all the capital stock of Copperweld from
Imetal SA for an aggregate cash purchase price of approximately $650 million,
subject to shareholder equity adjustments. We have funded the purchase of
Copperweld with the issuance of our Preferred Stock in the Initial Offering, our
New Senior Notes, borrowings under a New Bank Financing and borrowings under our
existing working capital facilities. See "-- Financing of the Acquisitions."
On October 1, 1999, we acquired Welded Tube Holdings, Inc., the major asset
of which is Welded Tube, from ANI Corporation Limited ("ANI") and Palmer Tube
Mills Limited for an aggregate cash purchase price of $113.5 million, subject to
finalization of working capital adjustments. We expect such adjustments to
reflect capital expenditures and the increase in working capital at the
Portland, Oregon facility which recently began start-up operations.
We believe that combining LTV Tubular with Welded Tube and Copperweld gives
us a leading presence in what we consider to be among the most attractive
segments of the tubular products industry. We believe these segments, which
include mechanical tubing, structural tubing and electrical conduit, are
attractive because they offer relatively higher margins and continuing growth
opportunities, and are less susceptible to competition from imports. The three
businesses combined operate 23 plants and employ approximately 3,500 people in
the United States and Canada. On a pro forma basis for 1998, these tubular
businesses would have shipped in excess of 1.5 million tons and would have
generated revenues of approximately $1.2 billion.
WELDED TUBE
OVERVIEW. Welded Tube is the second largest structural tube producer in
North America. In connection with ANI's merger with Smorgon Steel Group, Ltd.,
Smorgon sought to divest ANI's non-Australian business, Welded Tube. In fiscal
year 1999, Welded Tube had revenues of approximately $132 million.
PRODUCT OFFERINGS. Welded Tube's products are used primarily for
construction, structural support and safety, ornamental and an extensive range
of other tubular applications. Welded Tube differentiates itself in the
marketplace by offering customers the option of purchasing its products with its
proprietary Kleenkote(R) coating. Kleenkote(R) coating's benefits include
prolonged storage life, reduced material handling, easier marking and layout,
reduced need for solvents and cleaners, easier weld splatter removal and reduced
paint material and labor costs.
The following table illustrates Welded Tube's 1999 total revenues and
percentage of total revenues by product:
<TABLE>
<CAPTION>
<S> <C>
Structural............................................ 88%
Mechanical............................................ 8%
Pipe.................................................. 4%
</TABLE>
Fiscal Year 1999 Revenues -- $132 million
MARKET POSITION. We believe that Welded Tube had a share of approximately
11% in North American structural steel tubing during 1999.
24
<PAGE> 27
PRODUCTION FACILITIES. Welded Tube operates a plant in Chicago, Illinois
with 450,000 tons of annual production capacity and recently completed the
construction of a second plant in Portland, Oregon with 130,000 tons of annual
production capacity. The new Portland plant had a capital cost of approximately
$53 million as of September 30, 1999 and began production of structural tubing
product in the third quarter of 1999. We believe that the Portland plant will
establish a presence for Welded Tube in the Pacific Northwest and western
Canada, offering customers in the region lower transportation costs and access
to improved product quality.
RAW MATERIALS SOURCING. Welded Tube's purchases have averaged over 300,000
tons of hot rolled steel strip per year over the last three years.
EMPLOYEES. As of September 30, 1999, Welded Tube had approximately 300
employees, 172 of whom were covered by collective bargaining agreements. Welded
Tube's Chicago workforce is subject to a contract with the International
Brotherhood of Teamsters which expires in 2002. Welded Tube has had good
relations with its employees and has not had a labor-related work stoppage in
the past 10 years.
COPPERWELD
OVERVIEW. We believe that Copperweld is the largest North American
manufacturer of mechanical and structural steel tubing and the world's largest
producer of bimetallic wire products. In 1998, Copperweld had revenues of
approximately $711 million and EBITDA of approximately $81 million.
PRODUCT OFFERINGS. Copperweld participates in all segments of the
mechanical tubing segment with a full range of mechanical tubing product lines,
including drawn-over-mandrel ("DOM") and welded product types. Copperweld also
offers a full range of structural tubing products. Copperweld's mechanical and
structural tubing products are used in the automotive, agricultural and
industrial equipment, fluid power, construction, recreation and office furniture
markets. Copperweld recently entered the stainless steel tubing business and is
developing its offering of value-added automotive parts, which are fabricated
from mechanical tubing. In addition, Copperweld produces bimetallic, copper-
clad steel and copper-clad aluminum wire, rod and strand used in the
telecommunications and utility industries. Copperweld's bimetallic business has
experienced growth in both revenue and operating income over the past 10 years.
We believe that Copperweld's historical growth has been driven primarily by
increasing global demand for tubing and tubing related products, as well as
increased cable TV demand.
The following table represents Copperweld's 1998 total revenues and
percentage of total revenues by product:
<TABLE>
<CAPTION>
<S> <C>
Mechanical............................................ 52%
Structural............................................ 27%
Bimetallic Products................................... 13%
Other................................................. 8%
</TABLE>
Year 1998 Revenues -- $711 million
MARKET POSITION. We believe Copperweld has achieved a leading position in
the major business segments in which it operates. During 1998, Copperweld had
approximately 8% of North American mechanical tubing and approximately 16% of
North American structural tubing. In addition, in 1998, Copperweld accounted for
approximately half of the
25
<PAGE> 28
global sales of bimetallic wire products used in the telecommunications
(primarily cable television and telephone) and utility industries.
PRODUCTION FACILITIES. Between 1987 and 1997, Copperweld invested
approximately $157 million in plant expansions and new equipment, including
major capacity expansions at its Shelby and Fayetteville divisions. In 1998,
Copperweld's capital investments totaled over $83 million, primarily
attributable to further expansions at the Shelby and Fayetteville plants, the
construction of a greenfield stainless steel tubing plant in Elizabethtown,
Kentucky and the start-up of a new value-added tubing automotive parts facility
in Brantford, Ontario. As a result of this spending, we believe Copperweld will
be capable of growing revenues over the next several years without significant
capital expenditures other than for the automotive parts segment. We believe
investments related to new automotive parts supply contracts may be justified in
2000 and 2001 to support the growth of this area of Copperweld's business.
Copperweld operates six tubular manufacturing facilities in the United
States and six in Canada that are strategically located to provide broad
geographic coverage of the eastern United States and Canada. Copperweld's
principal tubular facilities are located in Shelby, Ohio (mechanical tubing),
Miami, Ohio (mechanical tubing), Chicago, Illinois (structural tubing),
Birmingham, Alabama (structural tubing), Brampton, Ontario (structural tubing
and mechanical tubing) and Woodstock, Ontario (structural tubing, mechanical
tubing and value-added automotive parts). Copperweld's bimetallic business
operates two U.S. plants in Fayetteville, Tennessee and Pawtucket, Rhode Island,
and a small plant in Sayton, England that we believe may offer a platform for
growth in Europe.
RAW MATERIALS SOURCING. Copperweld purchases approximately 1 million tons
of steel a year, primarily in the form of hot rolled steel strip. Copperweld
also purchases smaller volumes of cold-rolled strip, steel bars and rod. We
believe that the size of Copperweld's bulk steel purchases provides Copperweld
with the potential to have a significant advantage in purchasing raw materials.
Most of the raw material for Copperweld's mechanical tubing operations is
sourced in North America because of quality, size and timing requirements.
EMPLOYEES. As of September 30, 1999, Copperweld had a total of
approximately 2,600 employees, of which approximately 1,600 were covered by
collective bargaining agreements. Nine of Copperweld's facilities are staffed by
unionized workforces and seven are non-union. We believe that Copperweld has
good relationships with its employees at both its union and non-union plants.
There have been no labor-related work stoppages at any Copperweld facility since
1989.
ACQUISITION RATIONALE
We anticipate the Acquisitions to provide us with the following benefits:
- BROADEST PRODUCT LINE IN NORTH AMERICA. On a combined basis, LTV
Tubular, Welded Tube and Copperweld together as "LTV Copperweld," have
the broadest product line of any tubular products company in North
America. This product line breadth is of increasing importance to steel
service centers (which are estimated to account for approximately 50% of
tubular product distribution) and original equipment manufacturers, or
OEMs, both of which are consolidating their supplier bases.
- MARKET LEADERSHIP IN PRINCIPAL PRODUCT AREAS. The Acquisitions make us
North America's largest and most diverse manufacturer of steel tubular
products and the largest producer of mechanical and structural tubing.
Combining the businesses will
26
<PAGE> 29
enhance our ability to develop and support sophisticated vendor managed
inventory systems, customer service and technical support and product
development activities. We also expect the broad geographic reach of the
combined businesses to allow us to offer enhanced delivery and service to
national customers. These advantages should enhance our status as a
preferred supplier of tubular products to steel service centers, OEMs and
other customers.
- OPERATIONAL SYNERGIES. We intend to operate LTV Copperweld under one
management team. We expect to reduce costs by, among other things,
optimizing our capital spending, coordinating raw material purchasing,
sharing best operating practices to improve operating efficiency,
improving overall productivity by more efficient plant scheduling and
reducing administrative costs. We expect that the metallurgical and
automotive research and development capabilities of our integrated steel
operations will be a valuable resource for our tubular operations. We
will also draw on our expertise at VP Buildings to develop ways to
differentiate applications for our structural tubing products.
- SIGNIFICANT NEW TUBULAR MANUFACTURING CAPACITY. We will seek to grow
sales by capitalizing on the new tubular manufacturing capacity recently
added through the expansion of the Copperweld mechanical tubing plant in
Shelby, Ohio and the construction of the Welded Tube structural tubing
plant in Portland, Oregon, the Copperweld stainless tubing plant in
Elizabethtown, Kentucky, and the LTV Tubular mechanical tubing plant in
Marion, Ohio. These projects, which had a total combined capital cost in
excess of $150 million through September 30, 1999, are still in the
start-up phase. As a result, they have made minimal contributions to our
pro forma financial results.
- TUBULAR GROWTH POTENTIAL. Sales of structural and mechanical tubing have
grown in the United States over the last five years at compound average
growth rates of 8% and 5%, respectively. This growth has been driven by
increasing tubular product usage by the automotive, agricultural and
construction industries as a result of strong economic growth and
increasing market penetration of tubular products versus competing
materials.
As a result of the Acquisitions, our metal fabrication segment comprises a
significant part of LTV's overall economic results. On a pro forma basis, the
metal fabrication segment would have contributed 30% of revenues and 44% of
EBITDA before special charges in 1998 to our overall results. The combined metal
fabrication segment will also be a major purchaser of flat rolled steel, and
would have consumed a total of approximately 2 million tons in 1998 on a pro
forma basis.
FINANCING OF THE ACQUISITIONS
In order to finance a portion of the purchase price of the Acquisitions, we
(1) issued $80 million aggregate liquidation amount of Preferred Stock in the
Initial Offering; (2) borrowed $225 million under a new bank financing; and (3)
issued $275 million of 11 3/4% senior notes due 2009. In this prospectus, we
refer to this new bank financing as the "New Bank Financing," and the 11 3/4%
senior notes due 2009 as the "New Senior Notes." The New Bank Financing was
entered into with certain commercial banks and other lenders led by affiliates
of the Initial Purchasers and the New Senior Notes were sold initially to the
Initial Purchasers and resold to certain investors pursuant to exemptions from
the Securities Act. The combined gross proceeds of the initially offered
Preferred Stock, the New Bank Financing and the New Senior Notes amounted to
$580 million.
27
<PAGE> 30
The balance of the purchase price of the Acquisitions, including related fees
and expenses, was financed by borrowing an aggregate of $215 million under our
existing working capital facilities, which we refer to as the "Receivables and
Inventory Facilities." When added to the proceeds of the Preferred Stock in the
Initial Offering, the issuance of the New Senior Notes and the borrowings under
the New Bank Financing, the new borrowings and issuances comprised aggregate
gross proceeds of approximately $795 million.
<TABLE>
<CAPTION>
SOURCES USES
------- ----
(IN MILLIONS)
<S> <C> <C> <C>
Preferred Stock................. $ 80 Copperweld acquisition(a)....... $650
New Bank Financing.............. 225 Welded Tube acquisition(a)...... 114
Expected purchase price
adjustments(b)................ 6
New Senior Notes................ 275 Estimated transaction fees and
expenses(c)..................... 25
----
Receivables and Inventory
Facilities.................... 215 Total uses...................... $795
---- ====
Total sources.............. $795
====
</TABLE>
- -------------------------
(a) The initial purchase price paid for Copperweld on November 10, 1999 was $650
million. The initial purchase price paid for Welded Tube on October 1, 1999
was $113.5 million.
(b) Expected adjustments related to the Welded Tube acquisitions for working
capital and the Portland, Oregon facility which recently began start-up
operations. Expected adjustments related to the Copperweld acquisition are
for shareholder equity adjustments.
(c) Represents estimated transaction costs in connection with the Acquisitions,
including financial advisory fees, bank fees and legal and accounting fees
and expenses.
28
<PAGE> 31
COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "LTV." The following table sets forth, on a per share basis for
periods indicated, the high and low sale prices for our common stock as reported
on NYSE.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE CASH DIVIDENDS
---------------- DECLARED FOR
HIGH LOW SHARE
------ ------ --------------
<S> <C> <C> <C>
1999
First Quarter................................. $ 8.00 $ 5.00 $0.03
Second Quarter.............................. 8.00 5.32 0.03
Third Quarter............................... 7.44 5.13 0.03
Fourth Quarter (through December 28,
1999).................................... 5.44 3.13 --
1998
First Quarter............................... 14.56 9.50 0.03
Second Quarter.............................. 13.50 9.38 0.03
Third Quarter............................... 10.44 5.25 0.03
Fourth Quarter.............................. 6.94 5.00 0.03
1997
First Quarter............................... 13.63 11.63 0.03
Second Quarter.............................. 14.56 12.50 0.03
Third Quarter............................... 14.38 11.94 0.03
Fourth Quarter.............................. 13.13 9.38 0.03
</TABLE>
On December 28, 1999, the last reported sale price of our common stock on
the NYSE was $3.75 per share.
Since the second quarter of 1996, we have paid quarterly dividends of $0.03
per share on our outstanding common stock. In the future, our board of directors
will determine whether we pay dividends on our common stock. These
determinations will depend on factors such as our results of operations,
financial position and capital requirements, general business conditions and
restrictions imposed by our financing arrangements. The indentures governing the
New Senior Notes and the 1997 Notes and the terms of the New Bank Financing
currently limit our ability to pay dividends, and debt and other agreements we
may enter into in the future may further limit or prohibit dividend payments.
Our ability to pay dividends is also constrained by provisions in our preferred
stock that require that we pay or provide for such dividends in full before
paying dividends on common stock, and by relevant provisions of applicable
corporate law.
29
<PAGE> 32
CAPITALIZATION
The following table sets forth the capitalization of The LTV Corporation as
of September 30, 1999, and the pro forma combined capitalization of The LTV
Corporation as of September 30, 1999 after giving effect to the Acquisitions,
the initial offering of the Preferred Stock to the Initial Purchasers, the New
Bank Financing, the offering of the New Senior Notes and the borrowings from our
Receivables and Inventory Facilities, and the application of the estimated net
proceeds therefrom. This information should be read in conjunction with the
Consolidated Financial Statements of The LTV Corporation, "Management's
Discussion and Analysis of Results of Operations and Financial Condition of The
LTV Corporation," "Description of Preferred Stock," "Description of New Bank
Financing," "Description of New Senior Notes" and "Description of Certain Other
Indebtedness," all included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------
ACTUAL PRO FORMA
------ ---------
(IN MILLIONS)
<S> <C> <C>
Cash, cash equivalents and marketable securities........... $ 167 $ 167
====== ======
Long-term debt:
Receivables and Inventory Facilities(a).................. $ 100 $ 215
New Bank Financing....................................... -- 225
8.20% senior notes due 2007.............................. 298 298
11.75% senior notes due 2009............................. -- 275
Mortgage payable......................................... 4 4
------ ------
Total long-term debt.................................. 402 1,017
------ ------
Total pension benefit liabilities (including current
portion)................................................. 575 575
Total postemployment health care and other insurance
benefit liabilities (including current portion).......... 1,648 1,699
Shareholders' equity:
Series B convertible preferred stock..................... 1 1
8.25% Series A convertible preferred stock............... -- 2
Common stock............................................. 53 53
Additional paid-in capital............................... 1,031 1,106
Retained earnings........................................ 466 466
Treasury stock........................................... (67) (67)
Accumulated other comprehensive loss and other........... (13) (13)
------ ------
Total shareholders' equity............................ 1,471 1,548
------ ------
Total capitalization and other significant
obligations......................................... $4,096 $4,839
====== ======
</TABLE>
- -------------------------
(a) As of September 30, 1999, $90 million of letters of credit were outstanding
under the Receivables and Inventory Facilities. On a pro forma basis, $240
million would have been available under these facilities as of September 30,
1999.
30
<PAGE> 33
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only, giving effect to the acquisitions of
Welded Tube and Copperweld by LTV. The unaudited pro forma condensed combined
statements of operations give effect to the Acquisitions as if they had occurred
on January 1, 1999 or January 1, 1998, as applicable, and the unaudited pro
forma condensed combined balance sheet gives effect to the Acquisitions as if
they had occurred on September 30, 1999. The purchases will be accounted for
under the purchase method of accounting whereby the purchase price is allocated
based on the fair value of the assets acquired and the liabilities assumed. The
historical condensed financial statements of the Acquisitions are derived from
the historical combined financial statements of Copperweld Corporation and
Copperweld Canada, Inc., and the historical financial statements of Welded Tube
Company of America, appearing elsewhere in this prospectus. The unaudited pro
forma condensed combined statements of operations and balance sheet include the
respective financial statements of LTV, Welded Tube and Copperweld and the
respective pro forma adjustments based on management's assumptions to reflect
the combination. Both the audited and unaudited financial statements, contained
elsewhere in this prospectus, should be read in conjunction with the pro forma
combined financial information. The pro forma results are not necessarily
indicative of the results of operations or financial condition had the
Acquisitions taken place at the beginning of the respective periods nor
indicative of future results of the combined companies. The allocation of the
purchase price is preliminary and final amounts could differ from those
reflected in the pro forma condensed combined financial statements. Upon final
determination, the purchase price will be allocated to the assets and
liabilities acquired based on fair value as of the date of the acquisition.
The principal pro forma adjustments to the condensed combined statements of
operations include (1) elimination of intercompany sales; (2) amortization of
goodwill and other intangibles; (3) elimination of interest on debt not assumed;
(4) interest expense on the new debt issued to finance the Acquisitions; and (5)
incremental tax effects of the pro forma adjustments.
In the table below EBITDA represents income (loss) before taxes on income,
interest expense and depreciation and amortization. We believe that EBITDA
provides useful information regarding our ability to service our debt and other
obligations; however, EBITDA does not represent cash flow from operations as
defined by generally accepted accounting principles and should not be considered
as a substitute for net income as an indicator of our operating performance or a
substitute for cash flow as a measure of liquidity. Such cash flows are shown on
page 38. In addition, our calculation of EBITDA is different from the
calculation required by the Indenture and may be different from the calculation
used by our competitors and, therefore, comparability may be affected.
31
<PAGE> 34
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------
HISTORICAL PRO FORMA AS ADJUSTED
------------------------ -----------------------
LTV ACQUISITIONS ADJUSTMENTS COMBINED
-------- ------------ ----------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales.......................... $ 2,985 $651 $(27)(a) $ 3,609
COST AND EXPENSES:
Cost of products sold........ 2,722 550 (27)(a) 3,245
Depreciation and
amortization.............. 197 25 6(b) 228
Selling, general and
administrative............ 137 37 -- 174
Results of affiliates'
operations................ 28 -- -- 28
Net interest and other
(income) expense.......... 1 8 43(c) 52
Special charges.............. 39 -- -- 39
-------- ---- ---- --------
Total..................... 3,124 620 22 3,766
======== ==== ==== ========
Income (loss) before income
taxes........................ (139) 31 (49) (157)
Income taxes................... (6) (12) 5(d) (13)
-------- ---- ---- --------
Net income (loss).............. (145) 19 (44) (170)
Less: Preferred dividends...... (2) -- (5) (7)
-------- ---- ---- --------
Net income (loss) available to
common shareholders.......... $ (147) $ 19 $(49) $ (177)
======== ==== ==== ========
Earnings per share -- basic and
fully diluted................ $ (1.46) $ (1.77)
Average shares outstanding (in
thousands)................... 100,016 100,016
OTHER FINANCIAL DATA:
Capital expenditures........... $ 156 $ 42 $ -- $ 198
EBITDA......................... 69 64 -- 133
EBITDA before special
charges...................... 108 64 -- 172
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------
HISTORICAL
----------------------- PRO FORMA AS ADJUSTED
LTV ACQUISITIONS ADJUSTMENTS COMBINED
------- ------------ ----------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales........................... 4,273 863 (44)(a) 5,092
COST AND EXPENSES:
Cost of products sold......... 3,773 715 (44)(a) 4,444
Depreciation and
amortization............... 259 25 8(b) 292
Selling, general and
administrative............. 184 52 -- 236
Results of affiliates'
operations................. 49 -- -- 49
Net interest and other
(income) expense........... (23) 8 60(c) 45
Special charges............... 55 -- -- 55
------- --- --- -------
Total...................... 4,297 800 24 5,121
------- --- --- -------
Income (loss) before income
taxes......................... (24) 63 (68) (29)
Income taxes.................... (3) (25) 19(d) (9)
------- --- --- -------
Net income (loss)............... (27) 38 (49) (38)
Less: Preferred dividends....... (2) -- (7)(e) (9)
------- --- --- -------
Net income (loss) available to
common shareholders........... (29) 38 (56) (47)
======= === === =======
Earnings per share -- basic and
fully diluted................. $ (0.29) $ (0.47)
Average shares outstanding (in
thousands).................... 99,849 99,849
OTHER FINANCIAL DATA:
Capital expenditures............ 362 123 -- 485
EBITDA.......................... 238 96 -- 334
EBITDA before special charges... 293 96 -- 389
</TABLE>
- -------------------------
Pro forma adjustments for the nine months ended September 30, 1999 and the year
ended December 31, 1998 were made to reflect the:
(a) Elimination of intercompany sales from LTV to Copperweld.
(b) The excess of acquisition cost over the fair value of net assets acquired
(amortized on a straight-line basis over 35 years) and other intangibles
(amortized over periods ranging from 5 to 30 years) is assumed to aggregate
$259 million. This amount and related amortization will change as the
allocation of the purchase price is finalized, including appraisals of fixed
assets and intangibles.
33
<PAGE> 36
(c) Pro forma adjustments to interest expense (assuming certain principal
amounts and rates shown below) after reflecting the Acquisitions:
<TABLE>
<CAPTION>
NINE
PRINCIPAL RATE MONTHS YEAR
--------- ----- ------ ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
New Senior Notes.................... $275 11.75% $24 $32
New Bank Financing.................. 225 9.28 16 21
Receivables and Inventory
Facilities........................ 215 6.13 10 13
---- ----- --- ---
Total.......................... $715 50 66
====
Amortization of financing fees...... 1 2
Less: interest expense on debt not
assumed........................... (8) (8)
--- ---
Pro forma total interest expense
adjustment........................ $43 $60
=== ===
</TABLE>
A 0.25% increase in the weighted average cost of this debt would change
interest expense by approximately $1 million for the nine months ended
September 30, 1999 and by approximately $2 million for the year ended
December 31, 1998. Each $25 million increase or decrease in the borrowings
under the existing working capital facilities would change pro forma
interest by approximately $1 million for the nine months ended September
30, 1999 and approximately $2 million for the year ended December 31, 1998.
(d) Reduction of income taxes relating to the application of LTV's net operating
loss carryforwards to the federal tax provisions of the Acquisitions. A full
valuation allowance has been recorded to offset the non-cash tax benefits
arising from the losses in the respective pro forma periods. These
adjustments result in the ending pro forma income tax provision reflecting
only cash taxes that consist of state, foreign and federal taxes including
taxes of a less than 80% owned subsidiary of LTV.
(e) Annual preferred dividends at a rate of 8.25% on $80 million of our
Preferred Stock.
The principal pro forma adjustments to the condensed combined balance sheet
include the purchase accounting entries for (1) the issuance of $275 million of
New Senior Notes; (2) borrowings of $225 million under the New Bank Financing;
(3) the issuance of $80 million of Preferred Stock in the Initial Offering; (4)
borrowings of $215 million under our Receivables and Inventory Facilities; (5)
reduction of debt not assumed by LTV; (6) adjustments of the net assets of
Welded Tube and Copperweld to estimated fair values; and (7) excess of
acquisition costs over the fair value of net assets acquired ("goodwill").
34
<PAGE> 37
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------------------
HISTORICAL PRO FORMA AS ADJUSTED
---------------------- -----------------------
LTV ACQUISITIONS ADJUSTMENTS COMBINED
------- ------------ ----------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Cash and marketable securities...... $ 167 $ 8 $ (8)(c) $ 167
Accounts receivable................. 484 107 (4)(a) 587
Inventories
Raw materials..................... 269 71 (1) 339
Work-in-process and finished
goods.......................... 595 74 4(b) 673
------- ----- ----- -------
Total.......................... 864 145 3 1,012
LIFO reserve...................... (13) (14) 14(b) (13)
------- ----- ----- -------
Net inventory.................. 851 131 17 999
Prepaids and other.................. 19 4 -- 23
------- ----- ----- -------
Total current assets........... 1,521 250 5 1,784
Investments in affiliates........... 382 -- -- 382
Goodwill, intangibles and other
noncurrent assets................. 233 21 208(c) 462
Property, plant and equipment....... 4,285 633 (240)(b) 4,678
Less: allowance for
depreciation................. (1,186) (240) 240(b) (1,186)
------- ----- ----- -------
3,099 393 -- 3,492
------- ----- ----- -------
$ 5,235 $ 664 $ 213 $ 6,112
======= ===== ===== =======
Liabilities and shareholders' equity
Accounts payable.................. $ 354 $ 83 $ (4)(a) $ 433
Other accruals.................... 517 31 (2)(b) 546
Lines of credit................... 9 (9)(d) --
------- ----- ----- -------
Total current liabilities...... 871 123 (15) 979
Long-term debt.................... 402 206 (206)(d) 1,017
615(e)
Other postemployment employee
benefits....................... 1,523 41 10(b) 1,574
Pensions.......................... 561 (8) 8(b) 561
Other............................. 407 46 (20)(b) 433
------- ----- ----- -------
Total noncurrent liabilities...... 2,893 285 407 3,585
Shareholders' equity
Convertible preferred stock....... 1 -- 2(f) 3
Common stock...................... 53 6 (6)(g) 53
Additional paid-in capital........ 1,031 107 75(f) 1,106
(107)(g)
Retained earnings................. 466 146 (146)(g) 466
Treasury stock.................... (67) -- -- (67)
Accumulated other comprehensive
loss and other................. (13) (3) 3(g) (13)
------- ----- ----- -------
Total shareholders' equity..... 1,471 256 (179) 1,548
------- ----- ----- -------
$ 5,235 $ 664 $ 213 $ 6,112
======= ===== ===== =======
</TABLE>
35
<PAGE> 38
- -------------------------
The pro forma as adjusted September 30, 1999 balance sheet has been prepared to
reflect the acquisitions of Welded Tube and Copperweld by The LTV Corporation
for an aggregate purchase price of $770 million, the associated financings and
the estimated direct costs of the Acquisitions. Pro forma adjustments, based on
the application of the purchase method of accounting, were made to reflect:
(a) Elimination of intercompany receivables and payables between LTV and
Copperweld.
(b) Adjustment of the assets and liabilities of Welded Tube and Copperweld to
estimated fair value at the balance sheet date. The adjustment amounts will
change as appraisals of fixed assets and intangibles are finalized.
(c) The excess of the purchase price ($770 million) over the fair value of the
assets acquired less liabilities assumed is $267 million. Additionally,
there are capitalized expenses of $22 million related to the cost of the
Acquisitions and financing. Adjustments to estimated fair market value were
made for inventory of $17 million, pensions of $8 million, other
postemployment benefit liabilities of $10 million, noncurrent deferred tax
liabilities of $20 million and elimination of acquired goodwill of $18
million. The allocation of the purchase price is preliminary and final
amounts could differ from those reflected in the pro forma adjustments.
Property, plant and equipment have not been adjusted to their estimated
fair market value pending completion of an independent third party
appraisal.
(d) Elimination of $206 million of long-term debt and $9 million of current
debt not assumed from the Acquisitions.
(e) Adjustment for the cost of the Acquisitions including the estimated direct
costs of the Acquisitions and the associated financings. The net sources
and uses of cash are:
<TABLE>
<S> <C>
SOURCES:
Preferred Stock............................................. $ 80
New Bank Financing........................................ 225
Borrowings under Receivables and Inventory Facilities
Expected............................................... 215
New Senior Notes.......................................... 275
----
Total sources.......................................... $795
====
USES:
Initial purchase price of Copperweld...................... $650
Initial purchase price of Welded Tube..................... 114
Expected purchase price adjustments....................... 6
Estimated transaction costs and expenses.................. 25
----
Total uses............................................. $795
====
</TABLE>
(f) Issuance of $80 million of Preferred Stock in the Initial Offering net of
$3 million of estimated direct costs of issuance and financing.
(g) Elimination of the historical shareholders' equity of Welded Tube and
Copperweld.
36
<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND CERTAIN OPERATING DATA
OF THE LTV CORPORATION
The following table presents selected consolidated financial information
and other operating data for The LTV Corporation for the periods indicated. The
financial information is derived from The LTV Corporation's audited consolidated
financial statements for each of the years ended December 31, 1998, 1997, 1996,
1995 and 1994. The financial information for the nine months ended September 30,
1999 and 1998 is derived from The LTV Corporation's unaudited financial
statements. The results of operations for the nine months ended September 30,
1999 are not necessarily indicative of results to be expected for the full year.
The following financial information and operating data should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition of The LTV Corporation," the Consolidated Financial
Statements of The LTV Corporation for the years ended December 31, 1998, 1997
and 1996 and for the nine months ended September 30, 1999 and 1998, and the
other information included elsewhere in this prospectus.
In the table below EBITDA represents income (loss) before taxes on income,
interest expense and depreciation and amortization. We believe that EBITDA
provides useful information regarding our ability to service our debt and other
obligations; however, EBITDA does not represent cash flow from operations as
defined by generally accepted accounting principles and should not be considered
as a substitute for net income as an indicator of our operating performance or a
substitute for cash flow as a measure of liquidity. In addition, our calculation
of EBITDA is different from the calculation required by the Indenture and may be
different from the calculation used by our competitors and, therefore,
comparability may be affected. We determine the ratio of EBITDA to interest
expense by dividing EBITDA by total interest expense plus capitalized interest
expense. We have also provided the ratio of earnings to fixed charges. This
ratio is determined by dividing the sum of earnings from continuing operations
before extraordinary items, discontinued operations, interest expense, taxes and
the portion of rent expense representative of interest, by the sum of interest
expense (including capitalized interest) and the portion of rent expense
representative of interest.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIO AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Sales.......................................... $2,985 $3,284 $4,273 $4,446 $4,135 $4,283 $4,233
Cost of products sold.......................... 2,722 2,889 3,773 3,801 3,596 3,621 3,669
Depreciation and amortization.................. 197 193 259 263 266 252 242
Selling, general and administrative............ 137 136 184 164 143 142 133
------ ------ ------ ------ ------ ------ ------
Operating income (loss) before special
charges................................... (71) 66 57 218 130 268 189
Special charges(a)............................. (39) -- (55) (150) -- -- --
Results of affiliates' operations.............. (28) (32) (49) (41) -- -- --
Interest expense(b)............................ (10) (2) (3) (3) (1) (11) (14)
Interest and other income...................... 9 21 26 45 44 54 28
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes on income......... (139) 53 (24) 69 173 311 203
Income tax provision:
Taxes payable (refundable)................... 6 4 3 10 -- 2 (2)
Taxes not payable in cash.................... -- 15 -- 18 64 115 75
------ ------ ------ ------ ------ ------ ------
Total........................................ 6 19 3 28 64 117 73
------ ------ ------ ------ ------ ------ ------
Income (loss) from continuing operations
before items below........................ (145) 34 (27) 41 109 194 130
Discontinued operations(c)..................... -- -- -- -- -- (9) (3)
Extraordinary charge(d)........................ -- -- -- (4) -- -- --
Cumulative effect of accounting change(d)...... -- -- -- (7) -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss).............................. $ (145) $ 34 $ (27) $ 30 $ 109 $ 185 $ 127
====== ====== ====== ====== ====== ====== ======
</TABLE>
37
<PAGE> 40
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIO AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures........................... $ 156 $ 290 $ 362 $ 326 $ 243 $ 205 $ 234
Depreciation and amortization.................. 197 193 259 263 266 252 242
Cash flow provided by (used in):
Operating activities......................... (15) 186 312 397 495 756 716
Investing activities......................... (6) (246) (297) (384) (437) (309) (422)
Financing activities......................... 87 (9) (74) 40 (217) (517) (365)
EBITDA......................................... 69 249 238 335 440 574 459
Ratio of EBITDA to interest expense............ 3.1x 9.5x 6.9x 15.4x 26.4x 30.5x 20.8x
EBITDA before special charges.................. $ 108 $ 249 $ 293 $ 485 $ 440 $ 574 $ 459
Ratio of EBITDA before special charges to
interest expense............................. 4.8x 9.5x 8.5x 22.2x 26.4x 30.5x 20.8x
Ratio of earnings to fixed charges(g).......... -- 2.3x 1.0x 2.8x 5.1x 8.8x 5.7x
Ratio of earnings to combined fixed charges and
preferred dividends(h)....................... -- 2.2x 1.0x 2.5x 4.6x 8.0x 5.2x
OTHER DATA:
Steel shipments (tons in millions)............. 5.7 5.9 7.7 8.2 8.1 8.0 8.0
Number of steel-related active employees(e).... 12,700 12,700 12,800 13,700 14,000 14,400 15,300
Employee hours per ton shipped(f).............. 2.5 2.4 2.4 2.5 2.6 2.6 2.7
Steel capacity utilization..................... 98% 97% 95% 106% 105% 102% 99%
BALANCE SHEET DATA (AT PERIOD END):
Cash, cash equivalents and marketable
securities................................... $ 167 $ 349 $ 311 $ 520 $ 674 $ 723 $ 693
Working capital................................ 650 812 716 966 989 1,024 1,190
Property, plant and equipment.................. 3,099 3,258 3,265 3,161 3,117 3,140 3,189
Total assets................................... 5,235 5,469 5,324 5,546 5,410 5,380 5,525
Total long-term debt........................... 402 363 302 355 153 150 183
Total postemployment health care and other
insurance benefit liabilities................ 1,648 1,668 1,676 1,699 1,731 1,736 1,763
Total pension benefit liabilities.............. 575 558 585 565 672 1,048 1,197
Shareholders' equity........................... 1,471 1,716 1,628 1,676 1,710 1,375 1,283
</TABLE>
- -------------------------
(a) In the first nine months of 1999 we recorded a special charge of $39 million
for the suspension of a pilot business systems project being installed at
our Hennepin, Illinois plant and a salaried work force reduction already
implemented. In 1998, we recorded a $55 million special charge for the
closure of a finishing facility at the Cleveland Works, recognition of an
asset impairment of an electro-galvanizing joint venture of which we own
50%, a shutdown of a production line for electric-weld pipe and a salaried
force reduction. In 1997, we recorded a special charge of $150 million for
the closure of the Pittsburgh coke plant. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition of The LTV
Corporation" for further discussion.
(b) Excludes capitalized, interest of $12 million and $24 million for the nine
months ended September 30, 1999 and 1998, respectively, and $31 million, $19
million, $15 million, $8 million and $8 million for the years ended December
31, 1998, 1997, 1996, 1995 and 1994, respectively.
38
<PAGE> 41
(c) As a result of the sale of the energy products division on August 1, 1995,
the operating results of the energy products business for all periods
presented are reported as discontinued operations.
(d) We recognized a cumulative effect change in accounting principle adjustment
to expense start-up costs of $7 million net of income taxes of $4 million
and an extraordinary charge of $4 million for the premium paid for the early
redemption of $100 million principal amount of Senior Secured Convertible
notes due 2003.
(e) The number of active employees at the end of each period at all steel
operations.
(f) Employee hours per ton shipped is calculated as hours worked by all active
hourly steel employees, divided in each case by tons shipped, and excludes
employees of raw material operations and LTV-owned railroads.
(g) Earnings were insufficient to cover fixed charges for the nine months ended
September 30, 1999 by $129 million.
(h) Earnings were insufficient to cover the combined fixed charges and preferred
dividends for the nine months ended September 30, 1999 by $131 million.
39
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE LTV CORPORATION
OVERVIEW
LTV is a leading North American producer of flat rolled steel and
steel-related products such as pipe, tubing and pre-engineered metal buildings.
Based on 1998 shipments, we are the third largest North American integrated
steel producer, the second largest producer of flat rolled steel and a leading
supplier of "quality-critical" flat rolled steel to the automotive, appliance
and electrical equipment and service center industries in the United States. We
are also the second largest manufacturer of pre-engineered metal buildings
systems in North America. We operate two integrated steel mills, Cleveland Works
and Indiana Harbor Works, various steel finishing and processing facilities and
numerous tubular and metal buildings operations.
We believe that with the acquisitions of Welded Tube and Copperweld
described below and their combination with our current tubular business, we are
the largest producer of mechanical and structural steel tubing products in North
America and the world's largest producer of bimetallic wire products, primarily
consisting of copper-clad aluminum and steel wire for telecommunications.
We operate in three segments:
- INTEGRATED STEEL, consisting of our operations to manufacture and sell
carbon flat rolled steel-related products including hot rolled, cold
rolled and galvanized sheet and tin mill products.
- METAL FABRICATION, consisting of our operations to manufacture and sell
tubular and metal buildings products. Our tubular operations produce
pipe, conduit and other tubular products for use primarily in the
transportation, agricultural and construction industries. This segment
has been expanded through our acquisition of Welded Tube Company of
America, which we refer to as "Welded Tube," and the acquisition of
Copperweld Corporation and Copperweld Canada, Inc., which together we
refer to as "Copperweld." We refer to these acquisitions together as the
"Acquisitions." Metal buildings systems are manufactured through our
subsidiary, VP Buildings, Inc.
- CORPORATE AND OTHER, consisting of joint ventures that utilize new
steel-related technologies, and corporate investments and related income
and expenses. Our joint ventures are Trico Steel Company (a flat rolled
steel mini-mill) and Cliffs and Associates Limited (a venture which will
produce direct reduced iron briquettes).
RECENT DEVELOPMENTS
THE ACQUISITIONS
On November 10, 1999, we acquired all of the capital stock of Copperweld
from Imetal SA for an aggregate cash purchase price of approximately $650
million, subject to shareholder equity adjustments. We believe that, based on
1998 shipments, Copperweld is the largest North American manufacturer of
mechanical and structural steel tubing and the world's largest producer of
bimetallic wire products.
40
<PAGE> 43
On October 1, 1999, we acquired Welded Tube Holdings, Inc., the major asset
of which is Welded Tube Company of America, from ANI Corporation Limited and
Palmer Tube Mills Limited, for an aggregate cash purchase price of $113.5
million, subject to working capital adjustments. We expect these adjustments
will increase the purchase price to approximately $120 million to reflect
capital expenditures and the increase in working capital at the Portland, Oregon
facility which recently began start-up operations. Welded Tube is the second
largest North American manufacturer of structural steel tubing.
Combining LTV Tubular, our existing tubular business, with Copperweld and
Welded Tube will give us a leading presence in what we consider to be among the
most attractive segments of the tubular products industry. We believe these
segments, which include mechanical tubing, structural tubing and electrical
conduit, are attractive because they offer relatively higher margins and
continuing growth opportunities, and are less susceptible to competition from
imports. The three businesses combined operate 23 plants and employ
approximately 3,500 people in the United States and Canada. On a pro forma basis
for 1998, these tubular businesses would have shipped in excess of 1.5 million
tons and would have generated revenues of approximately $1.2 billion.
INCREASED PENSION OBLIGATIONS
As a result of our new labor agreement with the United Steel Workers of
America ("USWA"), our projected benefit obligations as of January 1, 1999 would
have increased by approximately $300 million assuming the discount rate utilized
at January 1, 1999. Pension expenses, on an annualized basis, would increase by
approximately $65 million. No significant funding requirements are anticipated
before the year 2002.
STEEL IMPORTS
During the last half of 1998, imports of flat rolled product surged to
record levels, accounting for approximately 30% of total domestic consumption
during this period. We believe that a significant portion of these imports has
been unfairly traded. Following the issuance of final dumping determinations in
the hot rolled trade cases described below, the level of imports of flat rolled
steel receded during the first nine months of 1999 to 18% of total domestic
consumption.
TRADE CASES
In September 1998, we joined eleven other domestic steel companies, the
USWA and the Independent Steelworkers Union in filing unfair trade cases
covering certain hot rolled steel products against Japan, Russia and Brazil.
Despite the issuance of substantial final dumping determinations by the
Department of Commerce ("DOC") against the three countries and additional
countervailing duty determinations against Brazil, the DOC entered into
suspension agreements with Brazil and Russia covering hot rolled steel products.
Additionally, the DOC entered into a comprehensive agreement with Russia
covering substantially all imports of Russian steel mill products into the
United States. In August 1999, LTV Steel, along with other domestic integrated
producers, filed suit in the U.S. Court of International Trade to nullify the
suspension agreements the DOC negotiated with Russia and Brazil. Also in August
1999, three large Japanese steelmakers filed an appeal in the Court of
International Trade seeking to reverse the antidumping margins imposed upon them
by the DOC.
41
<PAGE> 44
On June 21, 1999, we, along with other domestic integrated producers, filed
cold rolled trade cases against dumped and subsidized imports from Argentina,
Brazil, China, Indonesia, Japan, Russia, Slovakia, South Africa, Taiwan,
Thailand, Turkey and Venezuela. In July 1999, the U.S. International Trade
Commission ("ITC") made a preliminary determination that dumped cold rolled
steel imports from Argentina, Brazil, China, Indonesia, Japan, Russia, Slovakia,
South Africa, Taiwan, Thailand, Turkey and Venezuela caused or threatened
material injury to domestic producers. The ITC also made a preliminary
determination that subsidies on imports from Brazil caused or threatened
material injury to domestic producers, allowing the countervailing duty
subsidies against Brazil to proceed. On December 10, 1999, the DOC entered into
a suspension agreement with Russia covering cold rolled steel products. We are
continuing to monitor the surge in unfairly traded imports and its effects on
our operations and anticipate that additional unfair trade cases may be filed.
See "Business -- Trade Cases."
TRICO STEEL
Our joint venture steel mini-mill operation, Trico Steel, is located in
Decatur, Alabama. Trico Steel, which is owned 50% by a subsidiary of The LTV
Corporation and 25% each by subsidiaries of Sumitomo Metal Industries, Ltd. and
British Steel plc, produces commercial high quality hot rolled steel. Trico
Steel began commercial operations in the second quarter of 1997.
Trico Steel has experienced start-up equipment problems that have prevented
it from achieving its rated capacity and product mix. Such equipment problems,
as well as transformer outages, at the mini-mill have resulted in substantially
reduced production through the second quarter of 1999, although efforts are
ongoing to correct such problems. In September 1999, we replaced the second of
two transformers that had malfunctioned in January 1999 and have continued to
make substantial progress in ramping up monthly production levels during the
last five months. Although Trico Steel has not achieved its operating and
financial goals, in September 1999 it generated its highest monthly shipments
and in November 1999 its highest monthly production level.
ADDITIONAL JOINT VENTURES
In July 1999, we announced the formation of two 50/50 joint venture
companies with Bethlehem Steel Corporation to serve the automotive industry. Our
total investment is expected to be approximately $125 million.
The first joint venture is Columbus Coatings Company, a producer of
high-quality, hot-dip galvanized and galvannealed flat rolled steel.
Installation of state-of-the-art hot-dip galvanizing technology has begun at an
existing electrolytic plant, L-S II, our former joint venture with Sumitomo
Metal Industries. The new facility will have annual capacity of approximately
500,000 tons of premium corrosion resistant steel for exposed automotive
applications with production scheduled to begin in the fourth quarter of 2000.
The second joint venture is Columbus Processing Company, a steel slitting,
inspecting and warehousing services facility for the automotive industry.
Production is expected to begin in early 2000 and will satisfy the needs of the
partners' automotive customers and provide steel processing services for other
customers. The assets of this facility were purchased from Ohio Kanpoh Steel
which ceased operation in May 1999.
42
<PAGE> 45
In addition, we purchased from Bethlehem Steel a 16.5% equity interest in
Walbridge Coatings, an electro-galvanizing plant in northwestern Ohio. This
facility provides us with 33% of the available line time allowing us to satisfy
our customers' needs for electro-galvanized steel sheets.
RESULTS OF OPERATIONS
COMPARISON OF FIRST NINE MONTHS IN 1999 AND 1998
Summary results from each segment are listed below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
METAL CORPORATE AND
INTEGRATED STEEL FABRICATION OTHER
---------------- ------------ --------------
1999 1998 1999 1998 1999 1998
------ ------ ---- ---- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales -- Trade................... $2,490 $2,770 $495 $514 $ -- $ --
Intersegment..................... 64 67 -- -- -- --
Cost of products sold............ 2,374 2,531 412 425 -- --
Selling, general and
administrative................. 88 89 40 38 9 9
Results of affiliates'
operations..................... -- -- 2 4 (30) (36)
Net interest and other income
(expense)...................... 1 1 -- -- (2) 18
Special charges.................. (39) -- -- -- -- --
------ ------ ---- ---- ---- ----
Income (loss) before income
taxes.......................... (133) 34 35 45 (41) (26)
OTHER DATA (TONS IN THOUSANDS):
Steel shipments
Trade.......................... 5,400 5,587 334 360 -- --
Intersegment................... 217 196 -- -- -- --
Raw steel production............. 6,365 6,200 -- -- -- --
Operating rate................... 98% 97% -- -- -- --
</TABLE>
INTEGRATED STEEL
Sales in 1999 decreased due to lower shipments and lower average steel
selling prices as a result of the continuing impact of high imports that flooded
the market in the last half of 1998.
Cost of products sold as a percentage of sales increased in 1999 from 1998
primarily as a result of lower average selling prices. During 1999, costs were
impacted by $15 million incurred since August 1, 1999 for the new USWA labor
agreement, $8 million due to the blast furnace reline at the Cleveland Works
that began in September 1999 and $4 million for unplanned power curtailments and
the resulting higher energy costs during the summer months. These were partially
offset by cost reductions including lower purchased materials.
43
<PAGE> 46
Raw steel production at LTV's steelmaking facilities decreased in 1999 due
to the blast furnace reline at the Cleveland Works. For the nine months ended
September 30, 1998, raw steel production was lower than in 1997 primarily due to
the reduced operating levels in 1998 during the H-4 blast furnace reline at the
Indiana Harbor Works. LTV follows American Iron and Steel Institute ("AISI")
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 LTV's products exceeds production capability.
In 1999, a special charge of $37 million was recorded upon the suspension
of a pilot business systems project being installed at the Hennepin, Illinois
plant. The decision to suspend the implementation does not affect the
implementation of LTV's other new business systems that are providing higher
levels of performance in materials management, plant maintenance, purchasing,
human resources and financial management. LTV also recognized a special charge
of $2 million related to a salaried workforce reduction already implemented.
METAL FABRICATION
In 1999, lower average tubular selling prices and shipments by LTV Tubular
were partially offset by higher metal buildings sales.
Cost of products sold as a percentage of sales increased in 1999 as a
result of lower average tubular product selling prices and the startup costs of
the new tubing facility in Marion, Ohio.
CORPORATE AND OTHER
Results of affiliates' operations includes steel-related joint ventures
such as Trico Steel and CAL. The transformer failure that occurred in late
January 1999 continued to impact Trico Steel's results into the third quarter.
With the installation of a final replacement transformer in September 1999,
Trico Steel had access to full power capability for the first time since
December 1998. This permitted Trico Steel to generate its highest monthly
production level in November 1999 and its highest monthly shipments in September
1999.
Also included in this segment are the start-up costs of CAL, a direct
reduced iron joint venture located in the Republic of Trinidad and Tobago in
which LTV has a 46.5% interest. CAL is progressing but with typical mechanical
delays for a new start-up facility. Global market conditions for scrap
substitute have improved in recent months and will provide an opportunity to
increase production levels as full production capability is achieved.
Lower interest and other income resulted from decreased interest income on
lower levels of investments and lower capitalized interest.
44
<PAGE> 47
1998 COMPARED WITH 1997 AND 1997 COMPARED WITH 1996
Summary results for each segment are listed below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
CORPORATE AND
INTEGRATED STEEL METAL FABRICATION OTHER
------------------------ ------------------ ------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Sales -- Trade................... $3,590 $3,905 $3,813 $683 $541 $322 $ -- $ -- $--
Intersegment............. 94 101 97 -- -- -- -- -- --
Cost of products sold............ 3,308 3,445 3,417 560 456 286 -- -- --
Selling, general and
administrative................. 120 120 117 52 32 16 12 12 10
Results of affiliates'
operations..................... -- -- -- 5 4 -- (54) (45) --
Net interest and other income
(expense)...................... 1 3 4 -- -- -- 22 39 39
Income (loss) before income taxes
and special charges............ 11 186 125 63 51 20 (43) (18) 28
Special charges.................. 52 150 -- 3 -- -- -- -- --
OTHER DATA (TONS IN THOUSANDS):
Steel shipments
Trade.......................... 7,238 7,655 7,605 452 518 475 -- -- --
Intersegment................... 287 285 282 -- -- -- -- -- --
Raw steel production............. 8,136 8,904 8,784 -- -- -- -- -- --
Operating rate................... 95% 106% 105% -- -- -- -- -- --
</TABLE>
INTEGRATED STEEL
Sales in 1998 decreased from 1997 due to a significant increase in unfairly
traded imports that resulted in a 3% decrease in average steel selling prices
and lower steel product shipments. In 1997, sales increased from 1996, primarily
due to slightly higher average steel selling prices over the prior year and
increased steel product shipments.
Cost of products sold as a percentage of sales increased in 1998 from 1997,
primarily as a result of lower average selling prices and the H-4 blast furnace
reline completed in June at our Indiana Harbor Works. Cost of products sold as a
percentage of sales decreased in 1997 from 1996 as a result of an improved mix
of steel products shipped and slightly higher average selling prices.
Raw steel production at our steelmaking facilities decreased in 1998 from
1997, primarily due to the H-4 blast furnace reline and reduced operating levels
in the fourth quarter due to the impact of imports. The average operating rate
was 95% in 1998 compared to 106% in the prior year.
We follow American Iron and Steel Institute ("AISI") 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 our
products exceeds production
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<PAGE> 48
capability. We re-rated our AISI capacity in 1998 which resulted in a 2.3%
increase in rated capacity.
Selling, general and administrative expenses in 1998 were equal to the 1997
expenses. Selling, general and administrative expenses increased in 1997 from
1996, primarily due to higher costs associated with the redesign of business
processes.
In the fourth quarter of 1998, Integrated Steel recorded special charges of
$52 million that included the closure of a finishing facility at the Cleveland
Works, recognition of an asset impairment of an electro-galvanizing joint
venture in which we have a 50% interest and a salaried force reduction. In the
third quarter of 1997 we recorded a special charge of $150 million for the
closure of the Pittsburgh coke facility.
METAL FABRICATION
Sales in 1998 increased from 1997, primarily due to the inclusion of metal
buildings sales for the full year. In 1997, sales increased from 1996, primarily
due to the inclusion of $177 million of metal buildings sales since the
acquisition of VP Buildings on July 2, 1997, partially offset by lower average
tubular selling prices of 1%.
Cost of products sold as a percentage of sales decreased in 1998 from 1997
as a result of improved margins from metal buildings sales partially offset by
lower average tubular product selling prices. Cost of products sold as a
percentage of sales decreased in 1997 from 1996 with the inclusion of metal
buildings sales and slightly higher average tubular product selling prices.
Selling, general and administrative expenses increased due to the inclusion
of the metal buildings expenses since the acquisition of VP Buildings in July
1997.
In the fourth quarter of 1998, a special charge of $3 million was recorded
for the shutdown of a production line for electric-weld pipe.
CORPORATE AND OTHER
Results of affiliates' operations includes steel-related joint ventures
such as Trico Steel and Cliffs and Associates. In April 1997, Trico Steel, a
joint venture operating a flat rolled steel mini-mill in which we have a 50%
interest, commenced commercial operations. Trico Steel experienced equipment
problems that prevented achievement of its rated capacity. Such equipment
problems continued although efforts to correct such problems were ongoing. The
surge in steel imports in 1998 also negatively affected production levels at
Trico Steel. Our share of Trico Steel's losses was $50 million and $44 million
in 1998 and 1997, respectively.
Also included in this segment are the pre-start-up costs of Cliffs and
Associates, a direct reduced iron joint venture in which we have a 46.5%
interest. Construction was completed and commissioning activities had begun.
Lower interest and other income resulted from decreased interest income on
lower levels of investments and higher interest expense related to our 1997
Notes and were partially offset by higher capitalized interest.
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<PAGE> 49
INCOME TAXES
We recorded the following tax provisions:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------------
1999 1998 1998 1997 1996
----- ----- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Taxes payable...................... $6 $ 4 $3 $10 $--
Taxes not payable in cash.......... -- 15 -- 18 64
-- --- -- --- ---
Total......................... $6 $19 $3 $28 $64
== === == === ===
</TABLE>
Cash taxes consist of state and federal taxes including taxes of a less
than 80% owned subsidiary. In the six months ended September 30, 1999 and the
year 1998, we recorded a full valuation allowance to offset the non-cash tax
benefit arising from the loss for the periods. Tax provisions of $15 million for
the nine months ended September 30, 1998 and $18 million and $64 million for the
years ended December 31, 1997 and 1996, respectively, did not result in cash
payments because of pre-reorganization net deductible differences.
Under fresh-start financial statement reporting rules, tax benefits
associated with pre-reorganization net deductible temporary differences and net
operating loss carryforwards cannot be recognized as a reduction to the tax
provision but increase additional paid-in capital. Our cash payments for income
taxes in the first six months of 1998 and for the years 1997 and 1996 were
significantly less than the income tax expense amounts in the financial
statement provision because of these pre-reorganization deferred tax assets. Our
effective tax rate for financial statement reporting purposes was 36% for the
nine months ended September 30, 1998, 40% in 1997 and 37% in 1996.
Our ability to reduce future income tax payments through the use of net
operating loss carryforwards could be significantly limited on an annual basis
if we were to undergo an "ownership change" within the meaning of Section 382 of
the Internal Revenue Code of 1986. For the purpose of preserving our ability to
utilize our net operating loss carryforwards, Article Ninth of our Restated
Certificate of Incorporation prohibits, with certain limited exceptions, any
unapproved acquisition of common stock that would cause the ownership interest
percentage of the acquirer or any other person to increase to 4.5% or above.
FINANCIAL CONDITION
LIQUIDITY AND FINANCIAL RESOURCES
Our sources of liquidity include cash and cash equivalents, marketable
securities, cash from operations, long-term borrowings, amounts available under
our working capital facilities and other external sources.
In 1999, total cash, cash equivalents and marketable securities decreased
by $144 million to $167 million as of September 30, 1999. During 1999, cash used
by operating activities amounted to $15 million. Major uses of cash during 1999
included $156 million in capital expenditures and $91 million for investments in
steel-related businesses.
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<PAGE> 50
In 1998, total cash, cash equivalents and marketable securities decreased
by $209 million to $311 million as of December 31, 1998. During 1998, cash
provided by operating activities amounted to $312 million. Major uses of cash
during 1998 included $362 million in capital expenditures, $80 million for
investments in steel-related businesses and the repayment of the notes due 2020,
as described below.
Our long-term financial obligations consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ----------------
1999 1998 1997
------------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Long-term debt
8.20% Senior Notes due 2007............ $ 298 $ 298 $ 298
Receivable and Inventory
facilities........................ 100
Notes due 2020....................... -- -- 57
Mortgage payable..................... 4 4 --
------ ------ ------
Total debt........................ 402 302 355
Pensions............................... 561 565 548
Other postemployment obligations....... 1,523 1,552 1,570
------ ------ ------
Total obligations................. $2,486 $2,419 $2,473
====== ====== ======
</TABLE>
Our two existing working capital facilities, a "Receivables Facility" and
an "Inventory Facility," provide us with up to $570 million of financing
resources at prevailing market rates. Substantially all of our receivables and
inventories are pledged as collateral under these working capital facilities.
Following the Acquisitions, on a pro forma basis, $240 million would have been
available under the facilities as of September 30, 1999.
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 September 30, 1999, $294
million was permitted to be borrowed; $100 million of borrowings were
outstanding and letters of credit outstanding amounted to $10 million under this
facility. The $100 million of borrowings was used to finance the October 1, 1999
acquisition of Welded Tube and in November 1999, we borrowed an additional $115
million to complete the Copperweld acquisition. The borrower under the
Receivables Facility is LTV Sales Finance Company, a special purpose entity
wholly owned by LTV, which on a daily basis purchases and pledges essentially
all of the receivables generated by LTV Steel. 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.
Our $250 million five-year Inventory Facility, which we entered into on
March 1, 1998, is secured by essentially all of LTV Steel's inventory through a
special purpose entity, LTV Steel Products, LLC, a consolidated special purpose
entity wholly owned by LTV Steel, which purchases inventory from LTV Steel and
pledges it to secure notes that it issues under the facility. The Inventory
Facility provides for credit, through the issuance of secured notes by LTV Steel
Products, LLC, of up to $250 million for working capital
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<PAGE> 51
and general corporate purposes, $150 million of which may be used to issue
letters of credit. Interest on outstanding advances will accrue at LTV's option
at either a specified base rate or 1% above LIBOR. At September 30, 1999, there
were no outstanding advances and $80 million face amount of letters of credit
outstanding under the Inventory Facility. The creditors of LTV Steel Products,
LLC have a claim on the assets of that company prior to those assets becoming
available to other creditors of LTV or its affiliates.
In addition, LTV and substantially all of its domestic wholly-owned
subsidiaries entered into the New Bank Financing contemporaneously with the
initial offering of the Preferred Stock. The New Bank Financing will mature on
October 31, 2004 and will consist of a single tranche of term loans in an
aggregate principal amount of $225 million, and was used to pay a portion of the
purchase price of the Acquisitions and related fees and expenses. Obligations
under the facility will be secured by substantially all the assets of the
Copperweld Corporation and Welded Tube, other than receivables and Welded Tube's
Portland facility. Loans under this facility will have de minimis scheduled
amortization payments during the first four years from closing, with equal
scheduled payments of $54 million at the end of February, May, August and
October 2004. In addition, loans under the New Bank Financing must be prepaid
with 100% of the net cash proceeds of certain asset sales and insurance awards,
75% (subject to reduction) of excess cash flow, 100% of the net cash proceeds of
certain debt issuances and 50% of the net cash proceeds of certain equity
issuances unless certain financial ratios are met (in which case no such
prepayment shall be required). The New Bank Financing contains covenants
limiting LTV's and its subsidiaries' ability to incur additional debt and
additional liens, make dividends and other payments with respect to its equity
securities, make new investments or capital expenditures and sell assets. This
facility also requires compliance with financial tests based on its financial
position and results of operations, including a leverage ratio, an interest
coverage ratio and a fixed charge coverage ratio, all of which could effectively
limit our ability to borrow or otherwise raise funds in the credit and capital
markets. While we believe that we will be able to comply with these financial
covenants, our ability to do so will depend on our results of operations,
borrowing needs and financial performance more generally. See "Description of
New Bank Financing."
Management believes that cash provided by operations, along with its two
working capital facilities, are sufficient to fund the current requirements of
working capital, capital expenditures, investments in businesses and joint
ventures and other postemployment benefits. Due to the low production levels
experienced by Trico Steel, LTV and our other two partners entered into a credit
commitment in 1998 to lend to Trico Steel on a junior subordinated basis up to
an additional $50 million. Our portion of such commitment is $25 million. The
$50 million commitment is in addition to a $30 million loan commitment (our
share is $15 million) made in 1998. Through September 30, 1999, we advanced
Trico Steel $35 million against these commitments, with an additional $5 million
commitment remaining from us. Trico Steel's working capital requirements will
continue to be reviewed, and it is possible that we could decide to advance
additional loans to Trico Steel on an "as needed" basis.
The terms of our 1997 Notes and our New Senior Notes contain various
covenants, including restrictions on payments of dividends, share repurchases,
capital expenditures, investments in subsidiaries and borrowings. At September
30, 1999, amounts available for future dividends and stock repurchases totaled
$40 million, which amount was increased by the net proceeds of the Preferred
Stock upon issuance thereof in the Initial Offering. We
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<PAGE> 52
do not believe that the restrictions contained in these covenants will cause
significant limitations on our financial flexibility.
In 1998 we signed a new agreement with the Pension Benefit Guaranty
Corporation ("PBGC"). Under the new agreement, we will fund our major defined
benefit pension plans based on the Employee Retirement Income Security Act of
1974 minimum funding standards and additional amounts as appropriate. The new
agreement eliminates certain required annual fixed contributions and
contributions which were based on exceeding certain cash flow levels. Upon
entering into the new agreement on December 2, 1998, we repaid the $62 million
balance of 8.5% PBGC Notes due in 2020. We do not expect to have any significant
obligations for pension contributions until 2002.
Since the second quarter of 1996, we have paid quarterly common stock
dividends of $0.03 per share.
See "Acquisitions" and "Description of Certain Other Indebtedness."
CAPITAL EXPENDITURES
Our capital expenditures are directed toward market-driven requirements,
customer service, productivity improvements, cost-reduction programs, new
information technology, replacement projects and environmental requirements.
Capital expenditures for LTV were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Integrated Steel................................ $310 $310 $240
Metal Fabrication............................... 52 16 3
---- ---- ----
Total........................................... $362 $326 $243
==== ==== ====
</TABLE>
Our Integrated Steel segment has primarily invested in equipment upgrades,
including the major reline of the H-4 blast furnace at the Indiana Harbor Works
completed in 1998, and new technologies to keep our facilities cost competitive,
improve productivity and enhance customer service.
Construction of a new tubing manufacturing facility in Marion, Ohio was
substantially completed in 1998 at a total capital cost of approximately $50
million and was the largest capital expenditure in the Metal Fabrication
segment. The plant began commercial operations in 1999 and has an 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.
We anticipate that total capital expenditures will approximate $300 million
during 1999.
INVESTMENTS IN STEEL-RELATED BUSINESSES
Investments totaled $91 million in the first nine months of 1999 and $80
million in 1998, $101 million in 1997 and $79 million in 1996. Our strategy is
to invest in growth
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industries and steel-related businesses that complement our integrated
steelmaking business. 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.
From 1995 through September 30, 1999, we have invested approximately $177
million in Trico Steel, a joint venture steel mini-mill located in Decatur,
Alabama, of which we own a 50% interest. Trico Steel began commercial operations
in April 1997.
In 1996, we entered into a joint venture, Cliffs and Associates, to produce
and market high purity reduced iron briquettes as a scrap steel substitute for
use in electric furnace steelmaking operations. We invested $84 million through
September 30, 1999, representing a 46.5% investment in a facility which has a
designed production level of 500,000 metric tons per year. The plant will
operate on a planned start-up curve and full year production will depend on
successful start-up of the facility and market demand.
We have small metal fabrication joint ventures which include a
tailor-welded blanking operation, automotive steel processing and blanking
operations in Mexico and international joint ventures in metal buildings
operations that are located in South America and Mexico.
COMPETITION AND PRICES
Domestic steel producers face significant competition from foreign
producers affecting both prices and volume. For the full year 1998, imports of
flat rolled product from all foreign countries totaled approximately 20 million
tons or 25% of domestic steel consumption, an increase of 43% from 1997 levels.
A significant amount of the 1998 increase occurred after July 1998 as the last
half of 1998 had imports totaling 30% of domestic steel consumption. Although
imports for the first nine months of 1999 were 18% of domestic steel
consumption, based on reports by the AISI, the effects of the higher 1998 levels
have led to the reduced prices in 1999. The intensity of foreign competition is
substantially affected by the relative strength of foreign economies and
fluctuations in the value of the U.S. dollar against foreign currencies.
Decisions by some foreign producers with respect to production and sales may be
influenced to a greater degree by political and economic policy considerations
of their governments than by prevailing market conditions. Currency fluctuations
and reduced consumption by Asian markets resulted in a significant increase in
imports in 1998.
We also compete with other domestic integrated producers, some of which
have greater resources than us, 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. Thin slab casting technologies have allowed some
mini-mill producers to enter certain sectors of the flat rolled market that have
traditionally been supplied by integrated producers. Industry experts estimate
that current domestic raw steel production capacity will be increased by 2% by
the end of 2000 as new mini-mills 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.
Our Integrated Steel segment's results of operations are substantially
affected by small variations in the realized prices of our steel products, which
are significantly influenced by prevailing prices for steel and demand for
particular products. Shipments of 7.5 million tons of Integrated Steel products
resulted in sales of $3.7 billion during 1998. A 1%
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<PAGE> 54
increase or decrease in the average realized price during 1998 would have
resulted in an increase or decrease in pretax income of approximately $32
million. In 1998, the steel industry experienced price declines from the price
levels of 1997. Price increases were obtained in 1997 from 1996 levels but
average steel selling prices in 1998 were below 1996 levels. Competitive
pressures, including increased domestic steelmaking capacity and rising import
levels, limit our ability to maintain or increase current prices.
The Metal Fabrication segment's products are competitive with respect to
market prices and have been less sensitive to pricing pressures.
Joint ventures have been one of our means for expanding our operations, and
we expect to continue to make investments in joint ventures. Many of the joint
venture opportunities that we are pursuing 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.
On February 28, 1998, we ceased operations at the Pittsburgh coke plant and
began the closure process. We established reserves for the cost of the closure
and clean-up in the third quarter of 1997. Spending charged against this reserve
through the first nine months of 1999 totaled $42 million. In April 1999, we
completed the closure of the cold rolled finishing operations in the Number 2
finishing department at the Cleveland Works. The expense of this closure was
included as part of the special charges recorded in the fourth quarter of 1998.
There has been $2 million of spending against this reserve in 1999.
ENVIRONMENTAL EXPENDITURES
We are subject to changing and increasingly stringent environmental laws
and regulations concerning air emissions, water discharges and waste disposal,
and the remediation of soil and groundwater contamination caused by releases of
hazardous materials. As a consequence, we have incurred, and will continue to
incur, substantial capital expenditures and operating and maintenance expenses
in order to comply with these requirements. Additionally, if any of our
facilities are unable to comply with these requirements, those operations could
be temporarily or permanently closed. If, in the future, we are required to
investigate and remediate any contamination at plant sites where hazardous
wastes have been used pursuant to the Resource Conservation and Recovery Act, we
could be required to record additional liabilities. We cannot estimate the cost
of these potential liabilities at this time, but it could be substantial. In
addition, certain environmental laws, such as Superfund, can impose liability
for the entire cost of cleanup of contaminated sites upon any of the current and
former site owners or operators or parties who sent waste to these sites,
regardless of fault or the lawfulness of the original disposal activity. Permits
and environmental controls are also required at our facilities to reduce air and
water pollution from certain of our operations, and these permits are subject to
modification, renewal and revocation by issuing authorities. Additional permits
may be required, or more onerous conditions imposed in our existing permits as a
result of increases in production or modifications to certain of our facilities.
We spent approximately $15 million for environmental clean-up matters and
related demolition costs at operating and idled facilities during the first nine
months of 1999, $24 million in 1998 and $16 million in 1997. At September 30,
1999, we had recorded a liability of $123 million for known and identifiable
environmental and related demolition
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costs. As we become aware of additional matters or obtain more information, we
may be required to record additional liabilities for the investigation and
clean-up of contamination. We also spent approximately $11 million in the first
nine months of 1999, $14 million in 1998 and $32 million in 1997 in capital
expenditures for environmental projects and expect we will be required to spend
an average of approximately $23 million annually in capital expenditures during
the next five years to meet environmental standards.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk, including changes in interest rates and
commodity prices. We use futures, primarily in zinc, nickel, tin and natural
gas, to manage the volatility related to certain of these exposures. Gains and
losses relating to qualifying hedges are included in the basis of the underlying
transactions. Sensitivity analysis of the incremental effect on annual pretax
income of a hypothetical 10% decrease in commodity prices for open futures at
December 31, 1998 would be $4 million. Gains and losses on futures are generally
offset by price changes in the underlying contract. The sensitivity analysis
does not reflect the effects of these offsets.
We are also subject to interest rate risk. Our current debt consists
primarily of our $300 million face value of 1997 Notes. The estimated fair value
of these notes at year end 1998 would be $28 million less than the recorded
value based on current borrowing rates available for financings with similar
terms and maturities.
We have marketable securities that are classified as available for sale and
are recorded at fair value which approximates cost.
See also the Financial Instruments note in the notes to our Consolidated
Financial Statements contained elsewhere in this prospectus.
YEAR 2000 READINESS
LTV
Although LTV does not currently manufacture any products containing
embedded chips or any computerized products, LTV (like most companies) has been
faced with the task of addressing the Year 2000 issue, which is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of our computer programs or any hardware that have
date-sensitive software or embedded chips may recognize a date using "00" as the
year 1900 rather than the year 2000.
Since the commencement of its Year 2000 readiness effort in late 1996, LTV
has been engaged in a company-wide effort to achieve Year 2000 readiness for
both information technology ("IT") and noninformation technology ("non-IT")
systems for its consolidated operations. LTV has a Steering Committee for Year
2000 issues, which meets regularly and is comprised of high-level executives and
other management personnel and Year 2000 consultants. LTV is primarily using its
own employees to achieve readiness in most of its manufacturing and operations
systems, augmented by outside expertise related to specific systems. We have
contracted with its principal Year 2000 outside contractor (the "Outside
Contractor") to achieve Year 2000 readiness with respect to its steel business
and related information technology infrastructure systems ("Business Systems").
LTV's Year 2000 readiness program involves several stages, including (1) an
inventory stage to locate programs and devices that may have date sensitivities,
(2) a risk
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<PAGE> 56
assessment and prioritization stage to determine the degree of noncompliance and
the potential impact on LTV's business, (3) a remediation stage for affected
systems and devices, (4) a test stage to determine if the repaired program or
device is ready, and (5) an implementation stage to return the program or device
back into operation.
The following table shows the our estimates of the stages of readiness of
the Business Systems within its consolidated operations as well as its
manufacturing and operations systems which include non-IT systems such as smart
sensors, logic controllers, distributed control systems and embedded
microprocessors.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------------------
Y2K
READINESS
Y2K Y2K IMPACT OF OVERALL
INVENTORY ASSIGNMENT INVENTORY(1) COMPLETED
--------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Business Systems(2)
- - Integrated Steel............. 100% 100% 90%
- - Metal Fabrication............ 100% 100% 100%
Manufacturing Systems(2)
- - Integrated Steel............. 100% 100% 100%
- - Metal Fabrication............ 100% 100% 100%
Infrastructure(2)
- - Integrated Steel............. 100% 100% 100%
- - Metal Fabrication............ 100% 100% 100%
Supply Chain(2)
- - Integrated Steel............. NA NA NA 100%
- - Metal Fabrication............ NA NA NA 100%
Contingency Plans(2)
- - Integrated Steel............. NA NA NA 100%
- - Metal Fabrication............ NA NA NA 100%
</TABLE>
- -------------------------
(1) LTV considers inventory "Y2K ready" only after testing to confirm that
remediation, replacement and/or work around has resolved any material Y2K
problem and such inventory is returned to production. All Integrated Steel
systems are scheduled for completion by the end of 1999.
(2) Excluded from the table are unconsolidated operations accounted for by the
equity method such as Trico Steel and various foreign joint ventures.
Because LTV's IT and non-IT systems are subject to continuous updating, we
will continue to monitor any new or modified systems placed in service prior to
the Year 2000 rollover date.
In addition to LTV's Year 2000 program described above, LTV has implemented
a business systems project, which includes new purchasing, accounts payable,
spare parts inventory, human resource and maintenance planning systems
throughout its steel
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<PAGE> 57
operations. All of the above systems are excluded from the Year 2000 readiness
program costs, which are disclosed below.
New outsourced benefit and payroll systems originally scheduled for
implementation during 1999 will not be completed as expected. As a consequence,
the existing benefit and payroll and related systems will be remediated for Year
2000 issues prior to the end of 1999. The remediation of the existing benefit
and payroll and related systems is reflected in the "Y2K Readiness of Overall
Inventory" reported above.
LTV continues to address the additional potential consequences that may
result from unresolved Year 2000 issues and has queried material third parties,
including suppliers, utility and other resource providers and customers to
assess their Year 2000 readiness efforts. LTV has implemented a supply chain
plan for most sole source and mission critical suppliers and customers. LTV has
also developed contingency plans for its steel and steel-related plants, which
assume the loss of electricity, gas and water. These plans include provisions
for alternate sources of power and plans to manage the steel and steel-related
plants to a safe condition followed by a staged recovery to help ensure employee
safety and continued environmental compliance on the Year 2000 rollover date.
LTV is taking action to prepare for the implementation of our contingency plans
such as securing generators or otherwise providing for alterative sources of
power and the establishment of command centers for communication and
coordination on the Year 2000 rollover date.
In the event LTV and material third parties such as critical suppliers
and/or customers fail to become Year 2000 compliant, a most reasonably likely
worst case scenario could result in a system failure or miscalculation causing
disruptions of operations, including, among other things, production
difficulties, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities which could result in a material
adverse effect on the LTV's business and results of operations.
LTV expects to spend approximately $63 million for its Year 2000 readiness
efforts, with $8 million designated for remediation of manufacturing and
operations systems and $55 million allocated for Business Systems. These
expenses include replacing some outdated, noncompliant hardware and noncompliant
software as well as identifying and remediating known Year 2000 problems. LTV
expensed $14 million in the first nine months of 1999, $35 million and $8
million of these costs in the years 1998 and 1997, respectively. The funds
expensed for Year 2000 are outside of the normal information technology budget.
Because the readiness program is not yet fully implemented and is subject to
certain risks and uncertainties, including the readiness efforts of material
third parties, there can be no assurance that LTV will not incur material costs
beyond the anticipated costs described above.
The cost of the Year 2000 project and the dates by which LTV believes it
will be Year 2000 ready are based on its current best estimates, which were
derived based on numerous assumptions of future events, including the timely
remediation of the existing benefit, payroll and related systems, the continued
availability of certain resources, third party modification plans and other
factors. There can be no guarantee; however, that these estimates will be
achieved; and actual results could differ materially from those anticipated.
Specific factors that might cause such differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and imbedded computer technology
in a timely manner and the ability of the LTV's suppliers and customers to
become Year 2000 compliant in a timely manner.
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WELDED TUBE
Inventory, assessment, remediation, and unit and integrated testing of
Welded Tube's business and manufacturing systems have been completed, and
management believes these systems are Year 2000 ready. Welded Tube has queried
its current critical suppliers and has received responses indicating that their
systems are Year 2000 ready. Contingency planning at Welded Tube was finalized
in November 1999.
COPPERWELD
Copperweld began its Year 2000 compliance efforts in early March 1997 with
an initial goal to be compliant by December 1998. Reviews of critical
information systems that impact operations and financial reporting were
conducted to develop a strategy to address required changes to applications,
hardware and software.
In early December 1998, Copperweld conducted extensive Year 2000 operating
system and applications testing of its mission critical systems over a five-day
period by actually simulating future data on the test system. All aspects of the
systems were tested with minimal problems encountered and it was concluded that
all mission critical internal systems were Year 2000 ready.
In addition, Copperweld has identified areas that require either hardware
or software upgrades and plans are in place to have this accomplished during
1999 and primarily relates to upgrading of computer systems for Copperweld
Canada. We believe that any problems encountered will be few and minor and will
be remedied before they impact our business.
Testing has not been solely performed by internal sources. Copperweld's
Year 2000 readiness program was audited by a third party, associated with
Automotive Industry Action Group (AIAG), and received an assessor's rating of
"green" which, based upon their assessment categories, classified the Year 2000
preparedness status at the Copperweld facilities as "low risk."
During the last few days of 1999 and into the Year 2000, we will have an
emergency response team on alert to react to any unexpected system failure at
the Copperweld facilities. Due to the extensive amount of testing completed and
the associated favorable results, the worst case foreseen in the event of system
failure is the inability to ship or produce for a few days. The expenditures
related to the Year 2000 project have not had a significant impact on the
financial results of Copperweld.
OUTLOOK
Although demand for the Integrated Steel segment's products remains strong
and efforts to increase prices to appropriate levels continue, the recent price
increases will not be sufficient to increase average selling prices to 1998
levels. In addition to the impact of lower selling prices, we will also be
affected by the reline of the C-6 blast furnace at the Cleveland Works which
began in the third quarter and was completed in November 1999.
The Metal Fabrication segment shows continued strong sales of metal
buildings systems and tubular products in a robust construction market, while
some pipe products are being negatively affected by reduced demand in the energy
market and by imports. The Metal Fabrication segment results will continue to
reflect the start-up operating losses from its new Marion, Ohio tubing facility
in the fourth quarter of 1999. Results of Welded
56
<PAGE> 59
Tube and Copperweld and the related interest expense of the new debt will be
reflected in the fourth quarter since the date of acquisition.
The Corporate and Other segment will be affected by the start-up losses of
Cliffs and Associates until sustainable production levels are achieved. Trico
Steel has experienced substantial equipment problems, including but not limited
to transformer outages, that have prevented it from reaching satisfactory levels
of performance. Although permanent transformer replacements were completed in
the third quarter of 1999, we cannot be certain that this will result in Trico
Steel becoming profitable. In addition, interest income will be reduced as
compared to prior periods due to lower cash balances.
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<PAGE> 60
SELECTED COMBINED FINANCIAL INFORMATION
AND CERTAIN OPERATING DATA OF COPPERWELD
The following table presents selected combined financial information and
other operating data for Copperweld Corporation and Copperweld Canada, Inc.
(together, "Copperweld") for the periods indicated. The financial information is
derived from Copperweld's audited combined financial statements for each of the
years ended December 31, 1998, 1997, 1996, 1995 and 1994. The financial
information for the nine months ended September 30, 1999 and 1998 is derived
from Copperweld's unaudited financial statements. The results of operations for
the nine months ended September 30, 1999 are not necessarily indicative of
results to be expected for the full year. The following financial information
and operating data should be read in conjunction with the Combined Financial
Statements of Copperweld for the years ended December 31, 1998, 1997 and 1996
and for the nine months ended September 30, 1999 and 1998 included elsewhere in
this prospectus.
In the table below EBITDA represents income (loss) before taxes on income,
interest expense and depreciation and amortization. We believe that EBITDA
provides useful information regarding Copperweld's ability to service its debt
and other obligations; however, EBITDA does not represent cash flow from
operations as defined by generally accepted accounting principles and should not
be considered as a substitute for net income as an indicator of Copperweld's
operating performance or a substitute for cash flow as a measure of liquidity.
In addition, this calculation of EBITDA may be different from the calculation
used by competitors and, therefore, comparability may be affected. The ratio of
EBITDA to interest expense is determined by dividing EBITDA by total interest
expense plus capitalized interest expense. The ratio of earnings to fixed
charges is determined by dividing the sum of net income before interest expense,
taxes and the portion of rent expense representative of interest, by the sum of
interest expense (including capitalized interest) and the portion of rent
expense representative of interest.
58
<PAGE> 61
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Sales.................... $554.7 $552.6 $711.0 $662.7 $427.8 $429.6 $432.1
Cost of products sold.... 467.3 461.0 594.8 547.1 353.1 355.2 345.2
Depreciation and
amortization........... 22.8 18.1 22.9 19.8 12.8 11.5 12.2
Selling, general and
administrative......... 30.2 28.6 36.7 38.1 28.7 20.6 25.7
------ ------ ------ ------ ------ ------ ------
Operating income......... 34.4 44.9 56.6 57.7 33.2 42.3 49.0
Interest expense......... 7.5 7.2 8.0 8.0 4.5 4.6 4.3
Interest and other
income................. 0.9 0.7 1.3 0.8 0.5 1.2 1.2
------ ------ ------ ------ ------ ------ ------
Income before taxes on
income................. 27.8 38.4 49.9 50.5 29.2 38.9 45.9
Provision for income
taxes.................. 10.4 14.7 19.1 18.6 9.4 15.1 18.6
------ ------ ------ ------ ------ ------ ------
Net income............... $ 17.4 $ 23.7 $ 30.8 $ 31.9 $ 19.8 $ 23.8 $ 27.3
====== ====== ====== ====== ====== ====== ======
OTHER FINANCIAL DATA:
Capital expenditures..... $ 30.7 $ 52.2 $ 83.2 $ 30.8 $ 10.2 $ 20.8 $ 11.2
Depreciation and
amortization........... 22.8 18.1 22.9 19.8 12.8 11.5 12.2
Cash provided by (used
in):
Operating activities... 44.3 82.9 54.0 34.4 28.8 42.4 25.7
Investing activities... (31.0) (56.6) (87.7) (128.6) (7.6) (25.3) (10.8)
Financing activities... (18.1) 31.1 39.4 100.5 (24.6) (18.5) (13.5)
EBITDA................... 58.1 63.7 80.8 78.3 46.5 55.0 62.4
Ratio of EBITDA to
interest expense....... 7.7x 8.8x 8.3x 9.5x 10.1x 10.4x 14.2x
Ratio of earnings to
fixed charges.......... 3.9x 5.2x 5.3x 6.4x 5.7x 6.4x 8.6x
OTHER DATA:
Shipments
Tubing (tons in
thousands).......... 622.4 621.7 798.1 701.1 360.0 347.0 384.4
Wire (pounds in
millions)........... 64.3 52.3 70.3 73.5 70.1 65.1 62.6
Number of active
employees.............. 2,577 2,521 2,545 2,455 1,300 1,332 1,306
</TABLE>
59
<PAGE> 62
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
(UNAUDITED)
(IN MILLIONS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Cash, cash equivalents
and marketable
securities............. $ 8.0 $ 2.3 $ 12.8 $ 7.1 $ 0.8 $ 4.2 $ 5.6
Working capital.......... 110.2 106.8 117.2 119.2 63.2 60.8 20.2
Property, plant and
equipment.............. 295.8 258.4 282.3 228.6 134.7 137.7 125.8
Total assets............. 539.4 504.8 531.1 472.2 265.1 257.3 249.5
Total debt............... 154.2 136.6 163.7 164.6 60.4 70.9 75.7
Total postemployment
health care and other
insurance benefit
liabilities............ 40.9 41.7 39.9 41.7 32.0 30.9 31.2
Total pension benefit
liabilities............ (8.2) 1.9 (3.5) 6.0 13.5 16.4 14.5
Shareholders' equity..... 213.2 188.9 199.4 135.9 91.1 82.2 71.4
</TABLE>
60
<PAGE> 63
BUSINESS
OVERVIEW
LTV is a leading North American producer of flat rolled steel and
steel-related products such as pipe, tubing and pre-engineered metal buildings.
Based on 1998 shipments, we are the third largest North American integrated
steel producer, the second largest producer of flat rolled steel and a leading
supplier of "quality-critical" flat rolled steel to the automotive, appliance
and electrical equipment and service center industries in the United States. We
are also the second largest manufacturer of pre-engineered metal buildings
systems in North America. We operate two integrated steel mills, Cleveland Works
and Indiana Harbor Works, various steel finishing and processing facilities and
numerous tubular and metal buildings operations.
We believe that with the Acquisitions of Welded Tube and Copperweld
described below and their combination with our current tubular business, we are
the largest producer of mechanical and structural steel tubing products in North
America and the world's largest producer of bimetallic wire products, primarily
consisting of copper-clad aluminum and steel wire for telecommunications.
We believe that our emphasis on value-added products and quality in our
integrated steel operations has allowed us to become a leading supplier to
quality-critical steel-consuming industries. We are a qualified supplier to all
domestic automobile manufacturers, including foreign-owned transplant automobile
assemblers. Our metal fabrication businesses are generally considered to be
among the leaders in their respective industries and are highly competitive in
terms of quality, service and cost. On a pro forma basis for 1998, we would have
generated revenues of approximately $5.1 billion and EBITDA, before special
charges, of approximately $389 million.
We operate in three segments:
- INTEGRATED STEEL, consisting of our operations to manufacture and sell
carbon flat rolled steel-related products including hot rolled, cold
rolled and galvanized sheet and tin mill products.
- METAL FABRICATION, consisting of our operations to manufacture and sell
tubular and metal buildings products. Our tubular operations produce
pipe, conduit and other tubular products for use primarily in the
transportation, agricultural and construction industries. This segment
will be expanded through our acquisition of Welded Tube and the pending
acquisition of Copperweld. Metal buildings systems and components are
manufactured through our subsidiary, VP Buildings, Inc.
- CORPORATE AND OTHER, consisting of joint ventures that utilize new
steel-related technologies, and corporate investments and related income
and expenses. Our joint ventures are primarily Trico Steel Company (a
flat rolled steel mini-mill) and Cliffs and Associates Limited (a venture
which will produce direct reduced iron briquettes).
The Acquisitions of Welded Tube and Copperweld serve our strategy of
pursuing growth in metal fabrication businesses. We believe that the
Acquisitions provide us with a leadership position in attractive segments, and
that each acquisition complements our existing operations.
WELDED TUBE. Welded Tube is the second largest structural tube producer in
North America. Welded Tube's products are used primarily for construction,
structural support
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<PAGE> 64
and safety, ornamental and an extensive range of other tubular applications.
Welded Tube differentiates itself in the marketplace by offering customers the
option of purchasing its products with its proprietary Kleenkote(TM) coating.
Kleenkote(TM) coating's benefits include: prolonged storage life, reduced
material handling, easier marking and layout, reduced need for solvents and
cleaners, easier weld splatter removal and reduced paint material and labor
costs.
COPPERWELD. We believe that Copperweld is the largest North American
manufacturer of mechanical and structural steel tubing and the world's largest
producer of bimetallic wire products. Copperweld participates in all segments of
the mechanical tubing business with a full range of mechanical tubing product
lines, including drawn-over-mandrel ("DOM") and welded product types. Copperweld
also offers a full range of structural tubing products. Copperweld's mechanical
and structural tubing products are used in the automotive, agricultural and
industrial equipment, fluid power, construction, recreation and office furniture
markets. Copperweld recently entered the stainless steel tubing market and is
developing its offering of value-added automotive parts, which are fabricated
from mechanical tubing. In addition, Copperweld produces bimetallic, copper-
clad steel and copper-clad aluminum wire, rod and strand used in the
telecommunications and utility industries. Copperweld's bimetallic business has
experienced relatively steady growth in both revenue and operating income over
the past 10 years.
BUSINESS STRATEGY
Key elements of our strategy include:
- MAXIMIZING THE PERFORMANCE OF OUR INTEGRATED STEEL OPERATIONS. We seek
to maximize returns from our integrated steel facilities by focusing on
value-added flat rolled steel products, reducing production costs and
improving productivity and product quality. Our continuing reinvestment
in this segment is intended to maintain our quality, product and
cost-competitive position in value-added flat rolled steel applications.
- GROWING OUR METAL FABRICATION BUSINESSES. We are actively pursuing
profitable growth opportunities in metal fabrication businesses that are
complementary to our existing steel-related manufacturing capabilities.
Through acquisitions and internal growth in metal fabrication, we are
continuing to diversify our overall product mix and are increasing the
contribution these businesses make to our financial results. As part of
this strategy, we are focused on integrating Welded Tube and Copperweld
in order to realize the operational synergies and growth opportunities we
believe the Acquisitions can provide.
- DEVELOPING OUR STEEL-RELATED BUSINESSES. We have entered into two
steel-related joint ventures, Trico Steel and Cliffs and Associates, that
utilize new technologies to produce flat rolled steel and direct reduced
iron. These ventures are intended to leverage LTV's steelmaking expertise
to achieve growth. We are continuing to support the start-up of our
existing joint venture operations to achieve satisfactory operational and
financial performance. We will also continue to evaluate new steel-
related technologies as they become available to determine if additional
investments in this area are attractive.
We intend to operate our three tubular companies under a single management
team in order to achieve maximum synergies between the different operations.
These synergies are expected to include reduced freight costs due to the broad
geographic reach of combined
62
<PAGE> 65
tubular facilities, capital spending avoidance, operational improvements through
the sharing of best operating practices, purchasing synergies, working capital
efficiencies and cost reduction through the use of shared corporate services. It
is also expected that the metallurgical and automotive research and development
capabilities of our integrated steel operations will be a valuable resource for
the acquired tubular operations. Additional opportunities exist to leverage
customer relationships at each of the three businesses and expand the use of
sophisticated vendor managed inventory systems utilized by Welded Tube and
Copperweld.
BUSINESS SEGMENTS
INTEGRATED STEEL
OVERVIEW
Our integrated steel segment manufactures and sells a diversified line of
galvanized, cold rolled, hot rolled and tin mill flat rolled products.
Galvanized, cold rolled and hot rolled products 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. We are engaged in these operations primarily through our subsidiary,
LTV Steel Company, Inc. ("LTV Steel").
Based on 1998 shipments, we believe we are the third largest North American
integrated steel producer, the second largest producer of flat rolled steel and
a leading supplier of quality-critical, flat rolled steel to the automotive,
appliance and electrical equipment and service center industries in the United
States.
In our integrated steel operation, we operate two domestic integrated steel
mills (Cleveland Works and Indiana Harbor Works) and various finishing,
galvanizing and processing facilities, as well as tin mill operations. Our
integrated steel segment also includes iron ore and limestone operations (which
provide raw materials to our steelmaking facilities) and short line railroad
operations (which primarily transport raw materials and steel products to
support the manufacturing operations). See "-- Properties" for a description of
these assets and operations.
Much of the following third party data, including shipment production and
capability, is derived from data reported by AISI. Additionally, we follow
industry standards in calculating the maximum operating rate which is based on
95% of blast furnace capacity.
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<PAGE> 66
PRODUCTS
The following table sets forth information relating to shipments of steel
mill products for both our integrated steel segment and the domestic steel
industry during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Shipments of steel mill products:
LTV.............................. 5,617 5,783 7,525 7,939 7,887
Industry....................... 74,125 74,907 97,010 99,310 94,983
LTV percent of industry........ 7.6% 7.7% 7.8% 8.0% 8.3%
</TABLE>
Our product mix is reflected in the following table which shows revenue by
steel product for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Hot and cold rolled products..... $1,245 $1,467 $1,861 $2,036 $2,017
Galvanized products.............. 911 894 1,213 1,230 1,203
Tin mill products................ 262 316 395 502 453
All other products............... 72 93 121 137 140
------ ------ ------ ------ ------
Total....................... $2,490 $2,770 $3,590 $3,905 $3,813
====== ====== ====== ====== ======
</TABLE>
Sales decreased in the first nine months of 1999 from the first nine months
of 1998 and in 1998 from 1997, primarily due to a surge in unfairly traded
imports which resulted in lower average steel selling prices and lower shipments
by us.
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<PAGE> 67
PRODUCTION
The following table sets forth estimated capability and raw steel
production information for both our integrated steel segment and the domestic
steel industry during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- -----------------------------
1999 1998 1998 1997 1996
------ ------ ------- ------- -------
(TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Capability:
LTV........................... 6,470 6,402 8,560 8,365 8,362
Industry.................... 96,295 93,503 125,300 121,400 116,100
LTV percent of industry..... 6.7% 6.8% 6.8% 6.9% 7.2%
Production:
LTV......................... 6,365 6,200 8,100 8,900 8,800
Industry.................... 78,178 83,369 108,800 108,600 105,300
LTV percent of industry..... 8.1% 7.4% 7.4% 8.2% 8.4%
Production as a percentage of
capability:
LTV......................... 98.4% 96.8% 95.0% 106.4% 105.0%
Industry.................... 81.2% 89.2% 86.8% 89.4% 90.7%
</TABLE>
In our integrated steel operation, we produce our steel using the basic
oxygen furnace process at our Cleveland Works and Indiana Harbor Works. With
three continuous casters, we continuously cast 100% of our steel production. We
have supplemented our own steel production in recent years with purchases of
semi-finished steel during periods of blast furnace outages. In 1998, 1997 and
1996, we purchased approximately 36,000 tons, 322,000 tons and 168,000 tons,
respectively, of semi-finished slabs from other domestic and foreign steel
producers.
Individual facilities are operated at rates that best serve our overall
need at the time and can be significantly higher or lower than our average
operating rate. We do not believe data regarding the utilization of individual
facilities is necessarily meaningful.
65
<PAGE> 68
CUSTOMERS
The following table sets forth the percentage of our integrated steel
shipments by tonnage distributed among our various markets for the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------------
1999 1998 1998 1997 1996
----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Automotive................................. 31% 25% 27% 25% 23%
Steel service centers...................... 23 26 25 26 32
Converters and processors.................. 19 19 18 19 17
Electrical, agricultural and other
machinery................................ 8 8 8 8 8
Household appliances and office
equipment................................ 6 7 7 6 6
Containers and packaging................... 6 7 7 8 7
Construction............................... 5 6 6 6 5
Exports.................................... 2 2 2 2 2
--- --- --- --- ---
Total................................. 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
Direct sales to General Motors, our largest customer, accounted for
approximately 9%, 11% and 11% of our consolidated revenues in 1998, 1997 and
1996, respectively. General Motors, Ford Motor Company and DaimlerChrysler have
reached tentative four-year labor agreements with the United Auto Workers.
SALES, MARKETING AND DISTRIBUTION
Approximately 60% of our integrated steel products are sold under sales
arrangements, most of which are negotiated on an annual basis. Almost all of our
integrated steel sales to our larger customers in the transportation, appliance,
electrical equipment and food and beverage can markets are made pursuant to
these sales arrangements. Our sales arrangements generally provide for set
prices for the products ordered during the period they are in effect. As a
result, we may experience a delay in realizing price changes related to our
long-term integrated steel business. Much of the remainder of our integrated
steel product is sold under contracts covering shorter periods at the then
prevailing market prices for such product.
Our integrated steel sales organization is managed from our headquarters.
Employees performing commercial, marketing and customer service functions are
organized along market lines. We also maintain regional offices for integrated
steel sales functions.
Our export sales of integrated steel product were 2.2% of our total dollar
steel sales in 1998, 2.0% in 1997 and 2.1% in 1996.
COMPETITION
We compete directly with domestic and foreign flat rolled carbon steel
producers and indirectly with producers of plastics, aluminum and other
materials such as ceramics and wood which sometimes can be substituted for flat
rolled carbon steel in manufactured products. The primary factors that have
affected competition include price, quality, delivery performance and customer
service. We target quality-critical, value-added applications and believe we are
able to differentiate certain of our products from those of our competitors
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<PAGE> 69
on the basis of product quality, technology, modern facilities and customer
product and technical support.
FOREIGN
Domestic steel producers have faced significant and intense competition
from foreign producers. 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. During 1998, steel imports increased
significantly due to a surge of unfairly traded steel, a rise in the value of
the dollar in relation to certain foreign currencies, some of which were
significantly devalued, and a weakening of certain economies, particularly in
Eastern Europe, Asia and Pacific Rim countries. Many foreign steel producers are
owned, controlled or subsidized by their governments. Decisions by such foreign
producers with respect to production and sales are often influenced to a greater
degree by political and economic policy considerations than by prevailing market
conditions.
For a description of the recent trade cases filed by us and other domestic
steel producers against foreign steel producers in 1998 and 1999, as well as
final dumping and subsidy decisions issued in 1992, some of which are still the
subject of pending appeals, see "-- Trade Cases."
Based on AISI reports, imports of flat rolled products increased
significantly during each of the last two years, surging to record levels during
1998. Based on AISI reports, during 1998, 1997 and 1996, imports of flat rolled
products (excluding semi-finished steel) totaled approximately 20 million, 14
million and 12 million net tons, respectively, or approximately 25% of total
domestic steel consumption in 1998, approximately 19% in 1997 and 17% in 1996.
Following the issuance of final dumping determinations by the Department of
Commerce in the hot rolled trade cases, the level of imports of flat rolled
steel receded during the first nine months of 1999 to 10 million tons, or
approximately 18% of total domestic consumption. See "-- Trade Cases" below.
DOMESTIC
We also compete with other domestic integrated steel producers, some of
which have greater resources than we do, 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 compliance costs
and generally target regional markets. Thin slab casting technologies have
allowed some mini-mill producers to enter certain sectors of the flat rolled
market that have traditionally been supplied by integrated producers. Because of
their technology, the profitability of mini-mills depends heavily upon the
availability and price of scrap steel, their principal raw material. In weak
markets, mini-mills benefit from falling scrap prices. See "-- Corporate and
Other" for information regarding our 50% participation in Trico Steel.
METAL FABRICATION
OVERVIEW
Our metal fabrication segment (1) manufactures structural, mechanical,
conduit and other tubular products and line and standard pipe through LTV
Tubular, Welded Tube and Copperweld, (2) manufactures pre-engineered metal
buildings for low rise commercial and industrial applications through VP
Buildings, (3) includes interests in a steel tailor welded blank operation for
automotive applications and (4) a steel processing and blanking operation in
Puebla, Mexico and a similar operation currently under construction in Silao,
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<PAGE> 70
Mexico ("Lagermex"). On a pro forma basis for 1998, the metal fabrication
segment would have had revenues of approximately $1.5 billion on annual
shipments of approximately 2 million tons.
TUBULAR
LTV's tubular products business consists of a wide range of products:
mechanical tubing, structural tubing, electrical conduit, stainless tubing and
standard, line and oil country pipe. Tubular products are used for, among other
things, transportation equipment; load-bearing purposes; scaffolding; electrical
cables; ornamental purposes; food and dairy storage and transportation; oil,
gas, air and water transportation; and in oil and gas wells. With the
Acquisitions of Welded Tube and Copperweld, together with the LTV Tubular
division, we have become one of the leading suppliers of many tubular products,
with annual shipments of approximately 2 million tons and annual revenues of
approximately $1.5 billion, on a pro forma basis for 1998.
One of our goals arising from the Acquisitions was to integrate LTV
Tubular, Welded Tube and Copperweld into a single business, operating with
common management under the "LTV Copperweld" name. We have begun our efforts
toward this goal. We believe that combining these entities as LTV Copperweld
should, in addition to giving us the broadest tubular product line in North
America, allow us to reduce costs by optimizing capital spending, coordinating
raw material purchasing, sharing best operating practices to improve operating
efficiency, improving overall plant scheduling and reducing administrative
costs. We also expect the combined business will help us enhance customer
service, technical support and product development, and improve our ability to
deliver to and service national customers. The discussion in this section of our
tubular division's sales, marketing and distribution efforts, and similar
aspects, treats LTV Tubular, Welded Tube and Copperweld separately, but should
be read in light of our increasing integration of these efforts for the entire
LTV Copperweld business.
LTV TUBULAR. LTV Tubular's products include a variety of tubing products
such as mechanical and electrical conduit used in the automotive, agriculture
and construction industries, and standard, line and oil country pipe used
primarily in the oil and gas and construction industries. LTV Tubular believes
it is one of the largest manufacturers of steel electrical conduit in North
America. Its tubular products are sold through separate sales organizations
divided into regions and through independent sales representatives.
WELDED TUBE. Welded Tube primarily produces structural tubing product,
together with some mechanical tubing and pipe products for a wide variety of
uses including primarily construction applications as well as applications in
industrial and transport equipment, agricultural structures, structural support
and safety as well as ornamental tubing for buildings, highways and bridges.
COPPERWELD. Copperweld produces a full range of mechanical and structural
tubing products used in automotive, agricultural and industrial equipment, fluid
power, construction, recreation and office furniture markets. Copperweld
participates in all segments of the mechanical tubing business with a full range
of mechanical tubing product lines, including welded, DOM and seamless product
types and offers a full range of structural tubing products. In addition,
Copperweld recently entered the stainless steel tubing market and is developing
its offering of value-added tubing automotive parts. Copperweld also produces
bimetallic copper-clad steel and aluminum wire, rod and strand used in the
telecommunications (primarily cable television and telephone) and utility
industries.
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<PAGE> 71
REVENUES. The table below sets forth on a pro forma basis the combined
revenues of LTV Copperweld by product line:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ------------------------
1999 1998 1998 1997 1996
----- ----- ------ ------ ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Mechanical tubing................ $290 $348 $ 439 $ 428 $321
Structural tubing................ 229 262 336 318 209
Pipe............................. 59 84 101 137 114
Other tubing products............ 214 172 222 211 159
Bimetallic products.............. 82 68 91 104 100
---- ---- ------ ------ ----
Total....................... $874 $934 $1,189 $1,198 $903
==== ==== ====== ====== ====
</TABLE>
In April 1999, LTV Tubular began initial operations at a new
technologically advanced tubing manufacturing facility in Marion, Ohio. The
facility manufactures high-quality tubing for the automotive market, including
for the manufacture of hydroformed parts, and is expected to reach full capacity
in 2001. The automotive 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 has a rated processing
capacity of 146,000 tons of steel annually.
Welded Tube recently completed construction of a second plant in Portland,
Oregon with 130,000 tons of annual production capacity at a cost of
approximately $53 million. The plant will establish a presence for LTV in the
Pacific Northwest and western Canada, offering regional customers lower
transportation costs and access to improved product quality. In addition to
structural tube manufacturing, the plant will have an in-line coating capacity,
a slitting line and warehousing facility.
In connection with Copperweld's entry into the stainless tubing business in
1998, Copperweld recently completed construction of a state-of-the-art
manufacturing facility in Elizabethtown, Kentucky. The facility, which commenced
operations in June 1999, will have an annual production capacity of 7,000 tons.
Two identical additional mills are scheduled for completion in 2000.
In 1998, Copperweld also completed a capital expenditure program which
increased its value added DOM capacity at its Shelby plant by 40,000 tons
annually at a cost of $44 million.
RAW MATERIALS. LTV Copperweld purchases approximately 2 million tons of
steel a year, primarily in the form of hot rolled steel strip, but including
smaller volumes of cold rolled strip, steel bars and rod.
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CUSTOMERS. The table below sets forth on a pro forma basis the percentage
of tubular and bimetallic shipments of LTV Copperweld by tonnage distributed
among their various markets for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ --------------------
1999 1998 1998 1997 1996
----- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Steel service centers.................. 53% 52% 53% 56% 53%
Agricultural and industrial............ 18 19 19 18 20
Transportation......................... 14 14 15 13 8
Telecommunications..................... 3 2 2 2 3
Construction........................... 2 2 2 2 3
Other.................................. 10 11 9 9 13
--- --- --- --- ---
Total............................. 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
SALES, MARKETING AND DISTRIBUTION. LTV Tubular's tubular products
currently are sold through a separate sales organization divided into four
regions and through independent sales representatives.
Welded Tube currently sells the majority of its production through
independent distributors throughout the United States. Approximately 20% of
Welded Tube's sales are direct to end users such as OEMs and fabricators. More
than half of Welded Tube's 1999 shipments were to customers located in the
midwestern United States and eastern Canada. Welded Tube's shipments in the west
are expected to increase with the start-up of Welded Tube's Portland facility.
Copperweld's tubular sales force currently is comprised of regional
managers across the United States and outside sales managers in Canada. All of
Copperweld's tubular salespeople represent all divisions of Copperweld and sell
all tubing products. Copperweld's outside tubular sales force is the largest in
the industry and is supported by a divisional product manager, product
development engineers and customer service organizations located at each of
Copperweld's primary operating divisions. In addition, Copperweld has sales
organizations located at each of Copperweld's primary operating divisions.
Copperweld has a dedicated sales force for its auto value-added parts business.
Copperweld distributes bimetallic products through a network of independent
agents.
COMPETITION. The mechanical tubing business, in which LTV Tubular and
Copperweld compete, is highly fragmented with over 100 participants
geographically diversified across North America. Seamless tube competition and
pricing are heavily affected by foreign competition. The welded mechanical tube
competition is stratified with quality ranging from non-commodity products to
more commodity-like products which compete primarily on price.
The structural tubular business, in which Welded Tube and Copperweld
compete, is characterized by little product differentiation (other than Welded
Tube's proprietary Kleenkote(TM) process and large diameter product offering),
many producers in the primary size range, low value-added products, single
product dedication by most producers and the emergence of new low-cost capacity
in certain regions. New and planned capacity additions in North America for the
period 1995-1999 aggregated 1.7 million tons, more than doubling capacity from
1.5 to 3.2 million tons. The primary factors that affect competition are service
and price.
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METAL BUILDINGS
PRODUCTS. VP Buildings, which was acquired in July 1997, manufactures
custom-designed or pre-engineered, one-to-two story metal buildings for
commercial and industrial uses, such as office buildings, aircraft hangars,
manufacturing facilities, warehouses, schools, shopping centers and churches. VP
Buildings produces approximately 7,000 buildings annually at its nine U.S.
manufacturing facilities. Based on publicly available information, VP Buildings
is the second largest manufacturer of pre-engineered metal buildings systems in
North America. 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. In addition, VP
Buildings has developed a proprietary software system intended to significantly
improve the ability of these builders to develop engineering designs, obtain
immediate pricing and order various building design configurations.
In April 1998, VP Buildings acquired United Panel, Inc. ("UPI") which
manufactures fiberglass reinforced panels with imbedded aggregate for commercial
buildings.
VP Buildings designs and manufactures metal building systems at seven
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 also manufactures architectural components
for non-residential facilities at two domestic locations, which are marketed
primarily though sales agents. VP Buildings also has metal building systems
production joint ventures or licensing arrangements in Brazil, Chile, China,
Egypt, Japan, Mexico, South Korea and Spain. In May 1999, a subsidiary of VP
Buildings, together with its joint venture partner, Grupo Imsa, opened a
pre-engineered steel manufacturing plant in Monterrey, Mexico and in October
1999, opened another in Santiago, Chile. The two plants in Mexico and Chile have
an annual capacity of 35,000 tons (or between 100 and 200 metal buildings per
year) and 25,000 tons (or between 100 and 200 metal buildings per year),
respectively.
RAW MATERIALS. VP Buildings is a major user of flat rolled steel, but is
currently not a customer of our integrated steel operations.
SALES, MARKETING AND DISTRIBUTION. VP Buildings' domestic sales
organization is divided into five regions which cover the United States and
promote and service its network of authorized builders. In addition, VP
Buildings has a national account sales staff dedicated to handling large
builders and corporate customers whose operations are national in scope.
COMPETITION. Metal buildings are an alternative to conventional forms of
non-residential building construction, with competition primarily based on cost,
construction time, appearance, thermal efficiency and other customer
requirements. VP Buildings 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 the Metal Building
Manufacturers Association. Competition among metal building systems companies is
based primarily on price, service, product design and performance, and marketing
capabilities.
OTHER
Our metal fabrication operation also includes an approximate 11% interest
in a tailor welded blanking operation in Monroe, Michigan (acquired in 1997)
which adds value to
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product sold to domestic automotive customers. Partners in the joint venture are
Worthington Industries, Inc., a unit of Thyssen Krupp A.G., and two domestic
steel producers. The operation in Michigan uses new technology to weld together
two or more steel blanks which may be of different grade or thickness for
automotive stamping operations. Automotive parts, currently being made with
laser tailor welded blanks, have recently experienced growing commercial
acceptance for their ability to reduce cost and weight through this process.
Applications for these products include body side frames, wheel house panels,
center pillars, pillar reinforcements, motor compartment rails, floor panels and
front and rear door panels.
We also own a 25% interest in Lagermex (acquired in 1997), a joint venture
which operates automotive steel processing and blanking operations in Puebla,
Mexico with a second operation currently under construction in Silao, Mexico.
The venture in Puebla, Mexico supplies inventory management, slitting and
blanking products and services required to produce the Volkswagen plant's steel
stampings to Volkswagen de Mexico and its parts suppliers in Puebla. Partners in
the joint venture are a unit of Thyssen Krupp A.G. and local plant management.
The operation currently under construction in Silao, Mexico will supply blanks
and offer warehouse services to a local supplier of a General Motors plant.
CORPORATE AND OTHER
Our corporate and other segment includes joint ventures which use new steel
technologies. These joint ventures consist of interests in a steel mini-mill,
Trico Steel, and a foreign reduced iron facility (which produces a substitute
for steel scrap for use in steel production operations), Cliffs and Associates.
TRICO STEEL
Trico Steel is located in Decatur, Alabama, and began commercial operations
in the second quarter of 1997. Trico Steel, which is owned 50% by a subsidiary
of The LTV Corporation and 25% each by subsidiaries of Sumitomo Metal
Industries, Ltd. and British Steel plc, produces commercial and high quality hot
rolled steel. The steel produced by Trico Steel is sold by the sales force of a
wholly owned subsidiary of The LTV Corporation which is dedicated solely to the
sale of Trico Steel product. The Trico Steel investment is expected to provide
us and our partners with a modern facility and improved market access to the
southeastern portion of the United States.
Trico Steel has experienced equipment problems that have prevented Trico
Steel from achieving its full capacity. These equipment problems continue,
although efforts to correct such problems are ongoing and production rates have
increased in recent months. The substantial surge in steel imports during the
second half of 1998 also negatively affected production levels at Trico Steel.
See "Risk Factors -- Our diversification strategy may not be successful and we
could suffer losses from new or recent investments" and "Risk Factors -- We
could be forced to sell our Trico Steel joint venture investment at a loss."
CLIFFS AND ASSOCIATES
Cliffs and Associates, our reduced iron joint venture, recently completed
construction of a facility in the Republic of Trinidad and Tobago to produce
reduced iron briquettes for use in electric furnace steelmaking operations. The
joint venture, which began commissioning procedures in the second quarter of
1999, is 46.5% owned by a subsidiary of The LTV Corporation with the remainder
owned by subsidiaries of Cleveland-Cliffs Inc
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(46.5%) and Lurgi AG (7%). The project utilizes the prototype CIRCORED
production process and is expected to have an annual rated capacity of 500,000
metric tons. The facility is managed by Cliffs Reduced Iron Management Company,
a subsidiary of Cleveland-Cliffs Inc. Although the facility's completion has
been delayed by operational problems, these problems have largely been addressed
to date, and the facility is expected to be operating at design capacity by the
end of the year 2000.
EMPLOYEES AND LABOR MATTERS
As of September 30, 1999, LTV and our consolidated subsidiaries had
approximately 15,000 active employees. Of these employees, approximately 12,200
employees were employed in the integrated steel segment and approximately 2,800
employees were employed in the metal fabrication segment. Approximately 10,800
active employees, primarily hourly workers, are represented by unions. Of the
union represented employees, approximately 9,500 are represented by the USWA
(primarily in our integrated steel segment and in the tubular operations
included in our metal fabrication segment) and approximately 900 are represented
by either the Teamsters Union, the Carpenters Union or the Sheet Metal Workers
Union (in our metal fabrication segment).
As of September 30, 1999, Welded Tube employed 286 employees at its Chicago
plant and 28 employees at its Portland plant. Workers at the Chicago plant are
represented by the Teamsters Union while the Portland plant is non-union.
As of September 30, 1999, Copperweld had 2,600 employees, of which 1,600
production employees were covered by collective bargaining agreements. Workers
at Copperweld's Shelby, Miami and Sonco Steel Tube Divisions are represented by
the USWA and workers at Copperweld's Standard Tube Division are represented by
the Canadian Auto Workers. Twelve workers at Copperweld's Sayton Division also
pay union dues. Other facilities are non-union.
On September 2, 1999, USWA-represented LTV employees ratified a five-year
labor agreement with LTV covering approximately 9,500 active employees. We
believe this agreement is competitive with other USWA integrated steel labor
agreements. It provides for, among other things, an aggregate of $2.00 in hourly
wage increases, substantial pension improvements, increased sickness and
accident benefits and a revised "neutrality" provision making it easier for the
USWA to organize employees at LTV's non-union plants in any steel-related
operation. The long-term labor agreement includes a "no strike" clause and puts
in place a mechanism for resolving a long-standing dispute with the USWA
relating to our Trico Steel mini-mill. See "Risk Factors -- We could be forced
to sell our Trico Steel joint venture investment at a loss."
Additionally, four of twenty-three union contracts covering our railroads
are currently being renegotiated. Our two labor agreements with the Teamsters
Union are scheduled to expire at year-end 1999 (VP Buildings -- North Carolina)
and February 2002 (Welded Tube -- Chicago), and our two labor agreements with
the Sheet Metal Workers Union (VP Buildings -- California and Ohio) are
scheduled to expire in April 2002 and January 2000, respectively. VP Buildings'
labor contract with the USWA at its Wisconsin plant is scheduled to expire on
April 1, 2001 and its contract with the Carpenters Union is scheduled to expire
in March 2002. The USWA has recently been recognized as the collective
bargaining representative for production and maintenance employees at VP
Buildings facilities in Missouri and Arkansas. Negotiations for agreements at
those two locations are just beginning. These contracts will be negotiated in
compliance with the terms of an agreement between LTV and the USWA, which
prohibits strikes or lockouts.
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Active USWA VP Buildings' organizing campaigns are also underway at Alabama and
Pennsylvania plants.
RESEARCH AND DEVELOPMENT
Our research and development efforts focus on developing new production
processes to improve the quality and reduce the cost of our product lines,
provide product and technical support to customers and create new steel
products. Expenditures for research and development totaled $14 million in 1998
and 1997 and $15 million in 1996. These expenditures do not include the efforts
of sales and manufacturing employees in working to meet customer technical
demands.
We operate 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 our research and development facilities
include chemists, metallurgists and engineers. We also have 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.
PROPERTIES
INTEGRATED STEEL FACILITIES
INTEGRATED STEEL PRODUCING FACILITIES. We operate two integrated steel
mills, Cleveland Works and Indiana Harbor Works, and various steel finishing,
galvanizing and processing facilities as well as tin mill operations. During the
last five years, we have spent approximately $1.3 billion to modernize and
upgrade these core integrated steel facilities.
The Cleveland Works at Cleveland, Ohio produces a variety of flat rolled
products. This facility includes 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, sheet finishing facilities and an electroplate line.
Our Indiana Harbor Works at East Chicago, Indiana produces a variety of
flat rolled products. This facility includes two blast furnaces, a basic oxygen
furnace, a continuous slab caster, 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.
We also operate a tin mill in Aliquippa, Pennsylvania. Our 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
88% of capacity during 1998. During the first nine months of 1999, our tin
operations operated at 85% of capacity.
We also operate 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. We also currently operate coke batteries in Chicago,
Illinois and Warren, Ohio.
GALVANIZING JOINT VENTURES. We own joint venture interests in two
electro-galvanizing lines and recently entered into a new joint venture to build
a hot-dip galvanizing line. The first electro-galvanizing line ("LSE"), a joint
venture owned 60% by a subsidiary of LTV
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and 40% by a subsidiary of Sumitomo, is located at our 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.
Substantially all of the cold rolled steel that is coated at the Cleveland
facility is produced by us, and we are responsible for all sales and marketing
of coated products processed by the joint venture. In January 1999, LSE entered
into a new operating lease covering the equipment at the Cleveland
electro-galvanizing line with a lease term ending in 2009. LSE has an option to
renew the lease or purchase the equipment at the end of the lease.
The second electro-galvanizing line, located in Walbridge, Ohio, is a joint
venture that is owned 16.5% by a subsidiary of LTV, 33.5% by a subsidiary of
Bethlehem Steel Corporation ("Bethlehem") and 50% by a subsidiary of Material
Sciences Corporation. This line currently produces zinc, nickel/zinc and
nickel/zinc/organic coated products and has an annual capacity of approximately
450,000 tons of coated product (one third of which capacity is dedicated to LTV
Steel).
Another electro-galvanizing line, L-S II, located in Columbus, Ohio and
previously owned 50% by Sumitomo, is currently being converted into a hot-dip
galvanizing line, owned 50% by LTV and 50% by Bethlehem. It will produce
high-quality, hot-dip galvanized and galvannealed flat rolled steel. The
converted facility will have annual capacity of approximately 500,000 tons of
premium corrosion resistant steel for exposed automotive applications.
Production is scheduled to begin in the fourth quarter of 2000.
Related to the new hot-dip galvanizing line, we and Bethlehem entered into
another joint venture, the Columbus Processing Company, which is a steel
slitting, inspecting and warehousing services facility for the automotive
industry.
RAILROADS. We own 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 in Pittsburgh; and the Chicago Short Line Railway
Company, serving the Indiana Harbor Works. All are common carriers subject to
regulation by the Surface Transportation Board and are used primarily by us.
USWA COLLATERAL ARRANGEMENT. See "Description of Certain Other
Indebtedness" for a description of certain liens on a portion of our Cleveland
Works facility which we have granted or may be required to grant on behalf of
the USWA.
METAL FABRICATION FACILITIES
LTV Tubular's existing facilities are located in Ferndale, Michigan;
Cleveland, Marion, Youngstown and Elyria, Ohio; Counce, Tennessee; and Cedar
Springs, Georgia, and manufacture electrical conduit pipe and tubing.
Welded Tube operates a plant in Chicago, Illinois (capacity 450,000 tons)
which produces structural and mechanical tubular product. Welded Tube also
recently completed construction of a plant in Portland, Oregon (capacity 130,000
tons) which began production of structural tubing product in the third quarter
of 1999.
Copperweld operates six tubular products manufacturing facilities in the
United States and six in Canada. Copperweld's principal tubing facilities are in
Shelby, Ohio (mechanical tubing), Chicago, Illinois (structural tubing),
Brampton, Ontario (structural tubing and welded mechanical tubing) and
Woodstock, Ontario (structural tubing,
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mechanical tubing, and value-added automotive parts). Copperweld's bimetallic
business consists of two plants in the United States and a small plant in the
United Kingdom.
VP Buildings' headquarters are located in Memphis, Tennessee and occupies
40,800 square feet of office space. Metal building systems components are
manufactured by VP Buildings at plants located in Alabama, Arkansas, California,
Missouri, North Carolina, Ohio, Texas and Wisconsin. UPI's plant is located in
Mt. Bethel, Pennsylvania. In May and October 1999, VP Buildings' joint ventures
in Mexico and Chile opened two pre-engineered steel building manufacturing
plants, one in Monterrey, Mexico and another in Santiago, Chile, respectively.
VP Buildings' joint ventures in Brazil and Argentina also own and operate
pre-engineered steel manufacturing plants.
CORPORATE AND OTHER FACILITIES
The LTV Corporation was organized as a Delaware corporation in November
1958 as a successor to a California corporation organized in 1953. Our corporate
headquarters are located in Cleveland, Ohio and we currently occupy 238,000
square feet under a new lease expiring in 2011. The lease provides us three
consecutive five-year renewal options to extend the lease term through 2026.
The Trico Steel mini-mill operation is located in Decatur, Alabama. The
Cliffs and Associates facility is located in the Republic of Trinidad and
Tobago.
RAW MATERIALS
IRON ORE. We own interests in two iron ore mining operations which produce
iron ore products that are used in our integrated steel operations. Our share of
production at these mines during the first six months of 1999 and 1998 was
sufficient to meet 100% of our iron ore requirements. Our share of reserves at
these mines is sufficient to meet our anticipated iron ore requirements in the
near term.
We estimate that, as of January 1, 1999, the total of our proportionate
share of proven crude ore reserves of the two iron ore mining operations in
which we have ownership interests was such that, when mined and processed, could
produce, for our use, approximately 446.5 million gross tons (a gross ton is
equivalent to 2,240 pounds) of pellets averaging approximately 64% iron content.
These ore reserves at the end of 1998, and 1998 activity, were as follows:
<TABLE>
<CAPTION>
PROVEN NET 1998 DELIVERIES
INTEREST IN ANNUAL ORE SHARE OF 1998 TO STEEL
RESERVES(a) IRON CONTENT ENTITLEMENT PRODUCTION PLANTS(b)
----------- ------------ ----------- ------------- ---------------
(GROSS TONS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Properties:
LTV Steel Mining
Company(c)............... 407.0 64% 7.5 7.1 7.4
Empire Iron Mining
Partnership(d)...... 39.5 64% 2.0 2.0 1.9
----- -- --- --- ---
Total Properties.... 446.5 9.5 9.1 9.3
===== === === ===
</TABLE>
- -------------------------
(a) Our ownership interest in reserves is stated in millions of gross tons of
concentrates or pellets.
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(b) "1998 Deliveries to Steel Plants" does not include the sale of ore products
to third parties.
(c) We own 100% of LTV Steel Mining Company located in Minnesota. The annual ore
entitlement is based on normal annual plant capacity, and the production
level can be reduced at our discretion.
(d) We hold a 25% interest in Empire Iron Mining Partnership which operates an
iron ore mine and pellet facility in Michigan. We can reduce our annual ore
purchase requirements. Minimum ore purchase requirements in 1998 totaled 1.3
million gross tons.
Ore reserves are expected to be exhausted prior to the expiration dates of
the various leases associated with our mining properties. We are committed to
pay our share of the annual cost of the Empire Iron Mining operations either
through cash advances or purchases of ore at market prices.
During 1998, the average blast furnace charge consisted of approximately
92% ore pellets and 8% sinter, which is iron ore that is removed from various
integrated steel operations and reprocessed. During 1998, 98% of our pellet and
sinter requirements came from affiliated sources.
METALLURGICAL COAL AND COKE. Metallurgical coal is used to make coke which
is used in our integrated steel blast furnaces to make iron in the raw
steelmaking process. All our metallurgical coal requirements are purchased from
unaffiliated third parties under a number of short and intermediate term
contracts.
We own and operate coke batteries in Warren, Ohio and Chicago, Illinois.
45% of our coke requirements for our integrated steel operations in 1998 came
from these two batteries and we expect to produce 40% of our anticipated
requirements for 1999. The operational life of our batteries could be adversely
affected by increasingly stringent environmental regulations or their inability
to continue to meet existing environmental standards. We shut down our coke
plant in Pittsburgh, Pennsylvania in 1998. We anticipate, however, that our
internal coke supply, together with coke purchased from third parties
(approximately 60%), will meet substantially all of our near-term coke
requirements. See "-- Legal Proceedings" for information relating to existing
and threatened environmental proceedings involving our coke batteries.
OTHER RAW MATERIALS. We have a 53.5% interest in Presque Isle Corporation,
which operates a quarry in Michigan that produces limestone for use in our
integrated steel operations. Our share of Presque Isle Corporation's proven
limestone reserves was approximately 123,900,000 gross tons as of December 31,
1998. In 1998, we used approximately 433,000 gross tons of limestone from
Presque Isle and other sources in our steelmaking operations. We own a burnt
lime processing plant at Grand River, Ohio, which processes limestone from
Presque Isle and other sources into burnt lime. In 1998, approximately 44% of
the 311,000 net tons of high calcite burnt lime consumed by our flat rolled
steel operations came from these sources.
Substantially all other raw materials for use in our integrated steel
operations are purchased in the open market from domestic and foreign sources.
Most of such raw materials, including scrap, nickel, tin, zinc and ferro alloys,
are expected to continue to be in sufficient supply, although market prices have
historically been subject to wide fluctuations.
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During the past three years, we have purchased a significant amount of
semi-finished slabs from other steel producers to supplement our own production
as market circumstance has warranted. 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 "-- Integrated Steel -- Production"
above.
ENERGY. We use substantial amounts of electricity, natural gas, fuel oil
and coal, particularly in our flat rolled steel operations, all of which are
purchased at competitive or prevailing market prices. For brief periods during
peak usage periods during the summers of 1998 and 1999, LTV Steel experienced
interruptions in the supply of electricity to its steel plants which caused
operations to be curtailed for brief periods. We believe adequate sources of
supply exist for all our requirements. However, during peak usage periods we may
not be able to purchase energy at historical market rates.
ENVIRONMENTAL MATTERS
We are subject to changing and increasingly stringent environmental laws
and regulations concerning air emissions, water discharges and waste disposal,
and the remediation of soil and groundwater contamination caused by releases of
hazardous materials. As a consequence, we have incurred, and will continue to
incur, substantial capital expenditures and operating and maintenance expenses
in order to comply with these requirements. Additionally, if any of our
facilities are unable to comply with these requirements, those operations could
be temporarily or permanently closed. If, in the future, we are required to
investigate and remediate any contamination at plant sites where hazardous
wastes have been used pursuant to the Resource Conservation and Recovery Act, we
could be required to record additional liabilities. We cannot estimate the cost
of these potential liabilities at this time, but it could be substantial. In
addition, certain environmental laws, such as Superfund, can impose liability
for the entire cost of cleanup of contaminated sites upon any of the current and
former site owners or operators or parties who sent waste to these sites,
regardless of fault or the lawfulness of the original disposal activity. Permits
and environmental controls are also required at our facilities to reduce air and
water pollution from certain of our operations, and these permits are subject to
modification, renewal and revocation by issuing authorities. Additional permits
may be required, or more onerous conditions imposed in our existing permits as a
result of increases in production or modifications to certain of our facilities.
TRADE CASES
UNITED STATES TRADE CASES
1999 CASES. On June 21, 1999, LTV Steel, along with other domestic
integrated producers, filed cold rolled trade cases against dumped and
subsidized imports from Argentina, Brazil, China, Indonesia, Japan, Russia,
Slovakia, South Africa, Taiwan, Thailand, Turkey and Venezuela. Antidumping
complaints with margins ranging from 17% to 122% were filed against the twelve
countries. Countervailing duty complaints with margins ranging from 12% to 101%
were filed against Brazil, Indonesia, Thailand and Venezuela. In July 1999, the
ITC made a preliminary determination that dumped cold rolled steel imports from
Argentina, Brazil, China, Indonesia, Japan, Russia, Slovakia, South Africa,
Taiwan, Thailand, Turkey and Venezuela caused or threatened material injury to
domestic producers. The ITC also made a preliminary determination that subsidies
on imports from Brazil only caused or threatened material injury to domestic
producers, allowing the countervailing duty subsidies against Brazil to proceed.
Subsequently, the Department of Commerce ("DOC") set preliminary countervailing
duties of 7
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to 12% against Brazil. On November 2, 1999, the DOC issued its preliminary
determination of appropriate antidumping margins, setting preliminary margins
ranging from 16% to 177% for the countries of Argentina, Brazil, Japan, Russia,
South Africa, Thailand and Venezuela.
On December 10, 1999, the DOC initialed a draft suspension agreement
regulating imports of cold rolled steel products from Russia. U.S. producers
have until December 30, 1999 to provide comments.
The Russian suspension agreement includes a quota and a price provision.
The suspension agreement limits imports to 340,000 metric tons in 2000. The
suspension agreement provides a 3% annual increase in the export limit. The
export limit will also be adjusted annually based on U.S. apparent consumption.
Under the suspension agreement, the reference prices per metric ton range from
$340 to $352 based upon the product. All prices are subject to quarterly
adjustments based on the change in import values of subject merchandise from
countries not subject to order or investigation.
On December 28, 1999, the DOC is scheduled to make its preliminary
determination regarding appropriate antidumping margins for Turkey, Indonesia,
China, Slovakia and Taiwan. On January 17, 2000, the DOC is scheduled to make
its final countervailing duty determination with respect to Brazil and its final
determination of appropriate antidumping margins for Argentina, Brazil, Japan,
Russia, South Africa, Thailand and Venezuela. On January 20, 2000, the ITC will
hold injury hearings.
Before January 27, 2000, the ITC should make its final countervailing duty
injury determination. On February 23, 2000, the ITC will conduct its final
injury vote for Japan, Thailand and Venezuela. Before March 2, 2000, the ITC
should conduct its final injury vote for Argentina, Brazil, Russia and South
Africa.
On March 13, 2000, the DOC is scheduled to conduct its final antidumping
duty determination for China, Indonesia, Slovakia, Taiwan and Turkey. Before
April 27, 2000, the ITC should conduct its final injury vote with respect to
China, Indonesia, Slovakia, Taiwan and Turkey.
In September 1999, we joined several other petitioners before the ITC
seeking relief on line pipe product imports pursuant to Section 201 of the Trade
Act of 1974, as amended. In November 1999, the ITC found that serious injury has
occurred to the domestic industry because of unfairly traded imports.
Petitioners are seeking a quota on imports of line pipe of approximately 16% of
domestic consumption. Furthermore, within that general quota, petitioners are
seeking specific-country quotas for Korea, Japan and other countries and have
asked the ITC to recommend to the President of the United States that he
initiate negotiations with the exporting countries to secure their agreement to
such quotas.
On December 27, 1999, the ITC's report to the President is due. On February
25, 2000, the President is expected to announce his Presidential relief measure.
1998 CASES. In September 1998, LTV Steel joined with eleven other domestic
steel producers, the USWA and the Independent Steelworkers Union in filing
antidumping and/or countervailing duty petitions against imports from Japan,
Russia and Brazil, alleging injury resulting from subsidies and dumping in the
importation of certain hot rolled carbon steel products. In early 1999, the DOC
issued final dumping determinations against imports from Japan setting margins
ranging from 20% to 67%, against imports from Brazil setting margins ranging
from 42% to 43% and countervailing duty margins ranging
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from 6% to 10%, and against imports from Russia setting margins ranging from 74%
to 185%. Three large Japanese steelmakers filed an appeal in the Court of
International Trade in August 1999, seeking to reverse the hot rolled steel
antidumping margins imposed upon them by the DOC. Despite the DOC's issuance of
substantial final dumping determinations against imports from the three
countries and additional countervailing duty determinations against Brazil, the
DOC entered into suspension agreements with Brazil and Russia. Additionally, the
DOC entered into a comprehensive agreement with Russia covering substantially
all imports of Russian steel mill products into the United States. LTV is now
awaiting a final ruling of injury against Japan and has requested the ITC to
make similar findings against Brazil and Russia even though duties would not be
applicable against imports from Brazil and Russia unless the suspension
agreements are overturned.
Under the terms of the Brazilian suspension agreement, Brazilian producers
are prohibited from exporting any hot rolled steel products into the United
States until October 1, 1999. Thereafter such imports are limited to 295,000
metric tons per twelve-month period. The agreement establishes a reference price
of $327 per metric ton, below which Brazilian producers are prohibited from
selling. In addition, because the reference price is set in U.S. dollars, at the
U.S. market rate, it will not be affected by exchange rate fluctuations.
LTV Steel, along with other domestic integrated producers, has recently
filed suit in the U.S. Court of International Trade to nullify suspension
agreements negotiated with Russia and Brazil. The complaints allege that the
Brazilian and Russian suspension agreements fail to satisfy statutory
requirements.
The Russian suspension agreement includes a moratorium on shipments for the
first year, a quota for four subsequent years and a price provision. Russian
producers are prohibited from exporting any steel to the United States covered
by the agreement until January 1, 2000. Thereafter such imports would be limited
by the following quotas: 325,000 metric tons in 2000; 500,000 metric tons in
2001; 675,000 metric tons in 2002; and 725,000 metric tons in 2003. The
agreement establishes minimum prices ranging from $255 to $280 per metric ton
FOB Russia, above which Russian steel must be sold in the United States.
The Russian comprehensive agreement restricts exports of Russian steel to
the United States in major product areas not already covered by other agreements
or antidumping orders. The comprehensive agreement, combined with the hot-rolled
suspension agreement, and the suspension agreement on carbon steel plate signed
in 1997, covers substantially all imports of Russian steel mill products into
the United States.
1992 CASES. As a result of the 1992 filing of numerous anti-dumping and
countervailing duty cases by U.S. 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 unless changed as a
result of an "Administrative Review," which considers the appropriateness of the
existing duty margin. Sunset Reviews of the orders began in September 1999.
Under the Sunset Review provisions, dumping and countervailing duties are
reviewed every five years and 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 U.S. steel producers.
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CANADA AND MEXICO TRADE CASES
In Canada, dumping duties have been imposed on LTV Steel exports of
corrosion resistant steel products (i.e., hot dipped and electro-galvanized),
for non-automotive end use pursuant to a recent Canadian International Trade
Tribunal ("CITT") decision. In the past, 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 1998, dumping duties formerly imposed on LTV Steel exports
of cold rolled steel coils were rescinded by CITT. The rescission has been
appealed to a bi-national review panel pursuant to the North American Free Trade
Agreement. If the decision is reversed, the former dumping duties would be
assessed on a retroactive basis to the date of the rescission.
Because the total LTV Steel shipments of these products to Canada are
relatively small, we believe these duties should have an insignificant effect on
our results of operations.
In Mexico, dumping duties were established for LTV Steel on hot rolled
steel and plate-in-coil exports, but the Mexican courts subsequently found that
these dumping duties had been imposed illegally. The decisions voiding the
dumping duties were appealed by the Mexican government, and LTV Steel and other
importers of record were required to post a bond to cover possible dumping
duties in the event these decisions are reversed by an appellate court. On July
28, 1999, Mexico's Secretariat of Commerce and Industrial Development ("SECOFI")
concluded the antidumping administrative review of LTV Steel's plate-in-coil
exports to Mexico, thereby revoking the 39.92% antidumping duty rate previously
applied to LTV Steel's plate-in-coil exports to Mexico, leaving LTV Steel with a
0% antidumping duty rate on plate-in-coil exports to Mexico.
LEGAL PROCEEDINGS
In addition to matters specifically discussed below, we are involved in
various legal proceedings occurring in the normal course of our business. We
cannot predict with certainty the outcome of any legal proceedings to which we
are subject. However, in the opinion of our 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, we would incur a charge to
earnings, which could have a material adverse effect on our results of
operations for the applicable period. The outcome of these proceedings, however,
is not currently expected to have a material adverse effect on our financial
position.
ENVIRONMENTAL PROCEEDINGS
The U.S. EPA and the States of Indiana, Illinois and Ohio or their
environmental agencies have taken or are threatening legal and administrative
actions against LTV and its subsidiaries, as discussed below, for alleged
violations of various federal and state environmental laws and regulations. We
have accrued for losses and costs, including litigation costs, associated with
these actions that are probable and estimable or otherwise provided for studies
which will provide a basis for estimation.
In December 1998, the U.S. Department of Justice, representing the U.S.
EPA, filed a complaint against LTV Steel in the U.S. District Court for the
Northern District of Ohio. The complaint alleges that the Cleveland Works plant
violated applicable opacity standards at the C-5 blast furnace top and cast
house, the C-6 blast furnace cast house and the No. 1 BOF shop precipitator
stacks and applicable sulfur oxide emission standards
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at the C-1 blast furnace stoves and a boiler at various times over a period of
several years. The complaint also charges that the LTV Steel Warren coke plant
discharged pollutants into the Mahoning River in violation of its wastewater
discharge permit and that the plant violated applicable hazardous waste
regulations. The complaint seeks to enjoin LTV Steel from further violations and
to assess civil penalties of up to $25,000 or $27,500 per day for each
violation, depending on the date of the violation. In June 1999, LTV reached a
partial settlement with the U.S. EPA pursuant to which LTV Steel paid a civil
penalty of $85,000; in return, all the counts in the complaint relating to the
Warren coke plant were dismissed.
In March 1998, the U.S. Department of Justice filed a civil action on
behalf of the U.S. EPA in the U.S. District Court for the Western District of
Pennsylvania alleging that the LTV Steel Pittsburgh coke plant violated
applicable pushing and combustion stack opacity emission standards in and after
October 1996, and, according to an amended complaint, as early as November 1994.
The complaint seeks civil penalties up to $25,000 or $27,500 per day for each
violation, depending on the date of violation. In April 1998, the Allegheny
County Health Department filed a motion to intervene and a separate complaint
seeking penalties of $25,000 per day for each violation. The Group Against Smog
and Pollution has also been granted intervenor status in the action. The coke
plant was permanently closed February 28, 1998.
In December 1998 and November 1999, the U.S. EPA issued Notices of
Violation (each, a "NOV") with respect to LTV Steel's Grand River, Ohio lime
plant, alleging violations of the opacity standards applicable to the kiln
precipitators at various times over the past several years. Although we have
conferred with the U.S. EPA, we cannot predict whether any enforcement action
will follow.
STATE OF INDIANA. In April 1995, the Indiana Department of Environmental
Management ("IDEM") issued a NOV to LTV Steel alleging that releases of
hazardous wastes into the soil and groundwater have occurred at the Indiana
Harbor Works in violation of applicable environmental regulations. IDEM is
seeking to have us conduct a comprehensive investigation and remediation of
approximately 80 on-site locations where there may be soil and groundwater
contamination. The NOV is broad-based and, depending upon the cleanup standards
and extent of the remediation program that might be imposed upon our subsidiary
and IDEM's authority to require a comprehensive clean-up, the cost of such work
could be substantial.
In November 1996, IDEM and the United States Department of Interior
informed us and 17 other companies operating in the industrial area adjacent to
the Grand Calumet River System of their intent to perform a National Resource
Damage Assessment ("NRDA") of the river system. Each of the 18 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. IDEM identified us as a potentially responsible party in connection
with natural resource damages resulting from the release of hazardous substances
and oil. In June 1999, the Natural Resources Trustees performing the NRDA of the
Grand Calumet River System proposed a settlement to LTV and the 17 other
entities that contemplates the dredging and disposal of all contaminated
sediment in the river and canal upstream of the federal channel and the
management of additional contaminated sediment adjacent to the federal channel
but not covered by the U.S. Army Corps of Engineers (the "Corps") project
referred to below. The settlement also would require habitat restoration and
public use access projects. We are presently unable to predict whether we would
be held liable for any portion of these dredging and disposal
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projects, and, while the costs of such projects could be significant, we are
unable to predict the actual cost of such projects or our share of such costs.
In a related matter, the Corps has issued a feasibility report concerning
dredging of the federal channel within the Indiana Harbor and Indiana Harbor
Ship Canal to assist navigation through those waterways. The Corps estimates the
dredging will cost in excess of $135 million. According to the Corps' report, if
dredging occurs, it will be funded primarily by the federal government. Based on
estimates by the Corps, removal and disposal of sediments adjacent to LTV Steel,
which would not be federally funded, would cost approximately $2.1 million. The
East Chicago Waterway Management District, an entity created by the State of
Indiana, will ultimately have the responsibility to secure the non-federally
funded portion, including the $2.1 million allocated to LTV Steel. The Chicago
Main Waterway has recently contacted us regarding this allocation and has asked
for our financial support on the project. We are currently evaluating this
request and have not made any determinations.
STATE OF ILLINOIS. After notifying the Illinois EPA ("IEPA") of two
separate deposits of hazardous wastes discovered at LTV Steel's Chicago plant,
we submitted to IEPA remediation plans for clean-up of both deposits. We and the
IEPA have reached an agreement on one of the 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.
STATE OF OHIO. On July 8, 1998, the Ohio Attorney General filed a
complaint in the Cuyahoga County Court of Common Pleas alleging various
instances of noncompliance with LTV Steel's wastewater discharge permit at its
Cleveland Works facility over an approximate five-year period. LTV Steel settled
the complaint pursuant to a consent agreement, which requires a payment of
$419,000 in civil penalties and the implementation of a number of water
pollution control studies at the plant. LTV Steel may or may not be required to
install modifications to its water pollution control facilities depending upon
the results of these studies.
CITY OF BUFFALO. In September 1999, LTV filed an action in the U.S.
Bankruptcy Court for the Southern District of New York seeking a declaratory
judgment that the claims that the City of Buffalo has asserted against LTV Steel
in connection with the proposed clean up of certain property sold to the Buffalo
Renewal Authority, an agency of the City of Buffalo, by LTV Steel and Hanna
Furnace Corporation, a joint venture partner, in 1992 have been discharged or
otherwise dealt with by LTV's Chapter 11 reorganization. Also, LTV and Hanna
Furnace have filed an action in the U.S. District Court for the Western District
of New York claiming unspecified damages and seeking injunctive relief in
connection with the City of Buffalo's placement of more than 100,000 cubic yards
of contaminated soil on LTV Steel's property. The City of Buffalo notified LTV
Steel and Hanna Furnace Corporation of its intent to pursue claims against the
companies under the Citizens Suit Provision of the Federal Solid Waste Disposal
Act.
WELDED TUBE AND COPPERWELD. In July 1999, the U.S. EPA issued two NOVs to
Copperweld concerning air emissions at its Shelby, Ohio facility. Copperweld
received a NOV alleging that (i) it failed to conduct a timely initial
performance test with respect to air emissions from its chrome plating operation
and (ii) it failed to notify the EPA of such test. Copperweld also received a
NOV from the U.S. EPA alleging that emissions from the Shelby facility's rotary
hearth furnace exceeded permit limits. The purchase agreement governing our
acquisition of Copperweld provides that we are fully indemnified by the
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seller for these NOVs. We are not aware of any material environmentally-related
lawsuits or violations pending against Welded Tube.
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 alleged that, for the period prior to the
filing of the action, the patents are invalid and not infringed and sought a
declaratory judgment to such effect. In May 1993, at a jury trial, LTV Steel was
found to have infringed the patents. Thereafter, LTV Steel and the other
domestic steel producer applied to have the Patent Office reexamine the Inland
patents and, as a result, the District Court proceeding on the validity of the
patents was dismissed without prejudice. In July 1993, the U.S. Patent Office
rejected the claims of the two Inland patents upon a reexamination, 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.
In September 1999, the Patent Office Board of Appeals affirmed the decision of
the U.S. Patent Office. In November 1999, Inland appealed this decision to the
U.S. Court of Appeals for the Federal Circuit.
OTHER
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. Our position is that these pension payments are not subject
to FICA and FUTA taxes. On October 19, 1998, the U.S. Court of Federal Claims
granted LTV Steel summary judgment. On April 14, 1999, the government filed a
notice of appeal of the summary judgment to the U.S. Court of Appeals for the
Federal Circuit. Oral arguments on the appeal is scheduled for January 6, 2000.
The parties have stipulated the amount of the judgment, which is still subject
to appeal, to be approximately $24.6 million, plus statutory interest which we
estimate to be approximately $25 million as of 1999. The judgment will cover
taxes collected by the U.S. Internal Revenue Service on certain pension payments
for the tax years 1987 through 1993. Approximately one-third of the total amount
recovered by us will be refunded to eligible retirees.
Since August 1, 1999, more than 1,100 asbestosis Ohio workers' compensation
claims have been filed with LTV Steel, the majority of which were filed on
behalf of retired employees who worked at facilities that were closed in the
early 1980s. All of the asbestosis workers' compensation claims were filed by
the same Cleveland law firm. LTV Steel anticipates that additional claims may be
filed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of September 30, 1999.
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- --- ------
<S> <C> <C>
Peter Kelly(a)....................... 57 Chairman of the Board and Chief Executive
Officer
James F. Haeck....................... 53 Executive Vice President
Richard J. Hipple.................... 46 Executive Vice President
Glenn J. Moran....................... 52 Senior Vice President, General Counsel and
Secretary
Eric W. Evans........................ 43 Vice President and Controller
George T. Henning.................... 58 Vice President and Chief Financial Officer
John C. Skurek....................... 54 Vice President and Treasurer
Colin C. Blaydon(a)(b)(c)............ 58 Director
William H. Bricker(a)(c)(d).......... 68 Director
John E. Jacob(a)(b)(d)............... 64 Director
Edward C. Joullian III(c)(d)(e)...... 69 Director
M. Thomas Moore(c)(e)................ 64 Director
Vincent A. Sarni(d)(f)............... 70 Director
Samuel K. Skinner(b)(f).............. 61 Director
Stephen B. Timbers(a)(e)(f).......... 54 Director
Farah M. Walters(a)(d)(f)............ 55 Director
</TABLE>
- -------------------------
(a) Member of Executive Committee.
(b) Member of Board Affairs Committee.
(c) Member of Capital and Technology Committee.
(d) Member of Compensation and Organization Committee.
(e) Member of Finance Committee.
(f) Member of Audit Committee.
The only employee of The LTV Corporation and its subsidiaries who is also a
director of The LTV Corporation is Mr. Peter Kelly, Chairman of the Board and
Chief Executive Officer.
All officers, except Mr. George T. Henning, have been employed by The LTV
Corporation or its subsidiaries for more than the last five years.
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PETER KELLY became Chairman of the Board on February 1, 1999 and Chief
Executive Officer of LTV in September 1998. Additionally, since July 1997, he
has been a director and the President and Chief Operating Officer of LTV. Prior
thereto, he was a Group Vice President of LTV from February 1991 to July 1997.
He also has been the President, Chief Operating Officer and a director of LTV
Steel since January 1993.
JAMES F. HAECK was elected an Executive Vice President of LTV in February
1998. Prior thereto, since January 1996, he served as Senior Vice President
- -Commercial of LTV. 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.
RICHARD A. HIPPLE was elected an Executive Vice President of LTV in
February 1998. Prior thereto, since February 1997, he served as Senior Vice
President Purchasing, Engineering and Strategic Planning of LTV. During the last
five years, Mr. Hipple has also served in a variety of officer positions at LTV
Steel with responsibilities in the purchasing, engineering, environmental and
strategic planning areas.
GLENN J. MORAN has been Senior Vice President and General Counsel of LTV
since September 1992 and Secretary since July 1993.
ERIC W. EVANS was elected Vice President and Controller in June 1999. Prior
thereto, Mr. Evans served as General Manager -- Strategic Planning and
Business/Corporate Development of LTV from November 1995 to June 1999. Prior
thereto, he was Senior Director -- Investor Relations of LTV.
GEORGE T. HENNING was elected Vice President and Chief Financial Officer of
LTV in June 1999 and, prior thereto, from September 1995 to June 1999, served as
Vice President and Controller of LTV. Prior thereto, Mr. Henning was Vice
President and Chief Financial Officer of Pioneer Companies, Inc., a manufacturer
of chlorine, caustic soda and related products.
JOHN C. 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.
DR. COLIN C. BLAYDON became a director of LTV in September 1988. Dr.
Blaydon is Dean Emeritus and Buchanan Professor of Management of the Amos Tuck
School of Business Administration and the Director of the John H. Foster Center
for Private Equity at Dartmouth College. Dr. Blaydon is also a Senior Advisor of
Putnam, Hayes & Bartlett, Inc., a professional consulting firm and on the Board
of Advisors of DHM Arcadia Partners LP, a venture capital firm. He is also a
director of Mercantile Trust Company NA, a Trustee of The Center for Excellence
in Government and a Trustee of the Lowell Whiteman School.
WILLIAM H. BRICKER became a director of LTV in March 1982. He was from July
1976 to May 1987 the Chief Executive Officer and from November 1979 to May 1987
the Chairman of the Board of Diamond Shamrock Corporation, now known as Maxus
Energy Corporation. He is Chairman of the Board and Chief Executive Officer of
BTC Partners, Inc. and D.S. Energy Services, Inc. (business consultants and
international oil and gas), Trust Manager of American Industrial Properties REIT
and President of Bear Creek Angus Ranch, Inc.
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JOHN E. JACOB became a director of LTV in June 1993. Mr. Jacob has been
Executive Vice President and Chief Communications Officer for Anheuser-Busch
Companies, Inc. since June 1994. Prior thereto, he had been President and Chief
Executive Officer of the National Urban League Inc. since January 1982. He also
is a director of Coca-Cola Enterprises, Inc. and Anheuser-Busch Companies, Inc.
EDWARD C. JOULLIAN III became a director of LTV in October 1976. For more
than the past five years, he has been Chairman of the Board and, until August
1998, Chief Executive Officer of Mustang Fuel Corporation. He also is a director
of American Fidelity Companies and its subsidiaries and Fleming Companies, Inc.
He also is a trustee of The Colonial Williamsburg Foundation, Williamsburg,
Virginia.
M. THOMAS MOORE became a director of LTV in June 1993. Mr. Moore was
Chairman of the Board of Cleveland-Cliffs Inc from May 1988 to November 1997 and
its Chief Executive Officer from January 1987 to November 1997. He also is a
director of The Lubrizol Corporation.
VINCENT A. SARNI became a director of LTV in June 1993. Mr. Sarni was
Chairman of the Board and Chief Executive Officer of PPG Industries, Inc. from
November 1984 until September 1993.
SAMUEL K. SKINNER became a director of LTV in June 1993. Since September
1998, Mr. Skinner has been a partner and Co-Chairman of the law firm of Hopkins
& Sutter. Until his retirement, he was President and a director of Commonwealth
Edison Company from February 1993 to March 1998. Prior thereto, he served as
Chief of Staff to the President of the United States. Prior to his White House
service, Mr. Skinner served as U.S. Secretary of Transportation for nearly three
years. Prior to February 1989, he practiced law as a Senior Partner in the
Chicago law firm of Sidley & Austin, where he served on the firm's executive
committee. He is also a director of ANTEC Corporation, Union Pacific Resources
Group Inc., Stimsonsite Corporation, EVEREN Capital Corporation and Midwest
Express Holdings, Inc.
STEPHEN B. TIMBERS became a director of LTV in June 1993. In February 1998,
he became the President of Northern Trust Global Investments. From 1995 through
1997, he was President, Chief Executive Officer and Chief Investment Officer of
Zurich Kemper Investments, Inc. From 1992 to 1996, he was President, Chief
Operating Officer, and a director of Kemper Corporation.
FARAH M. WALTERS became a director of LTV in June 1993. She is President
and Chief Executive Officer of University Hospitals Health System Inc. and
University Hospitals of Cleveland. Prior thereto, beginning in March 1991 until
January 1992, she served as Senior Executive Vice President of University
Hospitals Health System and Executive Director of University Hospitals of
Cleveland. She also is a director of Kerr-McGee Corporation and The Geon
Company.
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DESCRIPTION OF PREFERRED STOCK
The following is a summary of certain provisions of the Certificate of
Designations and the Preferred Stock. A copy of the Certificate of Designations
is available upon request to the Company at the address set forth under "Where
You Can Find More Information." The following summary of certain provisions of
the Certificate of Designations does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
Certificate of Designations. As used in this section, the term "the Company"
refers to The LTV Corporation and not any of its subsidiaries.
GENERAL
There are 1,600,000 shares of the Company's 8 1/4% Series A Cumulative
Convertible Preferred Stock, $1.00 par value per share, designated as "8 1/4%
Series A Cumulative Convertible Preferred Stock" outstanding. The Preferred
Stock was issued pursuant to a Certificate of Designations dated as of November
5, 1999. The Preferred Stock is validly issued, fully paid and nonassessable.
The holders of the Preferred Stock have no preemptive or preferential right to
purchase or subscribe for stock, obligations, warrants or other securities of
the Company of any class. The Preferred Stock is eligible for trading in The
PORTAL Market.
The transfer agent for the Preferred Stock is ChaseMellon Shareholder
Services LLC, unless and until a successor is selected by the Company (the
"Transfer Agent").
RANKING
The Preferred Stock, with respect to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company,
ranks (i) senior to all classes of common stock of the Company and to each other
class of capital stock or series of preferred stock established after the date
of this prospectus by the Board of Directors the terms of which do not expressly
provide that it ranks senior to or on a parity with the Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to with the common stock of
the Company as "Junior Securities"); (ii) on a parity with the Company's Series
B Preferred Stock and any additional shares of the Preferred Stock issued by the
Company in the future and any other class of capital stock or series of
preferred stock issued by the Company established after the date of this
prospectus by the Board of Directors, the terms of which expressly provide that
such class or series will rank on a parity with the Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company (collectively referred to as "Parity Securities");
and (iii) junior to each class of capital stock or series of preferred stock
issued by the Company established after the date of this prospectus by the Board
of Directors the terms of which expressly provide that such class or series will
rank senior to the Preferred Stock as to dividend distributions and
distributions upon liquidation, winding-up and dissolution of the Company
(collectively referred to as "Senior Securities"). The Preferred Stock is
subject to the issuance of series of Junior Securities, Parity Securities and
Senior Securities, provided that the Company may not issue any new class of
Senior Securities without the approval of the holders of at least 66 2/3% of the
shares of Preferred Stock then outstanding, voting or consenting, as the case
may be, together as one class.
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No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Preferred Stock
with respect to any dividend period unless all dividends for all preceding
dividend periods have been declared and paid, or declared and a sufficient sum
set apart for the payment of such dividend, upon all outstanding shares of
Senior Securities.
DIVIDENDS
The holders of the Preferred Stock are entitled to receive, when, as and if
dividends are declared by the Board of Directors out of funds of the Company
legally available therefor, cumulative dividends from the issue date of the
Preferred Stock accruing at the rate per annum of 8.25% of the liquidation
preference per share, payable quarterly in arrears on each February 15, May 15,
August 15 and November 15, commencing on February 15, 2000 (each, a "Dividend
Payment Date"). If any such date is not a business day, such payment shall be
made on the next succeeding business day, to the holders of record as of the
next preceding February 1, May 1, August 1 and November 1 (each, a "Record
Date"). Dividends payable on the Preferred Stock will be computed on the basis
of a 360-day year consisting of twelve 30-day months and will be deemed to
accrue on a daily basis.
Dividends on the Preferred Stock will accrue whether or not the Company has
earnings or profits, whether or not there are funds legally available for the
payment of such dividends and whether or not dividends are declared. Dividends
will accumulate to the extent they are not paid on the Dividend Payment Date for
the period to which they relate. The Certificate of Designations provides that
the Company will take all actions required or permitted under applicable law to
permit the payment of dividends on the Preferred Stock.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the Preferred Stock
with respect to any dividend period unless all dividends for all preceding
dividend periods have been declared and paid, or declared and a sufficient sum
set apart for the payment of such dividend, upon all outstanding shares of
Preferred Stock. Unless full cumulative dividends on all outstanding shares of
Preferred Stock for all past dividend periods shall have been declared and paid,
or declared and a sufficient sum for the payment thereof set apart, then: (i) no
dividend (other than a dividend payable solely in shares of any Junior
Securities or Parity Securities or a partial dividend on Parity Securities that
is paid pro rata on the Preferred Stock) shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any shares of Junior Securities
or Parity Securities, respectively; (ii) no other distribution shall be declared
or made upon, or any sum set apart for the payment of any distribution upon, any
shares of Junior Securities or Parity Securities, other than a distribution
consisting solely of Junior Securities or Parity Securities, respectively; (iii)
no shares of Junior Securities or Parity Securities or any warrants, rights,
calls or options exercisable for or convertible into any Junior Securities or
Parity Securities shall be purchased, redeemed or otherwise acquired (excluding
an exchange for shares of other Junior Securities or Parity Securities,
respectively) by the Company or any of its subsidiaries; and (iv) no monies
shall be paid into or set apart or made available for a sinking or other like
fund for the purchase, redemption or other acquisition of any shares of Junior
Securities or Parity Securities or any warrants, rights, calls or options
exercisable for or convertible into any Junior Securities or Parity Securities
by the Company or any of
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its subsidiaries. Holders of the Preferred Stock will not be entitled to any
dividends in excess of the full cumulative dividends as herein described.
The Company's ability to pay dividends on the Preferred Stock is limited by
the terms of the New Bank Financing, the Company's 8.20% Senior Notes due 2007
and the New Senior Notes, and may further be limited by debt agreements that the
Company may enter into in the future. See "Risk Factors -- Our ability to pay
dividends on our capital stock is limited."
REDEMPTION
Optional Redemption. The Preferred Stock may be redeemed, in whole or from
time to time in part, at the option of the Company (the "Optional Redemption")
at any time on or after November 18, 2004, at a redemption price equal to the
percentage of the liquidation preference set forth below, in each case, together
with accumulated and unpaid dividends (including an amount equal to a prorated
dividend for any partial dividend period) and Preferred Stock Liquidated
Damages, if any, to the date of redemption, upon not less than 30 nor more than
60 days' prior written notice, if redeemed during the 12-month period commencing
on November 18 of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004........................................................ 104.13%
2005........................................................ 103.30
2006........................................................ 102.48
2007........................................................ 101.65
2008........................................................ 100.83
2009 and thereafter......................................... 100.00
</TABLE>
No Optional Redemption may be authorized or made unless, prior to giving
the applicable redemption notice, all accumulated and unpaid dividends for
periods ended prior to the date of such redemption notice shall have been paid
in cash. In the event of partial redemptions of Preferred Stock, the shares to
be redeemed will be determined pro rata or by lot, as determined by the Company,
provided that the Company may redeem all shares held by holders of fewer than
100 shares of Preferred Stock (or by holders that would hold fewer than 100
shares of Preferred Stock following such redemption) prior to its redemption of
other shares of Preferred Stock.
METHOD OF PAYMENTS
The Company will make each dividend payment (including any Preferred Stock
Liquidated Damages) and Optional Redemption payment on the Preferred Stock in
cash. The Company will make a public announcement no later than the close of
business on the tenth business day prior to the Record Date for each dividend as
to whether it will pay such dividend.
PROCEDURE FOR REDEMPTION
On and after a redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accrue on shares of
Preferred Stock
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called for redemption and all rights of holders of such shares will terminate
except for the right to receive the redemption price, without interest;
provided, however, that if a notice of redemption has been given and an amount
in cash equal to the full redemption price shall have been segregated and
irrevocably set apart by the Company in trust for the benefit of holders of the
Preferred Stock called for redemption, then at the close of business on the day
on which such funds are so segregated and set apart, the holders of the shares
to be redeemed shall cease to be stockholders of the Company and shall be
entitled, subject to their rights of conversion, to receive only the redemption
price for their shares on the redemption date. The Company will make a public
announcement of the redemption and send a written notice thereof by first class
mail to each holder of record of shares of Preferred Stock not fewer than 30
days nor more than 60 days prior to the date fixed for such redemption. Shares
of Preferred Stock issued and reacquired will, upon compliance with the
applicable requirements of law, have the status of authorized but unissued
shares of preferred stock of the Company undesignated as to series and may with
any and all other authorized but unissued shares of preferred stock of the
Company be designated or redesignated and issued, as part of any series of
preferred stock of the Company.
CONVERSION RIGHTS
Each share of Preferred Stock is convertible (unless previously redeemed),
in whole or from time to time in part, at any time at the option of the holder
thereof, into that number of shares of common stock of the Company equal to
$50.00 (the liquidation preference per share of Preferred Stock) divided by the
conversion price then applicable. A holder's right to convert shares of
Preferred Stock called for redemption will terminate at the close of business on
the business day preceding the redemption date and will be lost if not exercised
prior to that time, unless the Company defaults in making the payment due upon
redemption.
The initial conversion price is $3.675 per share, and the number of shares
of common stock into which each share of Preferred Stock is initially
convertible is 13.605. The conversion price will be subject to adjustment in
certain events, including: (i) the payment of dividends (and other
distributions) in common stock on any class of capital stock of the Company
other than the payment of any regularly scheduled dividend on any other
preferred stock which does not trigger any anti-dilution provisions in any other
security; (ii) the issuance to all holders of common stock of rights, warrants
or options entitling them to subscribe for or purchase common stock at less than
the Average Market Value; (iii) subdivisions, combinations and reclassifications
of common stock; (iv) distributions to all holders of common stock of evidences
of indebtedness of the Company, shares of capital stock, securities, cash or
property (excluding any dividends, rights, warrants, options or distributions
referred to in clause (i) or (ii) above and any dividend or distribution paid
exclusively in cash to all holders of common stock in an aggregate amount that,
together with (A) other all-cash distributions made within the preceding 12
months in respect of which no adjustment has been made and (B) any cash and the
fair market value, as of the expiration of the tender or exchange offer referred
to below, of consideration payable in respect of any tender or exchange offer by
the Company or a subsidiary of the Company of the common stock concluded within
the preceding 12 months in respect of which no adjustment has been made, exceeds
15.0% of the Company's aggregate market capitalization (such aggregate market
capitalization being the product of the Average Market Value of the common stock
determined as of the Record Date for such dividend or distribution multiplied by
the number of shares of common stock then outstanding) on
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the date of such distribution); and (v) the successful completion of a tender or
exchange offer made by the Company or any subsidiary of the Company for the
common stock which involves an aggregate consideration that, together with (X)
any cash and the fair market value of other consideration payable in respect of
any preceding 12 months in respect of which no adjustment has been made and (Y)
the aggregate amount of any all-cash distribution to all holders of the common
stock made within the preceding 12 months in respect of which no adjustment has
been made, exceeds 15.0% of the Company's aggregate market capitalization on the
expiration of such tender or exchange offer.
"Average Market Value" of the common stock will mean the arithmetic average
of the Current Market Value of the common stock for the ten trading days ending
on the fifth trading day prior to the date of the event requiring such
calculation.
"Current Market Value" of the common stock will mean for any day (i) the
volume weighted average price, as quoted in Bloomberg Financial Markets, or (ii)
the average of the high and low sale prices of the common stock, if reported on
any national securities exchange.
No adjustment of the conversion price will be required to be made until
cumulative adjustments amount to 1% or more of the conversion price as last
adjusted. Notwithstanding the foregoing, no adjustment to the conversion price
shall reduce the conversion price below the then applicable par value per share
of the common stock. In addition to the foregoing adjustments, the Company will
be permitted to make such reductions in the conversion price as it considers to
be advisable in order that any event treated for federal income tax purposes as
a dividend of stock or stock rights will not be taxable to the holders of the
common stock.
Unless subject to the provisions described under "Fundamental Change
Conversion Price Adjustment" below, in the case of certain consolidations or
mergers to which the Company is a party or the transfer of substantially all of
the assets of the Company, each share of Preferred Stock then outstanding would
become convertible only into the kind and amount of securities, cash and other
property receivable upon the consolidation, merger or transfer by a holder of
the number of shares of common stock into which such share of Preferred Stock
might have been converted immediately prior to the such consolidation, merger or
transfer (assuming such holder of common stock failed to exercise any rights of
election and received per share the kind and amount receivable per share by a
plurality of non-electing shares).
No fractional shares of common stock will be issued upon conversion; in
lieu thereof, the Company will round the applicable number of shares up or down
to the nearest whole number of shares.
The holder of record of a share of Preferred Stock at the close of business
on a Record Date with respect to the payment of dividends on the Preferred Stock
will be entitled to receive such dividends with respect to such share of
Preferred Stock on the corresponding Dividend Payment Date, notwithstanding the
conversion of such share after such Record Date and prior to such Dividend
Payment Date. A share of Preferred Stock surrendered for conversion during the
period from the close of business on any Record Date for the payment of
dividends to the opening of business of the corresponding Dividend Payment Date
must be accompanied by a payment in cash in an amount equal to the dividend
payable on such Dividend Payment Date, unless such share of Preferred
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Stock has been called for redemption on a redemption date occurring during the
period from the close of business on any Record Date for the payment of
dividends to the close of business on the business day immediately following the
corresponding Dividend Payment Date. The dividend payment with respect to a
share of Preferred Stock called for redemption on a date during the period from
the close of business on any Record Date for the payment of dividends to the
close of business on the business day immediately following the corresponding
Dividend Payment Date will be payable on such Dividend Payment Date to the
record holder of such share on such Record Date if such share has been converted
after such Record Date and prior to such Dividend Payment Date. No payment or
adjustment will be made upon conversion of shares of Preferred Stock for
accumulated and unpaid dividends or for dividends with respect to the common
stock issued upon such conversion.
FUNDAMENTAL CHANGE CONVERSION PRICE ADJUSTMENT
If the Company makes an announcement of the occurrence of a Fundamental
Change (as defined below), there will be an adjustment to the conversion price
of the Preferred Stock such that such conversion price will thereafter equal the
Fundamental Change Average Market Price, unless the resulting conversion rate is
lower than the then current conversion rate of the Preferred Stock as calculated
in the manner described in "-- Conversion Rights" (in which case there will be
no such adjustment to the conversion price).
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with which all or substantially all of the outstanding
common stock shall be exchanged for, converted into, acquired for or constitute
the right to receive stock, securities, other property or assets (including
cash) of another entity or person (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise). "Fundamental Change Average Market Price" of the
common stock means the Average Market Value as of the closing of the Fundamental
Change.
VOTING RIGHTS
Holders of record shares of the Preferred Stock have no voting rights,
except as required by law and as provided in the Certificate of Designations.
The Certificate of Designations provides that upon the accumulation of accrued
and unpaid dividends on the outstanding Preferred Stock in an amount equal to
six quarterly dividends, whether or not consecutive (a "Voting Rights Triggering
Event"), then the holders of a majority of the outstanding shares of Preferred
Stock will be entitled to elect one or, if the Board of Directors then has more
than five members, two members to the Board of Directors of the Company, and the
number of members of the Company's Board of Directors will be immediately and
automatically increased by one or two, as the case may be. Voting rights arising
as a result of a Voting Rights Triggering Event will continue until such time as
all dividends in arrears on the Preferred Stock are paid in full, at which time
the term of office of any such members of the Board of Directors so elected
shall terminate and such directors shall be deemed to have resigned.
In addition, the Certificate of Designations provides that the Company will
not authorize any class of Senior Securities or any obligation or security
convertible or exchangeable into or evidencing a right to purchase shares of any
class or series of Senior
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Securities, without the approval of holders of at least 66 2/3% of the shares of
Preferred Stock then outstanding, voting or consenting, as the case may be, as
one class. The Certificate of Designations also provides that the Company may
not amend the Certificate of Designations so as to affect adversely the
specified rights, preferences, privileges or voting rights of holders of shares
of the Preferred Stock or authorize the issuance of any additional shares of
Preferred Stock, without the approval of the holders of at least 66 2/3% of the
then outstanding shares of Preferred Stock voting or consenting, as the case may
be, as one class. The Certificate of Designations also provides that, except as
set forth above with respect to Senior Securities, (a) the creation,
authorization or issuance of any shares of Junior Securities, Parity Securities
or Senior Securities or (b) the increase or decrease in the amount of authorized
capital stock of any class, including any preferred stock, shall not require the
consent of the holders of Preferred Stock and shall not be deemed to affect
adversely the rights, preferences, privileges, special rights or voting rights
of holders of shares of Preferred Stock. The consent of the holders of Preferred
Stock will not be required for the Company to authorize, create (by way of
reclassification or otherwise) or issue any Parity Securities or any obligation
or security convertible or exchangeable into or evidencing a right to purchase,
shares of any class or series of Parity Securities.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Without the vote or consent of the holders of a majority of the then
outstanding shares of Preferred Stock, the Company may not consolidate or merge
with or into, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets to, any person unless (a) the entity
formed by such consolidation or merger (if other than the Company) or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made (in any such case, the "resulting entity") is a corporation
organized and existing under the laws of the United States or any State thereof
or the District of Columbia; (b) if the Company is not the resulting entity, the
Preferred Stock is converted into or exchanged for and becomes shares of such
resulting entity, having in respect of such resulting entity the same (or more
favorable) powers, preferences and relative, participating, optional or other
special rights thereof that the Preferred Stock had immediately prior to such
transaction; and (c) immediately after giving effect to such transaction, no
Voting Rights Triggering Event has occurred and is continuing. The resulting
entity of such transaction shall thereafter be deemed to be the "Company" for
all purposes of the Certificate of Designations.
Except as described herein, the Certificate of Designations does not
provide the holders of the Preferred Stock with any special protection in the
event of a takeover, recapitalization or similar transaction which could
adversely affect the Company's capital structure or the value of the Preferred
Stock or the common stock.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company or reduction or decrease in its capital stock resulting in a
distribution of assets to the holders of any class or series of the Company's
capital stock, each holder of shares of the Preferred Stock will be entitled to
payment out of the assets of the Company available for distribution of an amount
equal to the liquidation preference per share of Preferred Stock held by such
holder, plus accrued and unpaid dividends and Preferred Stock Liquidated
Damages, if any, to the date fixed for liquidation, dissolution, winding-up or
reduction or decrease in capital stock (including an amount equal to a prorated
dividend
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for the period from the last dividend payment date to the date fixed for
liquidation, dissolution, winding up or reduction or decrease in capital stock),
before any distribution is made on any Junior Securities, including, without
limitation, common stock. After payment in full of the liquidation preference
and all accrued dividends and Preferred Stock Liquidated Damages, if any, to
which holders of Preferred Stock are entitled, such holders will not be entitled
to any further participation in any distribution of assets of the Company. If,
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Preferred Stock and all other
Parity Securities are not paid in full, the holders of the Preferred Stock and
the Parity Securities will share equally and ratably in any distribution of
assets of the Company in proportion to the full liquidation preference and
accumulated and unpaid dividends and Preferred Stock Liquidated Damages, if any,
to which each is entitled.
However, neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Company nor the consolidation
or merger of the Company with or into one or more entities will be deemed to be
a voluntary liquidation, dissolution or winding-up of the Company or reduction
or decrease in capital stock, unless such sale, conveyance, exchange or transfer
shall be in connection with a liquidation, dissolution or winding-up of the
business of the Company or reduction or decrease in capital stock.
The Certificate of Designations does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Preferred
Stock, although such liquidation preference will be substantially in excess of
the par value of such shares of Preferred Stock. Consequently, there will be no
restriction upon the surplus of the Company solely because the liquidation
preference of the Preferred Stock will exceed the par value thereof and there
will be no remedies available to holders of the Preferred Stock before or after
the payment of any dividend, other than in connection with the liquidation of
the Company, solely by reason of the fact that such dividend would reduce the
surplus of the Company to an amount less than the difference between the
liquidation preferences of the Preferred Stock and its par value.
SEC REPORTS
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company shall file with, or furnish to, the SEC such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections, such information, documents and reports to be so filed at the times
specified for the filing of such information, documents and reports under such
Sections (the "Required Filing Times"); provided, however, that the Company
shall not be so obligated to file such information, documents and reports with
the SEC if the SEC does not permit such filings. The Company shall also in any
event (a) within 15 days of each Required Filing Time, provide the Transfer
Agent and the holders of the Preferred Stock with copies of such information,
documents and reports and (b) if the SEC does not permit the filing of such
information, documents and reports, promptly upon written request supply copies
of such information, documents and reports to any prospective holder of the
Preferred Stock.
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REGISTRATION RIGHTS; PREFERRED STOCK LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company has agreed to
file this shelf registration statement (the "Shelf Registration Statement") with
the Commission to cover resales of Transfer Restricted Securities (as defined
below) by holders thereof who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
"Transfer Restricted Securities" for this purpose, means each share of
Preferred Stock and each share of common stock issuable upon conversion of the
Preferred Stock or in satisfaction of any dividend or other payment on the
Preferred Stock until (a) the date on which such security has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (b) the date on which such security is distributed to
the public pursuant to Rule 144 under the Securities Act or may be distributed
to the public pursuant to Rule 144(k) under the Securities Act.
The Registration Rights Agreement provides that (a) the Company will file
the Shelf Registration Statement with the Commission not later than 90 days
after the date of original issuance of the Preferred Stock, (b) the Company will
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 180 days after the date of original issuance of the
Preferred Stock and (c) the Company will use its best efforts to keep the Shelf
Registration Statement effective for two years from the date the Shelf
Registration Statement is declared effective by the Commission or such shorter
period that will terminate when all of the Transfer Restricted Securities
covered thereby have been sold pursuant to such Shelf Registration Statement.
Holders will be required to provide certain information to the Company to
be included in the Shelf Registration Statement in order to have their Transfer
Restricted Securities included in the Shelf Registration Statement and benefit
from the provisions regarding Preferred Stock Liquidated Damages as set forth
above. The Company will provide to each holder for whom such Shelf Registration
Statement was filed copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resales of the Transfer Restricted Securities. A holder
selling its Transfer Restricted Securities pursuant to the Shelf Registration
Statement generally would be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations). The Company shall be deemed not to have
used its best efforts to keep the Shelf Registration Statement effective if it
voluntarily takes any action that would result in holders of securities covered
thereby not being able to offer and sell such securities during the two year
period referred to above, except under certain circumstances relating to pending
corporate developments, public filings with the Commission and similar events.
If (a) on or prior to the 90th day following the date of original issuance
of the Preferred Stock, the Shelf Registration Statement has not been filed with
the Commission, (b) on or prior to the 180th day following the date of original
issuance of the Preferred Stock, the Shelf Registration Statement has not been
declared effective or (c) after the Shelf Registration Statement has been
declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection
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with resales of Transfer Restricted Securities in accordance with and during the
two year period specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (c), a "Registration Default"), liquidated
damages ("Preferred Stock Liquidated Damages") will accrue on the liquidation
preference of the Preferred Stock from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Preferred Stock Liquidated Damages will
accrue at a rate of .25% of the liquidation preference of the Preferred Stock
during the 90-day period immediately following the occurrence of any
Registration Default and shall increase by .25% at the end of each subsequent
90-day period, but in no event shall such rate exceed 1.00% per annum of the
liquidation preference of the Preferred Stock.
BOOK-ENTRY; DELIVERY AND FORM; GLOBAL SHARES
The Preferred Stock resold in the United States in reliance on Rule 144A or
in offshore transactions in reliance on Regulation S is represented by one or
more permanent global shares in definitive, fully-registered form (the
"Restricted Global Shares"), which are deposited with, or on behalf of, the
Depository Trust Company ("DTC") and registered in the name of a nominee of DTC
in New York, New York for the accounts of participants in DTC.
Investors who are "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act and referred to as "QIBs") and who purchase Preferred
Stock in reliance on Rule 144A under the Securities Act hold their interests in
the Restricted Global Shares directly through DTC if they are DTC participants,
or indirectly through organizations that are DTC participants.
Investors who purchase Preferred Stock in offshore transactions in reliance
on Regulation S under the Securities Act hold their interests in the Restricted
Global Shares directly through Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear System (Euroclear) and Cedel Bank,
societe anonyme (Cedel Bank), if they are participants in such systems, or
indirectly through organizations that are participants in such systems.
Euroclear and Cedel Bank hold interests in the Restricted Global Shares on
behalf of their participants through their respective depositaries, which in
turn hold such interests in the Restricted Global Shares in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank,
N.A., is the initial depositary for Cedel Bank, and The Chase Manhattan Bank is
the initial depositary for Euroclear.
Preferred Stock resold under the Shelf Registration Statement of which this
prospectus forms a part will be represented by a permanent global share in
definitive, fully-registered form (the "Unrestricted Global Share" and together
with the Restricted Global Shares, the "Global Shares"). The Unrestricted Global
Share will be deposited with, or on behalf of, the Depository Trust Company
("DTC") and registered in the name of a nominee of DTC in New York, New York for
the accounts of participants in DTC. Investors may hold their interests in the
Unrestricted Global Share directly through DTC if they are DTC participants, or
indirectly through organizations that are DTC participants.
Upon each sale by a Selling Stockholder of Preferred Stock (or the shares
of common stock into which the Preferred Stock may be converted) offered hereby,
such Selling Stockholder will be required to deliver a notice (the "Notice") of
such sale to the Transfer Agent and the Company. The Notice will, among other
things, identify the sale as a sale pursuant to the Shelf Registration Statement
of which this prospectus forms a
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part, certify that the prospectus delivery requirements, if any, of the
Securities Act have been satisfied, and certify that the Selling Stockholder and
the number of Preferred Stock (or shares of common stock into which the
Preferred Stock may be converted) are identified in the prospectus in accordance
with the applicable rules and regulations under the Securities Act. A copy of
the Notice is included herein in Appendix A. Additional copies may be requested
from the Company, 200 Public Square, Cleveland, Ohio 44114, telephone number
(216) 622-5000 Attention: Senior Vice President, General Counsel and Secretary.
Upon receipt by the Transfer Agent of the Notice relating to a sale of
Preferred Stock, an appropriate adjustment will be made to reflect a decrease in
the principal amount of the appropriate Restricted Global Share or the
cancellation of a Definitive Share (as relevant), upon the transfer thereof, and
a corresponding increase in the principal amount of the Unrestricted Global
Share.
Preferred Stock which is not resold under this prospectus and which is
transferred to institutional "accredited investors" (as defined in Rules
501(a)(1), (2), (3) or (7) under the Securities Act) that are not QIBs will be
issued and physically delivered in fully registered, definitive form (the
"Definitive Share") and may not be represented by interests in the Restricted
Global Shares. Otherwise, except in the limited circumstances described below,
holders of Preferred Stock represented by interests in Global Shares will not be
entitled to receive Definitive Shares.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of institutions that have accounts with DTC ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. DTC's participants include securities brokers and
dealers (which may include the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, whether directly or indirectly.
Upon the issuance of the Global Shares, DTC will credit, on its book-entry
registration and transfer system, the respective number of Preferred Stock of
the individual beneficial interests represented by the Global Shares to the
accounts of participants. Ownership of beneficial interests in the Global Shares
will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests in the Global Shares will be
shown on, and the transfer of those ownership interests will be effected only
through, records maintained by DTC (with respect to participants' interests) and
such participants (with respect to the owners of beneficial interests in the
Global Shares other than participants).
So long as DTC or its nominee is the registered holder and owner of the
Preferred Stock, DTC or such nominee, as the case may be, will be considered the
sole legal owner of the Preferred Stock represented by the Global Shares for all
purposes under the Certificate of Designations and the Preferred Stock. Except
as set forth below, owners of beneficial interests in the Global Shares will not
be entitled to receive Definitive Shares and will not be considered to be the
owners or holders of any Preferred Stock under the Global Shares. The Company
understands that under existing industry practice, in the
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event an owner of a beneficial interest in the Global Shares desires to take any
action that DTC, as the holder of the Global Shares, is entitled to take, DTC
would authorize the participants to take such action, and that participants
would authorize beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners owning
through them. No beneficial owner of any interest in the Global Shares will be
able to transfer the interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the Certificate of
Designations and, if applicable, those of Euroclear and Cedel Bank.
Payments of dividends and Preferred Stock Liquidated Damages, if any, on,
and any redemption price with respect to, the Preferred Stock represented by the
Global Shares registered in the name of and held by DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the registered owner and
holder of the Global Shares.
The Company expects that DTC or its nominee, upon receipt of any payment of
dividends on, or the redemption price with respect to, the Global Shares, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Global Shares as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in the Global Shares held through such
participants will be governed by standing instructions and customary practices
as is now the case with securities held for accounts of customers registered in
the names of nominees for such customers. Such payment, however, will be the
responsibility of such participants and indirect participants, and neither the
Company nor the Transfer Agent will have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Shares or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between DTC and its participants or the
relationship between such participants and the owners of beneficial interests in
the Global Shares.
Unless and until it is exchanged in whole or in part for Definitive Notes
in definitive form, the Global Share may not be transferred except as a whole by
DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel Bank will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
If a holder requires physical delivery of a Definitive Share for any reason,
including to sell Preferred Stock to persons in jurisdictions which require such
delivery of such Preferred Stock or to pledge such Preferred Stock, such holder
must transfer its interest in the Global Shares in accordance with the normal
procedures of DTC and the procedures set forth in the Certificate of
Designations.
Cross-market transfers between DTC, on the one hand, and directly or
indirectly through Euroclear or Cedel Bank participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or Cedel
Bank, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel Bank, as the case may be, by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (Brussels
time). Euroclear or Cedel Bank, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take
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action to effect final settlement on its behalf by delivering or receiving
interests in the Global Shares in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and Cedel Bank participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel Bank.
Because of time zone differences, the securities account of a Euroclear or
Cedel Bank participant purchasing an interest in the Global Shares from a DTC
participant will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel Bank, as the case may be)
immediately following the DTC settlement date, and such credit of any
transactions interests in the Global Shares settled during such processing day
will be reported to the relevant Euroclear or Cedel Bank participant on such
day. Cash received in Euroclear or Cedel Bank as a result of sales of interests
in the Global Shares by or through a Euroclear or Cedel Bank participant to a
DTC participant will be received with value on the DTC settlement date, but will
be available in the relevant Euroclear or Cedel Bank cash account only as of the
business day following settlement in DTC.
The Company expects that DTC will take any action permitted to be taken by
a holder of Preferred Stock (including the presentation of Preferred Stock for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Shares is credited and only in
respect of such portion of the aggregate number of the Preferred Stock as to
which such participant or participants has or have given such direction.
Although the Company expects that DTC, Euroclear and Cedel Bank will agree
to the foregoing procedures in order to facilitate transfers of interests in the
Global Share among participants of DTC, Euroclear, and Cedel Bank, DTC,
Euroclear and Cedel Bank are under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Transfer Agent will have any responsibility for the
performance by DTC, Euroclear or Cedel Bank or their participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
If DTC is at any time unwilling to continue as a depositary for the Global
Share and a successor depositary is not appointed by the Company within 90 days,
the Company will issue Definitive Shares in exchange for the Global Shares.
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DESCRIPTION OF NEW BANK FINANCING
In connection with the consummation of the Copperweld acquisition, we
entered into the New Bank Financing, a five-year senior secured credit facility
consisting of a single tranche of term loans in an aggregate principal amount of
$225 million. We used the New Bank Financing to pay a portion of the purchase
price of the Acquisitions and related fees and expenses. Obligations under the
New Bank Financing are guaranteed by substantially all our domestic wholly-owned
subsidiaries (other than special purpose subsidiaries established to facilitate
our working capital facilities), and secured by substantially all of the assets
of Welded Tube and Copperweld Corporation, other than accounts receivable and
the real property and associated fixtures at Welded Tube's Portland facility,
including a secured intercompany note between Copperweld Corporation and
Copperweld Canada, Inc. Pricing on the loans under the New Bank Financing will
be based on LIBOR, reset periodically, plus a margin ranging from 3.375% to
4.125%, depending on the ratings that Standard & Poor's and Moody's assign the
loans from time to time. We will also have the option to borrow at pricing based
on an alternate base rate plus a margin ranging from 2.00% to 2.875% based on
similar ratings. The alternate base rate is the higher of the prime rate and the
Federal Funds effective rate plus 1/2 of 1%.
The New Bank Financing loans have de minimis scheduled amortization
payments during the first four years after closing, with equal scheduled
payments of $54 million at the end of February, May, August and October 2004,
with final maturity on October 31, 2004. In addition, we are required to prepay
these loans with 100% of the net cash proceeds of certain asset sales and
insurance awards, 75% (subject to reduction) of excess cash flow, 100% of the
net cash proceeds of certain debt issuances and 50% of the net cash proceeds of
certain equity issuances unless certain financial ratios are met (in which case
no such prepayment shall be required).
The New Bank Financing will contain covenants limiting our and our
subsidiaries' ability to (1) incur additional debt and additional liens, (2)
enter into sale-leaseback transactions, (3) make dividends and other payments
with respect to our equity securities and certain optional payments with respect
to our debt, (4) enter into agreements that restrict our subsidiaries' ability
to make distributions to us, (5) make new investments or capital expenditures
and (6) enter into mergers or sell assets. We are required to comply with
consolidated financial tests including a leverage ratio, an interest coverage
ratio and a fixed charge coverage ratio. We are also required to make customary
representations and warranties prior to borrowing under the facility.
The New Bank Financing also contains events of default upon the occurrence
of events including (1) failure to make payments when due under that facility,
(2) a misrepresentation, (3) failure to comply with covenants, (4) the
occurrence of a default under other material debt of LTV or any subsidiary, (5)
the occurrence of a bankruptcy or insolvency proceeding, (6) a default in the
satisfaction of legal judgments and (7) a change of control of LTV. The
existence of any event of default would permit the lenders under the New Bank
Financing to accelerate the maturity of the loans. If the lenders choose to do
so in that circumstance, the loans under the New Bank Financing would become
immediately due and payable.
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DESCRIPTION OF NEW SENIOR NOTES
In order to finance a portion of the Acquisitions, we offered $275,000,000
aggregate principal amount of our 11 3/4% Senior Notes due 2009 (the "New Senior
Notes"). The following summary of the terms of the New Senior Notes is
incomplete. You should read the indenture relating to the New Senior Notes for a
complete description thereof.
GENERAL. The New Senior Notes will be issued pursuant to an indenture
dated as of November 5, 1999, and will bear interest at 11.75% per annum. The
indenture provides for the issuance of an unlimited amount of additional notes,
subject to compliance with the terms of the indenture and our other debt
instruments.
GUARANTEES. The New Senior Notes are guaranteed on a senior unsecured
basis by all our existing and future wholly owned domestic subsidiaries (other
than certain unrestricted subsidiaries, inactive subsidiaries and special
purpose subsidiaries established to facilitate our working capital facilities),
except that the guarantees provided by Welded Tube, Copperweld Corporation and
any of their subsidiaries that become Guarantors will be subordinated to the
guarantees provided by these companies under the New Bank Financing.
OPTIONAL REDEMPTION. We may redeem the New Senior Notes, in whole or in
part, at any time prior to November 15, 2004, at the redemption prices set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12 month period commencing on or after November 15 of the
year set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2004................................................... 105.875%
2005................................................... 103.917
2006................................................... 101.958
2007 and thereafter.................................... 100.000
</TABLE>
In addition, at our option, we may redeem up to 35% of the aggregate
principal amount of the New Senior Notes prior to November 15, 2002, at a
redemption price equal to 111.750% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the redemption date, with the net
proceeds of one or more Public Equity Offerings (as defined in the indenture
governing the New Senior Notes); provided that at least 65% of the principal
amount of the New Senior Notes originally issued remains outstanding following
such redemption.
CHANGE OF CONTROL. Upon the occurrence of a change of control (as defined
in the indenture governing the New Senior Notes) we will be required to offer to
repurchase the New Senior Notes at a cash purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
repurchase date.
CERTAIN COVENANTS. The New Senior Notes will limit our ability and the
ability of our restricted subsidiaries to, among other things:
- incur additional indebtedness;
- make any dividend or other distributions with respect to our capital
stock or purchase, redeem or retire our capital stock;
- create liens;
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- in the case of our restricted subsidiaries, create or permit to exist
dividend or payment restrictions with respect to us;
- consolidate, merge or transfer all or substantially all our assets or the
assets of LTV Steel or our tubular business;
- sell assets; and
- transact business with our affiliates.
All these limitations will be subject to a number of important
qualifications, including the elimination of certain covenants if we obtain an
investment grade rating for the New Senior Notes.
EXCHANGE OFFER; REGISTRATION RIGHTS. Pursuant to a registration rights
agreement, we have agreed to file a registration statement with the SEC with
respect to an offer to exchange the New Senior Notes for notes having
substantially identical terms as the New Senior Notes (the "Exchange Notes"),
except that the Exchange Notes will not contain terms with respect to transfer
restrictions. Under certain circumstances, we have also agreed to file a shelf
registration statement with respect to the resale of the New Senior Notes and to
use best efforts to keep this shelf registration statement effective until up to
two years after the original issuance date of the New Senior Notes. If we fail
to satisfy these obligations, we will be required to pay special interest (in
addition to the interest otherwise due on the New Senior Notes).
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
In addition to the New Senior Notes, the New Bank Financing and the 1997
Notes, our principal third party financial arrangements consist of obligations
under the Receivables Facility, the Inventory Facility, the Sumitomo Securities
Purchase Agreement, the PBGC Settlement Agreement and related documents (all as
described below), all of which are secured by, or otherwise have a claim on, our
assets. The Receivables Facility and the Inventory Facility are provided through
syndicates of lending institutions. We have also entered into a security
arrangement with the USWA which is described below.
THE 8.20% SENIOR NOTES DUE 2007
As of September 30, 1999, we have outstanding $300 million in aggregate
principal amount of our 1997 Notes. The 1997 Notes bear interest at 8.20% per
annum and were issued pursuant to an indenture dated as of September 22, 1997
and are guaranteed by LTV Steel Company, Inc.
The 1997 Notes will be redeemable at our option, in whole or in part, in
cash, at any time on or after September 15, 2002, at the redemption price set
forth below, plus accrued and unpaid interest, if any, to the redemption date,
if redeemed during the 12 month period commencing on or after September 15 of
the year set forth below:
<TABLE>
<CAPTION>
% OF PRINCIPAL
YEAR AMOUNT
- ---- --------------
<S> <C>
2002...................................................... 104.100%
2003...................................................... 102.733
2004...................................................... 101.367
On and after 2005......................................... 100.000
</TABLE>
In addition, at our option, we may redeem up to 35% of the aggregate
principal amount of the 1997 Notes prior to September 15, 2000 at a redemption
price equal to 108.20% of the principal amount thereof, together with accrued
and unpaid interest, if any, to the redemption date, with the net proceeds of
one or more Public Equity Offerings (as defined in the indenture governing the
1997 Notes); provided that at least 65% of the principal amount of the 1997
Notes originally issued remains outstanding following such redemption.
In connection with our offering of New Senior Notes, management amended the
1997 Notes to receive the same guarantees as the New Senior Notes.
THE RECEIVABLES FACILITY AND RELATED DOCUMENTS
LETTERS OF CREDIT AND REVOLVING LOANS
The Receivables Facility (the "Receivables Facility") is an agreement dated
as of October 12, 1994 among LTV Sales Finance Company, a bankruptcy-remote,
special purpose subsidiary of LTV ("Sales Finance"), the Lenders party thereto
(the "Receivables Lenders") and Bankers Trust Company, as Collateral Agent and
Facility Agent. The Receivables Facility provides for the issuance of letters of
credit and the making of loans (the "Revolving Loans") until March 2, 2004,
subject to extension, unless earlier terminated after a Liquidation Event, as
described below. The Receivables Facility
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provides for the issuance of letters of credit in an aggregate face amount,
together with unreimbursed drawings, of up to $100 million and the making of
Revolving Loans in an aggregate principal amount, together with the aggregate
amount of letter of credit obligations at such time, of up to $320 million or,
in each case, a lesser amount equal to the then-current Base Amount. The Base
Amount is an amount equal to "Net Eligible Receivables" (receivables net of
excess concentration) less a reserve of not less than 14%.
RECEIVABLES SALE AGREEMENT AND PLEDGE OF RECEIVABLES
Pursuant to the Receivables Facility, Sales Finance borrows Revolving Loans
or causes letters of credit to be issued to purchase accounts receivable from
certain of our operating subsidiaries (the "Receivables Sellers") pursuant to a
Receivables Purchase and Sale Agreement (the "Receivables Sale Agreement")
entered into by Sales Finance and the Receivables Sellers contemporaneously with
the Receivables Facility. Additional amounts needed to finance Sales Finance's
purchases of accounts receivable from the Receivables Sellers are obtained
through loans made to Sales Finance by us or the Receivables Sellers, equity
contributions by us and retained earnings of Sales Finance. Under the
Receivables Sale Agreement, each Receivables Seller has limited obligations to
indemnify Sales Finance and its accounts receivable sold to Sales Finance if
Sales Finance proves that such accounts receivable did not satisfy certain
eligibility criteria as represented when sold, as well as other limited
indemnification obligations in favor of Sales Finance, not relating to the
collectibility of receivables sold. Such obligations are guaranteed by us. The
sales of receivables to Sales Finance are intended to be true sales thereof, and
ownership of such receivables is held by Sales Finance and not by LTV or our
other subsidiaries.
Pursuant to the Receivables Facility, Sales Finance has granted to the
Receivables Lenders a security interest in the accounts receivable purchased by
Sales Finance under the Receivables Purchase Agreement and all of Sales
Finance's related rights and its various bank accounts.
RESTRICTIVE AND FINANCIAL COVENANTS
The Receivables Facility contains affirmative covenants that require, among
other things, Sales Finance to provide certain financial and other information
concerning itself and the Receivables Sellers, maintain its existence, pay
obligations and taxes, afford inspection rights to the Facility Agent, comply
with applicable laws, require the maintenance of certain books and records and
comply with corporate separateness requirements. The Receivables Facility also
contains negative covenants which, among other things, limit the ability of
Sales Finance to engage in any activities except as necessary to perform its
obligations under the Receivables Facility and related documents, including its
ability to incur or suffer to exist indebtedness, contingent obligations and
liens, enter into leases, make or own investments, make capital expenditures,
amend or waive any provision of other agreements and conduct business with
affiliates. The Receivables Facility also contains a financial covenant that
requires Sales Finance to maintain a net worth of between $34 million and $40
million at all times.
LIQUIDATION EVENTS
Liquidation Events in the Receivables Facility include failure to pay
amounts under the Receivables Facility when due, breaches of covenants or
representations under the
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Receivables Facility, the Receivables Sale Agreement or the related documents,
bankruptcy events, certain judgment defaults, impairment of the Receivables
Lenders' rights to pledged collateral, servicer termination events, change of
control of Sales Finance or the Receivables Sellers or, under the Inventory
Security Agreement (as defined in the Receivables Facility), proceeds of sales
of inventory ceasing to be released automatically or other remedies being taken.
Remedies available upon the occurrence of a Liquidation Event include
termination of the commitments, acceleration of the Revolving Loans and cash
collateralization of letters of credit.
THE INVENTORY SECURITIZATION FACILITY
In March 1998, LTV Steel Company, Inc. ("LTV Steel") and Georgia Tubing
Corporation (collectively, the "LTV Steel Group") established a $250 million
five-year committed inventory securitization facility (the "Inventory
Facility"), to be used for working capital and general corporate purposes.
Thereafter, for an additional year, the amount of the Inventory Facility will
drop to $227 million.
Under the Inventory Facility, the LTV Steel Group sells, on a revolving
basis, all of its inventory to LTV Steel Products, LLC, a consolidated
structured finance special purpose entity ("Steel Products") wholly owned by LTV
Steel. As consideration for the sale of such inventory, Steel Products pays or
issues to the LTV Steel Group a combination of available cash, senior secured
floating rate notes (the "Secured Notes") and subordinated notes.
The Secured Notes are secured by a first priority security interest in all
of Steel Product's right, title and interest in and to the purchased inventory
and the proceeds thereof, subject only to certain permitted liens. Steel
Products has issued $250 million aggregate principal amount of Secured Notes to
the LTV Steel Group and it has the right to issue an additional $100 million
aggregate principal amount of Secured Notes, subject to more restrictive
collateral requirements, which can be used to obtain additional financing.
Under a five-year $250 million committed note purchase and letter of credit
facility, LTV Steel, as agent for the LTV Steel Group, has the right from time
to time to sell to a group of financial institutions led by The Chase Manhattan
Bank and Chase Securities Inc., and repurchase from such financial institutions,
Secured Notes in an aggregate outstanding principal amount of up to $250 million
(less the outstanding amount of letters of credit issued under the facility),
for an amount in cash equal to the aggregate principal amount of such Secured
Notes to be sold, or repurchased, plus, in the case of any repurchase on any
date other than an interest payment date, accrued interest and any related
breakfunding costs. The credit facility also permits LTV Steel, as agent on
behalf of the LTV Steel Group, to obtain letters of credit up to a transaction
sublimit of $150 million from such financial institutions by pledging Secured
Notes to secure the reimbursement obligations in respect thereof. Steel Products
has provided to the financial institutions party to the note purchase and letter
of credit facility a guarantee of all amounts payable by LTV Steel under such
facility.
LTV Steel performs servicing and processing activities with respect to the
inventory purchased by Steel Products. Sales of inventory to customers in the
ordinary course of business are made by Steel Products or by LTV Steel for the
account of Steel Products. The receivables from such sales are sold by Steel
Products to LTV Sales Finance Company a consolidated structured finance special
purpose entity ("Sales Finance"),
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under Sales Finance's receivables securitization facility, and the cash received
from such sold receivables are used by Steel Products to pay amounts due on the
Secured Notes and subordinated notes, and to pay processing and servicing fees
and for future purchases of inventory. Unless an event of default in respect of
the Secured Notes or an amortization event in respect of the Secured Notes that
is triggered by certain events relating to the receivables securitization
facility has occurred and is continuing, the security interest of the Secured
Note holders in the receivables is automatically released to the extent such
receivables are sold under the receivables securitization facility. 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 our affiliates.
SUMITOMO PREFERRED STOCK
Pursuant to the Sumitomo Securities Purchase Agreement, SMI America, Inc.
("SMI"), a wholly owned indirect subsidiary of Sumitomo Metal Industries, Ltd.,
purchased 500,000 shares of Series B Convertible Preferred Stock, par value
$1.00 per share, of The LTV Corporation (the "Series B Preferred Stock").
Subject to the right of any holder of Series B Preferred Stock to convert any or
all of such holder's shares into shares of our common stock at a specified
conversion price, LTV has the right to redeem all the shares of Series B
Preferred Stock, in whole but not in part, at any time at a price equal to the
following percentages multiplied by $100.00 per share, plus an amount per share
equal to all accrued and unpaid dividends thereon, whether or not declared or
currently payable, to the date of redemption if redeemed during the twelve-month
period beginning on June 28 of the following year:
<TABLE>
<S> <C>
1999........................................................ 101.5%
On and after 2000........................................... 100.0
</TABLE>
Notwithstanding our right to redeem the Series B Preferred Stock, the
holders of a majority of the Series B Preferred Stock may elect to exclude one
share of Series B Preferred Stock from redemption. Such share will no longer
have any voting rights or any rights to dividends or distributions or
conversion. Such share will then become subject to redemption after SMI shall
cease to have any rights under certain provisions of the Consultation and
Management Participation Agreement (as defined in the Sumitomo Securities
Purchase Agreement).
Pursuant to the L-S Exchange Right and Security Agreement and the L-S II
Exchange Right and Security Agreement (each entered into pursuant to the
Sumitomo Securities Purchase Agreement, the "Exchange Right Agreements"), SMI
has the right, upon the occurrence of an Exchange Right Event (as defined in the
Exchange Right Agreements), which includes a change of control of LTV or LTV
Steel, to exchange all, but not less than all (except in certain specified
circumstances), of its shares of Series B Preferred Stock for all or a portion
of LTV's partnership interest in its electro-galvanizing joint venture with SMI.
See "Business -- Integrated Steel Properties."
The Series B Preferred Stock will rank equal in right of payment with the
Preferred Stock.
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USWA LIEN ON CLEVELAND WEST
Pursuant to a predecessor labor agreement with the USWA, LTV Steel granted
liens on the plant, property and equipment at its Cleveland West facilities and
a royalty free license or sublicense with respect to intellectual properties
used in connection with the manufacture of products at such facilities to secure
payment of certain retiree health benefits to salaried and hourly employees and
retirees ("Secured Obligations"). The provisions governing these liens have been
incorporated into our new labor agreement with the USWA.
If a future appraisal reveals that the aggregate Coverage Value (as defined
below) of such collateral is less than $250 million, LTV Steel must grant or
cause to be granted additional collateral with a Coverage Value at least equal
to such deficit, provided that such obligation to add collateral extends only to
plant, property and equipment of LTV Steel and its affiliates engaged in the
steel business. Alternatively, if an appraisal reveals that the aggregate
Coverage Value of the collateral is greater than $250 million, LTV Steel may
request the release of collateral with a Coverage Value not to exceed such
excess. For purposes of plant, property and equipment, Coverage Value means 50%
of the most recent appraised value thereof (subject to certain adjustments) less
two times any obligation secured thereby to which the Secured Obligations have
been subordinated as described below.
The security interest granted may, subject to certain conditions, be
subordinated to certain subsequent security interests including, among others,
security interests created for the benefit of working capital lenders or in
favor of our restored pension plans.
The maximum amount recoverable to pay the Secured Obligations upon the
occurrence of a Distribution Event (as defined below) and foreclosure of the
collateral is $250 million. Distribution Event means (1) the occurrence of a
proceeding under Chapter 7 of the Bankruptcy Code with respect to LTV Steel
and/or certain of its affiliates, (2) a court-ordered reduction of the Secured
Obligations of LTV Steel and/or certain of its affiliates in a Chapter 11
proceeding under Section 1113 or 1114 of the Bankruptcy Code, (3) an assertion
by LTV Steel and/or certain of its affiliates in a judicial proceeding or
arbitration that the Secured Obligations can be decreased without the consent of
the USWA, (4) a failure of LTV Steel and/or certain of its affiliates in certain
circumstances to pay Secured Obligations in an aggregate amount greater than $25
million or (5) a failure of LTV Steel and/or certain of its affiliates in
certain circumstances to add collateral as described above but only to the
extent that the Minimum Coverage Value (as defined in the Collateral Trust
Agreement entered into pursuant to the predecessor labor agreement) exceeds the
Coverage Value of the collateral by $25 million.
PBGC SETTLEMENT AGREEMENT
Following PBGC's restoration of three of the four steel defined benefit
pension plans which it had earlier terminated (collectively the "restored
pension plans"), we and most of our subsidiaries entered into the PBGC
Settlement Agreement with PBGC to address the funding of restored pension plans.
The following summary of the material issues relating to the PBGC Settlement
Agreement is general, does not contain all of the details of the agreement and
is qualified by reference to the agreement. We agreed to certain amendments to
the PBGC Settlement Agreement on December 2, 1998, and the
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agreement as amended and restated was filed as an exhibit to our Form 10-K for
the year ended December 31, 1998, which is incorporated by reference in this
prospectus.
TERMS OF PAYMENT
The PBGC Settlement Agreement establishes some special funding rules,
including restoration payment schedule orders ("RPSOs") to be issued by the PBGC
which provide for amortization of the remaining past service liability over 20
years, and the maintenance of certain minimum funding credit balances. Except
for these requirements, LTV is subject to the normal minimum funding standards
set forth in the Internal Revenue Code for these plans.
From June 1993 through December 31, 1998, we contributed over $2.8 billion
to the restored pension plans. As a result of the December 1998 amendments, we
will base our funding of our major defined benefit pension plans on the minimum
funding standards contained in the Employee Retirement Income Security Act of
1974 and pay additional amounts as appropriate. In connection with these
amendments, we also prepaid an 8.5% Promissory Note due in 2020 issued to the
PBGC for $62 million, including accumulated interest. We do not expect to be
required to make any significant pension contributions in the near future.
COVENANTS AND EVENTS OF DEFAULT
The principal covenants in the PBGC Settlement Agreement are similar to
those in the 1997 Notes. See "-- The 8.20% Senior Notes due 2007." This
agreement also imposes separate limits on our ability to make new investments in
Trico Steel, enter into transactions with certain affiliates and enter into
agreements that would restrain our and our subsidiaries' ability to perform our
obligations under the PBGC Settlement Agreement. Events of default under the
PBGC Settlement Agreement include the failure to make required payments to the
restored pension plans, misrepresentations, certain failures to perform certain
covenants, payment defaults or acceleration of other indebtedness of more than
$100 million, certain judgment defaults, assertion by us or any of our
subsidiaries that the PBGC Settlement Agreement is not legal, valid and binding,
invalidity or unenforceability of liens granted pursuant to the PBGC Settlement
Agreement and various bankruptcy events. Remedies for an event of default
include, among others, the ability to seek specific performance and liquidated
damages for defaults in pension payments (in an amount equal to the sum of
interest on the unpaid amount and the higher of such interest or 20% of the
unpaid amount) and modification of the RPSO.
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DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation authorizes the issuance of
150,000,000 shares of common stock, $0.50 par value, and 20,000,000 shares of
preferred stock, $1.00 par value. At December 27, 1999, there were 105,402,602
shares of common stock and 2,100,000 shares of preferred stock issued and
outstanding. An aggregate of 13,100,000 shares of common stock have been
reserved for future issuance under certain employee and director stock plans and
in respect of our Series B Convertible Preferred Stock ("Series B Preferred
Stock") and 21,768,000 shares of common stock have been reserved initially for
issuance upon conversion of the Preferred Stock being registered hereunder. In
this description, the word "Company" refers only to The LTV Corporation and not
any of its subsidiaries.
The following summary description of the material issues concerning capital
stock of the Company is qualified in its entirety by reference to the
Certificate of Incorporation and By-laws of the Company.
COMMON STOCK
DIVIDENDS
The holders of common stock will be entitled to receive dividends when and
as dividends are declared by the Board of Directors of the Company out of funds
legally available therefor, provided that if any shares of preferred stock are
at the time outstanding, the payment of dividends on the common stock or other
distributions may be subject to the prior declaration and payment of full
cumulative dividends on outstanding shares of preferred stock. As described
below, payment of dividends on the common stock is currently restricted by
certain provisions in the Company's financing arrangements. See "Risk
Factors -- Our ability to pay dividends on our capital stock is limited."
Pursuant to the indenture governing the 1997 Notes and the indenture
governing the New Senior Notes, the Company may not declare or pay dividends or
make certain other Restricted Payments (as defined therein) with respect to its
capital stock, including both common stock and preferred stock, unless, among
other requirements, after giving effect to such payments, the Company could
incur additional debt under the debt incurrence covenant contained therein and
the amount of such dividends and other restricted payments would not exceed 50%
of the Company's consolidated net income from July 1, 1997, plus the net
proceeds from the sale of capital stock or conversion or exchange of certain
debt for capital stock since the issuance of the 1997 Notes in September 1997.
These indentures provide certain additional exceptions, including a separate
provision that allows for up to $40 million of Restricted Payments without
compliance with the foregoing financial test. As of September 30, 1999, but
after giving pro forma effect to the net proceeds received from the sale of the
Preferred Stock in the Initial Offering, approximately $130 million would be
available for the payment of dividends or other Restricted Payments under this
financial covenant. Any repurchase of Preferred Stock pursuant to the Special
Repurchase would reduce such amount by the amount of such repurchase.
An agreement entered into with Sumitomo Metals Industries in connection
with its purchase of the Series B Preferred Stock provides that the Company may
not pay dividends on common stock other than in shares of common stock unless
dividends on the Series B Preferred Stock have been paid in cash for the
immediately preceding four quarters.
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VOTING RIGHTS
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of the equity security holders.
LIQUIDATION RIGHTS
Upon any liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, any assets remaining after the
satisfaction in full of the prior rights of creditors and the aggregate
liquidation preference of any preferred stock then outstanding will be
distributed to the holders of common stock.
NO PREEMPTIVE RIGHTS
The holders of common stock are not entitled to preemptive or subscription
rights.
TRANSFER AGENT AND REGISTRAR OF COMMON STOCK
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services LLC, 85 Challenger Road, Overpeck Center, Ridgefield Park,
NJ 07660.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Company's Board of
Directors is authorized to establish and designate one or more series of
preferred stock, without further authorization of the Company's stockholders,
and to fix the number of shares, the dividend rate and the relative rights
(including voting rights), preferences and limitations of any such series. Thus,
any series may, if so determined by the Board of Directors, have full voting
rights with the common stock or superior or limited voting rights, be
convertible into common stock or another security of the Company and have such
other relative rights, preferences and limitations as the Board of Directors
shall determine. As a result, any class or series of preferred stock could have
rights which would adversely affect the voting power of the common stock.
SERIES A PREFERRED STOCK
For a description of the Series A Preferred Stock, see "Preferred Stock."
SERIES B PREFERRED STOCK
As of December 27, 1999, there were 500,000 shares Series B Preferred Stock
issued and outstanding.
DIVIDENDS. Dividends paid in cash with respect to the Series B Preferred
Stock are subject to the same restrictions as those applicable to the Company's
common stock. Dividends on the Series B Preferred Stock are payable quarterly in
either cash or common stock at the election of the Company at the rate of 4.5%
per annum (or 5% per annum if not paid quarterly). Holders of preferred stock
are entitled to receive any dividends to which they are entitled before
dividends are paid to holders of common stock.
CONVERSION. Each holder of Series B Preferred Stock currently has the
right, at its election, to convert any or all of such shares, together with all
accrued and unpaid
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dividends, at any time, into shares of common stock at a conversion price of
$17.09 per share.
VOTING RIGHTS. The holders of Series B Preferred Stock have the right to
vote with the holders of common stock and have 5.58138 votes per share. In
addition, the Series B Preferred Stock has separate class voting rights with
respect to certain matters including creating or issuing capital stock that is
senior to the preferred stock and allowing for the Company to dissolve,
liquidate, sell all or substantially all of its assets, undertake certain
mergers or amend its Certificate of Incorporation in any manner that adversely
affects the rights of the holders of such Series B Preferred Stock.
LIQUIDATION RIGHTS. In any liquidation, the Series B Preferred Stock will
be senior to all common stock and pari passu with the Preferred Stock.
NO PREEMPTIVE RIGHTS. The holders of Series B Preferred Stock are not
entitled to preemptive rights or to subscribe to additional issues of any class.
REQUIRED APPROVAL FOR CERTAIN PURCHASES OF COMMON STOCK
For the purpose of preserving the Company's ability to utilize certain
favorable tax attributes, Article Ninth of the Certificate of Incorporation
("Article Ninth") prohibits, with certain limited exceptions, any unapproved
acquisition of common stock or certain other securities issued by the Company
that would cause the Ownership Interest Percentage (as defined in the
Certificate of Incorporation) of the acquiror or any other person to increase to
4.5% or above or from 4.5% or above to a greater Ownership Interest Percentage.
For a discussion of an exception to the Article Ninth prohibitions, see
"-- Potential Antitakeover Effect of Certain Provisions of the Certificate of
Incorporation and By-Laws of the Company -- Limitation on Transfer." 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
and aggregation of shares purchased by persons acting in concert. A prospective
purchaser of the Preferred Stock in this offering who believes that a purchase
by it may be subject to the limitations imposed by Article Ninth should consult
with such person's advisors or the Company to determine if approval must be
obtained from the Board of Directors of the Company. In accordance with the
terms of the Preferred Stock, purchasers of the Preferred Stock in this offering
(or otherwise) agree by virtue of such purchase to the limitations imposed by
Article Ninth. See "United States Federal Income Tax Considerations." The
foregoing discussion is qualified in its entirety by reference to Article Ninth.
POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS OF THE COMPANY
The Certificate of Incorporation and By-laws of the Company contain
provisions that could have an antitakeover effect. The following is a summary of
such provisions included in the Certificate of Incorporation and By-laws of the
Company.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides for a Board of Directors divided
into three classes of directors serving staggered three-year terms.
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The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the Board of Directors in a
relatively short period of time. At least two annual meetings of stockholders,
instead of one, generally will be required to effect a change in a majority of
the Board of Directors. Such a delay may, among other things, help ensure that
the Board of Directors and the stockholders, if confronted by a stockholder
attempting to force a stock repurchase at a premium above market, a proxy
contest or an extraordinary corporate transaction, will have sufficient time to
review the proposal and appropriate alternatives to the proposal and to act in
what is believed to be the best interests of the stockholders.
The classified board provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its stockholders. The classified board provision could thus increase the
likelihood that incumbent directors will retain their positions. In addition,
since the classified board provision is designed to discourage accumulations of
large blocks of common stock of the Company by purchasers whose objective is to
have such stock repurchased by the Company at a premium, the classified board
provision could tend to reduce the temporary fluctuations in the market price of
the common stock that could be caused by accumulations of large blocks of common
stock associated with such purchases. Accordingly, stockholders could be
deprived of certain opportunities to sell their common stock at a temporarily
higher market price.
The Board of Directors believes that a classified board of directors will
help to assure the continuity and stability of the Board of Directors and the
business strategies and policies of the Company as determined by the Board of
Directors, because a majority of the directors at any given time will have prior
experience as directors of the Company. The classified board provision will also
help ensure that the Board of Directors, if confronted with an unsolicited
proposal from a third party that has acquired a block of the voting stock of the
Company, will have sufficient time to review the proposal and appropriate
alternatives and to seek the best available result for all stockholders.
NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL
The Certificate of Incorporation provides that the Board of Directors will
consist of from three to fifteen directors as fixed solely by resolution adopted
by affirmative vote of a majority of the entire Board of Directors. The Board of
Directors, acting by majority vote of the directors then in office, may fill any
newly created directorships or vacancies on the Board of Directors. Moreover,
under Delaware law, in the case of a corporation having a classified board,
stockholders may remove a director only for cause. This provision, when coupled
with the provision of the By-laws authorizing the Board of Directors to fill
vacant directorships, will preclude a stockholder from removing incumbent
directors without cause and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees. In the event that dividends on the Preferred Stock and the Series B
Preferred Stock are in arrears for a certain period of time, holders of such
class have the right to appoint one, or in certain circumstances, two directors
to the Board of Directors.
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AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
THE BY-LAWS
The Certificate of Incorporation requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of voting capital stock
of the Company, voting together as a single class, for any amendments to the
Certificate of Incorporation which would permit, or have the effect of
permitting, the circumvention of Article Ninth. This requirement will make it
more difficult for stockholders to make changes in the Certificate of
Incorporation or By-laws designed to facilitate the exercise of control over the
Company. In addition, the requirement for approval by holders of at least
two-thirds of the outstanding shares of voting capital stock will enable the
holders of a minority of the voting stock of the Company to prevent the holders
of a majority of such stock from amending such provisions of the Certificate of
Incorporation.
LIMITATION ON TRANSFER
As described above, in order to protect certain tax attributes, Article
Ninth restricts certain accumulations of stock or certain other securities
issued by the Company. Article Ninth does not, however, prohibit transfers of
stock which are pursuant to any transaction, including but not limited to, a
merger or consolidation, in which all holders of common stock receive, or are
offered the same opportunity to receive, cash or other consideration for all
such common stock, and upon the consummation of which the acquiror will own at
least a majority of the outstanding shares of common stock. Although Article
Ninth would not operate to prevent such a transfer, the fact that the
utilization of certain significant tax attributes of the Company could be
affected by a change of control of the Company could have an antitakeover
effect. See "-- Required Approval for Certain Purchases of common stock" and
"United States Federal Income Tax Considerations."
BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporation Law ("DGCL") prohibits
certain transactions between a Delaware corporation and an "interested
stockholder," which is defined as a person who, together with any affiliates
and/or associates of such person, beneficially owns, directly or indirectly, 15%
or more of the outstanding voting shares of a Delaware corporation. This
provision prohibits certain business combinations (defined broadly to include
mergers, consolidations, sales or other dispositions of assets having an
aggregate value in excess of 10% of the consolidated assets of the corporation
and certain transactions that would increase the interested stockholder's
proportionate share ownership in the corporation) between an interested
stockholder and a corporation for a period of three years after the date the
interested stockholder acquired its stock, unless (1) the business combination
is approved by the corporation's board of directors prior to the date the
interested stockholder acquired shares, (2) the interested stockholder acquired
at least 85% of the voting stock of the corporation in the transaction in which
it became an interested stockholder or (3) the business combination is approved
by a majority of the board of directors and by the affirmative vote of
two-thirds of the votes entitled to be cast by disinterested stockholders at an
annual or special meeting.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Davis Polk & Wardwell, tax counsel to LTV, the following
summary accurately describes the material United States federal income tax
consequences of ownership and disposition of the Preferred Stock. This summary
is based on the Internal Revenue Code of 1986, as amended to the date hereof
(the "Code"), administrative pronouncements and rulings, judicial decisions,
existing and proposed Treasury Regulations, and interpretations of the
foregoing, changes to any of which subsequent to the date of this prospectus may
affect the tax consequences described herein (possibly on a retroactive basis).
This summary addresses only initial investors who hold the Preferred Stock as
capital assets within the meaning of Section 1221 of the Code. It does not
discuss all the tax consequences that may be relevant in light of a holder's
particular circumstances or to holders subject to special rules, such as certain
financial institutions, insurance companies, dealers in securities and
tax-exempt organizations or persons holding Preferred Stock in connection with a
hedging transaction, "straddle," conversion transaction or other integrated
transaction, or persons who have ceased to be United States citizens or to be
taxed as resident aliens. Persons considering the purchase of Preferred Stock
should consult their tax advisors with regard to the application of the United
States federal income tax laws to their particular situations as well as any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction.
As used herein, the term "United States Holder" means a beneficial owner of
Preferred Stock that is (1) for United States federal income tax purposes a
citizen or resident of the United States, (2) a corporation or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, or (3) an estate or trust the income of which is
subject to United States federal income taxation regardless of its source. If a
partnership holds Preferred Stock, the tax treatment of a partner will generally
depend upon the status of the partner and upon the activities of the
partnership. Partners of partnerships holding Preferred Stock should consult
their tax advisors.
As used herein, the term "United States Alien Holder" means an owner of
Preferred Stock that is, for United States federal income tax purposes, (1) a
nonresident alien individual, (2) a foreign corporation or (3) a nonresident
alien fiduciary of a foreign estate or trust.
UNITED STATES HOLDERS
DIVIDENDS. Dividends paid on the Preferred Stock will be taxable to a
United States Holder as ordinary dividend income to the extent of LTV's current
or accumulated earnings and profits. To the extent that the amount of any
distribution on the Preferred Stock exceeds LTV's current or accumulated
earnings and profits, the distribution will first be treated as a tax-free
return of capital and will be applied against and reduce the United States
Holder's adjusted tax basis in the Preferred Stock. Any remaining amount after
the United States Holder's adjusted tax basis has been reduced to zero will be
taxed as a capital gain (which may be taxed at lower rates than ordinary income
for certain noncorporate taxpayers). Although LTV does not expect to have
significant accumulated earnings and profits for federal income tax purposes,
current and accumulated earnings and profits are computed annually at the close
of the taxable year in which the distribution is paid. As a result, whether
dividends on the Preferred Stock will be treated as a return of capital or
ordinary income will depend principally on the amount of earnings and profits
for federal income tax purposes which are generated by LTV in future years and
there can be
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no assurance that LTV will have sufficient current or accumulated earnings and
profits for all distributions on the Preferred Stock. For purposes of the
remainder of this discussion, the term "dividend" refers to a distribution taxed
as ordinary income as described above unless the context indicates otherwise.
Dividends received by corporate shareholders will be eligible for the 70
percent dividends-received deduction under section 243 of the Code, subject to
limitations contained in sections 246 and 246A of the Code. Section 246(c) of
the Code, as recently modified, requires that in order for a corporation to be
eligible for the dividends-received deduction, the corporate shareholder must
generally hold the Preferred Stock for a 46-day minimum holding period during
the 90-day period beginning on the date that is 45 days before the date on which
such share becomes ex-dividend with respect to such dividend (or in the case of
a dividend on the Preferred Stock attributable to a period or periods
aggregating more than 366 days, a minimum period of 91 days during the 180-day
period beginning on the date which is 90 days before the date on which the stock
becomes ex-dividend with respect to such dividend). A taxpayer's holding period
is reduced for periods during which the shareholder's risk of loss with respect
to the stock is diminished by reason of the existence of certain options,
contracts to sell, short sales or other similar transactions. Section 246(c)
also denies the dividends-received deduction to the extent that a corporate
taxpayer is under an obligation with respect to substantially similar or related
property, to make payments corresponding to the dividend received. Under section
246(b) of the Code, the aggregate dividends-received deductions allowed may not
exceed 70 percent of the taxable income (with certain adjustments) of the
corporate shareholder. Prospective investors should also consider the effect of
section 246A of the Code, which reduces the dividends-received deduction allowed
to a corporate shareholder that has incurred indebtedness that is "directly
attributable" to an investment in the Preferred Stock.
Under Section 1059 of the Code, a corporate shareholder may be required to
reduce its tax basis in any Preferred Stock (but not below zero) by the
"nontaxed portion" of any "extraordinary dividend" it receives from LTV with
respect to such stock, if it has not held the underlying stock for more than two
years (or without regard to holding period in the case of preferred stock
structured to avoid the application of Section 1059) before the dividend
announcement date (i.e., the date on which LTV declares, announces, or agrees to
either the amount or the payment of the dividend, whichever is earlier). The
length of time that a taxpayer is deemed to have held stock for purposes of
Section 1059 of the Code is determined under principles similar to those
contained in Section 246(c) of the Code, which are described above.
Extraordinary dividends are determined by reference to tax basis (as adjusted
for prior distributions) or, if the taxpayer elects, by reference to the fair
market value of the Preferred Stock as of the day before the ex-dividend date
(provided the taxpayer can establish the fair market value to the satisfaction
of the IRS). A dividend payment generally will be extraordinary if it equals or
exceeds 5 percent of tax basis (as adjusted) or fair market value, as the case
may be. Dividends paid that have ex-dividend dates within 85 consecutive days
are treated as one distribution, as are dividends paid that have ex-dividend
dates within 365 consecutive days if the aggregate dividends exceed 20 percent
of tax basis (as adjusted) or fair market value, as the case may be.
The "nontaxed portion" of the dividend generally is equal to the
dividends-received deduction. The reduction in basis will increase any gain (or
reduce the amount of any loss) realized by the holder on a sale, redemption or
other disposition of the Preferred Stock. In addition, if the reduction would
otherwise exceed tax basis (as adjusted), the
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amount of such excess will be taxable as gain from the sale or exchange of
Preferred Stock in the taxable year in which the extraordinary dividend is
received. See "Sale or Exchange of Preferred Stock" below.
A corporate shareholder's liability for alternative minimum tax may be
affected by the dividends-received deduction. For purposes of the alternative
minimum tax, alternative minimum taxable income is increased by 75 percent of
the amount by which a corporation's adjusted current earnings in a taxable year
exceeds its alternative minimum taxable income prior to the addition of that
item. The amount of any dividend that is included in adjusted current earnings
will not be reduced by the 70 percent dividends-received deduction that is
allowed with respect to the dividend.
REDEMPTION PREMIUM ON PREFERRED STOCK. If the redemption price of the
Preferred Stock exceeds their issue price, the difference ("redemption premium")
may be taxable as a constructive distribution of additional Preferred Stock to
the holder (treated as a dividend to the extent of LTV's current and accumulated
earnings and profits and otherwise subject to the treatment described above for
dividends) over a certain period. In general, the issue price of Preferred Stock
that are sold for money should be the price at which a substantial amount of
such stock is sold. Because the Preferred Stock provide for optional redemptions
by LTV under certain circumstances at a price in excess of the issue price,
holders could be required to recognize such a redemption under a constant
interest rate method similar to that for accruing original issue discount if,
based on all the facts and circumstances, the optional redemption is more likely
than not to occur. If stock may be redeemed at more than one time, the time and
price at which such redemption is most likely to occur must be determined based
on all the facts and circumstances. Applicable Treasury Regulations provide a
"safe harbor" under which a right to redeem will not be treated as more likely
than not to occur if (i) the issuer and holder are not related within the
meaning of the Treasury Regulations; (ii) there are no plans, arrangements, or
agreements that effectively require or are intended to compel the issuer to
redeem the stock (disregarding, for this purpose, a separate mandatory
redemption); and (iii) exercise of the right to redeem would not reduce the
yield of the stock, as determined under the Treasury Regulations. Regardless of
whether the optional redemption is more than likely not to occur, constructive
dividend treatment will not result if the redemption premium does not exceed a
de minimis amount. While the issue is not free from doubt, LTV believes that the
existence of LTV's optional redemption right does not result in a constructive
distribution to the holders.
REDEMPTION. The redemption of Preferred Stock for cash will be treated as
a distribution that is taxable as a dividend to the extent of LTV's allocable
earnings and profits unless (a) the redemption results in a "complete
termination" of the shareholder's stock interest in LTV, (b) such holder's
percentage ownership of LTV's voting stock immediately after the redemption is
less than 80% of such holder's percentage ownership immediately before the
redemption, or (c) the redemption is "not essentially equivalent to a dividend"
under section 302 of the Code. In determining whether any of these tests has
been met, shares considered to be owned by the shareholder by reason of certain
constructive ownership rules set forth in section 318 of the Code, as well as
shares actually owned, must generally be taken into account. Under Section 318
of the Code, a person generally will be treated as the owner of stock of LTV
owned by certain related parties or certain entities in which the person owns an
interest and stock that a holder could acquire through exercise of an option.
For this purpose, an option would include the conversion right under the
Preferred Stock. A distribution to a shareholder will be "not essentially
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equivalent to a dividend" if it results in a "meaningful reduction" in the
shareholder's stock interest in LTV. The United States Internal Revenue Service
("IRS") has issued a published ruling indicating that a redemption which results
in a reduction in the proportionate interest in LTV (taking into account the
section 318 constructive ownership rules) of a shareholder whose relative stock
interest is minimal (an interest of less than 1 percent should satisfy this
requirement) and who exercises no control over LTV's affairs should be treated
as being "not essentially equivalent to a dividend." If any of these three tests
is met, the redemption of the Preferred Stock for cash would be treated, as to
that shareholder, as an exchange under section 302(a) of the Code giving rise to
capital gain or loss. See "Sale or Exchange of Preferred Stock" below.
If a shareholder is treated as having received a dividend upon a redemption
for cash, the basis of its Preferred Stock so redeemed will be transferred to
any remaining stockholdings in LTV. If the shareholder does not retain any stock
ownership in LTV, it may lose such basis entirely.
SALE OR EXCHANGE OF PREFERRED STOCK. A United States Holder will recognize
taxable gain or loss upon the sale or disposition (other than a redemption as
discussed above) of Preferred Stock equal to the difference between the amount
of cash or the fair market value of property received and the holder's tax basis
in the shares. Such gain or loss will be capital gain or loss. Prospective
investors should consult their own tax advisors concerning the tax treatment of
capital gains (which may be taxed at lower rates than ordinary income for
taxpayers who are individuals, trusts or estates and have held their Preferred
Stock for more than one year) and losses (the deductibility of which is subject
to limitations).
CONVERSION OF PREFERRED STOCK INTO COMMON STOCK. No gain or loss will be
recognized for federal income tax purposes on conversion of Preferred Stock
solely into shares of common stock, except with respect to any cash received in
lieu of a fractional share interest or to the extent the shares of common stock
are attributable to dividend arrearage on the Preferred Stock. A holder who
receives cash in lieu of a fractional share of common stock will in general be
treated as having received such fractional share and having exchanged it for
cash in a redemption which would be treated in the manner described under
"-- Redemption." As discussed therein a holder who cannot qualify for sale or
exchange treatment under the rules applicable to redemptions will generally be
treated as having received a dividend equal to the cash received in lieu of a
fractional share. Except for cash paid in lieu of fractional shares, or, as
otherwise provided below, the tax basis for the shares of common stock received
upon conversion will be equal to the tax basis of the Preferred Stock, and the
holding period of the shares of common stock will include the holding period of
the Preferred Stock converted (provided the Preferred Stock were held as capital
assets).
The holder's tax basis in common stock attributable to dividend arrearage
will be the fair market value of such stock on the date of conversion. The
holder's holding period in common stock attributable to dividend arrearage will
commence on the day following the date of conversion and will not include such
holder's holding period of the Preferred Stock converted.
ADJUSTMENT OF CONVERSION PRICE. The conversion price of the Preferred
Stock is subject to adjustment under certain circumstances. Holders may be
deemed to receive a dividend to the extent of LTV's earnings and profits if the
conversion price is adjusted to reflect a taxable distribution of property to
holders of common stock or in certain other
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circumstances involving conversion price adjustments. Such deemed dividend would
be includible in gross income, although the holder would not receive any cash.
LIQUIDATED DAMAGES. LTV intends to take the position that, if paid, the
Liquidated Damages described above under "Description of Preferred
Stock -- Registration Rights; Preferred Stock Liquidated Damages" will be
taxable to the United States Holder as ordinary income in accordance with the
holder's method of accounting.
BACKUP WITHHOLDING. A holder of Preferred Stock or common stock may be
subject to backup withholding at the rate of 31 percent with respect to
"reportable payments," which include dividends and the gross proceeds of a sale
of the Preferred Stock or common stock as the case may be. The payor will be
required to deduct and withhold the prescribed amounts unless (i) such holder is
a corporation or comes within other exempt categories and, when required,
demonstrates this fact or (ii) provides a correct taxpayer identification
number, certifies as to no loss to exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A holder of Preferred Stock or common stock who does not provide LTV with his or
her correct taxpayer identification number may be subject to penalties imposed
by the IRS. Amounts paid as backup withholding do not constitute an additional
tax and will be credited against the holder's federal income tax liabilities, so
long as the required information is provided to the IRS. LTV will report to the
holders of Preferred Stock or common stock and to the IRS the amount of any
"reportable payments" for each calendar year and the amount of tax withheld, if
any with respect to payment on the securities.
UNITED STATES ALIEN HOLDERS
DIVIDENDS. Subject to the discussion below, dividends paid to a United
States Alien Holder of Preferred Stock generally will be subject to withholding
tax at a 30 percent rate or such lower rate as may be specified by an applicable
income tax treaty. For purposes of determining whether tax is to be withheld at
a 30 percent rate or at a reduced rate as specified by an income tax treaty, the
Company ordinarily will presume that dividends paid on or before December 31,
2000 to an address in a foreign country are paid to a resident of such country
absent knowledge that such presumption is not warranted.
However, under new regulations applicable to dividends paid after December
31, 2000, to obtain a reduced rate of withholding under a treaty, a United
States Alien Holder will generally be required to provide an IRS Form W-8
certifying such United States Alien Holder's entitlement to benefits under a
treaty. The new regulations also provide special rules to determine whether, for
purposes of determining the applicability of a tax treaty, dividends paid to a
United States Alien Holder that is an entity should be treated as paid to the
entity or those holding an interest in that entity.
There will be no withholding tax on dividends paid to a United States Alien
Holder that are effectively connected with the United States Alien Holder's
conduct of a trade or business within the United States if a Form 4224 stating
that the dividends are so connected is filed with LTV. Instead, the effectively
connected dividends will be subject to regular U.S. income tax in the same
manner as if the United States Alien Holder were a U.S. resident. A non-U.S.
corporation receiving effectively connected dividends may also be subject to an
additional "branch profits tax" that is imposed, under certain circumstances, at
a rate of 30 percent (or such lower rate as may be specified by an applicable
treaty) of the non-U.S. corporation's effectively connected earnings and
profits,
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subject to certain adjustments. For payments after December 31, 2000, Form W-8
will replace Form 4224.
Generally, LTV must report to the IRS the amount of dividends paid, the
name and address of the recipient, and the amount, if any, of tax withheld. A
similar report is sent to the holder. Pursuant to tax treaties or certain other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
ADJUSTMENT OF CONVERSION PRICE. The conversion price of the Preferred
Stock is subject to adjustment under certain circumstances. United States Alien
Holders may be deemed to receive a dividend to the extent of LTV's earnings and
profits if the conversion price is adjusted to reflect a taxable distribution of
property to holders of Common Stock or in certain other circumstances involving
conversion price adjustments. Such deemed dividend would be includible in gross
income and would be subject to withholding as described above under "Dividends,"
although the United States Alien Holder would not receive any cash.
GAIN ON DISPOSITION OF PREFERRED STOCK. A United States Alien Holder
generally will not be subject to U.S. federal income tax with respect to gain
realized on a sale or other disposition of Preferred Stock unless (i) the gain
is effectively connected with a trade or business of such holder in the United
States, (ii) in the case of certain United States Alien Holders who are
non-resident alien individuals and hold the Preferred Stock as capital assets,
such individuals are present in the United States for 183 or more days in the
taxable year of the disposition and certain other conditions are met, (iii) LTV
is or has been a "U.S. real property holding corporation" within the meaning of
Section 897(c)(2) of the Code at any time within the shorter of the five-year
period preceding such disposition or such holder's holding period. LTV is not,
and does not anticipate becoming, a U.S. real property holding corporation.
BACKUP WITHHOLDING. Dividends paid to a United States Alien Holder at an
address within the United States may be subject to backup withholding imposed at
a rate of 31 percent if the United States Holder fails to establish that it is
entitled to an exemption or to provide a correct taxpayer identification number
and certain other information. Under current United States federal income tax
law, backup withholding (imposed at a rate of 31 percent) generally will not
apply to dividends paid on or before December 31, 2000 to a United States Alien
Holder at an address outside the United States (unless the payer has knowledge
that the payee is a U.S. Person). Under new regulations applicable to payments
after December 31, 2000, however, a United States Alien Holder will be subject
to backup withholding unless applicable certification requirements are met.
Under current United States federal income tax law, information reporting
and backup withholding imposed at a rate of 31% will apply to the proceeds of a
disposition of Preferred Stock effected by or through a U.S. office of a broker
unless the disposing holder certifies as to its non-U.S. status or otherwise
establishes an exemption. Generally, U.S. information reporting and backup
withholding will not apply to a payment of disposition proceeds where the
transaction is effected outside the United States through a non-U.S. office of a
non-U.S. broker. However, U.S. information reporting requirements (but not
backup withholding) will apply to a payment of disposition proceeds where the
transaction is effected outside the United States by or through an office
outside the United States of a broker that is either (i) a U.S. person, (ii) a
foreign person which derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, (iii) a
"controlled foreign corporation" for U.S. federal income tax purposes or
120
<PAGE> 123
(iv) in the case of payments made after December 31, 2000, a foreign partnership
with certain connections to the United States, in each case unless such broker
has documentary evidence in its files of the holder's non-U.S. status and has no
actual knowledge to the contrary or unless the holder establishes an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF PREFERRED STOCK OR COMMON STOCK SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM
OR HER OF THE PREFERRED STOCK OR COMMON STOCK INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL, OR FOREIGN INCOME TAX LAWS, AND ANY RECENT OR
PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
121
<PAGE> 124
SELLING STOCKHOLDERS
STOCKHOLDERS SELLING PREFERRED STOCK
We issued and delivered 1,600,000 shares of Preferred Stock to the Initial
Purchasers on November 5, 1999. The Initial Purchasers sold our Preferred stock
in transactions exempt from the registration requirements of the Securities Act,
to persons that the Initial Purchasers reasonably believed to be "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act), to
other Institutional "Accredited Investors" (as defined in Rule 501(A)(1), (2),
(3) or (7) under the Securities Act) or outside the United States to certain
persons in reliance on Regulation S.
The registration statement of which this prospectus is a part has been
filed under Rule 415 under the Securities Act to afford the holders of the
Preferred Stock the opportunity to sell their securities in public transactions
rather than under an exemption from the registration and prospectus delivery
requirements of the Securities Act. In order to take advantage of that
opportunity, a holder of the Preferred Stock must notify us of its intention to
sell securities and provide other information about itself and the securities it
is selling as required by the Securities Act.
No holder may offer or sell securities under this prospectus until we have
been notified and until any supplement for the prospectus has been filed or an
amendment to the registration statement has become effective. Additional holders
of convertible preferred stock will be added to the prospectus at their request
and after they have provided us with any information we have requested. We will
from time to time supplement and amend the prospectus to the registration
statement, as applicable, to add additional holders of convertible preferred
stock and to reflect the required information.
The following table describes the holders of Preferred Stock which have
requested to be included in this prospectus. The information in the following
table has been obtained from the holders of Preferred Stock identified in the
table. Unless disclosed in the footnote to the table, no holder of Preferred
Stock has held any position, office or had any other material relationship with
us, our predecessor or any of our affiliates during the past three years.
<TABLE>
<CAPTION>
SHARES OF
PREFERRED SHARES OF
STOCK OWNED COMMON
AND STOCK
SELLING STOCKHOLDER OFFERED HEREBY OFFERED HEREBY
------------------- -------------- --------------
<S> <C> <C>
</TABLE>
122
<PAGE> 125
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the Securities
offered hereby. The Securities may be sold from time to time to purchasers
directly by the Selling Stockholders. Alternatively, the Selling Stockholders
may from time to time offer the Securities through brokers, dealers or agents
who may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of the
Securities for whom they may act as agent. The Selling Stockholders and any such
brokers, dealers or agents who participate in the distribution of the Securities
may be deemed to be "underwriters," and any profits on the sale of the
Securities by them and any discounts, commissions or concessions received by any
such brokers, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. To the extent the Selling Stockholders may
be deemed to be underwriters, the Selling Stockholders may be subject to certain
statutory liabilities of the Securities Act, including, but not limited to,
Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange
Act. The Securities offered hereby may be sold from time to time by the Selling
Stockholders, or, to the extent permitted by pledgees, donees, transferees or
other successors in interest. The Securities may be disposed of from time to
time in one or more transactions through any one or more of the following: (a) a
block trade in which the broker or dealer so engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(d) an exchange distribution in accordance with the rules of such exchange or
transactions in the over-the-counter market; (e) through the writing of options
on the Securities; (f) the purchasers directly; (g) through underwriters or
dealers who may receive compensation in the form of underwriting discounts,
concessions, or commissions from the Selling Stockholders or such successors in
interest and/or from the purchasers of the Securities for whom they may act as
agent; and (h) the pledge of the Securities as security for any loan or
obligation, including pledges to brokers or dealers who may, from time to time,
themselves effect distributions of the Securities or interest therein. Such
sales may be made at prices and at terms then prevailing or at prices related to
the then current market price or at negotiated prices and terms. In effecting
sales, brokers or dealers may arrange for other brokers or dealers to
participate. The Selling Stockholders or such successors in interest, and any
underwriters, brokers, dealers or agents that participate in the distribution of
the Securities, may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of the Securities by them and any
discounts, commissions or concessions received by any such underwriters,
brokers, dealers or agents may be deemed to be underwriting commissions or
discounts under the Securities Act. At any time a particular offer of the
Securities is made, a revised prospectus or prospectus supplement, if required,
will be distributed which will set forth the aggregate amount and type of
Securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Such prospectus Supplement and, if necessary, a post-effective amendment to the
Registration Statement of which this prospectus is a part, will be filed with
the SEC to reflect the disclosure of additional information with respect to the
distribution of the Securities. In addition, the Securities covered by this
prospectus may be sold in private transactions or under Rule 144 rather than
pursuant to this prospectus.
123
<PAGE> 126
To the best of our knowledge, there are currently no plans, arrangements or
understandings between any Selling Stockholders and any broker, dealer, agent or
underwriter regarding the sale of the Securities by the Selling Stockholders.
There is no assurance that any Selling Securityholder will sell any or all of
the Securities offered by it hereunder or that any such Selling Securityholder
will not transfer, devise or gift such Securities by other means not described
herein.
The Selling Stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which may limit the timing of purchases and sales of any of the Securities by
the Selling Stockholders and any other such person. Furthermore, under
Regulation M under the Exchange Act, any person engaged in the distribution of
the Securities may not simultaneously engage in market-making activities with
respect to the particular Securities being distributed for certain periods prior
to the commencement of such distribution. All of the foregoing may affect the
marketability of the Securities and the ability of any person or entity to
engage in market-making activities with respect to the Securities.
Pursuant to the Registration Rights Agreement entered into in connection
with the initial offer and sale of the Preferred Stock by The LTV Corporation,
each of The LTV Corporation and the Selling Stockholders will be indemnified by
the other against certain liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith.
We have agreed to pay substantially all of the expenses incidental to the
Registration, offering and sale of the Securities to the public other than
commissions, fees and discounts of underwriters, brokers, dealers and agents.
LEGAL MATTERS
The legality of the Preferred Stock and the common stock issuable upon
conversion of the Preferred Stock will be passed upon for us by Davis Polk &
Wardwell, 450 Lexington Avenue, New York, New York 10017.
EXPERTS
The consolidated financial statements of The LTV Corporation and the
combined financial statements of Copperweld Corporation and Copperweld Canada,
Inc., as of December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998 and the financial statements of the Welded Tube
Company of America as of June 30, 1999 and the year then ended, included in this
prospectus have been audited by Ernst & Young LLP, independent auditors, as
stated in their reports appearing herein (see page F-1).
124
<PAGE> 127
APPENDIX A
NOTICE OF TRANSFER
PURSUANT TO REGISTRATION STATEMENT
ChaseMellon Shareholder Services LLC
85 Challenger Road
Overpeck Center
Ridgefield Park, NJ 07660
The LTV Corporation
200 Public Square
Cleveland, Ohio 44114
Attention: General Counsel
Re: 8 1/4% Series A Cumulative Convertible Preferred Stock (the
"Preferred Stock") convertible into Common Stock of The LTV
Corporation (the "Company").
Ladies and Gentlemen:
Please be advised that has transferred
Preferred Stock of the Company or shares of
Common Stock of the Company, issued upon conversion of the Preferred Stock
pursuant to an effective Registration Statement on Form S-3 (File No.
333- ) filed by the Company. The holdings of as the Selling
Stockholder after this disposition are $ .
We hereby certify that the prospectus delivery requirements, if any, of the
Securities Act of 1933, as amended, have been satisfied and that the above-named
beneficial owner of the transferred securities is named as a "Selling
Stockholder" in the Prospectus dated , 2000 or in
supplements thereto, and that the aggregate amount of the securities transferred
are (or are included in) the securities listed in such Prospectus opposite such
owner's name.
Dated:
Very truly yours,
----------------------------------------
Name:
By: ----------------------------------------
(Authorized Signature)
A-1
<PAGE> 128
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
THE LTV CORPORATION
INTERIM FINANCIAL INFORMATION (UNAUDITED)
Consolidated Statement of Operations for the nine months
ended September 30, 1999 and 1998......................... F-2
Consolidated Balance Sheet at September 30, 1999............ F-3
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1999 and 1998......................... F-4
Notes to Consolidated Financial Statements.................. F-5 - F-13
YEAR-END FINANCIAL INFORMATION (AUDITED)
Report of Ernst & Young LLP, Independent Auditors........... F-14
Consolidated Statement of Operations for the years ended
December 31, 1998, 1997 and 1996.......................... F-15
Consolidated Balance Sheet at December 31, 1998 and 1997.... F-16
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-17
Consolidated Statement of Changes in Equity for the years
ended December 31, 1998, 1997 and 1996.................... F-18
Notes to Consolidated Financial Statements.................. F-19 - F-45
COPPERWELD CORPORATION AND COPPERWELD CANADA, INC.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
Combined Statements of Income for the nine months ended
September 30, 1999 and 1998............................... F-46
Combined Balance Sheets at September 30, 1999............... F-47 - F-48
Combined Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998............................... F-49
Notes to Combined Financial Statements...................... F-50 - F-52
YEAR-END FINANCIAL INFORMATION (AUDITED)
Report of Ernst & Young LLP, Independent Auditors........... F-53
Combined Statements of Income for the years ended December
31, 1998, 1997 and 1996................................... F-54
Combined Balance Sheets at December 31, 1998 and 1997....... F-55 - F-56
Combined Statement of Changes in Stockholder's Equity for
the years ended December 31, 1998, 1997 and 1996.......... F-57
Combined Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-58
Notes to Combined Financial Statements...................... F-59 - F-73
WELDED TUBE CO. OF AMERICA
INTERIM FINANCIAL INFORMATION (UNAUDITED)
Balance Sheet at September 30, 1999......................... F-74
Statement of Operations and Retained Earnings for the three
months ended September 30, 1999 and 1998.................. F-75
Statement of Cash Flows for the three months ended September
30, 1999 and 1998......................................... F-76
Notes to Financial Statements............................... F-77 - F-78
YEAR-END FINANCIAL INFORMATION (AUDITED)
Report of Ernst & Young LLP, Independent Auditors........... F-79
Balance Sheet at June 30, 1999.............................. F-80
Statement of Operations and Retained Earnings for the year
ended June 30, 1999....................................... F-81
Statement of Cash Flows for the year ended June 30, 1999.... F-82
Notes to Financial Statements............................... F-83 - F-88
</TABLE>
F-1
<PAGE> 129
THE LTV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
SALES....................................................... $ 2,985 $ 3,284
COSTS AND EXPENSES:
Cost of products sold..................................... 2,722 2,889
Depreciation and amortization............................. 197 193
Selling, general and administrative....................... 137 136
Results of affiliates' operations......................... 28 32
Net interest and other (income) expense................... 1 (19)
Special charges........................................... 39 --
-------- --------
Total............................................. 3,124 3,231
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... (139) 53
Income tax provision:
Taxes payable............................................. 6 4
Taxes not payable in cash................................. -- 15
-------- --------
Total............................................. 6 19
-------- --------
NET INCOME (LOSS)........................................... $ (145) $ 34
======== ========
EARNINGS (LOSS) PER SHARE:
Basic and diluted......................................... $ (1.46) $ 0.33
======== ========
DIVIDENDS PAID PER COMMON SHARE............................. $ 0.09 $ 0.09
======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 130
THE LTV CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
ASSETS
Current assets
Cash and marketable securities............................ $ 167
Receivables, less allowance for doubtful accounts......... 484
Inventories:
Products............................................... 591
Materials, purchased parts and supplies................ 260
--------
Total inventories................................. 851
Prepaid expenses, deposits and other...................... 19
--------
Total current assets.............................. 1,521
--------
Investments in affiliates................................... 382
Other noncurrent assets..................................... 233
Property, plant and equipment............................... 4,285
Less allowance for depreciation........................... (1,186)
--------
Total property, plant and equipment............... 3,099
--------
$ 5,235
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 354
Accrued employee compensation and benefits................ 312
Other accrued liabilities................................. 205
--------
Total current liabilities......................... 871
--------
Noncurrent liabilities
Long-term debt............................................ 402
Postemployment health care and other insurance benefits... 1,523
Pension benefits.......................................... 561
Other..................................................... 407
--------
Total noncurrent liabilities...................... 2,893
--------
Shareholders' equity
Convertible preferred stock (aggregate liquidation value
$50)................................................... 1
Common stock (par value $0.50 per share).................. 53
Additional paid-in capital................................ 1,031
Retained earnings......................................... 466
Treasury stock (5 million shares at cost)................. (67)
Accumulated other comprehensive loss and other............ (13)
--------
Total shareholders' equity........................ 1,471
--------
$ 5,235
========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 131
THE LTV CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $ (145) $ 34
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Special charges...................................... 39 --
Noncash losses of affiliates......................... 28 32
Depreciation and amortization........................ 197 193
Income tax provision not payable in cash............. -- 15
Defined benefit pension expense...................... 2 3
Postemployment benefit payments more than related
expense........................................... (18) (21)
Changes in assets, liabilities and other............. (118) (70)
-------- --------
Net cash (used in) provided by operating
activities...................................... (15) 186
-------- --------
INVESTING ACTIVITIES
Capital expenditures...................................... (156) (290)
Investments in steel-related businesses................... (91) (57)
Net sales of marketable securities........................ 210 102
Proceeds from sale/leaseback and other dispositions....... 35 4
Other..................................................... (4) (5)
-------- --------
Net cash used in investing activities.................. (6) (246)
-------- --------
FINANCING ACTIVITIES
Borrowings................................................ 100 3
Dividends paid and other.................................. (13) (12)
-------- --------
Net cash (used in) provided by financing activities.... 87 (9)
-------- --------
Net increase (decrease) in cash and cash equivalents........ 66 (69)
Cash and cash equivalents at beginning of period............ 101 160
-------- --------
Cash and cash equivalents at end of period.................. $ 167 $ 91
======== ========
Supplemental cash flow information is presented as follows:
Interest payments......................................... $ 27 $ 2
Income tax payments....................................... 2 6
Capitalized interest...................................... 12 24
Purchases of marketable securities........................ 134 2,209
Sales and maturities of marketable securities............. 344 2,311
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 132
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE (1) -- The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. All adjustments that are, in the opinion of
management, necessary for a fair presentation have been made and are of a
recurring nature unless otherwise disclosed herein. Certain prior period amounts
have been reclassified to conform with the current period presentation. The
results of operations for the six months ended June 30, 1999 are not necessarily
indicative of results of operations for a full year. For further information,
refer to the consolidated financial statements and the notes thereto for the
year ended December 31, 1998 included herein.
NOTE (2) -- At September 30, 1999, accumulated other comprehensive loss
included in the balance sheet amounted to $12 million with no material changes
since December 31, 1998. The accumulated other comprehensive loss at September
30, 1998 was $1 million, with no material changes since December 31, 1997.
NOTE (3) -- 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 September 30, 1999 are as follows (in millions):
<TABLE>
<S> <C>
2000.................................. $ 38
2001.................................. 32
2002.................................. 25
2003.................................. 23
2004.................................. 22
Later years........................... 120
----
Total obligations..................... $260
====
</TABLE>
NOTE (4) -- On October 1, 1999, LTV completed the acquisition of Welded
Tube Company of America ("Welded Tube") for $113.5 million subject to
finalization of working capital adjustments. Welded Tube is believed to be the
second largest structural tube manufacturer in North America and produces the
broadest range of structural tubing, used primarily for construction and for the
industrial, transportation and agricultural equipment markets.
On November 10, 1999, LTV acquired Copperweld Corporation and Copperweld
Canada, Inc., ("Copperweld") for an aggregate cash purchase price of
approximately $650 million, subject to finalization of shareholder equity
adjustments. Based on 1998 shipments, Copperweld is believed to be the largest
North American manufacturer of mechanical and structural steel tubing and the
world's largest producer of bimetallic wire
F-5
<PAGE> 133
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (4) -- (CONTINUED)
products. Both transactions will be accounted for under the purchase method of
accounting; and, accordingly, the results of operations of the acquired
companies will be included in the consolidated financial statements from the
respective dates of acquisition.
The following unaudited pro forma financial information for the Company
gives effect to the Welded Tube and Copperweld acquisitions (together the
"Acquisitions") as if they had occurred on January 1, 1999, with comparable pro
forma information for 1998. 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 Acquisitions occurred at the
beginning of the year or that may result in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------- -------
<S> <C> <C>
Sales....................................................... $ 3,609 $ 3,921
Income (loss) before income taxes and special charges....... $ (118) $ 54
Income (loss) before income taxes........................... $ (157) $ 54
Net income (loss)........................................... $ (170) $ 29
Earnings (loss) per share
Basic and diluted......................................... $ (1.77) $ 0.22
Average shares outstanding
Basic.................................................. 100,016 99,840
Diluted................................................ 100,016 100,015
</TABLE>
NOTE (5) -- In November 1999, the Company issued $275 million of 11.750%
Senior Notes ("Notes") maturing on November 15, 2009 with interest payable semi-
annually. These notes will be senior unsecured obligations of The LTV
Corporation. The Notes are fully and unconditionally guaranteed on a senior
basis by all existing and future domestic wholly owned subsidiaries of LTV
(other than certain unrestricted subsidiaries and special purpose subsidiaries
established to facilitate working capital facilities), and on a subordinated
basis by the Acquisitions. The Notes are redeemable at the option of the Company
in whole or in part, at any time after November 15, 2004 at a price of 105.875%
declining to 100% on or after November 15, 2007. At any time prior to November
15, 2002, the Company may redeem in the aggregate up to 35% of the original
principal amount at a price of 111.750% with proceeds from any public equity
offerings. There are no sinking fund requirements. Upon any change of control,
the Note holders have the right to require the Company to repurchase all or any
part of the Notes at a purchase price equal to 101% of the principal amount plus
accrued and unpaid interest. The terms of the Notes will contain various
covenants similar to the existing 8.20% Senior Notes due 2007, which limit LTV's
ability to incur additional debt; make dividend or other distributions of
capital stock; purchase, redeem or retire capital stock of the Company; create
liens; consolidate, merge or transfer assets among subsidiaries; sell assets;
and transact business with our subsidiaries. Certain of these covenants will be
eliminated if LTV achieves investment grade rating, as defined, on these Notes.
F-6
<PAGE> 134
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (5) -- (CONTINUED)
LTV has entered into a five-year secured credit facility of $225 million
("Secured Facility") with banks that will be fully and unconditionally
guaranteed on a senior basis by the same guarantors as the Notes. Substantially
all of the assets of the Acquisitions, other than accounts receivable and the
real property and associated fixtures at Welded Tube's Portland, Oregon tubing
plant, including a secured intercompany note between Copperweld Corporation and
Copperweld Canada, Inc., will also secure the new credit facility. Interest will
be reset periodically and is based on LIBOR plus a margin of 3.375% to 4.125%
depending on the ratings that Standard & Poor's and Moody's assign the loans. At
LTV's option, it may borrow at an alternate base rate plus a margin ranging from
2.00% to 2.875% based on similar ratings. The base rate is the higher of the
prime rate or the Federal Funds effective rate plus 1/2 of 1%. Principal
payments in the first four years after issuance will be de minimus, with equal
scheduled payments of $54 million during 2004 at the end of February, May,
August and October 31, 2004. Prepayments are required for proceeds of certain
asset sales, insurance awards, excess cash flow and net cash proceeds of certain
debt or equity issuances if certain financial ratios are not met. The Secured
Facility will contain certain covenants that will limit LTV's ability to incur
additional debt and liens; make dividend payments; enter into agreements to
restrict a subsidiaries' ability to make distributions to the Company; make new
investments, capital expenditures or enter into sale leaseback transactions;
enter into mergers or sell assets; and comply with certain financial ratios.
LTV also issued $80 million aggregate liquidation preference of 8.25%
Series A Cumulative Convertible Preferred Stock (1,600,000 shares), $1.00 par
value per share ("Series A Preferred"). Holders of the Series A Preferred will
be entitled to receive cumulative cash dividends at an annual rate of 8.25% of
the liquidation preference, payable quarterly in arrears on each February 15,
May 15, August 15 and November 15 commencing on February 15, 2000. LTV may
redeem all shares of the Series A Preferred, in whole or in part, at any time
after November 18, 2004, at a price equal to 104.13% of the aggregate
liquidation preference of the Series A Preferred declining to 100% in 2009. Upon
any such provisional redemption, LTV will also pay holders of the Series A
Preferred an amount equal to all of the accrued and unpaid dividends to the date
of redemption. The Series A Preferred may be converted at any time in whole or
in part into the number of shares of LTV common stock equal to $50.00 divided by
the conversion price then applicable. The initial conversion price is $3.675 per
share and is subject to adjustment upon the occurrence of certain events. The
Series A Preferred will have no voting rights, except as required by law. Upon
accumulation of accrued and unpaid dividends in an amount equal to six quarterly
dividends (whether or not consecutive), holders of a majority of the outstanding
shares of Series A Preferred will be entitled to appoint at least one but not
more than two members to the Board of Directors.
NOTE (6) -- The Company has a 50% interest, accounted for under the equity
method, in an unconsolidated joint venture, Trico Steel Company, L.L.C. ("Trico
Steel"). Included in LTV's consolidated results are pretax losses of $25 million
and $33 million for the nine months ended September 30, 1999 and 1998,
respectively, representing the
F-7
<PAGE> 135
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (6) -- (CONTINUED)
Company's share of Trico Steel operating results. The following is a summary of
the financial information related to Trico Steel (in millions):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Results of operations:
Net sales..................................... $ 203 $ 214
Costs and expenses............................ 254 280
-------- --------
Pretax loss................................... $ (51) $ (66)
======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Financial position:
Current assets................................ $ 91 $ 54
Noncurrent assets............................. 514 531
Current liabilities........................... (58) (27)
Noncurrent liabilities........................ (336) (296)
-------- --------
Net assets................................. $ 211 $ 262
======== ========
</TABLE>
NOTE (7) -- The Company operates in three reportable segments consisting of
Integrated Steel, Metal Fabrication and Corporate and Other. Integrated Steel
manufactures and sells a diversified line of carbon steel products consisting of
hot rolled and cold rolled sheet, galvanized and tin mill products for the
domestic transportation, appliance, container and electrical equipment markets.
Metal Fabrication produces pipe, conduit and tubular products for use in
transportation, agriculture, oil and gas and construction industries. The
segment also engineers and manufactures pre-engineered, low-rise steel building
systems for manufacturing, warehousing and commercial applications. Corporate
and Other consists of steel-related joint ventures, primarily Trico Steel and
Cliffs and Associates Limited ("CAL"), which are accounted for using the equity
method, and corporate investments and related income and expense.
LTV's reportable segments are strategic business units grouped by similar
products, technologies and manufacturing processes. They are managed separately
because each segment serves a different market and group of customers. Segment
performance is measured on pretax profit or loss from operations before special
items. Integrated Steel accounts for intersegment sales at current market prices
as if transactions had taken place with third parties.
F-8
<PAGE> 136
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (7) -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------------
1999 1998
----------------------------------------------- -----------------------------------------------
INTEGRATED METAL CORPORATE INTEGRATED METAL CORPORATE
STEEL FABRICATION & OTHER TOTAL STEEL FABRICATION & OTHER TOTAL
---------- ----------- --------- -------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Trade sales................... $ 2,490 $ 495 $ -- $ 2,985 $ 2,770 $ 514 $ -- $ 3,284
Intersegment sales............ 64 -- -- 64 67 -- -- 67
Segment income (loss) before
special charges and income
taxes....................... (94) 35 (41) (100) 34 45 (26) 53
Special charges............... (39) -- -- (39) -- -- -- --
</TABLE>
NOTE (8) -- All of LTV's wholly-owned domestic subsidiaries, except for LTV
Steel Products, LLC and LTV Sales Finance Company, will fully and
unconditionally guarantee LTV's obligation to pay principal, premium, if any,
and interest with respect to the New Senior Notes and the New Bank Financing.
Management intends to amend the existing 8.20% Senior Notes due September 2007,
which were guaranteed solely by LTV Steel Company, Inc., to also receive the
same guarantees as described above. The following supplemental condensed
consolidating financial statements of The LTV Corporation present (in millions):
balance sheet as of September 30, 1999; statements of operations for the nine
months ended September 30, 1999 and 1998; and statements of cash flows for the
nine months ended September 30, 1999 and 1998. The LTV Corporation (Parent), the
Guarantors and 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
Guarantors for the New Senior Notes and the New Bank Financing are material to
investors. Therefore, separate financial statements and other disclosures
concerning the Guarantors are not presented.
F-9
<PAGE> 137
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (8) -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
marketable securities.......... $ 134 $ 8 $ 25 $ -- $ 167
Receivables.................... -- 55 429 -- 484
Notes receivable/(payable)..... -- (1) 1 -- --
Inventories.................... -- 40 811 -- 851
Other current assets........... 3 14 2 -- 19
-------- -------- -------- -------- --------
Total current assets...... 137 116 1,268 -- 1,521
Intercompany, net.............. 409 658 (1,067) -- --
Investments and other
noncurrent assets............ 1,256 615 13 (1,269) 615
Property, plant and equipment,
net.......................... -- 3,092 7 -- 3,099
-------- -------- -------- -------- --------
Total assets.............. $ 1,802 $ 4,481 $ 221 $ (1,269) $ 5,235
======== ======== ======== ======== ========
Total current liabilities...... $ 15 $ 846 $ 10 $ -- $ 871
Long-term debt................. 299 3 100 -- 402
Postemployment health care and
other insurance benefits..... -- 1,511 12 -- 1,523
Pension benefits............... -- 560 1 -- 561
Other.......................... 17 372 18 -- 407
Shareholders' equity........... 1,471 1,189 80 (1,269) 1,471
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity.... $ 1,802 $ 4,481 $ 221 $ (1,269) $ 5,235
======== ======== ======== ======== ========
</TABLE>
F-10
<PAGE> 138
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (8) -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales................. $ -- $ 2,968 $ 2,753 $ (2,736) $ 2,985
Costs and expenses:
Cost of products sold... -- 2,663 2,795 (2,736) 2,722
Depreciation and
amortization......... -- 196 1 -- 197
Selling, general and
administrative....... 9 128 -- -- 137
Results of affiliates'
operations........... 132 128 -- (232) 28
Net interest and other
(income) expense..... (2) (49) 52 -- 1
Special charges......... -- 39 -- -- 39
-------- -------- -------- -------- ------------
Total................ 139 3,105 2,848 (2,968) 3,124
-------- -------- -------- -------- ------------
Income (loss) before
income taxes............ (139) (137) (95) 232 (139)
Income tax provision...... (6) -- -- -- (6)
-------- -------- -------- -------- ------------
Net income (loss).... $ (145) $ (137) $ (95) $ 232 $ (145)
======== ======== ======== ======== ============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales.................. $ -- $ 3,262 $ 2,374 $ (2,352) $ 3,284
Costs and expenses:
Cost of products sold.... -- 2,914 2,327 (2,352) 2,889
Depreciation and
amortization.......... -- 191 2 -- 193
Selling, general and
administrative........ 9 127 -- -- 136
Results of affiliates'
operations............ (46) 36 -- 42 32
Net interest and other... (16) (48) 45 -- (19)
-------- -------- -------- -------- --------
Total................. (53) 3,220 2,374 (2,310) 3,231
-------- -------- -------- -------- --------
Income before income
taxes.................... 53 42 -- (42) 53
Income tax provision....... (19) (15) -- 15 (19)
-------- -------- -------- -------- --------
Net income............ $ 34 $ 27 $ -- $ (27) $ 34
======== ======== ======== ======== ========
</TABLE>
F-11
<PAGE> 139
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (8) -- (CONTINUED)
CONDENSED CONSOLIDATING CASH FLOWS STATEMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash (used in) provided by
operating activities........... $ (131) $ 210 $ (94) $ -- $ (15)
Investing activities:
Capital expenditures......... -- (152) (4) -- (156)
Investments in steel-related
businesses................ -- (91) -- -- (91)
Net sales of marketable
securities................ 210 -- -- -- 210
Proceeds from sale/leaseback
and other................. 1 38 (8) -- 31
-------- -------- -------- -------- --------
Net cash provided by (used
in) investing
activities.............. 211 (205) (12) -- (6)
-------- -------- -------- -------- --------
Financing activities:
Borrowings................... -- -- 100 -- 100
Dividends paid and other..... (12) (1) -- -- (13)
-------- -------- -------- -------- --------
Net cash (used in)
provided by financing
activities.............. (12) (1) 100 -- 87
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents......... 68 4 (6) -- 66
Cash and cash equivalents at
beginning of year............ 66 4 31 -- 101
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period................ $ 134 $ 8 $ 25 $ -- $ 167
======== ======== ======== ======== ========
</TABLE>
F-12
<PAGE> 140
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE (8) -- (CONTINUED)
CONDENSED CONSOLIDATING CASH FLOWS STATEMENT -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash (used in) provided by
operating activities........... $ (140) $ 337 $ (11) $ -- $ 186
Investing activities:
Capital expenditures......... -- (289) (1) -- (290)
Investments in steel-related
businesses................ -- (57) -- -- (57)
Net sales of marketable
securities and other...... 104 (1) (2) -- 101
-------- -------- -------- -------- --------
Net cash provided by (used
in) investing
activities.............. 104 (347) (3) -- (246)
-------- -------- -------- -------- --------
Financing activities:
Borrowings................... -- 3 -- -- 3
Dividends paid and other..... (10) (2) -- -- (12)
-------- -------- -------- -------- --------
Net cash (used in)
provided by financing
activities.............. (10) 1 -- -- (9)
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents......... (46) (9) (14) -- (69)
Cash and cash equivalents at
beginning of year............ 108 16 36 -- 160
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period................ $ 62 $ 7 $ 22 $ -- $ 91
======== ======== ======== ======== ========
</TABLE>
F-13
<PAGE> 141
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, 1998 and 1997, and the related
consolidated statements of operations, changes in equity and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in the "Summary of Significant Accounting Policies" note to
the financial statements, in 1997, the Company changed its method of accounting
for start-up costs.
Ernst & Young LLP
Cleveland, Ohio
January 28, 1999
F-14
<PAGE> 142
THE LTV CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
SALES............................................ $ 4,273 $ 4,446 $ 4,135
COSTS AND EXPENSES:
Cost of products sold.......................... 3,773 3,801 3,596
Depreciation and amortization.................. 259 263 266
Selling, general and administrative............ 184 164 143
Results of affiliates' operations.............. 49 41 --
Net interest and other income.................. (23) (42) (43)
Special charges................................ 55 150 --
-------- -------- --------
Total....................................... 4,297 4,377 3,962
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES................ (24) 69 173
Income tax provision:
Taxes payable.................................. 3 10 --
Taxes not payable in cash...................... -- 18 64
-------- -------- --------
Total....................................... 3 28 64
Income (loss) before items below................. (27) 41 109
Extraordinary loss on early extinguishment of
debt........................................... -- (4) --
Cumulative effect of change in accounting for
start-up costs................................. -- (7) --
-------- -------- --------
NET INCOME (LOSS)................................ $ (27) $ 30 $ 109
======== ======== ========
EARNINGS (LOSS) PER SHARE:
Basic and diluted
Operations.................................. $ (0.29) $ 0.37 $ 1.01
Extraordinary (loss)........................ -- (0.04) --
Cumulative effect of change in accounting... -- (0.06) --
-------- -------- --------
Net income (loss)........................... $ (0.29) $ 0.27 $ 1.01
======== ======== ========
Net income (loss) available to common
shareholders................................... $ (29) $ 28 $ 107
======== ======== ========
DIVIDENDS PAID PER COMMON SHARE.................. $ 0.12 $ 0.12 $ 0.09
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-15
<PAGE> 143
THE LTV CORPORATION
CONSOLIDATED BALANCE SHEET
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 101 $ 160
Marketable securities..................................... 210 360
-------- --------
311 520
Receivables, less allowance of $17 in 1998 and $18 in
1997.................................................... 375 470
Inventories:
Products................................................ 571 656
Materials, purchased parts and supplies................. 283 246
-------- --------
Total inventories.................................... 854 902
Prepaid expenses, deposits and other...................... 15 12
-------- --------
Total current assets................................. 1,555 1,904
-------- --------
Investments in affiliates................................... 314 312
Other noncurrent assets..................................... 190 169
Property, plant and equipment
Land and land improvements................................ 65 68
Buildings................................................. 157 150
Machinery and equipment................................... 3,749 3,526
Construction in progress.................................. 354 352
-------- --------
4,325 4,096
Less allowance for depreciation........................... (1,060) (935)
-------- --------
Total property, plant and equipment..................... 3,265 3,161
-------- --------
$ 5,324 $ 5,546
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 321 $ 354
Accrued employee compensation and benefits................ 328 365
Other accrued liabilities................................. 190 219
-------- --------
Total current liabilities............................... 839 938
-------- --------
Noncurrent liabilities
Long-term debt............................................ 302 355
Postemployment health care and other insurance benefits... 1,552 1,570
Pension benefits.......................................... 565 548
Other..................................................... 438 459
-------- --------
Total noncurrent liabilities............................ 2,857 2,932
-------- --------
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 outstanding in 1998 and 1997..................... 53 53
Additional paid-in capital................................ 1,032 1,032
Retained earnings......................................... 621 661
Treasury stock at cost (5 million shares)................. (68) (68)
Accumulated other comprehensive loss and other............ (11) (3)
-------- --------
Total shareholders' equity.............................. 1,628 1,676
-------- --------
$ 5,324 $ 5,546
======== ========
</TABLE>
See notes to consolidated financial statements
F-16
<PAGE> 144
THE LTV CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) before extraordinary loss and
cumulative change in accounting............. $ (27) $ 41 $ 109
Adjustments to reconcile income (loss) to net
cash provided by operating activities:
Noncash losses of affiliates................ 49 41 --
Special charges............................. 55 150 --
Depreciation and amortization............... 259 263 266
Income tax provision not payable in cash.... -- 18 64
Defined benefit pension expense............. 3 28 64
Postemployment benefit payments (more) less
than related expense...................... (19) (27) 5
VEBA Trust contributions.................... (10) (10) (11)
Changes in assets, liabilities and other.... 2 (107) (2)
-------- -------- --------
Net cash provided by operating
activities........................... 312 397 495
-------- -------- --------
INVESTING ACTIVITIES
Capital expenditures........................... (362) (326) (243)
VP Buildings acquisition....................... -- (188) --
Investments in steel-related businesses........ (80) (101) (79)
Net sales (purchases) of marketable
securities.................................. 150 207 (109)
Other.......................................... (5) 24 (6)
-------- -------- --------
Net cash used in investing
activities........................... (297) (384) (437)
-------- -------- --------
FINANCING ACTIVITIES
Net proceeds from debt offering................ 4 290 --
Payments on long-term debt..................... (62) (106) --
Pension funding to restored plans.............. (2) (61) (205)
Repurchases of common stock.................... -- (68) --
Dividends paid and other....................... (14) (15) (12)
-------- -------- --------
Net cash (used in) provided by
financing activities................. (74) 40 (217)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents.................................... (59) 53 (159)
Cash and cash equivalents at beginning of year... 160 107 266
-------- -------- --------
Cash and cash equivalents at end of year......... $ 101 $ 160 $ 107
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 145
THE LTV CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- OTHER
CONVERTIBLE NUMBER ADDITIONAL COMPREHENSIVE
PREFERRED OF PAID-IN RETAINED TREASURY INCOME AND
STOCK SHARES AMOUNT CAPITAL EARNINGS STOCK OTHER TOTAL
----------- -------- -------- ---------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 1, 1996.......... $ 1 105 $ 53 $ 957 $ 549 $ -- $ (185) $ 1,375
Comprehensive income
Net income............. -- -- -- -- 109 -- -- 109
Other comprehensive
income, net of tax... -- -- -- -- -- -- 174 174
--------
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... -- -- -- -- -- -- 6 6
--------
Total comprehensive
income............. 36
Dividends paid........... -- -- -- -- (15) -- -- (15)
Treasury stock
purchases.............. -- (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
Comprehensive loss
Net loss............... -- -- -- -- (27) -- -- (27)
Other comprehensive
loss, net of tax..... -- -- -- -- -- -- (8) (8)
--------
Total comprehensive
loss............... (35)
Dividends paid........... -- -- -- -- (14) -- -- (14)
Other.................... -- -- -- -- 1 -- -- 1
-------- -------- -------- -------- -------- -------- -------- --------
December 31, 1998........ $ 1 100 $ 53 $ 1,032 $ 621 $ (68) $ (11) $ 1,628
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE> 146
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The LTV Corporation ("LTV" or the "Company") operates in three reportable
segments: Integrated Steel, Metal Fabrication and Corporate and Other. Refer to
the Segment Reporting footnote for further discussion.
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 $10 million at
December 31, 1998, 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 $12 million, $17 million and $16 million for 1998,
1997 and 1996, 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 included in other comprehensive income.
Interest income, amortization of premiums and accretion of discounts to
maturity, realized gains and losses and declines in value judged to be other
than temporary are included in net interest and other income. The cost of
securities sold is based on specific identification.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
primarily by the "last-in, first-out" ("LIFO") method for approximately 94% and
95% of the inventories at December 31, 1998 and 1997, respectively. The amount
by which inventory is reduced to state inventory at LIFO value is $17 million at
December 31, 1998 and $22 million at December 31, 1997. Liquidation of LIFO
inventory quantities, carried at costs that prevailed in earlier years, reduced
cost of products sold by $2 million, $3 million and $2 million in 1998, 1997 and
1996, respectively. The current replacement value of inventories is $845 million
and $898 million at December 31, 1998 and 1997, respectively.
F-19
<PAGE> 147
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. In addition, a units-of-production
method is used for blast furnaces. In 1998, the modified straight-line
depreciation method was less than the straight-line amount by $8 million. During
1997 and 1996, depreciation expense under this method approximated the computed
straight-line amounts. 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 reviews long-lived assets used in operations and 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,
including costs related to the demolition, closure and clean-up of idled
facilities, totaled $136 million and $154 million, at December 31, 1998 and
1997, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-20
<PAGE> 148
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities," which requires all derivatives to be recognized as either assets or
liabilities in the balance sheet and be measured at fair value. Changes in the
fair value of derivatives will be recognized in net income unless specific hedge
accounting criteria are met. LTV intends to adopt this statement in 2000, and it
is not expected to have a material impact on the Company's financial statements.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5
"Reporting on the Costs of Start-up Activities" that requires the expensing of
start-up activities as incurred. In 1997, 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).
UNCONSOLIDATED JOINT VENTURE
The Company has a 50% interest in an unconsolidated joint venture, Trico
Steel, which is accounted for under the equity method. Commercial operations of
this flat rolled mini-mill located in Decatur, Alabama began in April 1997. LTV
and its other two partners have entered into a credit commitment to lend to
Trico Steel on a junior subordinated basis up to an additional $50 million.
LTV's portion of such commitment is $25 million. The following is a summary of
the financial information related to Trico Steel (in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Results of operations:
Net sales................................................. $ 258 $ 98
Costs and expenses........................................ 330 167
Depreciation and amortization............................. 28 18
Cumulative effect of change in accounting for start-up
costs.................................................. -- 15
-------- --------
Pretax loss............................................ $ (100) $ (102)
======== ========
Financial position at December 31:
Current assets............................................ $ 54 $ 76
Noncurrent assets......................................... 531 526
Current liabilities....................................... (27) (38)
Noncurrent liabilities.................................... (296) (273)
-------- --------
Net assets................................................ $ 262 $ 291
======== ========
Capital expenditures........................................ $ 33 $ 86
======== ========
</TABLE>
F-21
<PAGE> 149
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER LIABILITIES
Current accrued employee compensation and benefits included the following
at December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Pension benefits............................................ $ 20 $ 17
Postemployment health care and other insurance benefits..... 124 129
Accrued wages and compensated absences...................... 80 82
Other....................................................... 104 137
-------- --------
$ 328 $ 365
======== ========
</TABLE>
Current other accrued liabilities included the following at December 31 (in
millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accrued taxes other than income............................. $ 92 $ 96
Accrued income taxes........................................ 11 15
Environmental and plant rationalization..................... 36 53
Other....................................................... 51 55
-------- --------
$ 190 $ 219
======== ========
</TABLE>
Noncurrent other liabilities included the following at December 31 (in
millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Benefits under the Coal Industry Retiree Health Benefit Act
of 1992..................................................... $ 128 $ 135
Other employee benefits..................................... 108 119
Environmental and plant rationalization..................... 149 159
Other....................................................... 53 46
-------- --------
$ 438 $ 459
======== ========
</TABLE>
DEBT AND CREDIT FACILITIES
Long-term debt consisted of the following at December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
8.20% Senior Notes due 2007................................. $ 298 $ 298
Notes due December 2020..................................... -- 57
Mortgage payable............................................ 4 --
-------- --------
$ 302 $ 355
======== ========
</TABLE>
The Company has no required long-term debt maturities occurring within the
next five years.
In September 1997, LTV issued $298 million Senior 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
F-22
<PAGE> 150
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 in 1997 to finance
the acquisition of VP Buildings, Inc. ("VP Buildings") and to redeem $100
million principal amount of Senior Secured Convertible Notes due June 2003 at a
premium that resulted in an extraordinary charge of $4 million, net of taxes of
$2 million.
The 8.5% Notes due December 2020 payable to the Pension Benefit Guaranty
Corporation ("PBGC") with a balance of $62 million were repaid in December 1998.
The Company has three credit facilities with banks (the "Receivables
Facility" expiring in 2003, the "Inventory Facility" expiring in 2003 and a
"Secured Demand Facility" expiring in March 1999) that provide the Company with
up to $590 million of financing resources at prevailing market rates.
Substantially all of the Company's receivables and inventories are pledged as
collateral under these credit facilities agreements.
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, 1998, $218 million
was permitted to be borrowed; however, no borrowings were outstanding and
letters of credit outstanding amounted to $17 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.
LTV Steel Company, Inc., effective as of March 1, 1998, entered into a $250
million five-year Inventory Facility. The Inventory Facility, secured by
essentially all of LTV Steel's inventory through a special purpose entity,
permits borrowings of up to $250 million for working capital and general
corporate purposes, $150 million of which may be used to issue letters of
credit. Interest will accrue at the Company's option of either the lender bank's
base rate or 1% above LIBOR rates. At December 31, 1998, there were no
outstanding borrowings against the Inventory Facility; and letters of credit
totaling $68 million were outstanding under this facility. The borrower under
the Inventory Facility is LTV Steel Products, LLC, a consolidated structured
finance special purpose entity wholly owned by LTV Steel, which purchases and
pledges essentially all of the inventory produced by LTV Steel. The creditors of
LTV Steel Products, LLC, have a claim on the assets of that company prior to
those assets becoming available to other creditors of LTV or its affiliates.
The Company's wholly owned subsidiary, VP Buildings, has a Secured Demand
Facility that expires in March 1999 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, 1998, $20 million
F-23
<PAGE> 151
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was permitted to be borrowed; no letters of credit or borrowings were
outstanding under this facility.
The 8.20% Senior Notes contain various covenants including 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 is available for common stock dividend payments
and stock repurchases at December 31, 1998.
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. Rental expense on operating leases was $79 million, $71
million and $62 million in 1998, 1997 and 1996, respectively. Minimum future
operating lease obligations in effect at December 31, 1998 are as follows (in
millions):
<TABLE>
<S> <C>
1999......................... $ 43
2000......................... 27
2001......................... 22
2002......................... 14
2003......................... 13
Later years.................. 71
--------
Total obligations............ $ 190
========
</TABLE>
PENSIONS AND POSTEMPLOYMENT HEALTH CARE AND OTHER INSURANCE BENEFITS
The Company's pension plans provide current benefits for most employees
through defined contribution plans with benefits based on age and compensation
levels whose costs 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 defined benefit plans are subject to Employee Retirement
Income Security Act of 1974 funding standards.
The Company provides other postemployment benefits ("OPEB") primarily for
health care, life insurance and other insurance benefits 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.
As part of the 1994 United Steel Workers 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 for 1998 was $10 million.
F-24
<PAGE> 152
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of pensions and other postemployment benefit obligations and
related assets are as follows (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OPEB
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of
year................................... $ 3,327 $ 3,395 $ 1,520 $ 1,687
Service cost............................. 2 1 13 14
Interest cost............................ 228 237 102 106
Actuarial (gains) losses................. 108 (10) (1) (163)
Shutdowns/acquisitions................... 18 41 7 5
Benefits paid............................ (329) (337) (115) (129)
-------- -------- -------- --------
Benefit obligation at end of year........ $ 3,354 $ 3,327 $ 1,526 $ 1,520
======== ======== ======== ========
Change in plan assets
Fair value of plan assets at beginning of
year................................... $ 3,080 $ 2,836 $ 62 $ 36
Actual return on plan assets............. 349 503 36 11
Shutdowns/acquisitions................... -- 10 -- --
Company contributions.................... 9 68 10 17
Benefits paid............................ (329) (337) (5) (2)
-------- -------- -------- --------
Fair value of plan assets at end of
year................................... $ 3,109 $ 3,080 $ 103 $ 62
======== ======== ======== ========
Funded status of the plan
(underfunded).......................... $ (245) $ (247) $ (1,423) $ (1,458)
Unrecognized net actuarial gains......... (394) (402) (254) (241)
Unrecognized prior service cost.......... 98 119 $ 1 --
-------- -------- -------- --------
Accrued benefit cost..................... $ (541) $ (530) $ (1,676) $ (1,699)
======== ======== ======== ========
</TABLE>
Pension plan assets consist substantially of equity securities listed on
national exchanges, fixed income securities and cash equivalents. VEBA assets
for OPEB obligations are invested primarily in equity securities listed on
national exchanges.
<TABLE>
<CAPTION>
PENSION BENEFITS OPEB
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Amounts recognized in the balance sheet
consist of (in millions):
Prepaid benefit cost.................... $ 22 $ 21 $ -- $ --
Accrued benefit liability............... (585) (565) (1,676) (1,699)
Intangible asset........................ 1 1 -- --
Accumulated other comprehensive
income................................ 11 3 -- --
-------- -------- -------- --------
Net amount recognized................... (551) (540) $ (1,676) $ (1,699)
======== ========
Defined contribution plans.............. 10 10
-------- --------
Total................................... $ (541) $ (530)
======== ========
</TABLE>
F-25
<PAGE> 153
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts applicable to the Company's underfunded pension plan at December 31
are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Projected benefit obligation................................ $ 3,066 $ 3,056
Accumulated benefit obligation.............................. 3,049 3,039
Fair value of plan assets................................... 2,773 2,778
Amounts recognized as accrued benefit liabilities........... 575 555
Amounts recognized as intangible asset...................... 1 1
Amounts recognized as accumulated comprehensive income...... 11 3
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS OPEB
------------------------------ ------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average
assumptions as of December
31:
Discount rate............. 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Expected return on plan
assets.................. 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Projected health care cost
trend rate.............. 6.20% 6.70% 7.50%
Ultimate trend rate....... 4.25% 4.50% 4.50%
Year ultimate trend rate
is achieved............. 2003 2003 2003
Components of net periodic
benefit cost:
Service cost.............. $ 2 $ 1 $ 6 $ 13 $ 14 $ 18
Interest cost............. 228 237 247 101 105 120
Expected return on plan
assets.................. (240) (223) (209) (5) (4) (3)
Amortization of prior
service cost............ 17 18 18 -- -- --
Recognized net actuarial
loss (gain)............. (4) (5) 2 (14) (13) 1
-------- -------- -------- -------- -------- --------
Benefit cost.............. 3 28 64 95 102 136
Defined contribution
plans................... 48 49 48
-------- -------- --------
Total included in
operations.............. 51 77 112
Curtailment charges
included in special
charges................. 19 16 -- 7 5 --
-------- -------- -------- -------- -------- --------
$ 70 $ 93 $ 112 $ 102 $ 107 $ 136
======== ======== ======== ======== ======== ========
</TABLE>
During 1998 and 1997, the Company's actuary computed the benefit
obligations for both the pension plans and other postemployment benefit
obligations using refined assumptions with more recent experience data. This
computation reduced 1998 and 1997 expense by approximately $1 million and $17
million, respectively for pension plans and
F-26
<PAGE> 154
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $13 million and $34 million, respectively for other postemployment
benefit obligations.
The following shows the 1998 effect of a 1% increase or decrease in the
weighted-average health care cost trend rate (in millions):
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost
components.............................................. $ 12 $ (11)
Effect on postretirement benefit obligation............. $ 142 $ (121)
</TABLE>
TAXES
The provision for income taxes is as follows (in millions):
<TABLE>
<CAPTION>
1998 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ (1) $ 7 $ --
State........................................... 4 3 --
Amount not payable in cash:....................... -- 18 64
-------- -------- --------
Tax provision................................... $ 3 $ 28 $ 64
======== ======== ========
</TABLE>
In 1998 the Company recorded $3 million of cash taxes and a full valuation
allowance to offset the tax benefit from the current year loss.
In 1997 and 1996, the Company recorded a tax provision of $28 million and
$64 million, respectively. Of these provisions, $18 million and $64 million did
not result in cash payments because of pre-reorganization net deductible
temporary differences. The Company's effective tax rate for financial statement
reporting purposes was 40% in 1997 and 37% in 1996. Taxes payable in 1997
consist primarily of state and federal taxes including a less than 80% owned
subsidiary.
The Company reports federal income tax expense before consideration of pre-
reorganization net deferred tax assets totaling $1.3 billion at December 31,
1998. The Company's actual income tax cash payments were significantly less than
the total financial statement expense amounts as the tax provision required by
fresh-start financial statement reporting was in excess of the Company's actual
tax payments. As LTV realizes the benefits of 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.
F-27
<PAGE> 155
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Tax provision (benefit) at statutory rates....... $ (8) $ 24 $ 61
Increases (decreases) resulting from:
Valuation allowance............................ 14 -- --
Percentage depletion deduction................. (4) (7) (5)
Federal alternative minimum tax................ (1) 7
State taxes.................................... 2 5 8
Other.......................................... -- (1) --
-------- -------- --------
Tax provision............................... $ 3 $ 28 $ 64
======== ======== ========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows at December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Postemployment health care liability...................... $ 669 $ 678
Net operating loss carryforwards.......................... 945 880
Pension liability......................................... 228 218
Other employee benefits liability......................... 142 159
Plant rationalization and environmental liabilities....... 91 104
Safe harbor tax leases.................................... 96 107
Other..................................................... 129 129
-------- --------
Subtotal............................................... 2,300 2,275
Deferred tax liabilities:
Tax over book depreciation................................ (827) (833)
Inventory and other....................................... (123) (117)
-------- --------
Subtotal............................................... (950) (950)
Valuation allowance......................................... (1,350) (1,325)
-------- --------
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 $2.7 billion and a federal alternative minimum tax net operating
loss carryforward of $1.5 billion that are not restricted as to use and will
expire in the years 2000 through 2018. 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
F-28
<PAGE> 156
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1998 of approximately $46 million
are available as a credit carryforward, and the period is not limited.
Investment tax credit carryforwards of approximately $8 million at December 31,
1998 are recognized using the "flow through" method and expire in 1999 through
2003.
SHAREHOLDERS' EQUITY
LTV has authorized for issuance 20 million shares of preferred stock with a
$1.00 par value. At December 31, 1998, 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 $51 million at December 31, 1998,
declining to $50 million at June 28, 2000.
In 1997, the Company completed a stock 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 3.2 million
shares of the Company's common stock at December 31, 1998.
The Company has common stock reserved for potential future issuance in
accordance with an agreement with the U.S. Environmental Protection Agency
("EPA") that certain (if any) future environmental claims can be settled in cash
or common stock.
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
F-29
<PAGE> 157
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation is primarily being amortized to expense over a five-year vesting
period. Transactions under these programs are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Stock options: (shares in
thousands)
Options outstanding at
beginning of year.... 3,354 $11.19-$19.33 1,691 $12.21-$19.33 1,420 $14.17-$19.33
Granted................ 1,182 5.56-13.38 1,828 11.19-14.38 322 12.21-14.31
Exercised.............. -- -- -- -- -- --
Canceled............... (174) 11.94-19.33 (165) 12.21-19.33 (51) 14.78-19.33
------ ------------- ------ ------------- ------ -------------
Options outstanding at
end of year.......... 4,362 $ 5.56-$19.33 3,354 $11.19-$19.33 1,691 $12.21-$19.33
====== ============= ====== ============= ====== =============
Options exercisable at
end of year.......... 1,725 $12.21-$19.33 1,295 $12.21-$19.33 1,093 $14.74-$19.33
====== ============= ====== ============= ====== =============
Restricted Stock (shares
in thousands):
Shares outstanding at
beginning of year.... 185 $ 9.88-$18.88 184 $14.00-$18.88 186 $14.00-$18.88
Granted................ 41 5.25-13.13 6 9.88-14.25 2
---14.13
Unrestricted........... (5) 12.68-18.88 (1) (4)
---18.88
---18.88
Canceled............... (3) 9.88-18.88 (4) -- --
---18.88
------ ------------- ------ ------ -------------
-------------
Shares outstanding at
end of year.......... 218 $ 5.25-$18.88 185 $14.00-$18.88 184 $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 based on their fair value on the date of grant or to continue to follow
Accounting Principles Board ("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
1998, 1997 and 1996: risk-free rate of return of 5.8%; dividend yield of 1%;
volatility of 28%; and 7 years as the expected life for all years presented. The
pro forma effect of these options would increase the loss by $3 million ($0.03
per share) in 1998, decrease net income by $3 million ($0.02 per share) in 1997
and have no effect in 1996.
F-30
<PAGE> 158
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMPREHENSIVE INCOME
The following table reflects the accumulated balances of other
comprehensive income (in millions):
<TABLE>
<CAPTION>
GAINS ACCUMULATED
(LOSSES) OTHER
ON MINIMUM COMPREHENSIVE
MARKETABLE PENSION INCOME
SECURITIES LIABILITY (LOSS)
------------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1, 1996.......... $ 2 $ (185) $ (183)
1996 change......................... (2) 176 174
------------- ------------- -------------
Balance at December 31, 1996........ -- (9) (9)
1997 change......................... -- 6 6
------------- ------------- -------------
Balance at December 31, 1997........ -- (3) (3)
1998 change......................... -- (8) (8)
------------- ------------- -------------
Balance at December 31, 1998........ $ -- $ (11) $ (11)
============= ============= =============
</TABLE>
EARNINGS PER SHARE
Basic earnings per share calculations for the years ended December 31,
1998, 1997 and 1996 are based on the weighted-average common shares outstanding
of 100 million, 103 million and 105 million, respectively.
Diluted earnings per share calculations for the years ended December 31,
1998, 1997 and 1996 are based on the weighted-average common shares outstanding
of 100 million, 104 million and 108 million, respectively. Diluted shares were
determined by increasing basic shares outstanding to reflect common stock
equivalents and in 1996 the stock issuable upon conversion of the convertible
notes and preferred shares. The preferred shares were antidilutive in 1998 and
1997.
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.
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
F-31
<PAGE> 159
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 a labor agreement that expires August 1, 1999 with the USWA
covering approximately 9,500 active hourly workers. A significant amount of the
Company's sales are to the transportation market and several of the Company's
domestic automobile customers also have labor contracts that expire during 1999.
The Company has commitments to purchase approximately $230 million of its
coke and coal requirements for each of the years 1999 and 2000.
FINANCIAL INSTRUMENTS
Cash equivalents are investments in highly liquid, low-risk money market
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
estimated fair value of the Company's long-term debt at December 31, 1998 would
be $28 million less than the recorded value based on current market interest
rates available for financings with similar terms and maturities.
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, 1998 and 1997, the notional
value of these contracts totaled $233 million and $6 million, respectively. The
contracts extend for periods of up to five years. At December 31, 1998 and 1997,
the fair value of the contracts, which is based on quoted market prices,
approximated the carrying value of zero.
F-32
<PAGE> 160
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Outstanding letters of credit totaled $86 million and $101 million at
December 31, 1998 and 1997, respectively. The letters of credit guarantee
performance to third parties of various trade activities and tax benefit
transfer agreements. 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.
The cost of marketable securities approximated fair value at December 31,
1998 and 1997. The cost and fair value of marketable securities by contractual
maturity at December 31, 1998 are as follows (in millions):
<TABLE>
<S> <C>
Due in one year or less..................................... $ 53
Due after one year through two years........................ 61
Due after two years......................................... 96
--------
Total..................................................... $ 210
========
</TABLE>
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. 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 unaudited pro forma financial information for the Company is presented
as if the acquisition of VP Buildings had occurred on January 1, 1996. The pro
forma results for 1997 and 1996, respectively (in millions except per share
data) are as follows: net sales $4,590 and $4,440, income before extraordinary
charges $44 and $124, net income $33 and $124 and diluted earnings per share
$0.30 and $1.14. 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.
SPECIAL CHARGES
In the fourth quarter of 1998, the Company recorded $55 million of special
charges for the closure of cold roll finishing operations in the Number 2
finishing department at the Cleveland Works, recognition of an asset impairment
of an electro-galvanizing joint venture, the shutdown of an electric-weld pipe
line and salaried force reduction. The charges include $38 million of employee
costs covering approximately 460 hourly and salaried employees, $15 million for
the impairment of the joint venture and $2 million for other costs. The
impairment is due to a change in the utilization of the joint venture facility.
The amount of the asset impairment was determined based on a third party
valuation. There have been no cash expenditures in 1998.
In the third quarter of 1997, LTV recorded a special charge of $150 million
for the closure of the Pittsburgh coke plant. On February 28, 1998, the Company
ceased operations and began the closure process. The special charge included $51
million for facilities write-down, $34 million for employee costs and $65
million for demolition,
F-33
<PAGE> 161
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
environmental matters and other costs. Through December 31, 1998, spending of
$28 million has been charged against this reserve.
Retirement related costs have been recorded as plan curtailments.
OTHER FINANCIAL DATA
Net interest and other income included the following (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Interest and other income................... $ 26 $ 45 $ 44
Interest expense............................ (3) (3) (1)
------- -------- -------
Total..................................... $ 23 $ 42 $ 43
======= ======== =======
</TABLE>
The Company has incurred research and development expense of $14 million in
1998 and 1997 and $15 million in 1996.
Supplemental cash flow information is presented as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Changes in assets and liabilities which provided
(used) net cash:
Receivables.................................... $ 96 $ (26) $ (7)
Inventories.................................... 47 (89) (60)
Other assets................................... (6) 34 13
Accounts payable............................... (33) (19) 96
Other liabilities.............................. (103) (6) (31)
Other.......................................... 1 (1) (13)
-------- -------- --------
Total.................................. $ 2 $ (107) $ (2)
======== ======== ========
Interest payments................................ $ 27 $ 11 $ 13
Income tax payments.............................. 7 8 2
Capitalized interest............................. 31 19 15
Purchases of marketable securities............... 2,258 10,443 4,684
Sales of marketable securities................... 2,408 10,650 4,575
</TABLE>
SEGMENT REPORTING
The Company operates in three reportable segments consisting of Integrated
Steel, Metal Fabrication and Corporate and Other. Integrated Steel manufactures
and sells a diversified line of carbon steel products consisting of hot rolled
and cold rolled sheet, galvanized and tin mill products for the domestic
transportation, appliance, container and electrical equipment markets. Metal
Fabrication produces pipe, conduit and tubular products for use in
transportation, agriculture, oil and gas and construction industries. The
segment also engineers and manufactures pre-engineered, low-rise steel building
systems for manufacturing, warehousing and commercial applications. Corporate
and Other consists of steel-related joint ventures, primarily Trico Steel and
Cliffs and Associates which are
F-34
<PAGE> 162
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounted for using the equity method and corporate investments and related
income and expense.
LTV's reportable segments are strategic business units grouped by similar
products, technologies and manufacturing processes. Segments are managed
separately because each serves a different market and group of customers. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Segment performance is measured on
pretax profit or loss from operations before special items. Integrated Steel
accounts for intersegment sales at current market prices as if transactions had
taken place with third parties.
The Company's sales to the transportation market approximated 30% of sales
in 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, 1998. Sales for the years 1998, 1997 and 1996 to the Company's
largest customer, General Motors Corporation, represented approximately 9%, 11%
and 11%, respectively, of total sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------
INTEGRATED METAL CORPORATE
STEEL FABRICATION & OTHER TOTAL
---------- ----------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Trade sales.......................... $ 3,590 $ 683 $ -- $ 4,273
Intersegment sales................... 94 -- -- 94
Interest and other income............ 3 -- 23 26
Net interest expense................. (2) -- (1) (3)
Results of affiliates' operations.... -- 5 (54) (49)
Segment income (loss) before income
taxes and special charge........... 11 63 (43) 31
Special charges...................... (52) (3) -- (55)
Segment assets....................... 4,378 466 1,961 6,805
Capital expenditures................. 310 52 -- 362
Depreciation and amortization........ 247 12 -- 259
Investments in equity affiliates..... 67 21 226 314
Assets
Total assets for reportable
segments........................ $ 6,805
Intersegment eliminations.......... (1,481)
--------
Consolidated total.............. $ 5,324
========
</TABLE>
F-35
<PAGE> 163
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------
INTEGRATED METAL CORPORATE
STEEL FABRICATION & OTHER TOTAL
---------- ----------- --------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Trade sales............................ $3,905 $541 $ -- $ 4,446
Intersegment sales..................... 101 -- -- 101
Interest and other income.............. 3 -- 42 45
Net interest expense................... -- -- (3) (3)
Results of affiliates operations....... -- 4 (45) (41)
Segment income (loss) before income
taxes and special charge............. 186 51 (18) 219
Special charge......................... (150) -- -- (150)
Segment assets......................... 4,590 399 1,958 6,947
Capital expenditures................... 310 16 -- 326
Depreciation and amortization.......... 255 8 -- 263
Investments in equity affiliates....... 84 21 207 312
Assets
Total assets for reportable
segments.......................... $ 6,947
Intersegment eliminations............ (1,401)
-------
Consolidated total................ $ 5,546
=======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------
INTEGRATED METAL CORPORATE
STEEL FABRICATION (& OTHER) TOTAL
---------- ----------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Trade sales.......................... $ 3,813 $ 322 $ -- $ 4,135
Intersegment sales................... 97 -- -- 97
Interest and other income............ 4 -- 40 44
Net interest expense................. -- -- (1) (1)
Results of affiliates operations..... -- -- -- --
Segment income (loss) before income
taxes.............................. 125 20 28 173
Segment assets....................... 4,621 79 1,718 6,418
Capital expenditures................. 240 3 -- 243
Depreciation and amortization........ 263 3 -- 266
Investments in equity affiliates..... 87 -- 169 256
Assets
Total assets for reportable
segments........................ $ 6,418
Intersegment eliminations.......... (1,008)
--------
Consolidated total.............. $ 5,410
========
</TABLE>
SUPPLEMENTAL GUARANTOR INFORMATION
All of LTV's wholly-owned domestic subsidiaries, except for LTV Steel
Products, LLC and LTV Sales Finance Company, will fully and unconditionally
guarantee LTV's obligation to pay principal, premium, if any, and interest with
respect to the New Senior Notes and the New Bank Financing. Management intends
to amend the existing 8.20%
F-36
<PAGE> 164
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Senior Notes due September 2007, which were guaranteed solely by LTV Steel
Company, Inc., to receive the same guarantees as described above. The following
supplemental condensed consolidating financial statements of The LTV Corporation
present (in millions): balance sheets as of December 31, 1998 and 1997;
statements of operations and cash flows for the years ended December 31, 1998,
1997 and 1996. The LTV Corporation (Parent), the Guarantors and 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
Guarantors for the New Senior Notes and the New Bank Financing are material to
investors. Therefore, separate financial statements and other disclosures
concerning the Guarantors are not presented.
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
marketable securities....... $ 276 $ 4 $ 31 $ -- $ 311
Receivables................. 3 60 312 -- 375
Notes
receivable/(payable)...... -- (40) 40 -- --
Inventories................. -- 36 818 -- 854
Other current assets........ 3 12 -- -- 15
---------- ---------- ---------- ---------- ----------
Total current
assets............ 282 72 1,201 -- 1,555
Intercompany, net........... 282 811 (1,093) -- --
Investments and other
noncurrent assets......... 1,405 507 13 (1,421) 504
Property, plant and
equipment, net............ -- 3,256 9 -- 3,265
---------- ---------- ---------- ---------- ----------
Total assets......... $ 1,969 $ 4,646 $ 130 $ (1,421) $ 5,324
========== ========== ========== ========== ==========
Total current liabilities... $ 25 $ 795 $ 19 $ -- $ 839
Long-term debt.............. 298 4 -- -- 302
Postemployment health care
and other insurance
benefits.................. -- 1,541 11 -- 1,552
Pension benefits............ -- 564 1 -- 565
Other....................... 18 403 17 -- 438
Shareholders' equity........ 1,628 1,339 82 (1,421) 1,628
---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders'
equity............ $ 1,969 $ 4,646 $ 130 $ (1,421) $ 5,324
========== ========== ========== ========== ==========
</TABLE>
F-37
<PAGE> 165
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
(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 $ 16 $ 37 $ -- $ 520
Receivables.................. 4 50 416 -- 470
Notes receivable/(payable)... -- 359 (359) -- --
Inventories.................. -- 899 3 -- 902
Other current assets......... 4 7 1 -- 12
------- ------- ----- ------- -------
Total current
assets............. 475 1,331 98 -- 1,904
Intercompany, net............ 83 (74) (9) -- --
Investments and other
noncurrent assets.......... 1,470 468 7 (1,464) 481
Property, plant and
equipment, net............. -- 3,151 10 -- 3,161
------- ------- ----- ------- -------
Total assets.......... $ 2,028 $ 4,876 $ 106 $(1,464) $ 5,546
======= ======= ===== ======= =======
Total current liabilities.... $ 37 881 20 $ -- $ 938
Long-term debt............... 298 57 -- -- 355
Postemployment health care
and other insurance
benefits................... -- 1,560 10 -- 1,570
Pension benefits............. -- 547 1 -- 548
Other........................ 17 425 17 -- 459
Shareholders' equity......... 1,676 1,406 58 (1,464) 1,676
------- ------- ----- ------- -------
Total liabilities and
shareholders'
equity............. $ 2,028 $ 4,876 $ 106 $(1,464) $ 5,546
======= ======= ===== ======= =======
</TABLE>
F-38
<PAGE> 166
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ 4,242 $ 3,231 $ (3,200) $ 4,273
Costs and expenses:
Cost of products sold.... -- 3,791 3,182 (3,200) 3,773
Depreciation and
amortization.......... -- 257 2 -- 259
Selling, general and
administrative........ 12 171 1 -- 184
Results of affiliates'
operations............ 32 70 -- (53) 49
Net interest and other... (20) (66) 63 -- (23)
Special charges.......... -- 55 -- -- 55
-------- -------- -------- -------- --------
Total............ 24 4,278 3,248 (3,253) 4,297
-------- -------- -------- -------- --------
Income (loss) before income
taxes.................... (24) (36) (17) 53 (24)
Income tax provision....... (3) -- -- -- (3)
-------- -------- -------- -------- --------
Net loss.............. $ (27) $ (36) $ (17) $ 53 $ (27)
======== ======== ======== ======== ========
</TABLE>
F-39
<PAGE> 167
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ 4,420 $ 52 $ (26) $ 4,446
Costs and expenses:
Cost of products sold.... -- 3,781 46 (26) 3,801
Depreciation and
amortization.......... -- 261 2 -- 263
Selling, general and
administrative........ 11 153 -- -- 164
Results of affiliates'
operations............ (41) 36 -- 46 41
Net interest and other... (39) 4 (7) -- (42)
Special charges.......... -- 150 150
-------- -------- -------- -------- --------
Total............ (69) 4,385 41 20 4,377
-------- -------- -------- -------- --------
Income before income
taxes.................... 69 35 11 (46) 69
Income tax provision....... (28) (14) (4) 18 (28)
-------- -------- -------- -------- --------
Income before items
below.................... 41 21 7 (28) 41
Extraordinary loss......... (4) -- -- -- (4)
Cumulative effect of
accounting change........ (7) -- -- -- (7)
-------- -------- -------- -------- --------
Net income............ $ 30 $ 21 $ 7 $ (28) $ 30
======== ======== ======== ======== ========
</TABLE>
F-40
<PAGE> 168
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ 4,113 $ 59 $ (37) $ 4,135
Costs and expenses:
Cost of products sold.... -- 3,587 46 (37) 3,596
Depreciation and
amortization.......... -- 264 2 -- 266
Selling, general and
administrative........ 10 133 -- -- 143
Results of affiliates'
operations............ (138) (14) -- 152 --
Net interest and other... (45) 8 (6) -- (43)
-------- -------- -------- -------- --------
Total............ (173) 3,978 42 115 3,962
-------- -------- -------- -------- --------
Income before income
taxes.................... 173 135 17 (152) 173
Income tax provision....... (64) (50) (6) 56 (64)
-------- -------- -------- -------- --------
Net income....... $ 109 $ 85 $ 11 $ (96) $ 109
======== ======== ======== ======== ========
</TABLE>
F-41
<PAGE> 169
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING CASH FLOWS STATEMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities............. $ (178) $ 491 $ (1) $ -- $ 312
Investing activities:
Capital expenditures........... -- (361) (1) -- (362)
Investments in steel-related
businesses.................. -- (80) -- -- (80)
Net sales of marketable
securities.................. 150 -- -- -- 150
Other.......................... -- (2) (3) -- (5)
-------- -------- -------- -------- --------
Net cash provided by (used
in) investing
activities................ 150 (443) (4) -- (297)
-------- -------- -------- -------- --------
Financing activities:
Borrowings..................... -- 4 -- 4
Payments on long-term debt..... -- (62) -- (62)
Pension funding to restored
plans....................... -- (2) -- (2)
Dividends paid and other....... (14) -- -- -- (14)
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing
activities................ (14) (60) -- -- (74)
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents........... (42) (12) (5) -- (59)
Cash and cash equivalents at
beginning of year.............. 108 16 36 -- 160
-------- -------- -------- -------- --------
Cash and cash equivalents at end
of year........................ $ 66 $ 4 $ 31 $ -- $ 101
======== ======== ======== ======== ========
</TABLE>
F-42
<PAGE> 170
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING 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 (used in)
operating activities............. $ (74) $ 467 $ 4 $ -- $ 397
Investing activities:
Capital expenditures........... -- (325) (1) -- (326)
VP Buildings acquisition....... (188) -- -- -- (188)
Investments in steel-related
businesses.................. -- (101) -- -- (101)
Net sales of marketable
securities.................. 207 -- -- -- 207
Other.......................... -- 25 (1) -- 24
-------- -------- -------- -------- --------
Net cash provided by (used
in) investing
activities................ 19 (401) (2) -- (384)
-------- -------- -------- -------- --------
Financing activities:
Borrowings..................... 290 -- -- -- 290
Payments on long-term debt..... (106) -- -- -- (106)
Pension funding to restored
plans....................... -- (61) -- -- (61)
Repurchases of common stock.... (68) -- -- -- (68)
Dividends paid and other....... (15) -- -- -- (15)
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing
activities................ 101 (61) -- -- 40
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents........... 46 5 2 -- 53
Cash and cash equivalents at
beginning of year.............. 62 11 34 -- 107
-------- -------- -------- -------- --------
Cash and cash equivalents at end
of year........................ $ 108 $ 16 $ 36 $ -- $ 160
======== ======== ======== ======== ========
</TABLE>
F-43
<PAGE> 171
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING CASH FLOWS STATEMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
NON-
GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities............ $ (92) $ 590 $ (3) $ -- $ 495
Investing activities:
Capital expenditures.......... -- (242) (1) -- (243)
Investments in steel-related
businesses................. -- (79) -- -- (79)
Net purchases of marketable
securities................. (109) -- -- -- (109)
Other......................... (2) 4 (8) -- (6)
-------- -------- -------- -------- --------
Net cash provided by (used
in) investing
activities............... (111) (317) (9) -- (437)
-------- -------- -------- -------- --------
Financing activities:
Pension funding to restored
plans...................... -- (205) -- -- (205)
Dividends paid and other...... (12) -- -- -- (12)
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing
activities............... (12) (205) -- -- (217)
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... (215) 68 (12) -- (159)
Cash and cash equivalents at
beginning of year............. 277 (57) 46 -- 266
-------- -------- -------- -------- --------
Cash and cash equivalents at end
of year....................... $ 62 $ 11 $ 34 $ -- $ 107
======== ======== ======== ======== ========
</TABLE>
F-44
<PAGE> 172
THE LTV CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
1998............................... $ 1,127 $ 1,093 $ 1,064 $ 989
1997............................... 1,072 1,092 1,135 1,147
Gross margin
1998............................... 142 116 137 105
1997............................... 141 153 177 174
Income (loss) from operations
1998............................... 32 6 15 (76)
1997............................... 45 45 (86) 65
Other charges(1)
1997............................... -- -- (4) (7)
Net income (loss)
1998............................... 19 4 11 (61)
1997............................... 27 27 (56) 32
Market price per share
1998 -- High....................... $ 14.56 $ 13.50 $ 10.44 $ 6.94
Low....................... 9.50 9.38 5.25 5.00
1997 -- High....................... 13.63 14.56 14.38 13.13
Low....................... 11.63 12.50 11.94 9.38
Market price per Series A Warrant (2)
1998 -- High....................... $ 0.28 $ 0.14 $ -- $ --
Low....................... 0.03 0.02 -- --
1997 -- High....................... 0.94 0.81 0.63 0.38
Low....................... 0.56 0.50 0.25 0.03
Earnings per share (3)
1998 -- Basic and diluted.......... $ 0.19 $ 0.03 $ 0.11 $ (0.62)
1997 -- Basic and diluted.......... 0.25 0.25 (0.54) 0.31
Dividends paid per common share
1998............................... $ 0.03 $ 0.03 $ 0.03 $ 0.03
1997............................... 0.03 0.03 0.03 0.03
</TABLE>
- ---------------
(1) Other charges consist of $4 million of an extraordinary charge on the early
extinguishment of debt and $7 million of a cumulative effect of a change in
accounting for start-up costs.
(2) Series A Warrants expired at June 28, 1998.
(3) 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.
F-45
<PAGE> 173
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
SALES.................................................... $ 554.7 $ 552.6
COSTS AND EXPENSES:
Costs of sales......................................... 490.1 479.1
Selling and administrative............................. 30.2 28.6
Interest expense....................................... 7.5 7.2
Other income........................................... (0.9) (0.7)
------- -------
Total costs and expenses....................... 526.9 514.2
INCOME BEFORE PROVISION FOR INCOME TAXES................. 27.8 38.4
Provision for income taxes............................. 10.4 14.7
------- -------
NET INCOME............................................... $ 17.4 $ 23.7
======= =======
</TABLE>
See notes to combined financial statements.
F-46
<PAGE> 174
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8.0
Accounts receivable, less allowance for doubtful accounts
of $2.0................................................ 94.0
Inventories:
Raw materials.......................................... 51.5
Work-in-process and finished goods..................... 43.3
Supplies............................................... 19.7
LIFO reserve........................................... (10.3)
-------
Net inventories...................................... 104.2
Other current assets...................................... 0.9
-------
Total current assets................................... 207.1
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements................................ 13.0
Buildings and building equipment.......................... 85.0
Machinery and equipment................................... 350.8
Construction in progress.................................. 54.4
-------
503.2
Accumulated depreciation.................................. (207.4)
-------
Net property, plant and equipment...................... 295.8
OTHER ASSETS, net of amortization of $4.9................... 36.5
-------
$ 539.4
=======
</TABLE>
See notes to combined financial statements.
F-47
<PAGE> 175
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable.......................................... $ 71.3
Line of credit and current maturities of long-term debt... 4.0
Salaries, wages and vacation pay.......................... 6.6
Income and other taxes.................................... 7.9
Other..................................................... 7.1
-------
Total current liabilities.............................. 96.9
-------
LONG-TERM DEBT.............................................. 150.2
OTHER LIABILITIES:
Postemployment benefit obligations........................ 40.9
Deferred income taxes..................................... 26.6
Other..................................................... 11.6
-------
Total other liabilities................................ 79.1
STOCKHOLDER'S EQUITY:
Common Stock, $.83-1/3 par value, 6,000,000 shares
authorized; 5,757,216 issued and outstanding........... 4.8
Copperweld Canada Inc., no par value, unlimited shares
authorized; 44,000 issued and outstanding.............. --
Additional paid-in capital................................ 94.8
Retained earnings......................................... 116.3
Accumulated other comprehensive loss........................ (2.7)
-------
Total stockholder's equity............................. 213.2
-------
$ 539.4
=======
</TABLE>
See notes to combined financial statements.
F-48
<PAGE> 176
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 17.4 $ 23.7
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 22.8 18.1
Changes in assets and liabilities:
Accounts receivable......................... (15.2) (5.0)
Inventory................................... 21.8 1.4
Accounts payable............................ 5.6 8.4
Other....................................... (8.1) 36.4
-------- --------
Cash provided by operating activities..... 44.3 82.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions.......................... (0.4) (4.5)
Additions to property, plant and equipment..... (30.7) (52.2)
Other.......................................... 0.1 0.1
-------- --------
Cash used by investing activities........... (31.0) (56.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends...................... (5.4) (7.7)
Payment of indebtedness........................ (207.0) (97.0)
Proceeds from borrowings....................... 193.8 73.9
Other.......................................... 0.5 (0.3)
-------- --------
Cash provided (used) by financing
activities................................ (18.1) (31.1)
-------- --------
Decrease in cash and cash equivalents....... (4.8) (4.8)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD...................................... 12.8 7.1
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 8.0 $ 2.3
======== ========
</TABLE>
See notes to combined financial statements.
F-49
<PAGE> 177
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1.
The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by generally accepted accounting principles for complete
financial statements. All adjustments that are, in the opinion of management,
necessary for a fair presentation have been made and are of a recurring nature
unless otherwise disclosed herein. The results of operations for the interim
periods are not necessarily indicative of results of operations for a full year.
For further information, refer to the combined financial statements and the
notes thereto for the year ended December 31, 1998 herein.
NOTE 2.
On November 10, 1999, Imetal, SA sold all of the stock of Copperweld
Corporation and Copperweld Canada, (the Companies) for $650 million in cash
subject to final adjustments based upon the closing of the acquisition. The
potential purchase adjustment is based on the amount of the stockholder's equity
at November 9, 1999. The Companies' accompanying financial statements have not
been adjusted for this proposed transaction with LTV.
NOTE 3. SEGMENT REPORTING
The Companies operate in two reportable segments consisting of Tubing and
Bimetallics. Tubing manufactures and sells a diversified line of steel tubing
products used in the automotive, agricultural and industrial equipment, fluid
power, construction, recreation and office furniture markets. Bimetallics
manufactures and sells copper-clad aluminum and copper-clad steel wire, rod and
strand used in the telecommunications (primarily cable television and telephone)
and utility industries.
Copperweld's reportable segments are strategic business units grouped by
similar products, technologies and manufacturing processes. Segments are managed
separately because each serves a different market and group of customers.
Segment performance is measured on pretax profit of loss from operations
(dollars in millions).
<TABLE>
<CAPTION>
1999
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
For the nine months ended September 30:
Trade sales..................................... $ 473.6 $ 81.1 $ 554.7
Segment income before taxes..................... 16.3 11.5 27.8
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Trade sales....................................... $ 484.9 $ 67.7 $ 552.6
Segment income before taxes..................... 29.3 9.1 38.4
</TABLE>
F-50
<PAGE> 178
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1999 1998
NINE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
REVENUE REVENUE
------------------ ------------------
<S> <C> <C>
United States................................... $ 306.7 $ 348.7
Canada.......................................... 248.0 203.9
-------- --------
$ 554.7 $ 552.6
======== ========
</TABLE>
NOTE 4. CONTINGENCY
There has been no significant change in status of the Companies'
contingencies described in the footnotes to the 1998 annual Financial Statement
as of September 30, 1999.
NOTE 5. COMPREHENSIVE LOSS
At September 30, 1999, accumulated other comprehensive loss included in the
balance sheet amounted to $2.7 million with no material changes since December
31, 1998. The accumulated other comprehensive loss at September 30, 1998 was
$4.5 million, with no material changes since December 31, 1997.
NOTE 6. EARNINGS PER SHARE
Basic and diluted earnings per share for the nine months ended September
30, 1999 and 1998, were not presented because the information would not be
meaningful to the users of the Combined Financial Statements due to the nature
of the capital structure of the Companies.
NOTE 7. LINE OF CREDIT
During 1996, and amended in 1999, the Corporation entered into an
uncommitted, unsecured revolving credit agreement with a bank that provides for
demand loans, term loans or letters of credit of up to $10,000,000. Demand loans
bear interest at the bank's prime rate and may be repaid at the option of the
Corporation or upon demand of the bank. Term loans bear interest at the bank's
cost of funds rate plus a margin, and can have maturities ranging from overnight
to 90 days. As of September 30, 1999, there was $4,000,000 of term loans
outstanding, at an average interest rate of 6.5%.
NOTE 8. LONG-TERM DEBT.
INTERCOMPANY CREDIT AND INVESTMENT AGREEMENT
During 1999, the Corporation entered into a credit agreement with IMETAL
that provided for loans in the U.S. of up to the equivalent of 100 million
Euros, in U.S. dollars, and for loans in Canada of up to the equivalent of 75
million Euros, in Canadian dollars. Loans under the agreement may be repaid and
re-borrowed subject to the commitment
F-51
<PAGE> 179
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
available. The maturity of the loans is limited to periods which are multiples
of one month, and carry interest rates that equal the base rate of loans made by
IMETAL under its Facility Agreement plus 1.30%. As of September 30, 1999 there
were $150.2 million in loans outstanding under this agreement. The average
interest rate on the loans outstanding as of September 30, 1999 was 6.68% for
loans in the U.S., and 6.075% for loans in Canada.
F-52
<PAGE> 180
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Boards of Directors and Shareholder
of Copperweld Corporation and Copperweld Canada Inc.
We have audited the accompanying balance sheets as of December 31, 1998 and
1997, of the companies listed in Note 1 and the related statements of income,
shareholders equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the companies' managements. 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 financial statements referred to above present fairly,
in all material respects, the financial position at December 31, 1998 and 1997,
of the companies listed in Note 1, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Pittsburgh, Pennsylvania
January 30, 1999, except for
Note 5 as to which the date is
May 31, 1999
F-53
<PAGE> 181
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
SALES............................................ $ 711.0 $ 662.7 $ 427.8
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales.................................. 617.7 566.9 365.9
Selling and administrative..................... 36.7 38.1 28.7
Interest expense............................... 8.0 8.0 4.5
Other income................................... (1.3) (0.8) (0.5)
-------- -------- --------
Total costs and expenses............... 661.1 612.2 398.6
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES......... 49.9 50.5 29.2
Provision for income taxes..................... 19.1 18.6 9.4
-------- -------- --------
NET INCOME....................................... $ 30.8 $ 31.9 $ 19.8
======== ======== ========
</TABLE>
See notes to combined financial statements
F-54
<PAGE> 182
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents................................. $ 12.8 $ 7.1
-------- --------
Accounts receivable, less allowance for doubtful accounts
of $2.5 in 1998, and $2.0 in 1997...................... 78.1 91.1
Inventories:
Raw materials.......................................... 70.8 55.8
Work-in-process and finished goods..................... 47.8 58.8
Supplies............................................... 19.2 17.6
LIFO reserve........................................... (13.7) (18.5)
-------- --------
Net inventories...................................... 124.1 113.7
Other current assets...................................... 2.6 4.5
-------- --------
Total current assets................................... 217.6 216.4
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements................................ 12.9 9.2
Buildings and building equipment.......................... 84.1 63.0
Machinery and equipment................................... 344.0 302.2
Construction in progress.................................. 29.0 22.3
-------- --------
470.0 396.7
Accumulated depreciation.................................. (187.7) (168.1)
-------- --------
Net property, plant and equipment...................... 282.3 228.6
OTHER ASSETS, net of accumulated amortization of $4.0 in
1998 and $3.4 in 1997..................................... 31.2 27.2
-------- --------
$ 531.1 $ 472.2
======== ========
</TABLE>
See notes to combined financial statements
F-55
<PAGE> 183
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable.......................................... $ 65.5 $ 62.5
Line of credit and current maturities of long-term debt... 9.2 4.0
Salaries, wages and vacation pay.......................... 7.6 12.9
Income and other taxes.................................... 5.7 7.0
Other..................................................... 12.4 10.8
-------- --------
Total current liabilities.............................. 100.4 97.2
LONG-TERM DEBT.............................................. 154.5 160.6
OTHER LIABILITIES:
Pension benefits.......................................... -- 1.4
Postemployment benefit obligations........................ 39.9 41.7
Deferred income taxes..................................... 25.1 22.9
Other..................................................... 11.8 12.5
-------- --------
Total other liabilities................................ 76.8 78.5
STOCKHOLDER'S EQUITY:
Common stock:
Copperweld Corporation, $.83 1/3 par value, 6,000,000
shares authorized; 5,757,216 issued and
outstanding.......................................... 4.8 4.8
Copperweld Canada Inc., no par value, unlimited shares
authorized; 44,000 issued and outstanding............ -- --
Additional paid-in capital................................ 94.8 51.8
Retained earnings......................................... 104.3 81.2
Accumulated other comprehensive loss:..................... (4.5) (1.9)
-------- --------
Total stockholder's equity............................. 199.4 135.9
-------- --------
$ 531.1 $ 472.2
======== ========
</TABLE>
See notes to combined financial statements
F-56
<PAGE> 184
COPPERWELD CORPORATION AND COPPERWELD CANADA INC
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME/(LOSS) TOTALS
------ ---------- -------- ------------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.... $ 4.8 $ 26.8 $ 54.3 $ (3.7) $ 82.2
Net income.................... -- -- 19.8 -- 19.8
Minimum pension liability net
of tax (liability of
$.3)....................... -- -- -- 0.3 0.3
------
Comprehensive Income....... 20.1
------
Dividends declared............ -- -- (11.2) -- (11.2)
------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1996.... $ 4.8 $ 26.8 $ 62.9 $ (3.4) $ 91.1
Net income.................... -- -- 31.9 -- 31.9
Cumulative translation
adjustment................. -- -- -- (0.9) (0.9)
Minimum pension liability net
of tax liability of $1.6... -- -- -- 2.4 2.4
------
Comprehensive Income....... 33.4
------
Dividends declared............ -- -- (13.6) -- (13.6)
Capital contribution by
parent..................... -- 25.0 -- -- 25.0
------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1997.... $ 4.8 $ 51.8 $ 81.2 $ (1.9) $135.9
Net income.................... -- -- 30.8 -- 30.8
Cumulative translation
adjustment................. -- -- -- (2.6) (2.6)
------
Comprehensive Income....... 28.2
------
Dividends declared............ -- -- (7.7) -- (7.7)
Sale of subsidiary stock to
parent net of tax liability
of $1.0.................... -- 43.0 -- -- 43.0
------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1998.... $ 4.8 $ 94.8 $104.3 $ (4.5) $199.4
====== ====== ====== ====== ======
</TABLE>
See notes to combined financial statements
F-57
<PAGE> 185
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 30.8 $ 31.9 $ 19.8
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization............... 22.9 19.8 12.8
Provisions for contingent liabilities and
asset write-downs......................... -- -- 4.9
Deferred income taxes....................... 0.6 1.4 (1.0)
Changes in assets and liabilities:
Accounts receivable......................... 11.3 2.0 (2.6)
Inventory................................... (12.9) (6.8) (12.8)
Accounts payable............................ (1.8) (4.8) 8.9
Other....................................... 3.1 (9.1) (1.2)
-------- -------- --------
Cash provided by operating activities..... 54.0 34.4 28.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment..... (83.2) (30.8) (10.2)
Business acquisitions.......................... (4.6) (98.3) --
Proceeds from sale of energy business and
other....................................... 0.1 0.5 2.6
-------- -------- --------
Cash used by investing activities......... (87.7) (128.6) (7.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends...................... (7.7) (13.6) (11.2)
Payment of indebtedness........................ (117.4) (95.1) (30.4)
Proceeds from borrowings....................... 122.2 155.7 17.0
Sale of subsidiary stock to parent, net of
tax......................................... 43.0 -- --
Additional investment -- parent................ -- 25.0 --
Subordinated loan -- parent.................... -- 28.0 --
Other.......................................... (0.7) 0.5
-------- -------- --------
Cash provided (used) by financing
activities............................. 39.4 100.5 (24.6)
-------- -------- --------
Increase in cash and cash equivalents..... 5.7 6.3 (3.4)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... 7.1 0.8 4.2
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 12.8 $ 7.1 $ 0.8
======== ======== ========
</TABLE>
See notes to combined financial statements
F-58
<PAGE> 186
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION
The financial statements of Copperweld Corporation (the "Corporation") and
Copperweld Canada Inc. ("Copperweld Canada"), (the "Companies") include the
accounts of the Companies and subsidiaries after elimination of intercompany
transactions. Sales are predominantly derived from the manufacture of mechanical
and structural steel tubing in the United States and Canada, with additional
sales coming from the manufacture of bimetallic wire in the United States and
United Kingdom. The principal markets for tubing products are the service
center, automotive, agricultural, construction and industrial equipment markets,
primarily in the United States and Canada. The bimetallic wire products are sold
to domestic wire fabricators serving the cable television and telephone markets,
and to a lesser degree European and other foreign-based wire fabricators. The
Companies perform credit evaluations of their customers' financial condition and
generally do not require collateral.
The Companies are wholly-owned subsidiaries of Imetal, SA (Imetal), a
French holding company.
The combined financial position and combined results of operation are
presented in U.S. dollars in accordance with generally accepted accounting
principles governed by U.S. accounting rules.
Effective August 31, 1998, the Corporation sold 100% of the capital stock
of Copperweld Canada, which was acquired on April 25, 1997, to Imetal (Note 2),
the Corporation's parent company. The financial statements for 1998 are
presented as "combined" financial statements, since both entities are under
common control of Imetal. The effect of this combined presentation on the 1997
financial statements was not significant.
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 these estimates.
CASH AND CASH EQUIVALENTS
The Companies' policy is to treat investments with maturities at
acquisition of three months or less as cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market (net realizable
value). Tubing products and copper inventories of U.S. operations are valued on
the last-in, first-out (LIFO) cost method. Tubing products and bimetallic wire
inventories of Canadian and
F-59
<PAGE> 187
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
United Kingdom operations (Note 2) are valued on a first-in, first-out (FIFO)
basis. Other inventories are valued at average cost, or standard cost which
approximates average cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is calculated
on the straight-line method based upon estimated useful lives of five to forty
years for land improvements, three to forty years for buildings and building
equipment and three to thirty years for machinery and equipment.
INTANGIBLES AND OTHER ASSETS
The long-term other asset balance amounted to $31.2 million in 1998, and
$27.2 million in 1997. Of these balances, Goodwill represents $19.2 million and
$16.2 million net of accumulated amortization of $1.5 million and $.6 million
for fiscal years 1998 and 1997 respectively. Goodwill, representing the excess
of cost over the fair value of net tangible and identifiable intangible assets
of acquired businesses, is stated at cost and amortized to expense on a straight
line basis over a period of 20 years. On an ongoing basis, when there are
indicators of impairment such as recurring losses, the Companies evaluate the
carrying value of intangibles resulting from business acquisitions. There has
been no impairment for the years ended December 31, 1998, 1997 and 1996.
REVENUE RECOGNITION
Product sales are recorded at the time of shipment.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of Copperweld Canada and the Corporation's
United Kingdom operation, Sayton Fine Wire Division are translated into U.S.
dollars at current exchange rates (the functional currencies are the Canadian
dollar and the pound sterling, respectively). Revenue and expense accounts of
these operations are translated at average exchange rates prevailing during the
year. These translation adjustments are accumulated in a separate component of
stockholder's equity and included in other comprehensive loss.
Foreign currency transaction gains and losses are included in determining
net income for the year in which the exchange rate changes.
CHANGE IN ACCOUNTING
During 1998, SOP 98-1, Capitalization of Internal Use Software, was early
adopted. The effect of this accounting change was to increase pretax income by
approximately $1.1 million.
F-60
<PAGE> 188
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative instruments and Hedging Activities" which
requires all derivatives to be recognized as either assets or liabilities in the
balance sheet and be measured at fair value. Changes in the fair value of
derivatives will be recognized in net income unless specific hedge accounting
criteria are met. The Companies intend to adopt this statement in 2000 and it is
not expected to have a material impact on the Companies' financial statements.
COMPREHENSIVE INCOME
During 1998, the Corporation adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income. This standard changes the
manner in which the elements of comprehensive income (minimum pension liability
and foreign currency translations) are displayed in the financial statements.
The 1997 and 1996 amounts have been restated to comply with this standard.
NOTE 2. ACQUISITIONS AND DIVESTITURE
On April 25, 1997, the Corporation acquired Ferrum Inc., subsequently
renamed Copperweld Canada Inc., a tubing manufacturing operation located in
Canada, and The Tube and Steel Company of America (TASCOA), a related United
States distribution company. This acquisition was accounted for under the
purchase method of accounting; and accordingly, the results of operations of the
acquired company are included in the combined financial statements from the date
of the acquisition. Total consideration amounted to $98.4 million in cash and
liabilities assumed. Assets and liabilities acquired were adjusted to estimated
fair market value. The excess of the purchase price of $16.3 million is
primarily classified as goodwill and is being amortized over 20 years.
A portion of the acquisition cost was financed through a $25.0 million
capital contribution and a $27.8 million convertible unsecured note from Imetal.
The following unaudited pro forma financial information reflects the
acquisitions as if they had occurred on January 1, 1996 (dollars in millions).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Sales and revenues......... $ 764.8 $ 719.1
Net income................. 34.7 22.7
</TABLE>
The above amounts are based upon certain assumptions and estimates which
the Companies believe are reasonable. The pro forma results do not necessarily
represent results which would have occurred if the acquisitions had taken place
at the date and on the basis assumed above.
Effective August 31, 1998, Imetal acquired 100% of the capital stock of
Copperweld Canada for $44.0 million from the Corporation. Since both entities
are under common control, no gain was recognized for financial statement
purposes. Instead, the proceeds
F-61
<PAGE> 189
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
received of ($44 million), net of income taxes $1.0 million were treated as a
contribution of capital. Cash proceeds from the sale were utilized to pay down
debt incurred during the original acquisition of Copperweld Canada by the
Corporation. Although no longer the legal owner, the Corporation retains
management responsibility for Copperweld Canada.
On March 31, 1998, the Corporation purchased the assets of PVH Copperply,
in the United Kingdom, for $1.2 million. This acquisition was accounted for
under the purchase method of accounting; and accordingly, the results of
operations of the acquired company are included in the combined financial
statements from the date of the acquisition. Substantially all of the purchase
was allocated to goodwill ($1.0 million) and is being amortized over 20 years.
On July 1, 1998, the Corporation purchased 90% of the capital stock of
Sayton Fine Wires Limited, located in Telford, England, for $3.3 million. The
90% net assets interest, at the time of purchase was valued at $.7 million. This
acquisition was accounted for under the purchase method of accounting; and
accordingly, the results of operations of the acquired company are included in
the combined financial statements from the date of the acquisition. Goodwill in
the amount of $2.9 million, resulting from the acquisition, is being amortized
over 20 years.
NOTE 3. INVENTORIES
Inventories at December 31, 1998 and 1997, valued on the basis set forth in
Note 1, were as follows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
LIFO method.................................... $ 52.2 $ 59.3
FIFO and average cost method................... 71.9 54.4
-------- --------
Net inventories.............................. $ 124.1 $ 113.7
======== ========
</TABLE>
NOTE 4. LINE OF CREDIT
During 1996, the Corporation entered into an uncommitted, unsecured
revolving credit agreement with a bank that provides for demand loans, term
loans or letters of credit of up to $10 million. Demand loans bear interest at
the bank's prime rate and may be repaid at the option of the Corporation or upon
demand of the bank. Term loans bear interest at the bank's cost of funds rate
plus .25%, and can have maturities ranging from overnight to 90 days. As of
December 31, 1998 and 1997, there were $6.0 million and $4.0 million,
respectively, of term loans outstanding.
F-62
<PAGE> 190
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997, excluding the line of credit
and current maturities, is summarized by type of borrowing as follows (dollars
in millions):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Bank Debt Agreement, variable interest rates,
payable 1999 through 2002...................... $ 128.4 $ 132.5
Convertible unsecured subordinated
note-parent.................................. 26.1 28.1
-------- --------
Long-term debt................................. $ 154.5 $ 160.6
======== ========
</TABLE>
PAYMENTS
The annual maturities through the year 2007 on long-term debt outstanding,
including debt classified as current maturities, at December 31, 1998, are as
follows: 1999 -- $9.2 million; 2002 -- $128.4 million; 2007 -- $26.1 million.
BANK DEBT AGREEMENT
On April 25, 1997, in connection with the acquisition of Copperweld Canada
and the related U.S. distribution company, the Companies entered into the
Agreement with a group of banks which provides for loans up to a maximum of
$180.0 million through May 27, 2002. The Agreement provides for a Tranche A
facility and a Tranche B facility.
The Tranche A facility provides for loans of up to $100.0 million, with a
$5.0 million reduction on May 27, 1999, a $5.0 million reduction on May 27,
2000, a $10.0 million reduction on May 27, 2001, and a withdrawal of the
commitment on May 27, 2002. Loans under this facility may be repaid and
re-borrowed subject to the commitment available. As of December 31, 1998, there
were $49.2 million of Tranche A loans outstanding. Under the Tranche A facility,
the Companies may select from various published interest rate indices as defined
by the Agreement, to which a premium of between .45% and .70% is added based
upon the attainment of certain financial ratios. At December 31, 1998, the
average interest rate on outstanding borrowings, including the premium and
reduced by the effect of certain interest exchange agreements, was 5.98%.
The Tranche B facility provides for loans of up to $80.0 million which are
subject to renewal by the banks no later than sixteen months prior to the
Tranche B maturity date then in effect, and a final maturity on May 27, 2002.
Loans under this facility may be repaid and re-borrowed subject to the
commitment available. As of December 31, 1998, there were $79.2 million of
Tranche B loans outstanding. Under the Tranche B facility, the Companies may
select from various published interest rate indices as defined by the Agreement,
to which a premium of between .30% and .55% is added based upon the attainment
of certain financial ratios. At December 31, 1998, the average interest rate on
outstanding borrowings, including the premium and reduced by the effect of
certain interest exchange agreements, was 6.04%.
F-63
<PAGE> 191
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Companies are required to pay commitment fees of .20% per annum on the
unused portion of the Tranche A facility, and .15% per annum on the unused
portion of the Tranche B facility.
The Agreement is not secured by any of the assets of the Companies, but
does prohibit the Companies from pledging their assets to any third party. The
Agreement contains restrictive financial covenants including the maintenance of
fixed charge coverage, minimum net worth and debt-to-net worth ratios.
On January 10, 1999, the Corporation became an Additional Borrower in a
Facility Agreement between Imetal, S.A., Scentcount Limited, Societe Generale
(Paris) and Societe Generale, London Branch. This Facility was used to refinance
existing debt of Tranche A and B. The Facility provides for four separate
Tranches, and the Company is authorized to borrow under the Tranche 2 Facility,
which has a total commitment of 595 million Euros, and which has a final
maturity of January 10, 2004.
Loans under this Facility may be repaid and re-borrowed subject to the
commitment available. Under the Tranche 2 Facility, the Corporation may borrow
at the LIBOR rate plus a margin of between .40% and 1.25%, based on the
attainment by Imetal of certain financial ratios.
The Corporation has irrevocably, unconditionally, jointly and severally
guaranteed the obligations of each other Obligor of the Facility.
During May 1999, Copperweld Canada began to borrow directly from Imetal and
repaid all amounts outstanding, as of May 31, 1999, on Tranche A and B loans.
Copperweld Canada borrows at the LIBOR rate plus a margin of between .45% and
1.30%.
CONVERTIBLE UNSECURED SUBORDINATED NOTE -- PARENT
In connection with the acquisition of the Canadian tube manufacturing
operations (April 25, 1997) by the Corporation, Copperweld Canada entered into a
Convertible Unsecured Subordinated Note Agreement with Imetal for $26.1 million.
The note is due in its entirety on June 30, 2007, bears interest at the rate of
7.80%, is convertible to common stock of Copperweld Canada at any time upon
notice by Imetal, and is subordinated to the Companies' bank debt.
NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS
INTEREST EXCHANGE AGREEMENTS
As of December 31, 1998, the Companies had three interest exchange (swap)
agreements in effect, which fixed the interest rate on certain loans, made under
the Agreement. A fixed rate of 5.19%, before premium, was set on $5.0 million of
loans effective December 15, 1995, and continuing until December 15, 2000. A
fixed rate of 5.135%, before premium, was set on $15.0 million of loans
effective February 2, 1998, and continuing until February 2, 1999. A fixed rate
of 4.98%, before premium, was set on $65 million of loans effective February 11,
1998, and continuing until February 11, 1999.
F-64
<PAGE> 192
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FORWARD CURRENCY SALES CONTRACTS
To protect against the reduction in value of foreign currency cash flows,
Copperweld Canada entered into forward currency sales contracts to hedge a
portion of its anticipated export sales in U.S. dollars over the ensuing twelve
months. At December 31, 1998, there were no forward currency sales contracts
outstanding. At December 31, 1997, the contract value of forward currency sales
contracts was $60.5 million, and a loss of $2.1 million was recorded during 1997
to reflect the change in current market rates. Under the Corporation's current
accounting policies, the forward contracts do not qualify as hedges for
financial reporting purposes and accordingly the net difference between the
contract value and the current market value was recorded in the combined balance
sheets, with gains or losses caused by changes in current market rates reflected
directly in income.
NOTE 7. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Companies adopted Statement of Financial Accounting Standards No. 132,
Employees' Disclosures about Pensions and Other Postretirement Benefits, as of
January 1, 1998. Disclosures for 1997 and 1996 have been restated to conform to
current year presentations.
The Companies have several trusteed defined benefit pension plans covering
substantially all employees. Plan assets primarily include marketable debt and
equity securities. Plans covering union represented and non-represented
personnel generally provide benefits using a formula that is based upon employee
compensation. In addition to providing pension benefits, the Companies provide
certain health care and life insurance benefits for eligible retired employees
and their dependents. The cost of these postretirement benefits is recognized by
the Companies during the employees' years of service.
F-65
<PAGE> 193
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the change in benefit obligation, the change
in plan assets, funded status and amounts recognized in the combined balance
sheets of the pension and other postretirement benefits as of December 31, 1998
and 1997 (dollars in millions):
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- ------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of
year............................ $ 144.9 $ 133.4 $ 38.8 $ 41.5
Service cost.................... 4.2 3.5 .8 .9
Interest cost................... 9.7 8.8 2.6 2.5
Participant contributions....... .1 -- -- --
Plan amendments................. .3 -- -- (1.8)
Exchange rate changes........... (2.6) (.8) (.7) (.4)
Curtailment (gain) or loss...... -- -- -- (3.3)
Benefits paid................... (7.5) (6.8) (1.9) (1.8)
Actuarial (gain) or loss........ 5.5 6.8 1.0 1.1
-------- -------- -------- --------
Benefit obligation at end of
year............................ $ 154.6 $ 144.9 $ 40.6 $ 38.7
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year............... $ 138.5 $ 120.0 $ -- $ --
Actual return on plan assets.... 24.1 21.4 -- --
Employer contributions.......... 7.1 5.5 1.9 1.8
Participant contributions....... .1 .1 -- --
Benefits paid................... (7.5) (6.8) (1.9) (1.8)
Administrative expenses......... (1.2) (.6) -- --
Exchange rate changes........... (2.7) (1.0) -- --
-------- -------- -------- --------
Fair value of plan assets at end of
year............................ $ 158.4 $ 138.6 $ -- $ --
RECONCILIATION OF FUNDED STATUS:
Funded status...................... $ 3.8 $ (6.3) $ (40.6) $ (38.7)
Unrecognized actuarial (gain) or
loss............................ (2.0) 3.3 3.3 2.3
Unrecognized transition (asset) or
obligation...................... (1.5) (1.9) -- --
Unrecognized prior service cost.... 5.4 5.7 (2.6) (3.1)
Other.............................. -- -- -- (2.2)
-------- -------- -------- --------
Net amount recognized at
year-end................. $ 5.7 $ .8 $ (39.9) $ (41.7)
======== ======== ======== ========
</TABLE>
F-66
<PAGE> 194
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- ------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
AMOUNTS RECOGNIZED IN THE COMBINED
BALANCE SHEETS CONSIST OF:
Prepaid benefit cost............ $ 8.5 $ 2.0 $ -- $ --
Accrued benefit liability....... (5.0) (7.8) (39.9) (41.7)
Intangible asset................ 0.2 4.7 -- --
Accumulated other comprehensive
income........................ 2.0 1.9 -- --
-------- -------- -------- --------
Net amount recognized at
year-end................. $ 5.7 $ .8 $ (39.9) $ (41.7)
======== ======== ======== ========
Other comprehensive income
attributable to change in
additional minimum liability
recognition........................ $ .1 $ 4.0
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS
--------------------
1998 1997
-------- --------
<S> <C> <C>
ADDITIONAL YEAR-END INFORMATION FOR
PENSION PLANS WITH ACCUMULATED BENEFIT
OBLIGATIONS IN EXCESS OF PLAN ASSETS:
Projected benefit obligation......... $ 36.6 $ 49.0
Accumulated benefit obligation....... 34.0 47.5
Fair value of plan assets............ 30.4 42.3
</TABLE>
The following table summarizes the benefit costs and the assumptions used
in calculating these costs (dollars in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
--------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC
BENEFIT COST:
Service cost..................... $ 4.2 $ 3.5 $ 2.9 $ 0.8 $ 0.9 $ 0.7
Interest cost.................. 9.7 8.8 6.8 2.6 2.5 2.1
Expected return on plan
assets....................... (12.1) (9.5) (7.2) -- -- --
Amortization of prior service
cost....................... 0.6 0.6 0.6 (0.4) (0.4) (0.3)
Amortization of transitional
(asset) or obligation........ (0.4) (0.4) (0.4) -- -- --
Recognized actuarial (gain) or
loss......................... 0.1 0.2 0.4 (0.1) (0.1) --
------- ------- ------- ------- ------- -------
Net periodic benefit
cost.................. $ 2.1 $ 3.2 $ 3.1 $ 2.9 $ 2.9 $ 2.5
WEIGHTED-AVERAGE ASSUMPTIONS AS
OF DECEMBER 31:
Discount rate.................... 6.25%- 7.00% 7.25% 6.25%- 6.25%- 7.25%
6.75% 6.75% 7.00%
Expected long-term rate of return
on plan assets................. 8.00%- 8.00%- 9.50% N/A N/A 7.25%
9.50% 9.50%
Rate of compensation increase.... 4.00%- 4.50%- 6.00% 6.00% 6.00% 6.00%
5.50% 5.50%
</TABLE>
F-67
<PAGE> 195
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For measurement purposes, an 8.5% - 9.0% annual rate of increase for
non-medicare eligible employees, and a 6.5% annual rate of increase for Medicare
eligible employees on the per capita cost of covered health care benefits was
assumed for 1998. The rate is assumed to decrease gradually to 4.0% - 5.5% for
2004 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------------------
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total service and interest cost components
for 1998............................................... $ 0.3 $ (0.2)
Effect on year end 1998 postretirement benefit
obligation........................................... 2.7 (2.3)
</TABLE>
NOTE 8. INCOME TAXES
The composition of the Companies' income tax expense and the reconciliation
of the U.S. federal statutory tax rate are presented below (dollars in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Income tax expense (benefit):
Current: Federal........................................ $15.6 $13.3 $8.5
State and provincial.......................... 2.9 3.9 1.8
----- ----- ----
18.5 17.2 10.3
Deferred: Federal, state and provincial................. .6 1.4 (0.9)
----- ----- ----
Provision for income taxes........................... $19.1 $18.6 $9.4
===== ===== ====
U.S. Federal statutory rate............................... 35.0% 35.0% 35.0%
State and Provincial tax, net of federal tax benefit...... 3.1 5.0 4.1
Reduction of excess federal tax accrual................... 0.0 (1.4) (6.8)
Other..................................................... .1 (1.8) (.2)
----- ----- ----
Effective tax rate...................................... 38.2% 36.8% 32.1%
===== ===== ====
</TABLE>
F-68
<PAGE> 196
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Companies' deferred tax liabilities and
assets as of December 31, 1998 and 1997 are summarized as follows (dollars in
millions):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Deferred tax liabilities:
Excess of book basis over tax basis for fixed assets...... $43.5 $44.6
Excess of pension fund contributions over financial
statement expense...................................... 5.4 3.9
----- -----
48.9 48.5
Deferred tax assets:
Financial statement accruals relating to:
Retirement benefits.................................... 14.4 14.6
Deferred compensation.................................. 2.1 2.0
Contingent liabilities and asset write-downs........... 3.8 4.2
Other.................................................. 3.5 4.8
----- -----
23.8 25.6
----- -----
Deferred income taxes....................................... $25.1 $22.9
===== =====
</TABLE>
F-69
<PAGE> 197
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. OPERATING LEASES
The Companies are obligated under terms on noncancelable operating leases
for future minimum rentals on certain operating equipment and buildings. Total
expense recognized under these operating leases was $4.1 million; $3.5 million,
and $4.5 million during the years ended December 31, 1998, 1997 and 1996 and
future commitments were as follows for the years ending on December 31 (dollars
in millions):
<TABLE>
<CAPTION>
1998
-----
<S> <C>
1999.................................................... $ 4.0
2000.................................................... 3.3
2001.................................................... 2.8
2002.................................................... 2.6
2003.................................................... 2.4
Thereafter.............................................. 10.0
</TABLE>
NOTE 10. CONTINGENT LIABILITIES
CSC BANKRUPTCY
On November 22, 1993, CSC Industries, Inc. (CSC) (a former affiliate of the
Corporation) and its wholly-owned subsidiary, Copperweld Steel Company,
announced that they had filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code. CSC emerged from bankruptcy on
September 28, 1995, however, certain claims against the Corporation regarding
workers' compensation continue to be pursued by a third party, as noted below.
The outcome of this matter is not certain at this time, however, management does
not expect that any potential loss would be significant to the Corporation's
financial statements.
CSC WORKERS' COMPENSATION
During the period 1973 to 1987, under the Corporation's ownership of CSC,
CSC workers' compensation claims were covered under a self-insurance program,
for which the Corporation had provided certain financial guarantees. During
1995, CSC ceased making payments for workers' compensation claims incurred
during the period preceding its bankruptcy in 1993. As a result, during 1996,
the Corporation's insurance carriers were requested by the Ohio Bureau of
Workers' Compensation (OBWC) to honor their surety bonds for the continuing
self-insured claims liability. During 1996, the Corporation recorded a liability
of approximately $3.7 million (included in selling and administrative expenses)
to reflect management's estimate of the amount necessary to settle these claims.
During 1997, one insurance carrier filed a Proof of Claim against the bankrupt
estate of CSC in U.S. Bankruptcy Court. This case was disallowed by the Court
upon the finding that the OBWC had settled and released all of its claims
against the Liquidation Trustee as successor to CSC, although the ruling does
not preclude the OBWC from pursuing its claim outside of the Bankruptcy Court's
jurisdiction. At this time no direct claim or threat has been made by OBWC
against the Corporation. Management believes that no additional material
liabilities will be incurred by the Corporation related to this matter, beyond
the amount recorded in 1996.
F-70
<PAGE> 198
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
In 1987, the Corporation permanently ceased operations at one of its
divisions and sold its assets. In connection with the sale, the Corporation
guaranteed $5.7 million of the acquirer's debt (due in 2012). The principal
portion of this obligation has been defeased through the purchase of a municipal
bond that was placed in an escrow fund. In addition, the Corporation retained a
security interest in the fixed assets of the acquirer in connection with the
guarantee. The amount of loss, if any, in the event that the Corporation's
guarantee is called upon, would be limited to the after-tax amount by which the
loan balance exceeds the related collateral value. In 1993, the Corporation
recorded a reserve in its financial statements of $1.5 million on a pretax basis
as an estimate of its net exposure in the event the Corporation's guarantee is
called upon. The reserve amount continues to be carried in the Corporation's
consolidated balance sheet at December 31, 1998.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments reported in the combined
balance sheets approximate fair values.
NOTE 12. SEGMENT REPORTING
The Companies operate in two reportable segments consisting of Tubing and
Bimetallics. Tubing manufactures and sells a diversified line of steel tubing
products used in the automotive, agricultural and industrial equipment, fluid
power, construction, recreation and office furniture markets. Bimetallics
manufactures and sells copper-clad aluminum and copper-clad steel wire, rod and
strand used in the telecommunications (primarily cable television and telephone)
and utility industries.
Copperweld's reportable segments are strategic business units grouped by
similar products, technologies and manufacturing processes. Segments are managed
separately because each serves a different market and group of customers. The
accounting policies of the segments are the same as those described in the
summary of significant accounting
F-71
<PAGE> 199
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
policies. Segment performance is measured on pretax profit or loss from
operations (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Trade sales....................................... $ 619.4 $ 91.6 $ 711.0
Interest and other income......................... 1.1 0.2 1.3
Interest expense.................................. (7.3) (0.7) (8.0)
Segment income before taxes....................... 37.1 12.8 49.9
Segment assets.................................... 489.9 59.0 548.9
Capital expenditures.............................. 71.0 12.2 83.2
Depreciation and amortization..................... 20.6 2.3 22.9
Assets
Total assets for reportable segments............ 548.9
Intersegment eliminations......................... (17.8)
--------
Consolidated Total.............................. $ 531.1
========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
TUBING BIMETALLICS TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Trade Sales...................................... $ 559.0 $ 103.7 $ 662.7
Interest and other income........................ 0.5 0.3 0.8
Interest expense................................. (7.2) (0.8) (8.0)
Segment income before taxes...................... 33.5 17.0 50.5
Segment assets................................... 431.1 41.2 472.3
Capital expenditures............................. 27.2 3.6 30.8
Depreciation and amortization.................... 18.0 1.8 19.8
Assets
Total assets for reportable segments........... 472.3
Intersegment eliminations........................ (0.1)
--------
Consolidated Total............................. $ 472.2
========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------
TUBING BIMETALLICS TOTAL
------ ----------- ------
<S> <C> <C> <C>
Trade sales......................................... $328.4 $99.4 $427.8
Interest and other income........................... 0.2 0.3 0.5
Interest expense.................................... (4.0) (0.5) (4.5)
Segment income before taxes......................... 13.6 15.6 29.2
Segment assets...................................... 228.0 37.1 265.1
Capital expenditures................................ 9.1 1.1 10.2
Depreciation and amortization....................... 11.1 1.7 12.8
Assets
Total assets for reportable segments and
consolidated total............................. $265.1
======
</TABLE>
F-72
<PAGE> 200
COPPERWELD CORPORATION AND COPPERWELD CANADA INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States........ $ 441.4 $ 226.0 $ 498.4 $ 168.2 $ 427.8 $ 144.6
Canada............... 269.6 87.5 164.3 87.6 0 0
-------- -------- -------- -------- -------- --------
$ 711.0 $ 313.5 $ 662.7 $ 255.8 $ 427.8 $ 144.6
======== ======== ======== ======== ======== ========
</TABLE>
NOTE 13. OTHER INFORMATION
SUPPLEMENTAL INCOME
Supplemental income and cash flow information relating to operations for
the years ended December 31, 1998 and 1997 is as follows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Capitalized interest....................................... $ 1.7 $ 0.2 $ 0.1
Interest paid.............................................. $ 11.2 $ 7.1 $ 4.3
Income taxes paid.......................................... $ 18.1 $ 15.7 $ 11.4
</TABLE>
NOTE 14. EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended December 31, 1998,
1997 and 1996, were not presented because the information would not be
meaningful to the users of the combined financial statements due to the nature
of the capital structure of the Companies.
F-73
<PAGE> 201
WELDED TUBE CO. OF AMERICA
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30
1999
---------------------
(In Thousands, Except
Share Information)
<S> <C>
ASSETS
Current assets
Cash...................................................... $ 40
Trade accounts receivable, less allowance for doubtful
accounts of $344....................................... 12,945
Inventories............................................... 31,363
Refundable income taxes from affiliate.................... 1,026
Prepaid expenses.......................................... 3,036
--------
Total current assets.............................. 48,410
Property, plant and equipment............................... 127,788
Less allowance for depreciation and amortization............ (22,432)
--------
Total property, plant and equipment............... 105,356
Note receivable from employee............................... 300
Patent, net of accumulated amortization of $600............. 4,866
--------
$158,932
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable.......................................... $ 16,363
Line of credit............................................ 5,000
Accrued expenses.......................................... 4,010
Deferred income taxes..................................... 3,134
Capital leases............................................ 2,774
--------
Total current liabilities......................... 31,281
Due to affiliates -- net.................................... 50,336
Deferred income taxes....................................... 7,835
Other....................................................... 706
--------
58,877
Shareholder's equity
Common stock; $1 par value; 1,000 shares authorized,
issued, and outstanding................................ 1
Additional paid-in capital................................ 33,429
Retained earnings......................................... 35,344
--------
Total shareholder's equity........................ 68,774
--------
Total liabilities and shareholder's equity........ $158,932
========
</TABLE>
See accompanying notes.
F-74
<PAGE> 202
WELDED TUBE CO. OF AMERICA
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
Net sales................................................... $33,228 $36,350
Cost of products sold....................................... 30,122 30,177
------- -------
Gross margin................................................ 3,106 6,173
Selling, general, and administrative expenses............... 4,295 4,027
Start-up expenses for Portland facility..................... 746
Goodwill amortization....................................... 209
------- -------
Income (loss) from operations............................. (1,189) 1,191
Other income (expense):
Interest and other income................................. 8 8
Interest expense.......................................... (780) (123)
Interest income -- Affiliates............................. 139 50
------- -------
Total other expense............................... (633) (65)
------- -------
Income (loss) before income taxes........................... (1,822) 1,126
Income tax (benefit) provision.............................. (712) 614
------- -------
Net income (loss)........................................... (1,110) 512
Retained earnings at beginning of period.................... 36,454 35,501
------- -------
Retained earnings at end of period.......................... $35,344 $36,013
======= =======
</TABLE>
See accompanying notes.
F-75
<PAGE> 203
WELDED TUBE CO. OF AMERICA
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
------------------
1999 1998
------- -------
(In Thousands)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... 1,827 (44)
INVESTING ACTIVITIES
Purchases of plant and equipment............................ (2,728) (2,820)
------ ------
Net cash used in investing activities....................... (2,728) (2,820)
FINANCING ACTIVITIES
Increase in amounts due to affiliates....................... (1,113) 2,893
Borrowings on line of credit................................ 2,000 250
Payments on capital lease obligations....................... (238) (304)
------ ------
Net cash provided by financing activities................... 649 2,839
------ ------
Net decrease in cash........................................ (252) (25)
Cash at beginning of period................................. 292 409
------ ------
Cash at end of period....................................... $ 40 $ 384
====== ======
</TABLE>
See accompanying notes.
F-76
<PAGE> 204
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
On October 1, 1999, The LTV Corporation acquired all of the capital stock
of Welded Tube Holdings, Inc. (formerly ANI America Holdings, Inc.) for a cash
purchase price of $113.5 million subject to certain working capital adjustments.
The assets of Welded Tube Holdings, Inc. consisted of its investment in its
wholly owned subsidiary, Welded Tube Co. of America, (the "Company"), and a
patent used by the Company.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do no include all of the information and disclosures
required by generally accepted accounting principles for complete financial
statements. All adjustments that are, in the opinion of management, necessary
for a fair presentation have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for the interim periods
are not necessarily indicative of results of operations for a full year.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Raw materials......................................... $16,661
Work-in-process and finished goods.................... 12,331
Supplies.............................................. 2,371
-------
$31,363
=======
</TABLE>
The September 30, 1999 LIFO value of inventories approximates the FIFO cost
of inventories.
3. LINE OF CREDIT
The Company had $5,000 borrowed under a $5,000 unsecured line-of-credit
facility from a bank that expired on September 30, 1999. Borrowings were due on
demand, were guaranteed by Smorgon Steel Group Limited, and bore interest, at
the Company's option, at the bank's base rate (8.25% at September 30, 1999) or a
fixed rate equal to the Eurodollar rate (5.41% at September 30, 1999) plus
0.35%. The average borrowing rate during the three months ended September 30,
1999 was 8.2%. All borrowings under the line of credit were repaid concurrent
with The LTV Corporation transaction on October 1, 1999.
F-77
<PAGE> 205
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. TRANSACTIONS WITH AFFILIATES
At September 30, 1999 the Company had interest bearing and
non-interest-bearing advances of $45,033 and $13,402, respectively, from
affiliates. The Company capitalized $353 of such interest during the three
months ended September 30, 1998. No interest was capitalized in the three months
ended September 30, 1999. The Company also has a receivable from an affiliate of
$8,099 at September 30, 1999 bearing interest at 7%. All advances to/from
affiliates were repaid concurrent with The LTV Corporation transaction on
October 1, 1999.
The Company was charged management fees from two of its affiliates for
certain administrative services performed on behalf of the Company. The total
amount of management fees charges to the Company during the three months ended
September 30, 1999 and 1998 were $242 and $408, respectively.
Approximately $184 and $207 of the Company's net sales during the three
months ended September 30, 1999, and 1998, respectively, were made to an
affiliated entity.
F-78
<PAGE> 206
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Welded Tube Co. of America
We have audited the accompanying balance sheet of Welded Tube Co. of America as
of June 30, 1999, and the related statements of operations and retained earnings
and of cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Welded Tube Co. of America at
June 30, 1999, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Cleveland, Ohio
December 10, 1999
F-79
<PAGE> 207
WELDED TUBE CO. OF AMERICA
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE INFORMATION)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 292
Trade accounts receivable, less allowance for doubtful
accounts of $254....................................... 13,606
Inventories............................................... 26,400
Refundable income taxes from affiliate.................... 1,082
Prepaid expenses.......................................... 1,072
---------
Total current assets.............................. 42,452
PROPERTY, PLANT AND EQUIPMENT:
Land...................................................... 3,323
Buildings and improvements................................ 24,560
Machinery and equipment................................... 51,584
Office equipment.......................................... 3,316
Construction in progress.................................. 41,633
---------
124,416
Less allowances for depreciation and amortization......... 21,428
---------
Property, plant and equipment -- net...................... 102,988
OTHER ASSETS:
Patent, net of accumulated amortization of $388........... 5,077
Notes receivable from employee............................ 300
---------
$ 150,817
=========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 10,910
Line of credit............................................ 3,000
Accrued expenses.......................................... 3,490
Deferred income taxes..................................... 3,134
Capital leases............................................ 3,012
---------
Total current liabilities......................... 23,546
Due to affiliates -- net.................................... 48,847
Deferred income taxes....................................... 7,835
Other....................................................... 705
---------
57,387
SHAREHOLDER'S EQUITY:
Common stock -- $1 par value; 1,000 shares authorized,
issued, and outstanding................................ 1
Additional paid-in capital................................ 33,429
Retained earnings......................................... 36,454
---------
Total shareholder's equity........................ 69,884
---------
Total liabilities and shareholder's equity........ $ 150,817
=========
</TABLE>
See accompanying notes to financial statements.
F-80
<PAGE> 208
WELDED TUBE CO. OF AMERICA
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1999
--------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Net sales................................................... $131,632
Cost of products sold....................................... 110,897
--------
Gross margin................................................ 20,735
Selling, general, and administrative expenses............... 15,493
Start-up expenses for Portland facility..................... 3,245
Goodwill amortization -- July 1, 1998 to January 14, 1999... 417
--------
Income from operations...................................... 1,580
Other income (expense):
Interest income -- Affiliates............................. 527
Interest expense on line of credit........................ (553)
Interest and other income................................. 402
--------
Total other income (expense)...................... 376
--------
Income before income taxes.................................. 1,956
Provision for income taxes.................................. 1,003
--------
Net income.................................................. 953
Retained earnings at July 1, 1998........................... 35,501
--------
Retained earnings at June 30, 1999.......................... $ 36,454
========
</TABLE>
See accompanying notes to financial statements.
F-81
<PAGE> 209
WELDED TUBE CO. OF AMERICA
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1999
--------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 953
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 3,151
Amortization.............................................. 1,263
Deferred income taxes..................................... 485
Changes in operating assets and liabilities:
Trade accounts receivable.............................. 661
Inventories............................................ 2,515
Prepaid expenses....................................... (728)
Accounts payable and accrued expenses.................. (1,940)
-------
Net cash provided by operating activities................... 6,360
INVESTING ACTIVITIES
Purchases of plant and equipment, primarily Portland
facility.................................................. (24,061)
Proceeds from sale of land.................................. 1,937
-------
Net cash used in investing activities....................... (22,124)
FINANCING ACTIVITIES
Increase in amount due to affiliates........................ 16,415
Borrowings on line of credit................................ 500
Payments on capital lease obligations....................... (1,269)
-------
Net cash provided by financing activities................... 15,646
-------
Net decrease in cash........................................ (118)
Cash at July 1, 1998........................................ 410
-------
Cash at June 30, 1999....................................... $ 292
=======
</TABLE>
See accompanying notes to financial statements.
F-82
<PAGE> 210
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(All dollar amounts are in thousands)
NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The Company manufactures structural steel tubing at its primary facility
located in Chicago, Illinois. The Company's customers, including distributors
and contractors, are located primarily within the United States. In 1998, the
Company began construction of another manufacturing facility in Portland,
Oregon. On July 15, 1999, the new Portland facility commenced operations.
Non-capitalizable supplies, overhead, indirect labor and other expenses incurred
during the Portland facility construction period have been expensed in the 1999
statement of operations.
During the period from July 1, 1998 to January 13, 1999, the Company was a
wholly owned subsidiary of ANI America Holdings, Inc., which is a subsidiary of
Australian National Industries Limited, which is incorporated in Australia. On
January 14, 1999, Smorgon Steel Group Limited (Smorgon), also incorporated in
Australia, acquired for cash all of the capital stock of Australia National
Industries Limited.
Smorgon allocated the purchase price to the fair value of the Company's
tangible assets, a proprietary patent relating to the Company's production
process and the Company's liabilities. No goodwill was recorded related to the
transaction. Management believes the January 14, 1999 recorded values of the
Company's tangible assets, patent and liabilities approximated the respective
fair values, except for inventories, which were written-up by $2,619.
Accordingly, the recorded historical values of the Company, except inventories,
have not been adjusted.
During the period from July 1, 1998 through January 14, 1999, the Company
recorded $417 of amortization of goodwill (40 year useful life) pertaining to
the 1995 acquisition of the Company's capital stock by ANI America Holdings,
Inc.
On October 1, 1999, The LTV Corporation acquired all of the capital stock
of Welded Tube Holdings, Inc., formerly ANI America Holdings, Inc., for a cash
purchase price of $113.5 million, subject to certain working capital
adjustments, which consisted of its investment in its wholly owned subsidiary,
Welded Tube Co. of America (the "Company"), and a patent used by the Company.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
F-83
<PAGE> 211
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company sells to a large number of customers within the steel industry.
Credit evaluations are ongoing and collateral or other security is generally not
required on trade accounts receivable. An allowance for doubtful accounts is
maintained at a level management believes is sufficient to cover potential
credit losses.
RISKS AND UNCERTAINTIES
The Company relies on several key vendors to supply its primary raw
material needs. There are several manufacturers who are capable of supplying
these needs, and management of the Company believes that raw material suppliers
are easily interchangeable on comparable terms. However, abrupt changes in the
supply flow could cause delays in manufacturing, which could result in the
Company's inability to meet scheduled sales commitments or could result in the
loss of sales, which would adversely affect the Company's operating results.
Approximately two-thirds of the Company's workforce (which represents
substantially all of the Company's direct labor) is subject to a collective
bargaining agreement with the International Brotherhood of Teamsters Local No.
714 that expires in February 2002.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
primarily by the "last-in, first-out" ("LIFO") method. Other inventories are
valued on a "first-in, first-out" ("FIFO") basis.
LONG-LIVED ASSETS
Property, plant and equipment additions are recorded at cost and are
depreciated using the straight-line method over their estimated useful lives
(ranging from 3 to 5 years for light equipment, 10 to 20 years for heavy
equipment and 10 to 40 years for buildings). All leasehold improvements, which
are included in the "buildings and improvements" caption of the balance sheet,
are amortized using the straight-line method over the shorter of their useful
lives or the remaining terms of the relevant leases. Amortization of assets held
under capital leases is included in depreciation expense.
The ongoing value and remaining useful life of long-lived assets, including
the property, plant, and equipment and patent, are subject to periodic
evaluation for impairment, and the Company currently expects the carrying
amounts to be fully recoverable. If events and circumstances indicate that
assets might be impaired, an undiscounted cash flows methodology would be used
to determine whether an impairment loss should be recognized.
F-84
<PAGE> 212
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
The patent used by the Company is being amortized over its remaining life
through 2005.
INCOME TAXES
The Company's operations were included in the consolidated income tax
returns filed by its parent, ANI America Holdings, Inc. The provision for income
taxes is based on earnings reported in these financial statements and assumes
that the Company filed a separate income tax return. Amounts for income taxes
were paid to the parent company.
Deferred income tax assets and liabilities are determined by applying
currently enacted tax laws and rates to the cumulative temporary differences
between the carrying value of assets and liabilities for financial statement and
income tax purposes. Deferred income tax provision or benefit is measured by the
net change in deferred income tax asset and liability accounts during the year.
REVENUE RECOGNITION
Revenue is recognized when products are shipped to customers.
ADVERTISING COSTS
The Company charges the cost of advertising ($109 in 1999) to expense in
the year it is incurred.
NOTE 3. INVENTORIES
Inventories consist of the following at June 30, 1999:
<TABLE>
<S> <C>
Raw materials.............................. $10,763
Work-in-process and finished goods......... 13,472
Supplies................................... 2,165
-------
$26,400
=======
</TABLE>
The June 30, 1999 LIFO value of inventories approximates the FIFO cost of
inventories.
In conjunction with the January 14, 1999 acquisition of the Company by
Smorgon, the values assigned to work-in-process and finished goods inventories
included $2,619 of profits earned in the production of inventories prior to the
date of acquisition. As a result of quantity liquidation during the period from
January 14, 1999 to June 30, 1999, $462 of the profits earned in the production
of inventories has been included in the "cost of products sold" caption of the
statement of operations.
F-85
<PAGE> 213
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
NOTE 4. LINE OF CREDIT
The Company had a $5,000 unsecured line-of-credit facility from a bank
which expired on September 30, 1999. Borrowings were due on demand, were
guaranteed by Smorgon, and bore interest, at the Company's option, at the bank's
base rate (7.75% at June 30, 1999) or a fixed rate equal to the Eurodollar rate
(5.10% at June 30, 1999) plus 0.35%. The Company had $3,000 of outstanding
borrowings under this line of credit facility at June 30, 1999. The average
borrowing rate during 1999 was 6.6%. The Company paid $433 in interest on its
borrowings. All borrowings were repaid concurrent with The LTV Corporation
transaction on October 1, 1999.
NOTE 5. TRANSACTIONS WITH AFFILIATES
At June 30, 1999, the "due to affiliates -- net" caption of the balance
sheet includes the interest bearing (5.43%) advances from an affiliate of
$43,179, which were used principally to fund construction of the Portland
facility. The Company capitalized all $1,529 of such interest during the year
ended June 30, 1999 and the interest was added to the principal balance of
affiliate advances. Other amounts included in the "due to affiliates -- net"
caption are a non-interest bearing advance from an affiliate of $13,203 and a
receivable from an affiliate of $7,535 bearing interest at 7%. All advances
to/from affiliates were repaid concurrent with The LTV Corporation transaction
on October 1, 1999.
The Company was charged management fees from two of its affiliates for
certain administrative services performed on behalf of the Company. The total
amount of management fees charged to the Company during 1999 was $1,827.
Approximately $586 of the Company's net sales during the year ended June
30, 1999 were made to an affiliated entity.
NOTE 6. INCOME TAXES
The provision for income taxes consists of the following for the year ended
June 30, 1999:
<TABLE>
<S> <C>
Current:
Federal................................... $ 453
State..................................... 65
Deferred:
Federal................................... 424
State..................................... 61
------
$1,003
======
</TABLE>
F-86
<PAGE> 214
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
The income tax effects of the factors accounting for the differences
between federal income tax computed at the statutory rate and the recorded
provisions are follows:
<TABLE>
<S> <C>
Tax provision at statutory rate............. $ 665
Increases resulting from:
Goodwill amortization....................... 162
State taxes, net of federal benefit......... 98
Non-deductible expenses..................... 78
------
$1,003
======
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows at June 30, 1999:
<TABLE>
<S> <C>
Deferred income tax assets:
Employee benefits liabilities................. $ 683
Allowance for doubtful accounts............... 99
-------
Total deferred income tax assets................ 782
Deferred income tax liabilities:
Excess tax depreciation over book............. 7,835
Capital leases................................ 1,445
Inventories................................... 2,471
-------
Total deferred income tax liabilities........... 11,751
-------
Net deferred income tax liabilities............. $10,969
=======
</TABLE>
The Company made income tax payments to its parent of $1,553 in 1999 and $1,082
will be refunded to The LTV Corporation upon final determination of the working
capital adjustments described in Note 1.
NOTE 7. COMMITMENTS AND LEASE OBLIGATIONS
The Company leases certain buildings, machinery and equipment, and office
equipment under operating leases. Future minimum rental payments under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year at June 30, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................ $ 100
2001........................................ 84
2002........................................ 75
2003........................................ 69
2004........................................ 69
2005 and thereafter......................... 1,518
------
$1,915
======
</TABLE>
Total rent expense for all leases (including $979 of month-to-month
warehouse rentals) amounted to approximately $1,087 in 1999.
F-87
<PAGE> 215
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1999
The Company leased certain machinery and equipment under a capital lease.
Future minimum lease payments of $3,085 (including $73 of interest payments) are
payable in fiscal year 2000. The net book value of assets under capital leases
was $6,717 at June 30, 1999.
During 1999, the Company received an advance of $760 from its electric
power supplier in Portland, Oregon, in exchange for the Company's commitment to
purchase its electric power requirements (subject to defined minimum amounts
which increase over the contract period). The Company has committed to purchase
such electricity from January 1999 through June 2005, provided the Portland
public utilities are de-regulated. The Company must purchase electrical power at
the rate of thirty-three dollars per megawatt hour or at an alternative rate
equivalent to the then market price of electric power plus two dollars per
megawatt hour, at the election of the power supply company. The Company
recognizes the advance of $760 as income based on the defined minimum amounts
over the term of the agreement. As of June 30, 1999, the Company has recognized
$18 of income as a result of this agreement.
NOTE 8. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) defined-contribution plan for the benefit of
substantially all of its nonunion employees. Under the plan, the Company matches
employee contributions, up to a maximum of 4% of each employee's salary.
The Company also maintains a defined-contribution plan that provides
retirement benefits to eligible employees who are members of the International
Brotherhood of Teamsters Local No. 714. The Company makes contributions to a
trust on behalf of each eligible employee at the rate of approximately one
hundred dollars per month, in accordance with the terms of the Company's union
contract. In addition, the Company matches one-half of employee contributions,
up to a maximum of 4% of each employee's salary.
Total contributions to these plans were $583 in 1999.
F-88
<PAGE> 216
- ------------------------------------------------------
- ------------------------------------------------------
WE ARE OFFERING TO SELL, AND ARE SEEKING OFFERS TO BUY, THE SECURITIES ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER IMPLIES THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE LTV CORPORATION OR THAT THE INFORMATION SET FORTH
IN THIS PROSPECTUS IS CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
YOU SHOULD RELY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information..... 1
Forward-Looking Statements.............. 1
Prospectus Summary...................... 3
Risk Factors............................ 13
Use of Proceeds......................... 23
The Acquisitions........................ 24
Common Stock Price Range and Dividends
Policy................................ 29
Capitalization.......................... 30
Unaudited Pro Forma Combined Financial
Information........................... 31
Selected Consolidated Financial
Information and Certain Operating Data
of The LTV Corporation................ 37
Management's Discussion and Analysis of
Results of Operations and Financial
Condition of The LTV Corporation...... 40
Selected Combined Financial Information
and Certain Operating Data of
Copperweld............................ 58
Business................................ 61
Management.............................. 85
Description of Preferred Stock.......... 88
Description of New Bank Financing....... 101
Description of New Senior Notes......... 102
Description of Certain Other
Indebtedness.......................... 104
Description of Capital Stock............ 110
United States Federal Income Tax
Considerations........................ 115
Selling Stockholders.................... 122
Plan of Distribution.................... 123
Legal Matters........................... 124
Experts................................. 124
Notice of Transfer..................Appendix A
Index to Financial Statements........... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,600,000 shares of
8 1/4% Series A Cumulative
Convertible Preferred Stock
convertible into Common Stock of
The LTV Corporation
[LTV LOGO]
-------------------------
PROSPECTUS
-------------------------
--, 2000
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 217
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following is a statement of estimated expenses to be paid by the
Registrant in convection with the issuance and distribution of the securities
being registered.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 21,120
Printing and engraving expenses............................. $ 50,000
Legal fees and expenses of LTV.............................. $ 40,000
Accountants' fees and expenses.............................. $ 50,000
Miscellaneous............................................... $ 5,000
--------
Total.................................................. $166,120
========
</TABLE>
ITEM 15. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporations Law ("Delaware Law")
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision may not eliminate or limit the liability
of a director for any breach of the director's duty of loyalty to the
corporation or its stockholders, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for the
payment of unlawful dividends, or for any transaction from which the director
derived an improper personal benefit.
Section 145 of the Delaware Law permits a corporation to indemnify any of
its directors or officers who was or is a party, or is threatened to be made a
party to any third party proceeding by reason of the fact that such person is or
was a director or officer of the corporation, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reason to believe that such person's conduct was unlawful. In a derivative
action, i.e., one by or in the right of a corporation, the corporation is
permitted to indemnify directors and officers against expenses (including
attorneys' fees) actually and reasonably incurred by them in connection with the
defense or settlement of an action or suit if they acted in good faith and in a
manner that they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors or officers are fairly
and reasonably entitled to indemnity for such expenses despite such adjudication
of liability. A corporation may purchase indemnity insurance.
The Company's Amended and Restated Certificate of Incorporation provides in
effect for the indemnification by the Company of each director and officer of
the Company to the fullest extent permitted by applicable law.
II-1
<PAGE> 218
ITEM 16. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ------- --------
<C> <S>
1.1 Registration Rights Agreement dated as of November 2, 1999
among The LTV Corporation and the Initial Purchasers
4.1* Certificate of Designations for the Preferred Stock, dated
as of November 5, 1999
4.2 Form of Preferred Stock (included in Exhibit 4.1)
5.1 Opinion of Davis Polk & Wardwell regarding the validity of
the Preferred Stock and Common Stock being registered
12.1 Statement Re: Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
23.1 Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1 above)
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney for LTV (included on the signature page of
this registration statement)
</TABLE>
- -------------------------
* Previously filed.
ITEM 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
of any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 219
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provision, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 220
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, Ohio, on the eighteenth day of December,
1999.
THE LTV CORPORATION
By: /s/ GLENN J. MORAN
------------------------------------
Glenn J. Moran
Senior Vice President, General Counsel
and Secretary
The registrant and each person whose signature appears below constitutes
and appoints Glenn Moran his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign and file (i) a
registration statement, and any and all amendments, thereto, relating to the
offering covered hereby filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and (ii) any and all amendments (including post-effective
amendments) to this registration statement, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PETER KELLY Chairman of the Board of Directors and December 18, 1999
- --------------------------------------------------- Chief Executive Officer
Peter Kelly
/s/ GLENN J. MORAN Senior Vice President, General Counsel December 18, 1999
- --------------------------------------------------- and Secretary
Glenn J. Moran
/s/ ERIC W. EVANS Vice President and Controller December 18, 1999
- ---------------------------------------------------
Eric W. Evans
/s/ GEORGE T. HENNING Vice President and Chief Financial December 18, 1999
- --------------------------------------------------- Officer
George T. Henning
/s/ COLIN C. BLAYDON Director December 18, 1999
- ---------------------------------------------------
Colin C. Blaydon
/s/ WILLIAM H. BRICKER Director December 18, 1999
- ---------------------------------------------------
William H. Bricker
/s/ JOHN E. JACOB Director December 18, 1999
- ---------------------------------------------------
John E. Jacob
</TABLE>
II-4
<PAGE> 221
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EDWARD C. JOULLIAN III Director December 18, 1999
- ---------------------------------------------------
Edward C. Joullian III
/s/ M. THOMAS MOORE Director December 18, 1999
- ---------------------------------------------------
M. Thomas Moore
/s/ VINCENT A. SARNI Director December 18, 1999
- ---------------------------------------------------
Vincent A. Sarni
/s/ SAMUEL K. SKINNER Director December 18, 1999
- ---------------------------------------------------
Samuel K. Skinner
/s/ STEPHEN B. TIMBERS Director December 18, 1999
- ---------------------------------------------------
Stephen B. Timbers
/s/ FARAH M. WALTERS Director December 18, 1999
- ---------------------------------------------------
Farah M. Walters
</TABLE>
II-5
<PAGE> 222
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ------- --------
<C> <S>
1.1 Registration Rights Agreement dated as of November 2, 1999
among The LTV Corporation and the Initial Purchasers
4.1* Certificate of Designations for the Preferred Stock, dated
as of November 5, 1999
4.2 Form of Preferred Stock (included in Exhibit 4.1)
5.1 Opinion of Davis Polk & Wardwell regarding the validity of
the Preferred Stock and Common Stock being registered
12.1 Statement Re: Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
23.1 Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1 above)
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney for LTV (included on the signature page of
this registration statement)
</TABLE>
- -------------------------
* Previously filed.
<PAGE> 1
Exhibit 1.1
EXECUTION COPY
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated November 2, 1999
among
THE LTV CORPORATION
and
MORGAN STANLEY & CO. INCORPORATED
and
CREDIT SUISSE FIRST BOSTON CORPORATION
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into November 2, 1999, among THE LTV CORPORATION, a Delaware corporation (the
"Company"), and MORGAN STANLEY & CO. INCORPORATED and CREDIT SUISSE FIRST BOSTON
CORPORATION (the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated November
2, 1999, among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of up to 1,840,000 shares (including up to 240,000 shares that the
Company has granted the Initial Purchasers an option to purchase pursuant to
the Purchase Agreement) of its 8 1/4% Series A Cumulative Convertible Preferred
Stock, par value $1.00 per share (the "Preferred Stock"). The Preferred Stock
will be convertible into shares of Common Stock, par value $0.50 per share, of
the Company (the "Common Stock") at the conversion price set forth in the Final
Memorandum (as defined in the Purchase Agreement). For purposes of this
Agreement, the term "Securities" refers to the Preferred Stock, all shares of
Common Stock issued (i) as dividends thereon, (ii) on conversion thereof or
(iii) in redemption thereof, and any securities into which such shares of
Preferred Stock or Common Stock shall be converted or into which they shall be
changed by operation of law or otherwise. In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide to the Initial Purchasers and their direct and indirect transferees the
registration rights set forth in this Agreement. The execution of this
Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Certificate of Designations" shall mean the Certificate of
Designations of 8 1/4% Series A Cumulative Convertible Preferred Stock
setting forth the Powers, Preferences, Rights, Qualifications, Limitations
and Restrictions of such Preferred Stock dated November 5, 1999 relating to
the Preferred Stock.
"Closing Date" shall mean the Closing Date as defined in the Purchase
Agreement.
"Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"Damage Payment Date" shall mean each quarterly dividend payment date
set for in the Certificate of Designations.
"Holder" shall mean the Initial Purchasers, for so long as they own
any Registrable Securities, and each of their successors, assigns and
direct and indirect
<PAGE> 3
2
transferees who become registered owners of Registrable Securities under the
Certification of Designations.
"Initial Purchasers" shall have the meaning set forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the aggregate
principal amount of outstanding Registrable Securities; provided that whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or any of its affiliates (as such term is defined in Rule 405 under the 1933
Act) (other than the Initial Purchasers or subsequent Holders of Registrable
Securities if such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage or amount.
"Person" shall mean an individual, partnership, limited liability company,
corporation, trust or unincorporated organization, or a government or agency
or political subdivision thereof.
"Preferred Stock" shall have the meaning set forth in the preamble.
"Purchase Agreement" shall have the meaning set forth in the preamble.
"Prospectus" shall mean the prospectus included in a Shelf Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to such prospectus, and in each case including
all material incorporated by reference therein.
"Registrable Securities" shall mean the Securities; provided, however,
that the Securities shall cease to be Registrable Securities (i) when a Shelf
Registration Statement with respect to such Securities shall have been declared
effective under the 1933 Act and such Securities shall have been disposed of
pursuant to such Shelf Registration Statement, (ii) when such Securities have
been sold to the public pursuant to Rule 144(k) (or any similar provision then
in force, but not Rule 144A) under the 1933 Act or (iii) when such Securities
shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any of the
Registrable Securities), (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, printing and distributing any Shelf
Registration Statement, any Prospectus, any amendments or supplements thereto,
any underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) the
fees and disbursements of the Transfer Agent and its counsel, (v) the fees and
disbursements of counsel for the Company and the fees and disbursements of one
counsel for the Holders (which counsel shall be selected by the
<PAGE> 4
3
Majority Holders and which counsel may also be counsel for the Initial
Purchasers) and (vi) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the underwriters
(other than fees and expenses set forth in clause (ii) above) or the
Holders and underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a
Holder.
"Securities" shall have the meaning set forth in the preamble.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(a) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(a) of this
Agreement which covers all of the Registrable Securities (but no other
securities unless approved by the Holders whose Registrable Securities are
covered by such Shelf Registration Statement) on an appropriate form under
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Transfer Agent" shall mean the transfer agent with respect to the
Securities.
"Underwriter" shall have the meaning set forth in Section 3 hereof.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration in which Registrable Securities are sold to an Underwriter for
reoffering to the public.
2. Registration Under the 1933 Act.
(a) The Company shall prepare, and not later than 90 days following
the date of original issuance of the Preferred Stock, shall file with the SEC,
a Shelf Registration Statement providing for the sale by the Holders of all of
the Registrable Securities. The Company shall cause the Shelf Registration
Statement to be declared effective on or prior to 180 days after the date of
original issuance of the Preferred Stock. The Company agrees to use its best
efforts to keep the Shelf Registration Statement continuously effective for two
years from the date the Shelf Registration Statement is declared effective by
the SEC or such shorter period that will terminate when all of the Registrable
Securities covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement. The Company shall be deemed not to have
used its best efforts to keep the Shelf Registration Statement effective during
the requisite period if it voluntarily takes any action that would result in
Holders of Registrable Securities covered thereby not being able to offer and
sell such Registrable Securities during that period, unless (A) such action is
required by applicable law; or (B) such action is taken by the Company in good
faith and for valid business reasons (not including avoidance of the Company's
obligations hereunder), including the acquisition or divestiture of assets, so
long as the Company promptly thereafter complies with the requirements of
Section 3(e)(v) and Section 3(i) hereof, if applicable. The Company further
agrees to supplement or amend the Shelf Registration Statement if required by
the rules, regulations or instructions applicable to the registration form
<PAGE> 5
4
used by the Company for such Shelf Registration Statement or by the 1933 Act or
by any other rules and regulations thereunder for shelf registration or if
reasonably requested by a Holder with respect to information relating to such
Holder, and to use its best efforts to cause any such amendment to become
effective and such Shelf Registration Statement to become usable as soon as
thereafter practicable. The Company agrees to furnish to the Holders of
Registrable Securities copies of any such supplement or amendment promptly
after its being used or filed with the SEC.
(b) The Company shall pay all Registration Expenses in connection with the
registration pursuant to Section 2(a). Each Holder shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to the Shelf
Registration Statement.
(c) A Shelf Registration Statement pursuant to Section 2(a) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement
is interfered with by any stop order, injunction or other order or requirement
of the SEC or any other governmental agency or court, such Shelf Registration
Statement will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Shelf Registration Statement may legally resume.
(d) If (i) on or prior to the 90th day following the date of original
issuance of the Preferred Stock, a Shelf Registration Statement has not been
filed with the SEC, (ii) on or prior to the 180th day following the date of
original issuance of the Preferred Stock, a Shelf Registration Statement has
not been declared effective by the SEC or (iii) after a Shelf Registration
Statement has been declared effective by the SEC, such Shelf Registration
Statement thereafter ceases to be effective or usable (except as provided in
the second to last paragraph of Section 3) in connection with resales of the
Registrable Securities during the period specified in the third sentence of
Section 2(a) (each such event referred to in clauses (i) through (iii) above, a
"Registration Default"), liquidated damages ("Preferred Stock Liquidated
Damages") will accrue on the liquidation preference of the Preferred Stock from
and including the date on which any such Registration Default shall occur to
but excluding the date on which all Registration Defaults have been cured.
Preferred Stock Liquidated Damages will accrue at a rate of .25% per annum of
the liquidation preference of the Preferred Stock during the 90-day period
immediately following the occurrence of any Registration Default and shall
increase by .25% per annum of the liquidation preference of the Preferred Stock
at the end of each subsequent 90-day period, but in no event shall such rate
exceed 1.00% per annum of the liquidation preference of the Preferred Stock.
(e) The Company shall notify the Transfer Agent within one business day
after each and every date on which a Registration Default occurs. Preferred
Stock Liquidated Damages shall be paid by the Company to the record Holders of
shares of Preferred Stock that are Registrable Securities on each Damages
Payment Date by mailing checks to their registered addresses as they appear in
the Preferred Stock register if no such accounts have been specified on or
before the Damages Payment Date; provided that any Preferred Stock Liquidated
Damages accrued with respect to any Preferred Stock or portion thereof called
for redemption on a redemption date or converted into Common Stock on a
conversion date prior to the Damages Payment Date, shall, in any such event, be
paid instead to the Holder that submitted such Preferred Stock for redemption
or conversion on the applicable redemption date or conversion date, as the case
may be, on such date (promptly following the conversion date, in the case of
conversion of Preferred Stock). Each obligation to pay Preferred Stock
Liquidated Damages
<PAGE> 6
5
shall be deemed to commence accruing on the date of the applicable Registration
Default and to cease accruing when all Registration Defaults have been cured.
(f) All Preferred Stock Liquidated Damages with respect to any shares
of Preferred Stock that are Registrable Securities, that remain unpaid when such
Securities cease to be Registrable Securities or cease to be outstanding, shall
remain unpaid obligations of the Company until they have been paid in full.
(g) Without limiting the remedies available to the Initial Purchasers
and the Holders, the Company acknowledges that any failure by it to comply with
its obligations under Section 2(a) hereof may result in material irreparable
injury to the Initial Purchasers or the Holders for which there is no adequate
remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's obligations under Section 2(a) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect to the
Shelf Registration Statement pursuant to Section 2(a) hereof, the Company shall
as expeditiously as possible:
(a) prepare and file with the SEC a Shelf Registration Statement on
the appropriate form under the 1933 Act, which form (x) shall be selected
by the Company and (y) shall be available for the sale of the Registrable
Securities by the selling Holders thereof and (z) shall comply as to form
in all material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed therewith,
and use its best efforts to cause such Shelf Registration Statement to
become effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to such Shelf Registration Statement as may be necessary to keep
such Shelf Registration Statement effective for the applicable period and
cause each Prospectus to be supplemented by any required prospectus
supplement and, as so supplemented, to be filed pursuant to Rule 424 under
the 1933 Act; to keep each Prospectus current during the period described
under Section 4(3) and Rule 174 under the 1933 Act that is applicable to
transactions by brokers or dealers with respect to the Registrable
Securities;
(c) furnish to each Holder of Registrable Securities, to counsel for
the Initial Purchasers, to counsel for the Holders and to each Underwriter
of an Underwritten Offering of Registrable Securities, if any, without
charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other
documents as such Holder or Underwriter may reasonably request, in order to
facilitate the public sale or other disposition of the Registrable
Securities; and the Company consents to the use of such Prospectus and any
amendment or supplement thereto in accordance with applicable law by each
of the selling Holders of Registrable Securities and any such Underwriters
in connection with the offering and sale of the Registrable Securities
covered by and in the manner described in such Prospectus or any amendment
or supplement thereto in accordance with applicable law;
<PAGE> 7
6
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Shelf
Registration Statement shall reasonably request in writing by the time the
applicable Shelf Registration Statement is declared effective by the SEC, to
cooperate with such Holders in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. and do any and all
other acts and things which may be reasonably necessary or advisable to enable
such Holder to consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that the
Company shall not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any general consent to
service of process or (iii) subject itself to taxation in any such jurisdiction
if it is not so subject;
(e) notify each Holder of Registrable Securities, counsel for the Holders
and counsel for the Initial Purchasers promptly and, if requested by any such
Holder or counsel, confirm such advice in writing (i) when a Shelf Registration
Statement has become effective and when any post-effective amendment thereto
has been filed and becomes effective, (ii) of any request by the SEC or any
state securities authority for amendments and supplements to a Shelf
Registration Statement and Prospectus or for additional information after the
Shelf Registration Statement has become effective, (iii) of the issuance by the
SEC or any state securities authority of any stop order suspending the
effectiveness of a Shelf Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a Shelf
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects or if the Company receives any notification with respect to
the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose, (v) of
the happening of any event during the period a Shelf Registration Statement is
effective which makes any statement made in such Shelf Registration Statement
or the related Prospectus untrue in any material respect or which requires the
making of any changes in such Shelf Registration Statement or Prospectus in
order to make the statements therein not misleading and (vi) of any
determination by the Company that a post-effective amendment to a Shelf
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Shelf Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the withdrawal
of any such order;
(g) furnish to each Holder of Registrable Securities, without charge, at
least one conformed copy of each Shelf Registration Statement and any
post-effective amendment thereto (without documents incorporated therein by
reference or exhibits thereto, unless requested);
(h) cooperate with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends and
enable such Registrable Securities to be in such denominations (consistent with
the provisions of the Certificate of
<PAGE> 8
7
Designations) and registered in such names as the selling Holders may reasonably
request at least one business day prior to the closing of any sale of
Registrable Securities;
(i) upon the occurrence of any event contemplated by Section 3(e)(v)
hereof, use its best efforts to prepare and file with the SEC a supplement or
post-effective amendment to a Shelf Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Company agrees to notify the Holders to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an event, and
the Holders hereby agree to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Shelf Registration
Statement, any Prospectus, any amendment to a Shelf Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Shelf Registration Statement or a Prospectus
after initial filing of a Shelf Registration Statement, provide copies of such
document to the Initial Purchasers and their counsel (and the Holders and their
counsel) and make such of the representatives of the Company as shall be
reasonably requested by the Initial Purchasers or their counsel (and the Holders
or their counsel) available for discussion of such document, and shall not at
any time file or make any amendment to the Shelf Registration Statement, any
Prospectus or any amendment of or supplement to a Shelf Registration Statement
or a Prospectus or any document which is to be incorporated by reference into a
Shelf Registration Statement or a Prospectus, of which the Initial Purchasers
and their counsel (and the Holders and their counsel) shall not have previously
been advised and furnished a copy or to which the Initial Purchasers or their
counsel (and the Holders or their counsel) shall object, except for any
amendment or supplement or document (a copy of which has been previously
furnished to the Initial Purchasers and their counsel) which counsel to the
Company shall advise the Company in writing is required in order to comply with
applicable law;
(k) obtain a CUSIP number for all Registrable Securities not later than
the effective date of a Shelf Registration Statement;
(l) make available for inspection by a representative of the Holders of
the Registrable Securities, any Underwriter participating in any disposition
pursuant to such Shelf Registration Statement, and attorneys and accountants
designated by the Holders, at reasonable times and in a reasonable manner, all
financial and other records, pertinent documents and properties of the Company,
and cause the officers, directors and employees of the Company to supply all
information reasonably requested by any such representative, Underwriter,
attorney or accountant in connection with a Shelf Registration Statement;
(m) use its best efforts to cause all Registrable Securities to be listed
on any securities exchange or any automated quotation system on which similar
securities issued by the Company are then listed if requested by the Majority
Holders, to the extent such Registrable Securities satisfy applicable listing
requirements;
<PAGE> 9
8
(n) use its best efforts to cause the Registrable Securities to be
rated by two nationally recognized statistical rating organizations (as
such term is defined in Rule 436(g)(2) under the 1933 Act);
(o) if reasonably requested by any Holder of Registrable Securities
covered by a Shelf Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as the Company has received
notification of the matters to be incorporated in such filing; and
(p) enter into such customary agreements and take all such other
actions in connection therewith (including those requested by the Holders
of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities
including, but not limited to, an Underwritten Offering and in such
connection, (i) to the extent possible, make such representations and
warranties to the Holders and any Underwriters of such Registrable
Securities with respect to the business of the Company and its
subsidiaries, the Shelf Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in
each case, in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company (which counsel
and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holders and such Underwriters and their respective
counsel) addressed to each selling Holder and Underwriter of Registrable
Securities, covering the matters customarily covered in opinions requested
in underwritten offerings, (iii) obtain "cold comfort" letters from the
independent certified public accountants of the Company (and, if necessary,
any other certified public accountant of any subsidiary of the Company, or
of any business acquired by the Company for which financial statements and
financial data are or are required to be included in the Shelf Registration
Statement) addressed to each selling Holder and Underwriter of Registrable
Securities, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by the Holders of a majority in principal
amount of the Registrable Securities being sold or the Underwriters, and
which are customarily delivered in underwritten offerings, to evidence the
continued validity of the representations and warranties of the Company
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in an underwriting agreement.
The Company may require each Holder of Registrable Securities to
furnish to the Company such information regarding the Holder and the proposed
distribution by such Holder of such Registrable Securities as the Company may
from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e)(v) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to a Shelf Registration Statement until such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 3(i)
hereof, and, if so directed by the Company, such Holder will deliver to the
Company (at its expense) all copies in its possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. If the
Company shall give any such notice to
<PAGE> 10
9
suspend the disposition of Registrable Securities pursuant to a Shelf
Registration Statement, the Company shall extend the period during which the
Shelf Registration Statement shall be maintained effective pursuant to this
Agreement by the number of days during the period from and including the date
of the giving of such notice to and including the date when the Holders shall
have received copies of the supplemented or amended Prospectus necessary to
resume such dispositions. The Company may give any such notice only twice
during any 365 day period and any such suspensions may not exceed 30 days for
each suspension and there may not be more than two suspensions in effect during
any 365 day period.
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchasers, each Holder and each Person, if any, who controls any Initial
Purchaser or any Holder within the meaning of either Section 15 of the 1933 Act
or Section 20 of the 1934 Act, or is under common control with, or is
controlled by, any Initial Purchaser or any Holder, from and against all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Initial Purchaser, any
Holder or any such controlling or affiliated Person in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in any Shelf
Registration Statement (or any amendment thereto) pursuant to which Registrable
Securities were registered under the 1933 Act, including all documents
incorporated therein by reference, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or caused by any
untrue statement or alleged untrue statement of a material fact contained in
any Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein in light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Initial Purchasers or any
Holder furnished to the Company in writing through Morgan Stanley & Co.
Incorporated or any selling Holder expressly for the use therein. In connection
with any Underwritten Offering permitted by Section 3, the Company will also
indemnify the Underwriters, if any, selling brokers, dealers and similar
securities industry professionals participating in the distribution, their
officers and directors and each Person who controls such Persons (within the
meaning of the 1933 Act and the 1934 Act) to the same extent as provided above
with respect to the indemnification of the Holders, if requested in connection
with any Shelf Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Initial Purchasers and the other selling Holders,
and each of their respective directors, officers who sign the Shelf
Registration Statement and each Person, if any, who controls the Company, any
Initial Purchaser and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as
the foregoing indemnity from the Company to the Initial Purchasers and the
Holders, but only with reference to information relating to such Holder
furnished to the Company in writing by
<PAGE> 11
10
such Holder expressly for use in any Shelf Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such Person
(the "indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding
and shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for the Initial Purchasers and all Persons, if any, who control any
Initial Purchaser within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, (b) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Company, its directors, its
officers who sign the Shelf Registration Statement and each Person, if any,
who controls the Company within the meaning of either such Section and (c) the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Holders and all Persons, if any, who control any Holders
within the meaning of either such Section, and that all such fees and expenses
shall be reimbursed as they are incurred. In such case involving the Initial
Purchasers and Persons who control the Initial Purchasers, such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated. In such case
involving the Holders and such Persons who control Holders, such firm shall be
designated in writing by the Majority Holders. In all other cases, such firm
shall be designated by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but,
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or paragraph (b)
of this Section 4 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and the
Holders, on the other hand, shall be determined by reference to, among other
things, whether
<PAGE> 12
11
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company, on the one hand, or by the Holders, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Holders' respective
obligations to contribute pursuant to this Section 4(d) are several in
proportion to the respective principal amount of Registrable Securities of such
Holder that were registered pursuant to a Shelf Registration Statement.
(e) The Company and each Holder agree that it would not be just or
equitable if contribution pursuant to this Section 4 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Securities were sold by such Holder exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 4 are not exclusive and shall not limit any rights or remedies which
may otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Section 4
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Initial Purchasers, any Holder or any Person controlling any Initial
Purchaser or any Holder, or by or on behalf of the Company, its officers or
directors or any Person controlling the Company and (iii) any sale of
Registrable Securities pursuant to a Shelf Registration Statement.
5. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered into,
and on or after the date of this Agreement will not enter into, any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; provided, however, that no amendment, modification,
supplement, waiver or consent to any departure from the provisions of Section 4
hereof shall be effective as against any Holder of Registrable Securities
unless consented to in writing by such Holder.
<PAGE> 13
12
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder
to the Company by means of a notice given in accordance with the provisions of
this Section 5(c), which address initially is, with respect to the Initial
Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the
Company, initially at the Company's address set forth in the Purchase Agreement
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 5(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Transfer Agent, at
the address specified in the Final Memorandum (as defined in the Purchase
Agreement).
(d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding such
Registrable Securities such Person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement
and such Person shall be entitled to receive the benefits hereof. The Initial
Purchasers (in their capacity as Initial Purchasers) shall have no liability or
obligation to the Company with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.
(e) Purchases and Sales of Securities. The Company shall not, and shall
use its best efforts to cause its affiliates (as defined in Rule 405 under the
1933 Act) not to, purchase and then resell or otherwise transfer any Securities.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right
to enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders
hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
<PAGE> 14
13
(i) Governing Law. This Agreement shall be governed by the laws of the
State of New York.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE> 15
14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE LTV CORPORATION
By /s/ Glenn J. Moran
----------------------------
Name: Glenn J. Moran
Title: Sr. Vice President
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
By: MORGAN STANLEY & CO. INCORPORATED
By /s/ John D. Tyree
----------------------------
Name: John D. Tyree
Title: Vice President
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF DAVIS POLK & WARDWELL]
December 30, 1999
The LTV Corporation
200 Public Square
Cleveland, OH 44114
Dear Ladies and Gentlemen:
We have acted as special counsel for The LTV Corporation (the
"Company") in connection with the Registration Statement on Form S-3 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act").
The Registration Statement relates to registration under the Securities Act of
(i) the resale of the Company's 8 1/4% Series A Cumulative Convertible Preferred
Stock, liquidation preference $50 per share (the "Preferred Shares") by certain
holders of such Preferred Shares and (ii) the issuance of Common Stock upon the
conversion of the Preferred Shares.
The Preferred Shares were issued pursuant to a Certificate of
Designations dated as of November 5, 1999 and filed with the Secretary of State
of the State of Delaware.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officals and other instruments as we have deemed necessary of advisable
for the purpose of rendering this opinion.
Based upon the foregoing we are of the opinion that:
1. The Preferred Shares have been duly authorized by the Company and
are legally issued, fully paid and non-assessable.
2. The shares of Common Stock issuable upon conversion of the Preferred
Shares have been duly authorized by the Company and such Common Stock, when
issued upon conversion of the Preferred Shares in accordance with the terms of
the Preferred Shares, will be validly issued, fully paid and non-assessable. The
issuance of such Common Stock upon such conversion will not be subject to
preemptive or similar rights.
<PAGE> 2
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the General
Corporation Law of the State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In addition, we consent to the reference to us under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by or furnished to any other person without our prior written
consent.
Very truly yours,
/s/ Davis Polk & Wardwell
-------------------------
2
<PAGE> 1
Exhibit 12.1
STATEMENT RE: COMPUTATION OF COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(A) EARNINGS
Pretax Income from continuing operations $(139) $ 53 $(24) $ 69 $173 $311 $203
Earnings of unconsolidated subsidiary 15 29 55 27 (14) (12) (9)
Add: Fixed Charges 41 49 64 49 42 42 45
Preferred dividends (2) (3) (3) (4) (4) (4) (3)
Capitalized interest adjustment (12) (24) (32) (19) (15) (8) (8)
Minority interest 7 2 2 4 8 8 10
----- ---- ---- ---- ---- ---- ----
Adjusted Earnings $ (90) $106 $ 62 $126 $190 $337 $238
===== ==== ==== ==== ==== ==== ====
(B) FIXED CHARGES
Interest Expense $ 22 $ 26 $ 35 $ 22 $ 17 $ 19 $ 22
Interest portion of rent expense 17 20 26 23 21 19 20
Preferred dividends 2 3 3 4 4 4 3
----- ---- ---- ---- ---- ---- ----
Fixed Charges $ 41 $ 49 $ 64 $ 49 $ 42 $ 42 $ 45
===== ==== ==== ==== ==== ==== ====
(A)(B) RATIO OF EARNINGS TO FIXED CHARGES -- 2.2 1.0 2.5 4.6 8.0 5.2
===== ==== ==== ==== ==== ==== ====
</TABLE>
Note: Earnings were insufficient to cover combined fixed charges and preferred
dividends for the period ended September 30, 1999 by $131.
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts." We also
consent to the use of our reports included in or incorporated by reference in
the Registration Statement (Form S-3, to be filed on or about December 30, 1999)
and related Prospectus of the LTV Corporation for the registration of 1,600,000
shares of 8.25% Series A Cumulative Convertible Preferred Stock and of related
shares of Common Stock, as listed below:
- - Our report dated January 30, 1999 (except for Note 5, as to which the date
is May 31, 1999), with respect to the combined financial statements of
Copperweld Corporation and Copperweld Canada, Inc.
- - Our report dated December 10, 1999, with respect to the financial
statements of Welded Tube Co. of America
- - Our report dated January 28, 1999, with respect to the consolidated
financial statements of The LTV Corporation, and
- - Our report dated January 22, 1999, with respect to the financial
statements of Trico Steel Company, L.L.C., incorporated by reference in
the Registration Statement from The LTV Corporation's Annual Report (Form
10-K) for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
/s/Ernst & Young LLP
Cleveland, Ohio
December 28, 1999
