<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON --, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
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: As soon as
practicable after the effective date of this Registration Statement.
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, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 3/4% Senior Exchange Notes due
2009................................ $275,000,000 100% $275,000,000 $72,600
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee.
(2) Calculated pursuant to Rule 457(f) of the rules and regulations under the
Securities Act of 1933, as amended.
-------------------------
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
OFFER TO EXCHANGE ALL OUTSTANDING
11 3/4% SENIOR NOTES DUE 2009
FOR
11 3/4% SENIOR EXCHANGE NOTES DUE 2009
(WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED)
-------------------------
We are offering to exchange up to $275,000,000 of our new 11 3/4% Senior
Exchange Notes due 2009 (the "New Notes") for up to $275,000,000 of our
outstanding 11 3/4% Senior Notes due 2009 (the "Old Notes," and together with
the New Notes, the "Notes"). We are offering to issue the New Notes to satisfy
our obligations contained in the registration rights agreement entered into when
the Old Notes were sold in transactions permitted by Rule 144A and Regulation S
under the Securities Act and therefore not registered with the SEC. The terms of
the New Notes are identical in all material respects to the terms of the Old
Notes, except that the New Notes have been registered under the Securities Act
and the transfer restrictions and registration rights relating to the Old Notes
do not apply to the New Notes.
We do not intend to list the New Notes on any national securities exchange
or NASDAQ.
To exchange your Old Notes for New Notes:
- you must complete and send the letter of transmittal that accompanies
this prospectus to the exchange agent, U.S. Bank Trust National
Association, by 5:00 p.m., New York time, on --, 2000
- If your Old Notes are held in book-entry form at The Depository Trust
Company ("DTC"), you must instruct DTC, through your signed letter of
transmittal, that you wish to exchange your Old Notes for New Notes. When
the exchange offer closes, your DTC account will be changed to reflect
your exchange of Old Notes for New Notes
- you should read the section called "The Exchange Offer" for further
information on how to exchange your Old Notes for New Notes
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF RISK FACTORS
THAT YOU SHOULD CONSIDER PRIOR TO TENDERING YOUR OLD NOTES IN THE EXCHANGE
OFFER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the New Notes to be issued in the
exchange offer 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.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the exchange offer of the New Notes. As allowed
by SEC rules, this prospectus does not contain all of the information that you
can find in the registration statement or the exhibits to the registration
statement.
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 Notes remain outstanding, we will make available, upon request,
to any holder and any prospective purchaser of Notes 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. The Indenture
requires us to distribute to the registered holders of the Notes annual reports
containing our audited consolidated financial statements and quarterly reports
containing our unaudited consolidated financial statements for the first three
quarters of each fiscal year.
i
<PAGE> 4
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 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.
ii
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the Senior Exchange Notes being offered in
this exchange offer 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
2
<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 employ
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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<PAGE> 8
- 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 of the
Old Notes, we financed the Acquisitions by entering into a new bank financing,
issuing new convertible preferred stock and borrowing under our existing working
capital facilities.
<TABLE>
<CAPTION>
SOURCES USES
------- ----
(IN MILLIONS)
<S> <C> <C> <C>
Old Notes...................... $275 Copperweld acquisition(a)...... $650
New Bank Financing............. 225 Welded Tube acquisition(a)..... 114
New Preferred Stock............ 80 Expected purchase price
adjustments(b)................. 6
Receivables and Inventory
Facilities................... 215 Estimated transaction fees and
expenses....................... 25
---- ------------------------------- ----
Total sources................ $795 Total uses..................... $795
==== ====
</TABLE>
- -------------------------
(a) The initial purchase price paid for Welded Tube on October 1, 1999 was
$113.5 million. The initial purchase price paid for Copperweld on November
10, 1999 was $650 million.
(b) Expected adjustments related to the Copperweld acquisition are for
shareholders equity adjustments. Expected adjustments related to the Welded
Tube acquisitions for working capital and the Portland, Oregon facility
which recently began start-up operations.
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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<PAGE> 9
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.
5
<PAGE> 10
THE EXCHANGE OFFER
Securities Offered.............. We are offering up to $275,000,000 aggregate
principal amount of 11 3/4% Senior Exchange Notes due 2009, which have been
registered under the Securities Act.
The Exchange Offer.............. We are offering to issue the New Notes in
exchange for a like principal amount of your
Old Notes. We are offering to issue the New
Notes to satisfy our obligations contained
in the registration rights agreement entered
into when the Old Notes were sold in
transactions permitted by Rule 144A and
Regulation S under the Securities Act and
therefore not registered with the SEC.
Tenders, Expiration Date,
Withdrawal.................... The exchange offer will expire at 5:00 p.m.
New York City time on --, 2000 unless it is
extended. If you decide to exchange your Old
Notes for New Notes, you must acknowledge
that you are not engaging in, and do not
intend to engage in, a distribution of the
New Notes. If you decide to tender your Old
Notes in the exchange offer, you may
withdraw them at any time prior to --, 2000.
If we decide for any reason not to accept
any Old Notes for exchange, your Old Notes
will be returned to you without expense
promptly after the exchange offer expires.
Federal Income Tax
Consequences.................... Your exchange of Old Notes for New Notes in
the exchange offer will not result in any
income, gain or loss to you for Federal
income tax purposes. See "Material United
States Federal Income Tax Consequences of
the Exchange Offer."
Use of Proceeds................. We will not receive any proceeds from the
issuance of the New Notes in the exchange
offer.
Exchange Agent.................. U.S. Bank Trust National Association is the
exchange agent for the exchange offer.
Failure to Tender Your Old
Notes........................... If you fail to tender your Old Notes in the
exchange offer, you will not have any
further rights under the registration rights
agreement, including any right to require us
to register your Old Notes or to pay you
liquidated damages.
YOU WILL BE ABLE TO RESELL THE NOTES WITHOUT REGISTERING THEM WITH THE SEC IF
YOU MEET THE REQUIREMENTS DESCRIBED BELOW:
Based on interpretations by the SEC's staff in no-action letters issued to
third parties, we believe that New Notes issued in exchange for Old Notes in the
exchange offer may be
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<PAGE> 11
offered for resale, resold or otherwise transferred to you without registering
the New Notes under the Securities Act or delivering a prospectus, unless you
are a broker-dealer receiving New Notes for your own account, so long as:
- you are not one of our "affiliates", which is defined in Rule 405 of the
Securities Act;
- you acquire the New Notes in the ordinary course of your business;
- you do not have any arrangement or understanding with any person to
participate in the distribution of the New Notes; and
- you are not engaged in, and do not intend to engage in, a distribution of
the New Notes.
If you are an affiliate of The LTV Corporation, or you are engaged in,
intend to engage in or have any arrangement or understanding with respect to,
the distribution of New Notes acquired in the exchange offer, you (1) should not
rely on our interpretations of the position of the SEC's staff and (2) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
If you are a broker-dealer and receive New Notes for your own account in
the exchange offer:
- you must represent that you do not have any arrangement with us or any of
our affiliates to distribute the New Notes;
- you must acknowledge that you will deliver a prospectus in connection
with any resale of the New Notes you receive from us in the exchange
offer. The letter of transmittal states that by so acknowledging and by
delivering a prospectus, you will not be deemed to admit that you are an
"underwriter" within the meaning of the Securities Act; and
- you may use this prospectus, as it may be amended or supplemented from
time to time, in connection with the resale of New Notes received in
exchange for Old Notes acquired by you as a result of market-making or
other trading activities.
For a period of 90 days after the expiration of the exchange offer, we will
make this prospectus available to any broker-dealer for use in connection with
any resale described above.
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<PAGE> 12
SUMMARY DESCRIPTION OF THE NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except that the New Notes have been registered under the Securities
Act, and the transfer restrictions and registration rights relating to Old Notes
do not apply to the New Notes.
Issuer.......................... The LTV Corporation.
Notes........................... $275,000,000 aggregate principal amount of
11 3/4% Senior Notes due 2009. The Old Notes
were issued and the New Notes will be issued
under an indenture that 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. Any such additional Notes
will be identical in all respects to the
Notes, except for issue price and issuance
date, and will vote with the Notes as a
single series.
Maturity Date................... November 15, 2009.
Interest Payment Dates.......... May 15 and November 15 of each year,
commencing May 15, 2000.
Guarantors...................... The Notes will be unconditionally guaranteed
on an unsecured basis by each of our
existing and future domestic wholly-owned
subsidiaries except certain unrestricted
subsidiaries and special purpose
subsidiaries established to facilitate our
working capital facilities.
Ranking......................... The Notes will be senior unsecured
obligations. The Notes will rank equally in
right of payment with all our existing and
future unsecured senior debt (including our
existing 8.20% Senior Notes due 2007) and
will be senior in right of payment to all
our future subordinated debt.
The Guarantees provided by Welded Tube, the
Copperweld Corporation and their
subsidiaries that are Guarantors are
unsecured obligations subordinated to the
guarantees provided by these companies under
the new bank financing into which we entered
in connection with the Acquisitions, and
will be equal in right of payment with such
Guarantors' other existing and future senior
unsecured obligations (other than those
under the new bank financing). The
Guarantees provided by each of the other
Guarantors and any of their subsidiaries
that become Guarantors will be senior
unsecured obligations of such Guarantors,
and will be equal in right of payment with
their respective other existing and future
senior unsecured obliga-
8
<PAGE> 13
tions, and will be senior in right of
payment to any of their future subordinated
debt.
The Notes and the Guarantees will be
effectively subordinated to all of our and
the Guarantors' secured debt (including debt
under our new bank financing) and other
obligations to the extent of the value of
the assets securing such debt and other
obligations, and to the obligations of each
of our subsidiaries that is not a Guarantor,
to the extent of these subsidiaries' assets.
As of September 30, 1999, on a pro forma
basis:
- our total balance sheet liabilities would
have been approximately $4.6 billion;
- our total secured liabilities (excluding
the contingent obligations under the $250
million USWA lien described under
"Description of Certain Other
Indebtedness -- USWA Lien on Cleveland
West"), together with those of the
Guarantors, would have been approximately
$444 million; and
- the total liabilities of our subsidiaries
that are not Guarantors would have been
approximately $141 million (excluding
intercompany indebtedness).
As of September 30, 1999, on a pro forma
basis, we and the Guarantors would also have
had approximately $90 million of outstanding
secured letters of credit and approximately
$240 million of additional available
borrowing capacity under our existing
working capital facilities. See "Description
of Notes -- Ranking."
Optional Redemption............. We may not redeem the Notes prior to
November 15, 2004, except as set forth
below. On or after November 15, 2004, we
may, at our option, redeem the Notes in
whole or in part, in cash, at any time at
the redemption prices set forth under
"Description of Notes -- Optional
Redemption," together with accrued and
unpaid interest, if any, to the redemption
date.
In addition, at our option, up to 35% of the
aggregate principal amount of the Notes
originally issued may be redeemed prior to
November 15, 2002 at a price of 111.750% of
their principal amount, together with
accrued and unpaid interest, if any, to the
redemption date, with the net proceeds of
one or more public equity offerings;
9
<PAGE> 14
provided that at least 65% of the principal
amount of the Notes originally issued
remains outstanding following such
redemption. See "Description of
Notes -- Optional Redemption."
Change of Control............... Upon the occurrence of a change of control
(as defined in the indenture), you will,
subject to limitations described in this
prospectus, have the right to require us to
repurchase all or a portion of your Notes at
a cash purchase price equal to 101% of the
principal amount, plus accrued and unpaid
interest, if any, to the repurchase date.
See "Description of Notes -- Repurchase at
the Option of Holders Upon a Change of
Control."
Certain Covenants............... The terms of the 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;
- 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 of 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 Notes. See "Description of
Notes -- Certain Covenants."
RISK FACTORS
See "Risk Factors" beginning on page 13 for a discussion of certain factors
that you should consider prior to tendering your Old Notes in the exchange
offer.
10
<PAGE> 15
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 LTV HISTORICAL AS ADJUSTED LTV HISTORICAL
AS ADJUSTED ----------------- ----------- ---------------------------------
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>
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<PAGE> 16
<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.
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<PAGE> 17
RISK FACTORS
In addition to other matters described in this prospectus, holders of Old
Notes should carefully consider the following risk factors before accepting the
exchange offer.
RISK FACTORS RELATING TO LTV
OUR SUBSTANTIAL OBLIGATIONS MAY ADVERSELY AFFECT OUR LIQUIDITY, FINANCIAL
CONDITION AND ABILITY TO REPAY THE NOTES
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, 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> 18
THE RESTRICTIVE COVENANTS IN OUR DEBT AGREEMENTS MAY LIMIT OUR CORPORATE
ACTIVITIES
The Indenture governing the 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."
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, including the Notes, 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> 19
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 millions
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
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 NOTES
THE NOTES AND THE GUARANTEES WILL BE EFFECTIVELY SUBORDINATED TO CERTAIN OF OUR
OTHER OBLIGATIONS
Although the Notes are senior unsecured obligations of LTV and the
Guarantees are senior unsecured obligations of each Guarantor (other than Welded
Tube, the Copperweld Corporation and their subsidiaries that become Guarantors),
the Notes will be structurally subordinated to all the liabilities of each of
our subsidiaries that is not a Guarantor. These other liabilities include claims
of PBGC, trade creditors, secured creditors and creditors holding guarantees and
claims of preferred stockholders, if any. As of September 30, 1999, on a pro
forma basis, the total liabilities of our non-guarantor subsidiaries would have
been approximately $141 million (excluding intercompany indebtedness). The
Guarantees provided by Welded Tube, the Copperweld Corporation and their
subsidiaries that become Guarantors will be contractually subordinated to the
guarantees provided by those companies under our new bank financing.
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<PAGE> 26
The Notes and the Guarantees will also be effectively subordinated to any
of our and any of the Guarantors' secured debt and other obligations, to the
extent of the value of the assets securing such debt and other obligations. As
of September 30, 1999, on a pro forma basis, we and the Guarantors would have
had approximately $444 million of secured debt or other secured obligations
outstanding (excluding the contingent obligations under the $250 million USWA
lien described under "Description of Certain Other Indebtedness -- USWA Lien on
Cleveland West").
WE MAY BE UNABLE TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL
Upon certain change of control events, we would be required to offer to
purchase the Notes in cash at a price equal to 101% of their aggregate principal
amount plus accrued and unpaid interest, if any. The terms of the Notes may not
protect you if we undergo a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction that may adversely affect you
unless the transaction is included in the definition of a change of control.
A change of control under the terms of the Notes will constitute an event
of default under our new bank financing and will trigger a similar repurchase
obligation under the terms of the 1997 Notes. Debt that we incur in the future
may contain similar provisions, or may require repurchase upon a change of
control. If a change of control were to occur and cause an event of default
under our new bank financing and other debt, the lenders under those facilities
would have the right to declare their debt immediately due and payable. See
"Description of Notes -- Repurchase at the Option of Holders Upon a Change of
Control," "Description of New Bank Financing," and "Description of Certain Other
Indebtedness."
We cannot assure you that we will have the financial resources necessary to
repurchase the Notes and satisfy other payment obligations that could be
triggered upon a change of control. If we do not have sufficient financial
resources to effect a change of control offer, we would be required to seek
additional financing from outside sources to repurchase the Notes. There can be
no assurance that financing would be available to us on satisfactory terms. If
we fail to pay the purchase price with respect to a change of control offer, you
would have the rights described under "Description of Notes -- Events of
Default."
THERE IS NO PUBLIC TRADING MARKET FOR THE NOTES; THE OLD NOTES CONTAIN
RESTRICTIONS ON TRANSFER
There is no established trading market for the Notes and we cannot assure
you that an active trading market for the Notes will develop or, if a market
develops, as to the liquidity of that market. If a trading market does develop,
the Notes may trade at a discount from their initial offering price, depending
upon prevailing interest rates, the market for similar securities, our financial
condition and results of operations and certain other factors. Although we
expect the Notes to be eligible for trading in The PORTAL Market of The Nasdaq
Stock Market, Inc., we do not intend to list the Notes on any securities
exchange or to arrange for them to be quoted on the Nasdaq National Market or
any other quotation system.
We offered and sold the Old Notes in a private offering exempt from
registration requirements of the Securities Act. Holders of Old Notes who do not
exchange their Old Notes for New Notes pursuant to the exchange offer will
continue to be subject to the
22
<PAGE> 27
restrictions on transfer of such Old Notes as set forth in the legend on such
Old Notes. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from or in
a transaction not subject to, the Securities Act and applicable state securities
laws. We do not intend to register the Old Notes under the Securities Act. We
believe that, based upon interpretations contained in letters issued to third
parties by the staff of the SEC, New Notes issued pursuant to the exchange offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by each holder of such New Notes (other than a broker-dealer, as set
forth below, and any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such New Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes. If any holder has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the exchange offer, such holder (i) could not rely on
the applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. We do not currently intend to take any action to register or qualify the
New Notes for resale in any such jurisdictions.
FRAUDULENT TRANSFER STATUTES AND SIMILAR LIMITATIONS MAY LIMIT YOUR RIGHTS AS A
NOTEHOLDER
Under federal and state fraudulent transfer laws, a court could find that
the Guarantee provided by any of the Guarantors constituted a fraudulent
conveyance by that Guarantor. To do so, a court would typically have to find
that, at the time the Guarantee was issued, the relevant Guarantor:
- issued the Guarantee with the intent of hindering, delaying or defrauding
current or future creditors; or
- (a) received less than fair consideration or reasonably equivalent value
for incurring the indebtedness represented by its Guarantee; and (b)
either (x) was insolvent or was rendered insolvent by reason of the
issuance of the Guarantee; (y) was engaged, or about to engage, in a
business or transaction for which its assets were unreasonably small; or
(z) intended to incur, or believed or should have believed it would
incur, debts beyond its ability to pay as such debts mature.
Many of the foregoing terms are defined in or interpreted under those
fraudulent transfer statutes.
Different jurisdictions define "insolvency" differently. However, an entity
generally would be considered insolvent at the time it incurred any particular
obligation if (1) its liabilities exceeded its assets, at a fair valuation, or
(2) the present saleable value of its assets is less than the amount required to
pay its total existing debts and liabilities (including the probable liability
related to contingent liabilities) as they become absolute
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<PAGE> 28
or matured. We cannot assure you of the standard a court would apply in order to
determine whether any Guarantor was "insolvent" as of the date the applicable
Guarantee was issued, or that, regardless of the method of valuation, a court
would not determine that a Guarantor was insolvent on that date. Nor can we
assure you that a court would not determine, regardless of whether such
Guarantor was insolvent on the date the applicable Guarantee was issued, that
the payments constituted fraudulent transfers on another ground.
If a court were to make any such finding, it could:
- avoid all or a portion of the relevant Guarantor's obligations to you;
- subordinate the relevant Guarantor's obligations to you to obligations
owed to its other existing and future creditors, entitling those
creditors to be paid in full before any payment is made on the relevant
Guarantee; and/or
- take other actions detrimental to you, including invalidating the
Guarantees.
In that event, we cannot assure you that you would receive any payment
under the Guarantee of the applicable Guarantor.
If any Guarantee were not enforceable, assets of the affected Guarantor
would be available for obligations under the Notes only after payment of all
liabilities of such Guarantor. Furthermore, any Guarantor may be or may become
subject to contractual restrictions on its ability to make payments on its
Guarantee. Upon the sale or other disposition of any Guarantor or the sale or
disposition of all or substantially all of such Guarantor's assets as permitted
by the Indenture, such Guarantor will be released from all its obligations under
the Guarantee.
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<PAGE> 29
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the New Notes.
The New Notes will be exchanged for Old Notes as described in this prospectus
upon our receipt of Old Notes in like principal amount. We will cancel all of
the Old Notes surrendered in exchange for the New Notes.
Our net proceeds from the sale of the Old Notes were approximately $258
million. We used those net proceeds to finance a portion of the total cost of
the acquisitions of Welded Tube and Copperweld.
25
<PAGE> 30
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 finalization of shareholder equity adjustments. We funded the
purchase of Copperweld with the proceeds of the Old Notes, the issuance of our
New Preferred Stock, 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 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>
<S> <C>
Structural................................................ 88%
Mechanical................................................ 8%
Pipe...................................................... 4%
</TABLE>
Fiscal Year 1999 Revenues -- $132 million
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<PAGE> 31
MARKET POSITION. We believe that Welded Tube had a share of approximately
11% in North American structural steel tubing during 1999.
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>
<S> <C>
Mechanical................................................ 52%
Structural................................................ 27%
Bimetallic Products....................................... 13%
Other..................................................... 8%
</TABLE>
Year 1998 Revenues -- $711 million
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<PAGE> 32
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 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
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<PAGE> 33
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 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 $275 million of Old Notes; (2) borrowed $225 million under a new bank
financing; and (3) issued $80 million aggregate liquidation amount of preferred
stock convertible into our
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<PAGE> 34
common stock. In this prospectus, we refer to this new bank financing as the
"New Bank Financing," and the new LTV preferred stock as the "New Preferred
Stock." The New Bank Financing was entered into with certain commercial banks
and other lenders led by affiliates of the placement agents of the Old Notes
(the "Placement Agents") and the New Preferred Stock was sold initially to the
Placement Agents and resold to certain investors pursuant to exemptions from the
Securities Act. The combined gross proceeds of the offering of the Old Notes,
the New Bank Financing and the New Preferred Stock amounted to $580 million. 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 offering of the Old
Notes, the issuance of the New Preferred Stock and the borrowings under the New
Bank Financing, the new ]borrowings and issuances comprised aggregate gross
proceeds of approximately $795 million.
<TABLE>
<S> <C>
SOURCES USES
------- ----
(IN MILLIONS)
</TABLE>
<TABLE>
<S> <C>
Old Notes........................ $275 Copperweld acquisition(a)........ $650
New Bank Financing............... 225 Welded Tube acquisition(a)....... 114
New Preferred Stock.............. 80 Expected purchase price
Receivables and Inventory adjustments(b)................. 6
Facilities..................... 215 Estimated transaction fees and
---- expenses(c).................... 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 Copperweld acquisition are for
shareholders equity adjustments. Expected adjustments related to the Welded
Tube acquisition for working capital and the Portland, Oregon facility which
recently began start-up operations.
(c) Represents estimated transaction costs in connection with the Acquisitions,
including financial advisory fees, Placement Agents' fees, bank fees and
legal and accounting fees and expenses.
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<PAGE> 35
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 offering of the Old Notes, the New Bank Financing, the offering of the New
Preferred Stock 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 Notes," "Description of New Bank Financing," "Description of New
Preferred Stock" and "Description of Certain Other Indebtedness," all included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------
PRO FORMA
AS
ACTUAL ADJUSTED
------ ---------
(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.
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<PAGE> 36
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.
32
<PAGE> 37
<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>
33
<PAGE> 38
<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.
34
<PAGE> 39
(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>
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 New
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
Notes; (2) borrowings of $225 million under the New Bank Financing; (3) the
issuance of $80 million of New Preferred Stock; (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").
35
<PAGE> 40
<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>
36
<PAGE> 41
- -------------------------
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:
Old Notes................................................... $275
New Bank Financing........................................ 225
Borrowings under Receivables and Inventory Facilities..... 215
New Preferred Stock....................................... 80
----
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 New Preferred Stock net of $3 million of
estimated direct costs of issuance and financing.
(g) Elimination of the historical shareholders' equity of Welded Tube and
Copperweld.
37
<PAGE> 42
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>
38
<PAGE> 43
<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.
(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
39
<PAGE> 44
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.
40
<PAGE> 45
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.
41
<PAGE> 46
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.
42
<PAGE> 47
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.
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<PAGE> 48
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,
-------------------------------------------
INTEGRATED METAL CORPORATE
STEEL FABRICATION AND 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.
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<PAGE> 49
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.
45
<PAGE> 50
1998 COMPARED WITH 1997 AND 1997 COMPARED WITH 1996
Summary results for each segment are listed below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
INTEGRATED METAL CORPORATE
STEEL FABRICATION AND 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
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<PAGE> 51
average effect of blast furnace relines. Steel production may be supplemented
with purchases of semifinished steel when demand for our products exceeds
production 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> 52
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> 53
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 YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ----------------
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> 54
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
offering of the Old Notes. 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 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 New Preferred Stock upon
issuance thereof. We do not believe that the restrictions contained in these
covenants will cause significant limitations on our financial flexibility.
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<PAGE> 55
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 industries and steel-related businesses that complement our
integrated steelmaking business. Recent investments implementing this strategy
resulted in acquiring interests in
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<PAGE> 56
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% 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
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<PAGE> 57
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 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.
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<PAGE> 58
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 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
54
<PAGE> 59
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 operations. All of the above systems are excluded from the
Year 2000 readiness program costs, which are disclosed below.
55
<PAGE> 60
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 alternative 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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<PAGE> 61
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.
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
57
<PAGE> 62
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> 63
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.
59
<PAGE> 64
<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
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>
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<PAGE> 65
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.
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<PAGE> 66
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 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.
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<PAGE> 67
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 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> 68
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 YEAR ENDED
SEPTEMBER 30, 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 YEAR ENDED
SEPTEMBER 30, 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> 69
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 YEAR ENDED
SEPTEMBER 30, 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.
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<PAGE> 70
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
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<PAGE> 71
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 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
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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, Mexico ("Lagermex"). On
a pro forma basis for 1998, the metal fabrication segment would have had revenue
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
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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.
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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<PAGE> 74
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
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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.
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
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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 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
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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 (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."
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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. 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.
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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 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.
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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, 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
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pellets averaging approximately 64% iron content. These ore reserves at the end
of 1998, and 1998 activity, were as follows:
<TABLE>
<CAPTION>
1998
PROVEN NET SHARE DELIVERIES
INTEREST IN IRON ANNUAL ORE OF 1998 TO STEEL
RESERVES(A) 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.
(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
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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.
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.
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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 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 anti-dumping 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 anti-dumping
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.
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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 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.
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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.
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 anti-dumping administrative review of LTV Steel's plate-in-coil
exports to Mexico, thereby revoking the 39.92% anti-dumping duty rate previously
applied to LTV Steel's plate-in-coil exports to Mexico, leaving LTV Steel with a
0% anti-dumping 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
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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 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
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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 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.
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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 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,
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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 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 are
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 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 contains 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 PREFERRED STOCK
In order to finance a portion of the Acquisitions, we offered $80 million
aggregate liquidation preference of 8 1/4% Series A Cumulative Convertible
Preferred Stock, $1.00 par value per share (the "New Preferred Stock"). The
following summary of the terms of the New Preferred Stock is incomplete. You
should read the Certificate of Designations relating to the New Preferred Stock
for a complete description thereof.
DIVIDENDS. Holders of the New Preferred Stock will be entitled to receive,
when, as and if declared by our Board of Directors out of funds legally
available therefor, 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.
OPTIONAL REDEMPTION. We may also redeem the New Preferred Stock at any
time on or after November 18, 2004, at a redemption price equal to the
percentage of the liquidation preference set forth below, plus accrued and
unpaid dividends to the date of redemption, if redeemed during the 12-month
period commencing on November 18 of the year set forth:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004........................................................ 104.13%
2005........................................................ 103.20
2006........................................................ 102.48
2007........................................................ 101.65
2008........................................................ 100.83
2009 and thereafter......................................... 100.00
</TABLE>
CONVERSION RIGHTS. Holders of the New Preferred Stock may convert their
shares at any time (unless previously redeemed), in whole or in part, into the
number of shares of our 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.
VOTING RIGHTS. Holders of the New Preferred Stock will have no voting
rights, except as required by law and in the Certificate of Designations. The
Certificate of Designations provides that upon the 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 New Preferred
Stock will be entitled to appoint at least one but not more than two members to
our Board of Directors.
REGISTRATION RIGHTS. Pursuant to a registration rights agreement, we have
agreed to file a shelf registration statement with the Commission to cover
resales of the New Preferred Stock or any of our common stock issued upon
conversion of the New Preferred Stock or in satisfaction of any dividend or
other payment on the New Preferred Stock.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
In addition to the 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
2005 and thereafter....................................... 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 the offering of the Old Notes, management amended the
1997 Notes to receive the same guarantees as the 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
New Preferred Stock.
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<PAGE> 99
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 NOTES
The LTV Corporation issued the Old Notes and will issue the New Notes under
an indenture dated as of November 5, 1999 (the "Indenture"), among itself, the
Subsidiary Guarantors and U.S. Bank Trust National Association, as trustee (the
"Trustee"). We have filed a copy of the Indenture as an exhibit to the
registration statement of which this prospectus forms a part. The following
summaries of certain provisions of the Indenture are not complete and are
subject, and are qualified in their entirety by reference, to the Trust
Indenture Act of 1939 (the "Trust Indenture Act") and to all the provisions of
the Notes and the Indenture. In this description, the words "Company" and "we"
refer only to The LTV Corporation and not to any of its subsidiaries. You can
find the definitions of certain terms used in this description under the
subheading "Certain Definitions" below.
We can issue an unlimited amount of additional Notes at later dates under
the same Indenture. We can issue additional Notes as part of the same series or
as an additional series and any additional Notes that we issue in the future
will be substantially identical in all respects to the Notes, except that
additional Notes issued in the future will have different issuance prices and
issuance dates. Additional Notes that are issued as part of the same series as
the Notes will vote together with the Notes as one class on matters under the
Indenture. The Company will issue Notes only in fully registered form without
coupons, in denominations of $1,000 and integral multiples of $1,000.
GENERAL
The Notes will mature on November 15, 2009. The Notes are initially limited
in aggregate principal amount to $275 million. The Notes will bear interest at
the rate set forth on the cover page of this prospectus from November 5, 1999,
or from the most recent interest payment date to which interest has been paid,
payable semiannually on May 15 and November 15 of each year, beginning on May
15, 2000, to the Persons who are registered Holders of the Notes at the close of
business on the preceding May 1 or November 1, as the case may be. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Payments in respect of the Notes represented by a Global Security
(including principal, premium and interest) will be made by wire transfer of
immediately available funds to the accounts specified by the DTC. Unless other
arrangements are made by certain Holders of Notes, the Company will make all
payments in respect of a certificated Note (including principal, premium and
interest), by mailing a check to the registered address of each Holder thereof.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if (a) on or
prior to the 60th day following the date of original issuance of the Old Notes,
neither the registration statement nor a shelf registration statement for the
New Notes has been filed with the SEC, (b) on or prior to the 150th day
following the date of original issuance of the Old Notes, neither the
registration statement nor a shelf registration statement has not been declared
effective, (c) on or prior to the 180th day following the date of original
issuance of the Old Notes, neither the exchange offer has been consummated nor a
shelf registration statement has been declared effective or (d) after either the
registration statement or the shelf registration statement has been declared
effective, such registration statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of Old Notes
or New
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Notes in accordance with and during the periods specified in the registration
rights agreement (each such event referred to in clauses (a) through (d), a
"Registration Default"), interest ("Special Interest") will accrue on the
principal amount of the Old Notes and the New Notes (in addition to the stated
interest on the Old Notes and the New Notes) 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. Special Interest will accrue at
a rate of 0.25% per annum during the 90-day period immediately following the
occurrence of any Registration Default and shall increase to 0.50% per annum at
the end of such 90-day period.
RANKING
The Notes will be:
- senior obligations of the Company;
- equal in right of payment with all existing and future unsecured senior
debt of the Company;
- senior in right of payment to all future subordinated debt of the
Company; and
- guaranteed on a senior basis by each Subsidiary Guarantor other than
Acquired Subsidiary Guarantors, and guaranteed on a senior subordinated
basis by each Acquired Subsidiary Guarantor.
As of September 30, 1999, on a pro forma basis, the total outstanding senior
debt of the Company and the Subsidiary Guarantors, excluding unused commitments
made by lenders, would have been as follows:
$1.0 billion -- approximate total outstanding senior debt of the Company
and the Subsidiary Guarantors, combined
The Notes are unsecured obligations of the Company and the Subsidiary
Guarantors. Secured debt and other secured obligations of the Company and the
Subsidiary Guarantors (including the New Bank Financing) will be effectively
senior to the Notes to the extent of the value of the assets securing such debt
or other obligations. As of September 30, 1999, on a pro forma basis, the total
outstanding secured debt and other secured obligations of the Company and the
Subsidiary Guarantors, excluding unused commitments made by lenders and the
contingent obligations under the $250 million USWA Lien described under
"Description of Certain Other Indebtedness -- USWA Lien on Cleveland West",
would have been as follows:
$444 million -- approximate total outstanding secured debt and other
secured obligations of the Company and the Subsidiary
Guarantors, combined
In general, the Company's only claim in any of the assets of its
subsidiaries is that of a common stockholder, which claim is junior to claims
that creditors (including the PBGC, trade creditors and secured creditors) and
preferred stockholders, if any, have against those subsidiaries. Because Holders
of the Notes will be creditors only of the Company and of those subsidiaries
that are Subsidiary Guarantors, all the existing and future liabilities of
subsidiaries that are not Subsidiary Guarantors, including any claims of their
trade creditors and preferred stockholders, if any, will be effectively senior
to the Notes.
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All the operations of the Company are conducted through its subsidiaries.
Therefore, the Company's ability to service its debt, including the Notes, is
dependent upon the earnings of its subsidiaries, and their ability to distribute
those earnings as dividends, loans or other payments to the Company. Certain
laws and covenants in the Company's and its subsidiaries' other debt agreements
restrict the ability of the Company's subsidiaries to pay it dividends or make
loans and advances to it. If these restrictions are applied to subsidiaries that
are not Subsidiary Guarantors, then the Company would not be able to use the
earnings of those subsidiaries to make payments on the Notes. Furthermore, under
certain circumstances, bankruptcy "fraudulent conveyance" laws or other similar
laws could invalidate the Subsidiary Guaranties. If this were to occur, the
Company would also be unable to use the earnings of these Subsidiary Guarantors
to the extent they face restrictions on distributing funds to the Company. Any
of the situations described above could make it more difficult for the Company
to service its debt.
The total balance sheet liabilities of the Subsidiary Guarantors and the
Company's other subsidiaries as of September 30, 1999, on a pro forma basis,
excluding unused commitments made by lenders, outstanding pension liabilities of
approximately $575 million and outstanding postemployment healthcare and other
insurance benefits of approximately $1.6 billion, would have been as follows:
<TABLE>
<S> <C>
$1.7 -- approximate total balance sheet liabilities of the
billion Subsidiary Guarantors (including the Guarantees such
Subsidiaries will Incur with respect to the Company's
8.20% Senior Notes due 2007 as described below)
$128 -- approximate total balance sheet liabilities of all other
million subsidiaries
</TABLE>
The Subsidiary Guarantors and the Company's other subsidiaries have other
liabilities, including contingent liabilities, that may be significant. The
Indenture contains limitations on the amount of additional Debt that the Company
and the Restricted Subsidiaries may Incur. However, the amounts of such Debt
could nevertheless be substantial and may be Incurred either by Subsidiary
Guarantors or by the Company's other subsidiaries.
SUBSIDIARY GUARANTIES
Except as described below under "Subordination of Acquired Subsidiary
Guaranties", the obligations of the Company under the Indenture, including the
repurchase obligation resulting from a Change of Control, will be fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis,
by all the existing and any future Domestic Wholly Owned Subsidiaries of the
Company (other than any Securitization Subsidiary or any Inactive Subsidiary).
If the Company sells or otherwise disposes of either:
(1) its ownership interest in a Subsidiary Guarantor, or
(2) all or substantially all the assets of a Subsidiary Guarantor,
such Subsidiary Guarantor will be released from all its obligations under its
Subsidiary Guaranty. In addition, if the Company redesignates a Subsidiary
Guarantor as an Unrestricted Subsidiary, which the Company can do under certain
circumstances, the redesignated Subsidiary Guarantor will be released from all
its obligations under its Subsidiary Guaranty. See "Certain
Covenants -- Designation of Restricted and
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<PAGE> 104
Unrestricted Subsidiaries", "-- Limitation on Issuance or Sale of Capital Stock
of Restricted Subsidiaries" and "Merger, Consolidation and Sale of Property".
If any Subsidiary Guarantor makes payments under its Subsidiary Guaranty,
each of the Company and the other Subsidiary Guarantors must contribute their
share of such payments, subject, in the case of each Acquired Subsidiary
Guarantor, to the subordination provisions described below under "Subordination
of Acquired Subsidiary Guaranties". The Company's and the other Subsidiary
Guarantors' shares of such payment will be computed based on the proportion that
the net worth of the Company or the relevant Subsidiary Guarantor represents
relative to the aggregate net worth of the Company and all the Subsidiary
Guarantors combined.
In connection with the offering of the Old Notes, the Company amended its
8.20% Senior Notes due 2007 to grant, in the case of each Subsidiary Guarantor
that is not an Acquired Subsidiary Guarantor, a senior unsecured Guarantee of
the 8.20% Senior Notes due 2007 and, in the case of each Acquired Subsidiary
Guarantor, a senior subordinated Guarantee of the 8.20% Senior Notes due 2007.
FUTURE SUBSIDIARY GUARANTORS
The Company will be required to cause each Person that becomes a Domestic
Wholly Owned Subsidiary following the Issue Date (other than a Securitization
Subsidiary or an Inactive Subsidiary) or any Person that ceases to be an
Inactive Subsidiary to execute and deliver a Subsidiary Guaranty as required
under "Certain Covenants -- Future Subsidiary Guarantors".
SUBORDINATION OF ACQUIRED SUBSIDIARY GUARANTIES
The obligations of Copperweld Corporation, Welded Tube Corporation of
America and each of their respective Domestic Wholly Owned Subsidiaries
(collectively, the "Acquired Subsidiary Guarantors") under their respective
Subsidiary Guaranties (the "Acquired Subsidiary Guaranties") will be
subordinated to their obligations under the New Bank Financing (and Permitted
Refinancing Debt in respect thereof) (collectively, "Designated Senior Debt") as
described below. As a result of this subordination, holders of Designated Senior
Debt will be entitled to receive full payment in cash on all obligations owed to
them before any Acquired Subsidiary Guarantor can make any payment to Holders of
the Notes in any of the following situations or proceedings relating to such
Subsidiary Guarantor:
- liquidation, dissolution or winding up;
- bankruptcy, reorganization, insolvency, receivership or similar
proceedings;
- an assignment for the benefit of its creditors; or
- any marshaling of its assets and liabilities.
As a result of the subordination referred to above, no Acquired Subsidiary
Guarantor may make any payment pursuant to its Obligations or repurchase, redeem
or otherwise
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<PAGE> 105
retire or defease any Notes (collectively, "make an Acquired Subsidiary
Guarantor payment"), if:
(a) any principal, premium or interest in respect of any Designated
Senior Debt is not paid when due (including at maturity), or
(b) any other default on Designated Senior Debt occurs and the
maturity of such Debt is accelerated in accordance with its terms, unless,
in either case,
(1) the default has been cured or waived and any such acceleration
has been rescinded, or
(2) such Designated Senior Debt has been paid in full in cash;
provided, however, that an Acquired Subsidiary Guarantor may make an Acquired
Subsidiary Guarantor payment without regard to the foregoing if such Acquired
Subsidiary Guarantor and the Trustee receive written notice approving such
payment from the Representative under the Designated Senior Debt.
During the continuance of any default (other than a default described in
clause (a) or (b) above) under the Designated Senior Debt pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
any notice required to effect the acceleration) or the expiration of any
applicable grace period, no Acquired Subsidiary Guarantor may make an Acquired
Subsidiary Guarantor payment for a period (a "Payment Blockage Period")
commencing upon the receipt by such Acquired Subsidiary Guarantor and the
Trustee of written notice of such default from the Representative under the
Designated Senior Debt specifying an election to effect a Payment Blockage
Period (a "Payment Blockage Notice") and ending 179 days thereafter, unless such
Payment Blockage Period is earlier terminated:
(a) by written notice to the Trustee and such Acquired Subsidiary
Guarantor from the Representative under the Designated Senior Debt,
(b) because such default is no longer continuing, or
(c) because all such Designated Senior Debt has been repaid in full in
cash.
Unless the holders of Designated Senior Debt or the Representative under
the Designated Senior Debt have accelerated the maturity of such Designated
Senior Debt and not rescinded such acceleration, an Acquired Subsidiary
Guarantor may (unless otherwise prohibited as described in the first paragraph
of this section) resume making Acquired Subsidiary Guarantor payments after the
end of such Payment Blockage Period.
Not more than one Payment Blockage Notice may be given in any consecutive
360-day period, irrespective of the number of defaults during such period.
Upon any payment or distribution of the assets of an Acquired Subsidiary
Guarantor (1) upon a total or partial liquidation, dissolution or winding up of
such Acquired Subsidiary Guarantor, (2) in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to such Acquired
Subsidiary Guarantor, (3) upon an assignment for the benefit of creditors of
such Acquired Subsidiary Guarantor or (4) upon any marshalling of the assets and
liabilities of such Acquired Subsidiary Guarantor:
(a) the holders of Designated Senior Debt will be entitled to receive
payment in full in cash before the holders of the Notes are entitled to
receive any payment
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pursuant to the Acquired Subsidiary Guaranty of such Acquired Subsidiary
Guarantor, except that holders of Notes may receive and retain shares of
stock and any debt securities of such Acquired Subsidiary Guarantor that
are subordinated to the Designated Senior Debt to at least the same extent
as the Acquired Subsidiary Guaranty of such Acquired Subsidiary Guarantor
is subordinated to the Designated Senior Debt; and
(b) until the Designated Senior Debt is paid in full in cash, any
distribution to which holders of the Notes would be entitled but for the
subordination provisions of the Indenture with respect to the Acquired
Subsidiary Guaranties will be made to holders of such Designated Senior
Debt. If a payment or distribution is made to holders of Notes that, due to
the subordination provisions with respect to the Acquired Subsidiary
Guaranties, should not have been made to them, such holders are required to
hold it in trust for the holders of Designated Senior Debt and pay it over
to them as their interests may appear.
If payment of the Notes is accelerated when any Designated Senior Debt is
outstanding, no Acquired Subsidiary Guarantor may make an Acquired Subsidiary
Guarantor payment until five business days after the Representative of such
Designated Senior Debt receives notice of such acceleration and, thereafter, may
make an Acquired Subsidiary Guarantor payment only if the Indenture otherwise
permits payment at that time.
Because of the Indenture's subordination provisions with respect to the
Acquired Subsidiary Guaranties, holders of Designated Senior Debt may recover
disproportionately more than the holders of the Notes recover in a bankruptcy or
similar proceeding relating to any Acquired Subsidiary Guarantor. In such a
case, there may be insufficient assets, or no assets, remaining to pay the
principal of or interest on the Notes.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to November 15, 2004. Thereafter,
the Notes will be redeemable at the option of the Company, in whole or in part,
on not less than 30 nor more than 60 days' prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on November 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2004........................................................ 105.875%
2005........................................................ 103.917
2006........................................................ 101.958
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
2007 and thereafter......................................... 100.000
</TABLE>
At any time and from time to time prior to November 15, 2002 the Company
may redeem up to a maximum of 35% of the original aggregate principal amount of
the Notes with the proceeds of one or more Public Equity Offerings, at a
redemption price equal to 111.750% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any,
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<PAGE> 107
to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that after giving effect to any such redemption, at
least 65% of the original aggregate principal amount of the Notes remains
outstanding. Any such redemption shall be made within 60 days of such Public
Equity Offering upon not less than 30 nor more than 60 days notice mailed to
each Holder of Notes being redeemed and otherwise in accordance with the
procedures set forth in the Indenture.
SINKING FUND
There are no sinking fund payments for the Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes shall have
the right to require the Company to repurchase all or any part of such Holder's
Notes pursuant to the offer described below (the "Change of Control Offer") at a
purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the purchase date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
Within 30 days following any Change of Control, the Company shall (a) cause
a notice of the Change of Control Offer to be sent at least once to the Dow
Jones News Service or similar business news service in the United States and (b)
send, by first-class mail, with a copy to the Trustee, to each Holder of Notes,
at such Holder's address appearing in the Security Register, a notice stating,
among other things: (i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to the covenant entitled "Repurchase at the
Option of Holders Upon a Change of Control" and that all Notes timely tendered
will be accepted for payment; (ii) the Change of Control Purchase Price and the
purchase date, which shall be, subject to any contrary requirements of
applicable law, a business day no earlier than 30 days nor later than 60 days
from the date such notice is mailed; (iii) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after giving effect to the
Change of Control); and (iv) the procedures that Holders of Notes must follow in
order to tender their Notes (or portions thereof) for payment, and the
procedures that Holders of Notes must follow in order to withdraw an election to
tender Notes (or portions thereof) for payment.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to a Change of Control
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of the covenant described hereunder, the Company
will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the covenant described hereunder
by virtue of such compliance.
The Change of Control repurchase feature is a result of negotiations
between the Company and the Placement Agents. Management has no present
intention to engage in a transaction involving a Change of Control, although it
is possible that the Company would decide to do so in the future. Subject to
certain covenants described below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or
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<PAGE> 108
other recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of debt outstanding at such time
or otherwise affect the Company's capital structure or credit ratings.
The definition of Change of Control includes a phrase relating to the sale,
assignment, lease, conveyance, disposition or transfer of "all or substantially
all" the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all", there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Notes to require the Company to repurchase such Notes as a result of a
sale, assignment, lease, conveyance, disposition or transfer of less than all
the assets of the Company may be uncertain. In such a case, Holders of the Notes
may not be able to resolve this uncertainty without resorting to legal action.
The occurrence of certain of the events that constitute a Change of Control
under the Indenture would constitute a default under the New Bank Financing.
Other debt of the Company may contain prohibitions of certain events which would
constitute a Change of Control or, as is the case with the Company's existing
8.20% Senior Notes due 2007, require such debt to be repurchased upon a Change
of Control. Moreover, the exercise by Holders of Notes of their right to require
the Company to repurchase such Notes could cause a default under existing or
future debt of the Company, even if the Change of Control itself does not, due
to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to Holders of Notes upon a repurchase may be
limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. The Company's failure to purchase the Notes in connection
with a Change of Control would result in a default under the Indenture which
would, in turn, constitute a default under the existing or future debt of the
Company. The provisions under the Indenture relative to the Company's obligation
to make an offer to repurchase the Notes as a result of a Change of Control may
be waived or modified (at any time prior to the occurrence of such Change of
Control) with the written consent of the Holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
COVENANT TERMINATION. The Indenture provides that the following
restrictive covenants will be applicable to the Company and the Restricted
Subsidiaries unless the Company reaches Investment Grade Status. After the
Company has reached Investment Grade Status, and notwithstanding that the
Company may later cease to have an Investment Grade Rating from either or both
of the Rating Agencies, the Company and the Restricted Subsidiaries will be
released from their obligations to comply with the restrictive covenants
described herein, except for the covenants described under "Limitation on
Liens", "Limitation on Sale and Leaseback Transactions", "Designation of
Restricted and Unrestricted Subsidiaries" (other than clause (x) of the second
paragraph (and such clause (x) as referred to in the first paragraph)
thereunder) and "Future Subsidiary Guarantors". The Company and the Subsidiary
Guarantors will also, upon reaching Investment Grade Status, remain obligated to
comply with the provisions described under "Merger, Consolidation and Sale of
Property" (other than clauses (e) and (f) of the first and second paragraphs
thereunder) and under "Repurchase at the Option of Holders Upon a Change of
Control".
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<PAGE> 109
LIMITATION ON DEBT AND RESTRICTED SUBSIDIARY PREFERRED STOCK. The Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, Incur any Debt (which includes, in the case of Restricted
Subsidiaries, Preferred Stock) unless, after giving pro forma effect to the
application of the proceeds thereof, no Default or Event of Default would occur
as a consequence of such Incurrence or be continuing following such Incurrence
and either (a) after giving pro forma effect to the Incurrence of such Debt and
the application of the proceeds thereof, the Consolidated Interest Coverage
Ratio would be greater than 2.00 to 1.00 or (b) such Debt is Permitted Debt.
The term "Permitted Debt" is defined to include the following:
(a) Debt of the Company evidenced by the Notes and of the Subsidiary
Guarantors evidenced by the Subsidiary Guaranties relating to the Notes;
(b) Debt under the Credit Facilities; provided that the aggregate
principal amount of all such Debt under the Credit Facilities, together
with all Permitted Refinancing Debt Incurred in respect of Debt previously
Incurred pursuant to this clause (b), at any one time outstanding shall not
exceed the greater of (i) $470 million less the sum of the aggregate amount
of all prepayments and required payments of principal applied to reduce the
aggregate amount available to be borrowed under the Credit Facilities or
such Permitted Refinancing Debt, including pursuant to the covenant
described below "-- Limitation on Asset Sales", and (ii) the sum of the
amounts equal to (x) 60% of the book value of the inventory of the Company
and the Restricted Subsidiaries and (y) 85% of the book value of the
accounts receivable of the Company and the Restricted Subsidiaries, in each
case as of the most recently ended quarter of the Company for which
financial statements of the Company have been provided to the Holders of
Notes;
(c) Capital Expenditure Debt; provided that (i) the aggregate
principal amount of such Debt does not exceed the Fair Market Value (on the
date of the Incurrence thereof) of the Property acquired, constructed or
leased and (ii) the aggregate principal amount of all Debt Incurred and
then outstanding pursuant to this clause (c), together with all Permitted
Refinancing Debt Incurred and then outstanding in respect of Debt
previously Incurred pursuant to this clause (c), does not exceed $300
million;
(d) Debt of the Company owing to and held by any Wholly Owned
Subsidiary and Debt of a Restricted Subsidiary owing to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that any
subsequent issue or transfer of Capital Stock or other event that results
in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary
or any subsequent transfer of any such Debt (except to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Debt by the issuer thereof;
(e) Debt of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Restricted Subsidiary was acquired by the
Company or otherwise became a Restricted Subsidiary (other than Debt
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
transactions pursuant to which such Restricted Subsidiary became a
Subsidiary of the Company or was otherwise acquired by the Company),
provided that at the time such Restricted Subsidiary was acquired by the
Company or otherwise became a Restricted Subsidiary and after giving pro
forma effect to the
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<PAGE> 110
Incurrence of such Debt, the Company would have been able to Incur $1.00 of
additional Debt pursuant to clause (a) of the immediately preceding
paragraph;
(f) Debt under Interest Rate Agreements entered into by the Company or
a Restricted Subsidiary for the purpose of limiting interest rate risk in
the ordinary course of the financial management of the Company or such
Restricted Subsidiary and not for speculative purposes, provided that the
obligations under such agreements are directly related to payment
obligations on Debt otherwise permitted by the terms of this covenant;
(g) Debt under Commodity Price Protection Agreements entered into by
the Company or a Restricted Subsidiary in the ordinary course of the
financial management (including cost control) of the Company or such
Restricted Subsidiary and not for speculative purposes;
(h) Debt under Currency Exchange Protection Agreements entered into by
the Company or a Restricted Subsidiary for the purpose of limiting currency
exchange rate risks directly related to transactions entered into by the
Company or such Restricted Subsidiary in the ordinary course of business
(which, for purposes of this clause (h), shall include payment obligations
on Debt otherwise permitted by this covenant) and not for speculative
purposes;
(i) Debt in connection with one or more standby letters of credit or
performance bonds issued by the Company or a Restricted Subsidiary in the
ordinary course of business or pursuant to self-insurance obligations and
not in connection with the borrowing of money or the obtaining of advances
or credit;
(j) Debt outstanding on the Issue Date not otherwise described in
clauses (a) through (i) above and any additional Debt Incurred after the
Issue Date representing interest paid in-kind on Debt outstanding pursuant
to this clause (j);
(k) Debt of the Company or any Restricted Subsidiary (other than Debt
permitted by the immediately preceding paragraph or the other clauses of
this paragraph) in an aggregate principal amount outstanding at any one
time not to exceed $100 million;
(l) Attributable Debt under any Sale and Leaseback Transaction with
respect to the Company's Portland tubing facility in an aggregate amount,
together with all Permitted Refinancing Debt Incurred and then outstanding
in respect of Debt previously Incurred pursuant to this clause (l), not to
exceed $60 million;
(m) Debt of the Company in the form of a Guaranty of the obligations
of the Company's Columbus Coating joint venture with respect to (i) a
construction facility in an aggregate amount, together with all Permitted
Refinancing Debt Incurred and then outstanding in respect of Debt
previously Incurred pursuant to this clause (m), not to exceed $145 million
or (ii) following the completion of construction, Attributable Debt under a
Sale and Leaseback Transaction involving such joint venture in an aggregate
amount, together with all Permitted Refinancing Debt Incurred and then
outstanding in respect of Debt previously Incurred pursuant to this clause
(m) and all Debt of the Company remaining outstanding pursuant to the
preceding clause (i), not to exceed $250 million; and
(n) Permitted Refinancing Debt Incurred in respect of Debt Incurred
pursuant to clause (a) of the immediately preceding paragraph and clauses
(a), (b), (c), (e),
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<PAGE> 111
(j), (l) and (m) above, subject, in the case of clauses (b), (c), (l) and
(m) above, to the limitations set forth in the respective provisos thereto.
LIMITATION ON RESTRICTED PAYMENTS. The Company shall not make, and shall
not permit any Restricted Subsidiary to make, directly or indirectly, any
Restricted Payment if at the time of, and after giving pro forma effect to, such
proposed Restricted Payment,
(a) a Default or Event of Default shall have occurred and be
continuing,
(b) the Company could not Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described
under "Limitation on Debt and Restricted Subsidiary Preferred Stock" or
(c) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made since the Issue Date of the Company's
8.20% Senior Notes due 2007 (the amount of any Restricted Payment, if made
other than in cash, to be based upon Fair Market Value) would exceed an
amount equal to the sum of:
(i) 50% of the aggregate amount of Consolidated Net Income accrued
during the period (treated as one accounting period) from and after the
first day of the fiscal quarter following the end of the most recent
fiscal quarter ended immediately prior to the Issue Date of the
Company's 8.20% Senior Notes due 2007 to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or if the aggregate amount of Consolidated Net
Income for such period shall be a deficit, minus 100% of such deficit),
(ii) Capital Stock Sale Proceeds, and
(iii) the amount by which Debt (other than Subordinated Obligations
issued or sold prior to the Issue Date of the Company's 8.20% Senior
Notes due 2007) of the Company or any Restricted Subsidiary is reduced
on the Company's consolidated balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to the
Issue Date of any Debt of the Company or any Restricted Subsidiary
convertible or exchangeable for Capital Stock (other than Disqualified
Stock) of the Company or Debt issued or sold to the Company or a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any of its Subsidiaries for the benefit of
their employees (less the amount of any cash or other Property
distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange).
Notwithstanding the foregoing limitation, the Company may:
(a) pay dividends on its Capital Stock within 60 days of the
declaration thereof if, on said declaration date, such dividends could have
been paid in compliance with the Indenture; provided, however, that at the
time of such payment of such dividend, no other Default or Event of Default
shall have occurred and be continuing (or would result therefrom); provided
further, however, that such dividend shall be included in the calculation
of the amount of Restricted Payments;
(b) purchase, repurchase, redeem, legally defease, acquire or retire
for value Capital Stock of the Company or Subordinated Obligations in
exchange for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified Stock and other
than Capital Stock issued or sold to a Subsidiary of the Company or an
employee stock ownership plan or trust established
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<PAGE> 112
by the Company or any of its Subsidiaries for the benefit of their
employees); provided, however, that (i) such purchase, repurchase,
redemption, legal defeasance, acquisition or retirement shall be excluded
in the calculation of the amount of Restricted Payments and (ii) the Net
Cash Proceeds from such exchange or sale shall be excluded from the
calculation of the amount of Capital Stock Sale Proceeds;
(c) purchase, repurchase, redeem, legally defease, acquire or retire
for value any Subordinated Obligations in exchange for, or out of the
proceeds of the substantially concurrent sale of, Permitted Refinancing
Debt; provided, however, that such purchase, repurchase, redemption, legal
defeasance, acquisition or retirement shall be excluded in the calculation
of the amount of Restricted Payments;
(d) pay dividends on the New Preferred Stock in accordance with the
terms thereof as in effect on the Issue Date, without regard to any
amendment, waiver or other modification thereto; provided, however, that at
the time of such payment of such dividend, no Default or Event of Default
shall have occurred and be continuing (or would result therefrom); provided
further, however, that such dividends shall be included in the calculation
of the amount of Restricted Payments;
(e) expend up to $5 million in any fiscal year of the Company to
repurchase common stock of the Company (i) to distribute to current or
former employees, officers and directors of the Company and its
Subsidiaries, (ii) from such current or former employees, officers or
directors or (iii) otherwise in order to distribute as employee
compensation; provided, however, that at the time of, and after giving pro
forma effect to, any such expenditure, no Default or Event of Default shall
have occurred and be continuing; provided further, however, that such
repurchase shall be excluded in the calculation of the amount of Restricted
Payments; and
(f) expend up to $40 million for Restricted Payments in addition to
amounts permitted pursuant to clauses (a) through (e) above; provided,
however, that at the time of, and after giving pro forma effect to, any
such expenditure, no Default or Event of Default shall have occurred and be
continuing; provided further, however, that such expenditures shall be
excluded in the calculation of the amount of Restricted Payments.
Payments made pursuant to (and, in the case of clause (b), Capital Stock
Sale Proceeds received from) transactions described in the foregoing clauses of
this paragraph from and after the Issue Date of the Company's 8.20% Senior Notes
due 2007 and prior to the Issue Date shall be excluded in the calculation of the
amount of Restricted Payments and Capital Stock Sale Proceeds in the same manner
and to the same extent as such transactions would be from and after the Issue
Date. In addition, amounts expended pursuant to Section 4.06(b)(iv) of the 1997
Notes indenture shall be excluded in the calculation of the amount of Restricted
Payments.
LIMITATION ON LIENS. The Company shall not, and shall not permit any
Subsidiary Guarantor to, directly or indirectly, Incur or suffer to exist, any
Lien (other than Permitted Liens) upon any of its Property (including Capital
Stock of a Subsidiary Guarantor), whether owned at the Issue Date or thereafter
acquired, or any interest therein or any income or profits therefrom, unless it
has made or will make effective provision whereby the Notes or the applicable
Subsidiary Guaranty will be secured by such Lien equally and ratably with (or
prior to) all other Debt of the Company or such Subsidiary Guarantor secured by
such Lien, provided that any Lien securing Subordinated Obligations must be
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subordinated and junior to the Lien securing the Notes or relevant Subsidiary
Guaranty and have the same or lesser relative priority as the Subordinated
Obligations shall have with respect to the Notes or such Subsidiary Guaranty.
LIMITATION ON ISSUANCE OR SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not (a) sell, pledge, hypothecate or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary or (b) permit
any Restricted Subsidiary to, directly or indirectly, issue or sell or otherwise
dispose of any shares of its Capital Stock other than (i) directors' qualifying
shares, (ii) to the Company or a Wholly Owned Subsidiary or (iii) if,
immediately after giving effect to such disposition, such Restricted Subsidiary
would no longer constitute a Restricted Subsidiary; provided, however, that, in
the case of this clause (iii), (x) such disposition is effected in compliance
with the covenant described under "Limitation on Asset Sales" and (y) upon
consummation of such disposition and execution and delivery of a supplemental
indenture in form satisfactory to the Trustee, such Restricted Subsidiary shall
be released from any Subsidiary Guaranty previously made by such Restricted
Subsidiary.
LIMITATION ON ASSET SALES. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale
unless (a) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale (or, in the case of a lease that is an Asset Sale,
the Company or such Restricted Subsidiary is to receive over the term of such
lease consideration) at least equal to the Fair Market Value of the Property
subject to such Asset Sale; (b) at least 75% of the consideration paid to the
Company or such Restricted Subsidiary in connection with such Asset Sale is in
the form of cash, Cash Equivalents, Additional Assets, Liquid Securities or the
assumption by the purchaser of liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes or any applicable Subsidiary Guaranty) as a result of which the Company
and the Restricted Subsidiaries are no longer obligated with respect to such
liabilities; and (c) the Company delivers an Officers' Certificate to the
Trustee certifying that such Asset Sale complies with the foregoing clauses (a)
and (b).
The Net Available Cash (or any portion thereof) from Asset Sales may be
applied by the Company or a Restricted Subsidiary, to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Debt): (1)
to prepay, repay, legally defease or purchase Senior Debt of the Company or any
Subsidiary Guarantor or Debt of any other Restricted Subsidiary (excluding, in
any such case, Debt owed to the Company or an Affiliate of the Company); or (2)
to reinvest in Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available Cash received by
the Company or another Restricted Subsidiary; provided, however, that in
connection with any prepayment, repayment, legal defeasance or purchase of Debt
pursuant to clause (1) above, the Company or such Subsidiary Guarantor or other
Restricted Subsidiary shall retire such Debt and shall cause the related loan
commitment (if any) to be permanently reduced by an amount equal to the
principal amount so prepaid, repaid, legally defeased or purchased.
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within twelve months from the date of the receipt of
such Net Available Cash shall constitute "Excess Proceeds". When the aggregate
amount of Excess Proceeds exceeds $5 million (taking into account income earned
on such Excess Proceeds, if any), the Company will be required to make an offer
to purchase with such Excess Proceeds on a pro rata basis according to principal
amount (x) the Notes, which offer (the
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"Prepayment Offer") shall be at a purchase price equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the purchase
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) in accordance with
the procedures (including prorating in the event of oversubscription) set forth
in the Indenture and (y) any other Debt of the Company or any Subsidiary
Guarantor that is pari passu with the Notes at a purchase price no greater than
100% of the principal amount thereof plus accrued and unpaid interest thereon,
if any, to the purchase date, to the extent, in the case of this clause (y),
required under the terms thereof (other than Debt owed to the Company or any
Affiliate of the Company). To the extent that any portion of the amount of Net
Available Cash remains after compliance with the preceding sentence and provided
that all Holders of Notes have been given the opportunity to tender their Notes
for purchase as described in the following paragraph, the Company or such
Restricted Subsidiary may use such remaining amount for any purpose permitted by
the Indenture and the amount of Excess Proceeds will be reset to zero.
Within five business days after the Company is obligated to make a
Prepayment Offer as described in the preceding paragraph, the Company will send
a written notice, by first-class mail, to the Holders of Notes, accompanied by
such information regarding the Company and its Subsidiaries as the Company in
good faith believes will enable such Holders to make an informed decision with
respect to such Prepayment Offer. Such notice will state, among other things,
the purchase price and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the covenant described
hereunder by virtue thereof.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual restriction on the right of any Restricted Subsidiary to
(a) pay dividends, in cash or otherwise, or make any other distributions on or
in respect of its Capital Stock, or pay any Debt or other obligation owed, to
the Company or any other Restricted Subsidiary, (b) make any loans or advances
to the Company or any other Restricted Subsidiary or (c) except for restrictions
described in clause (ii) under the covenant described under "Limitation on
Issuance or Sale of Capital Stock of Restricted Subsidiaries", transfer any of
its Property to the Company or any other Restricted Subsidiary. The foregoing
limitations will not apply (i) with respect to clauses (a), (b) and (c), to
restrictions (A) in effect on the Issue Date, (B) relating to Debt of a
Restricted Subsidiary and existing at the time it became a Restricted Subsidiary
if such restriction was not created in connection with or in anticipation of the
transaction or series of transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company, (C)
which result from the Refinancing of Debt Incurred pursuant to an agreement
referred to in the immediately preceding clause (i)(A) or (B) above or in clause
(ii)(A) or (B) below, provided that such restriction is no less favorable to the
Holders of Notes than those under
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the agreement evidencing the Debt so Refinanced, or (D) on any Securitization
Subsidiary and (ii) with respect to clause (c) only, to restrictions (A)
relating to Debt that is permitted to be Incurred and secured pursuant to the
covenants described under "Limitation on Debt and Restricted Subsidiary
Preferred Stock" and "Limitation on Liens" that limit the right of the debtor to
dispose of the Property securing such Debt, (B) encumbrances on Property at the
time such Property was acquired by the Company or any Restricted Subsidiary, so
long as such restriction relates solely to the Property so acquired and was not
created in connection with or in anticipation of such acquisition, (C) resulting
from customary provisions restricting subletting or assignment of leases or
customary provisions in other agreements that restrict assignment of such
agreements or rights thereunder or (D) customary restrictions contained in asset
sale agreements limiting the transfer of such Property pending the closing of
such sale.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, conduct
any business or enter into or suffer to exist any transaction or series of
transactions (including the purchase, sale, transfer, assignment, lease,
conveyance or exchange of any Property or the rendering of any service) with, or
for the benefit of, any Affiliate of the Company (an "Affiliate Transaction"),
unless (a) the terms of such Affiliate Transaction are (i) set forth in writing
and (ii) no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those that could be obtained in a comparable arm's-length
transaction with a Person that is not an Affiliate of the Company, (b) if such
Affiliate Transaction involves aggregate payments or value in excess of $10
million, the Board of Directors (including a majority of the disinterested
members of the Board of Directors) approves such Affiliate Transaction and, in
its good faith judgment, believes that such Affiliate Transaction complies with
clause (a) of this paragraph as evidenced by a Board Resolution promptly
delivered to the Trustee and (c) if such Affiliate Transaction involves
aggregate payments or value in excess of $25 million, the Company obtains a
written opinion from an Independent Appraiser to the effect that the
consideration to be paid or received in connection with such Affiliate
Transaction is fair, from a financial point of view, to the Company or such
Restricted Subsidiary, as the case may be.
Notwithstanding the foregoing limitation, the Company or any Restricted
Subsidiary may enter into or suffer to exist the following:
(i) any transaction or series of transactions between the Company and
one or more Restricted Subsidiaries or between two or more Restricted
Subsidiaries; provided that no more than 5% of the total voting power of
the Voting Stock (on a fully diluted basis) of any such Restricted
Subsidiary is owned by an Affiliate of the Company (other than a Restricted
Subsidiary);
(ii) any Restricted Payment permitted to be made pursuant to the
covenant described under "Limitation on Restricted Payment";
(iii) any issuance of securities, or other payments, awards or grants
in securities or otherwise pursuant to, or the funding of, employment
arrangements, pension plans, stock options and stock ownership plans
approved by the Board of Directors;
(iv) the payment of reasonable fees to directors of the Company or
such Restricted Subsidiary who are not employees of the Company or any
Restricted Subsidiary;
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(v) loans and advances to employees made in the ordinary course of
business and consistent with the past practices of the Company or such
Restricted Subsidiary, as the case may be, provided that such loans and
advances do not exceed $5 million in the aggregate at any one time
outstanding;
(vi) any transaction or series of transactions between the Company or
any Restricted Subsidiary and any of their joint ventures, provided that
(x) such transaction or series of transactions is in the ordinary course of
business between the Company or such Restricted Subsidiary and such joint
venture and is consistent with the past practices of the Company and the
Restricted Subsidiaries with respect to their joint ventures and (y) if
such transaction or series of transactions constitutes an Investment by the
Company, such Restricted Subsidiary or such joint venture, the other equity
investors in such joint venture (A) participate in such Investment on the
same basis as the Company or such Restricted Subsidiary, (B) have their
interests in such joint venture diluted to the extent such investors elect
not to so participate in such Investment or (C) individually beneficially
own 10% or less of the equity interests in such joint venture; and
(vii) any transaction or series of transactions between the Company or
any Restricted Subsidiary and SMI or any of its affiliates pursuant to the
terms of the Sumitomo Securities Purchase Agreement and any documents
relating thereto, as such Agreement and documents are in effect on the
Issue Date, without regard to any amendment, waiver or other modification
thereto.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any Sale and Leaseback
Transaction with respect to any Property unless (a) the Company or such
Restricted Subsidiary would be entitled to (i) Incur Debt in an amount equal to
the Attributable Debt with respect to such Sale and Leaseback Transaction
pursuant to the covenant described under "Limitation on Debt and Restricted
Subsidiary Preferred Stock" and (ii) create a Lien on such Property securing
such Attributable Debt without securing the Notes or any applicable Subsidiary
Guaranty pursuant to the covenant described under "Limitation on Liens" and (b)
such Sale and Leaseback Transaction is effected in compliance with the covenant
described under "Limitation on Asset Sales;" provided, however, that the Company
or any Restricted Subsidiary may at any time enter into a Sale and Leaseback
Transaction if the sum of (x) the aggregate amount of Attributable Debt
outstanding at such time with respect to such Sale and Leaseback Transaction and
all other Sale and Leaseback Transactions entered into by the Company or any
Restricted Subsidiary and (y) the aggregate principal amount (in the case of
Debt sold at a discount, at Stated Maturity) of all Secured Debt outstanding at
such time (other than the USWA Secured Obligations and any Permitted Refinancing
Debt in respect thereof to the extent not exceeding $250 million in the
aggregate and any Limited Recourse Guarantee), does not exceed 10% of
Consolidated Net Tangible Assets as determined based on the consolidated balance
sheet of the Company as of the end of the most recent fiscal quarter, after
giving pro forma effect to such transaction.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Board of
Directors may designate any Subsidiary of the Company to be an Unrestricted
Subsidiary if (a) the Subsidiary to be so designated does not own any Capital
Stock or Debt of, or own or hold any Lien on any Property of, the Company or any
other Restricted Subsidiary and (b) either (i) the Subsidiary to be so
designated has total assets of $1,000 or less or (ii) such designation is
effective immediately upon such entity becoming a Subsidiary of
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the Company or any Restricted Subsidiary. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or
of any Wholly Owned Subsidiary will be classified as a Restricted Subsidiary,
provided that the requirements set forth in clauses (x) and (y) of the
immediately following paragraph would be satisfied after giving pro forma effect
to such classification. Any Person not permitted by the terms of the immediately
preceding sentence to be classified as a Restricted Subsidiary shall be
automatically classified as an Unrestricted Subsidiary. Except as provided in
the first sentence of this paragraph, no Restricted Subsidiary may be
redesignated as an Unrestricted Subsidiary. In addition, neither the Company nor
any Restricted Subsidiary shall at any time be directly or indirectly liable for
any Debt that provides that the holder thereof may (with the passage of time or
notice or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity upon the occurrence of a
default with respect to any Debt, Lien or other obligation of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary, but excluding any Limited Recourse Guarantee). Upon
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with this covenant, such Restricted Subsidiary shall, by execution
and delivery of a supplemental indenture in form satisfactory to the Trustee, be
released from any Subsidiary Guaranty previously made by such Restricted
Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if, immediately after giving pro forma effect to such
designation, (x) the Company could Incur at least $1.00 of additional Debt
pursuant to clause (a) of the first paragraph of the covenant described under
"Limitation on Debt and Restricted Subsidiary Preferred Stock" and (y) no
Default or Event of Default shall have occurred and be continuing or would
result therefrom.
Any such designation or redesignation by the Board of Directors will be
evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation or redesignation and an Officers' Certificate (a)
certifying that such designation or redesignation complies with the foregoing
provisions and (b) giving the effective date of such designation or
redesignation, such filing with the Trustee to occur within 45 days after the
end of the fiscal quarter of the Company in which such designation or
redesignation is made (or, in the case of a designation or redesignation made
during the last fiscal quarter of the Company's fiscal year, within 90 days
after the end of such fiscal year).
Notwithstanding anything to the contrary in the foregoing, Presque Isle,
L-S Electro-Galvanizing Company, LTV-Trico, Inc., Cayman Mineracao do Brasil
Ltda and L.A.S. Resources, Inc. will initially be Unrestricted Subsidiaries.
LIMITATION ON LAYERED DEBT. The Company shall not permit any Acquired
Subsidiary Guarantor to Incur, directly or indirectly, any Debt that is
subordinate or junior in right of payment to any Senior Debt unless such debt is
expressly subordinated in right of payment to, or ranks pari passu with, the
Obligations under its Acquired Subsidiary Guaranty.
FUTURE SUBSIDIARY GUARANTORS. The Company shall cause each Person that
becomes a Domestic Wholly Owned Subsidiary following the Issue Date (other than
any Securitization Subsidiary or Inactive Subsidiary) or any Person that ceases
to be an Inactive Subsidiary to execute and deliver to the Trustee a Subsidiary
Guaranty at the time such Person becomes a Domestic Wholly Owned Subsidiary or
ceases to be an Inactive Subsidiary, as applicable.
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MERGER, CONSOLIDATION AND SALE OF PROPERTY
The Company shall not merge, consolidate or amalgamate with or into any
other Person (other than a merger of a Wholly Owned Subsidiary into the Company)
or sell, transfer, assign, lease, convey or otherwise dispose of all or
substantially all its Property in any one transaction or series of transactions
unless: (a) the Company shall be the surviving Person (the "Surviving Person")
or the Surviving Person (if other than the Company) formed by such merger,
consolidation or amalgamation or to which such sale, transfer, assignment,
lease, conveyance or disposition is made shall be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia; (b) the Surviving Person (if other than the Company)
expressly assumes, by supplemental indenture in form satisfactory to the
Trustee, executed and delivered to the Trustee by such Surviving Person, the due
and punctual payment of the principal of, and premium, if any, and interest on,
all the Notes, according to their tenor, and the due and punctual performance
and observance of all the covenants and conditions of the Indenture to be
performed by the Company; (c) in the case of a sale, transfer, assignment,
lease, conveyance or other disposition of all or substantially all the Company's
Property, such Property shall have been transferred as an entirety or virtually
as an entirety to one Person; (d) immediately before and after giving effect to
such transaction or series of transactions on a pro forma basis (and treating,
for purposes of this clause (d) and clauses (e) and (f) below, any Debt which
becomes, or is anticipated to become, an obligation of the Surviving Person or
any Restricted Subsidiary as a result of such transaction or series of
transactions as having been Incurred by the Surviving Person or such Restricted
Subsidiary at the time of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing; (e)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis, the Company or the Surviving Person, as the case may be,
would be able to Incur at least $1.00 of additional Debt under clause (a) of the
first paragraph of the covenant described under "Certain Covenants -- Limitation
on Debt and Restricted Subsidiary Preferred Stock"; (f) immediately after giving
effect to such transaction or series of transactions on a pro forma basis, the
Surviving Person shall have a Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Company immediately prior to such
transaction or series of transactions; and (g) the Company shall deliver, or
cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction and any supplemental indenture in respect
thereto comply with this covenant and that all conditions precedent herein
provided for relating to such transaction have been satisfied.
The Company shall not permit LTV Steel or any Subsidiary then conducting
all or part of the Tubular Business to merge, consolidate or amalgamate with or
into any other Person (other than a merger of a Wholly Owned Subsidiary into LTV
Steel or a Subsidiary Guarantor then conducting all or part of the Tubular
Business, as applicable) or sell, transfer, assign, lease, convey or otherwise
dispose of all or substantially all the Property of LTV Steel or of the Tubular
Business, as applicable, in any one transaction or series of transactions
unless: (a) the Surviving Person (if not LTV Steel or such Subsidiary) formed by
such merger, consolidation or amalgamation or to which such sale, transfer,
assignment, lease, conveyance or disposition is made shall be a corporation
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia; (b) the Surviving Person (if other than LTV
Steel or such Subsidiary) expressly assumes, by supplemental indenture in form
satisfactory to the Trustee, executed and delivered to the Trustee by such
Surviving Person, the due and
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punctual performance and observance of all the obligations of such entity under
its Subsidiary Guaranty; (c) in the case of a sale, transfer, assignment, lease,
conveyance or other disposition of all or substantially all the Property of LTV
Steel or the Tubular Business, such Property shall have been transferred as an
entirety or virtually as an entirety to one Person; (d) immediately before and
after giving effect to such transaction or series of transactions on a pro forma
basis (and treating, for purposes of this clause (d) and clauses (e) and (f)
below, any Debt which becomes, or is anticipated to become, an obligation of the
Surviving Person, the Company or any Restricted Subsidiary as a result of such
transaction or series of transactions as having been Incurred by the Surviving
Person, the Company or such Restricted Subsidiary at the time of such
transaction or series of transactions), no Default or Event of Default shall
have occurred and be continuing; (e) immediately after giving effect to such
transaction or series of transactions on a pro forma basis, the Company would be
able to Incur at least $1.00 of additional Debt under clause (a) of the first
paragraph of the covenant described under "Certain Covenants -- Limitation on
Debt and Restricted Subsidiary Preferred Stock"; (f) immediately after giving
effect to such transaction or series of transactions on a pro forma basis, the
Company shall have a Consolidated Net Worth in an amount which is not less than
the Consolidated Net Worth of the Company immediately prior to such transaction
or series of transactions; and (g) the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that
such transaction and such supplemental indenture, if any, in respect thereto
comply with this covenant and that all conditions precedent herein provided for
relating to such transaction have been satisfied. The foregoing provisions shall
not apply to any sale of less than substantially all the Tubular Business by
means of a merger, consolidation or amalgamation.
The Surviving Person will succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture (or of the
applicable Subsidiary Guarantor under its Subsidiary Guaranty, as the case may
be), but the predecessor Company in the case of a sale, transfer, assignment,
lease, conveyance or other disposition, shall not be released from the
obligations to pay the principal of, and premium, if any, and interest on the
Notes.
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 Commission 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 Trustee and
the Holders of Notes with copies of such information, documents and reports and
(b) if the Commission 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 Notes.
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EVENTS OF DEFAULT
Events of Default in respect of the Notes include: (a) failure to make the
payment of any interest on the Notes when the same becomes due and payable, and
such failure continues for a period of 30 days; (b) failure to make the payment
of any principal of, or premium, if any, on, any of the Notes when the same
becomes due and payable at its Stated Maturity, upon acceleration, redemption,
optional redemption, mandatory redemption, required repurchase or otherwise; (c)
failure to comply with the covenant described above under "Merger, Consolidation
and Sale of Property"; (d) failure to comply with any other covenant or
agreement in the Notes or in the Indenture (other than a failure which is the
subject of the foregoing clause (a), (b) or (c)) and such failure continues for
30 days after written notice is given to the Company as provided below; (e) a
default under any Debt by the Company or any Restricted Subsidiary which results
in acceleration of the maturity of such Debt, or failure to pay any such Debt at
maturity, in an aggregate amount greater than $20 million (the "cross
acceleration provisions"); (f) any judgment or judgments for the payment of
money in an aggregate amount in excess of $20 million shall be rendered against
the Company or any Restricted Subsidiary and shall not be waived, satisfied or
discharged for any period of 30 consecutive days during which a stay of
enforcement shall not be in effect (the "judgment default provisions"); (g)
certain events involving bankruptcy, insolvency or reorganization of the Company
or any Significant Subsidiary (the "bankruptcy provisions"); and (h) any
Subsidiary Guaranty ceases to be in full force and effect (other than in
accordance with the terms of the Indenture or such Subsidiary Guaranty) or any
Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary
Guaranty (the "guaranty provisions"). The Indenture provides that the Trustee
may withhold notice to the Holders of the Notes of any Default (except in
payment of principal, premium, if any, or interest) if the Trustee considers it
to be in the best interest of the Holders of the Notes to do so.
A Default under clause (d) is not an Event of Default until the Trustee or
the Holders of not less than 25% in aggregate principal amount of the Notes then
outstanding notify the Company of the Default and the Company does not cure such
Default within the time specified after receipt of such notice. Such notice must
specify the Default, demand that it be remedied and state that such notice is a
"Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any event which with the giving of notice and the lapse of time would become an
Event of Default, its status and what action the Company is taking or proposes
to take with respect thereto.
The Indenture will provide that if an Event of Default with respect to the
Notes (other than an Event of Default resulting from certain events involving
bankruptcy, insolvency or reorganization with respect to the Company or any
Significant Subsidiary) shall have occurred and be continuing, the Trustee or
the registered Holders of not less than 25% in aggregate principal amount of the
Notes then outstanding may declare to be immediately due and payable the
principal amount of all the Notes then outstanding, plus accrued but unpaid
interest to the date of acceleration. In case an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization with respect to the
Company or any Significant Subsidiary shall occur, such amount with respect to
all the Notes shall be due and payable immediately without any declaration or
other act on the part of the Trustee or the Holders of the Notes. The holders of
a majority in aggregate principal amount of the outstanding Notes may, by notice
to the Trustee and the Company, rescind any declaration of acceleration if the
rescission would not conflict with
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any judgment or decree, and if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the Notes then outstanding will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the Notes.
No Holder of Notes will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or trustee, or
for any remedy thereunder, unless (a) such Holder has previously given to the
Trustee written notice of a continuing Event of Default, (b) the registered
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding have made written request and offered reasonable indemnity to the
Trustee to institute such proceeding as trustee and (c) the Trustee shall not
have received from the registered Holders of a majority in aggregate principal
amount of the Notes then outstanding a direction inconsistent with such request
and shall have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a Holder of any Note for
enforcement of payment of the principal of, and premium, if any, or interest on,
such Note on or after the respective due dates expressed in such Note.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the registered Holders of a majority in aggregate principal amount of
the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Notes) and any past default or compliance
with any provisions may also be waived (except a default in the payment of
principal, premium or interest and certain covenants and provisions of the
Indenture which cannot be amended without the consent of each Holder of an
outstanding Note) with the consent of the registered Holders of at least a
majority in aggregate principal amount of the Notes then outstanding. However,
without the consent of each Holder of an outstanding Note, no amendment may,
among other things, (a) reduce the amount of Notes whose Holders must consent to
an amendment or waiver, (b) reduce the rate of or extend the time for payment of
interest on any Note, (c) reduce the principal of or extend the Stated Maturity
of any Note, (d) make any Note payable in money other than that stated in the
Note, (e) impair the right of any Holder of the Notes to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes or any Subsidiary Guaranty, (f) subordinate the
Notes or any Subsidiary Guaranty to any other obligation of the Company or the
applicable Subsidiary Guarantor, (g) release any security interest that may have
been granted in favor of the Holders of the Notes other than pursuant to the
terms of such security interest, including the security interest under the
Escrow Agreement described in "Escrow of Proceeds; Special Mandatory
Redemption", (h) reduce the
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premium payable upon the redemption or repurchase of any Note as described under
"Optional Redemption" or "Repurchase at the Option of Holders Upon a Change of
Control", (i) at any time after a Change of Control or Asset Sale has occurred,
change the time at which the Change of Control Offer or Prepayment Offer
relating thereto must be made or at which the Notes must be repurchased pursuant
to such Change of Control Offer or Prepayment Offer, (j) reduce the premium
payable upon a Special Mandatory Redemption or make any other change in the
provisions relating to the Special Mandatory Redemption, including changing the
time by which Notes must be redeemed, (k) make any change to the subordination
provisions of the Indenture with respect to the Acquired Subsidiary Guaranties
that would adversely affect the Holders of the Notes, (l) make any change in the
Escrow Agreement that would adversely affect Holders of the Notes or (m) make
any change in any Subsidiary Guaranty that could adversely affect the Holders of
the Notes.
Without the consent of any Holder of the Notes, the Company and the Trustee
may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company, LTV Steel or any Subsidiary then conducting all or
part of the Tubular Business under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add additional Guarantees
with respect to the Notes or to release Subsidiary Guarantors from the
Subsidiary Guaranties as provided by the terms of the Indenture, to secure the
Notes, to add to the covenants of the Company for the benefit of the Holders of
the Notes or to surrender any right or power conferred upon the Company, to make
any change that does not adversely affect the rights of any Holder of the Notes,
to make any change to the subordination provisions of the Indenture with respect
to the Acquired Subsidiary Guaranties that would limit or terminate the benefits
available to holders of Designated Senior Debt under such provisions, to comply
with any requirement of the Commission in connection with the qualification of
the Indenture under the Trust Indenture Act or to provide for the issuance of
additional Notes in accordance with the Indenture.
No amendment may be made to the subordination provisions of the Indenture
with respect to the Subsidiary Guaranties of the Acquired Subsidiaries that
adversely affects the rights of holders of Designated Senior Debt unless the
holders of such Designated Senior Debt (or their Representative) consent to such
change.
The consent of the Holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to each registered Holder of the Notes at such Holder's address
appearing in the Security Register a notice briefly describing such amendment.
However, the failure to give such notice to all Holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting
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the defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes. The Company at any time may
terminate its obligations under the covenants described under "Repurchase at the
Option of Holders Upon a Change of Control" and "Certain Covenants", the
operation of the cross acceleration provisions, the judgment default provisions,
the bankruptcy provisions with respect to Significant Subsidiaries and the
guaranty provisions described under "Events of Default" above and the
limitations contained in clauses (e) and (f) under the first paragraph, or
contained in the second paragraph, of "Merger, Consolidation and Sale of
Property" above ("covenant defeasance"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant defeasance
option.
If the Company exercises its legal defeasance option, payment of the Notes
may not be accelerated because of an Event of Default with respect thereto. If
the Company exercises its covenant defeasance option, payment of the Notes may
not be accelerated because of an Event of Default specified in clause (d) (with
respect to the covenants described under "Certain Covenants"), (e), (f), (g)
(with respect only to Significant Subsidiaries) or (h) under "Events of Default"
above or because of the failure of the Company to comply with clauses (e) and
(f) under the first paragraph, or with the second paragraph, of "Merger,
Consolidation and Sale of Property" above. If the Company exercises its legal or
covenant defeasance option, each Subsidiary Guarantor will be released from all
its obligations under its Subsidiary Guaranty.
In order to exercise either defeasance option, the Company must, among
other things, irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations for the payment of principal and
interest on the Notes to maturity or redemption, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that Holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
BOOK-ENTRY SYSTEM
The Old Notes were, and the New Notes will initially be issued in the form
of one or more Global Securities registered in the name of The Depository Trust
Company ("DTC") or its nominee.
Upon the issuance of a Global Security, DTC or its nominee will credit the
accounts of Persons holding through it with the respective principal amounts of
the New Notes represented by such Global Security. Ownership of beneficial
interests in a Global Security will be limited to Persons that have accounts
with DTC ("participants") or Persons that may hold interests through
participants. Any Person acquiring an interest in a Global Security through an
offshore transaction in reliance on Regulation S under the Securities Act may
hold such interest through Cedel or Euroclear. Ownership of beneficial interests
in a Global Security will be shown on, and the transfer of that ownership
interest 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 such Global
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Security other than participants). The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to transfer
beneficial interests in a Global Security.
Payment of principal of and interest on Notes represented by a Global
Security will be made in immediately available funds to DTC or its nominee, as
the case may be, as the sole registered owner and the sole Holder of the Notes
represented thereby for all purposes under the Indenture. The Company has been
advised by DTC that upon receipt of any payment of principal of or interest on
any Global Security, DTC will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Security as shown on the records of DTC. Payments by
participants to owners of beneficial interests in a Global Security held through
such participants will be governed by standing instructions and customary
practices as is now the case with securities held for customer accounts
registered in "street name" and will be the sole responsibility of such
participants.
A Global Security may not be transferred except as a whole by DTC or a
nominee of DTC to a nominee of DTC or to DTC. A Global Security is exchangeable
for certificated Notes only if (a) DTC notifies the Company that it is unwilling
or unable to continue as a depositary for such Global Security or if at any time
DTC ceases to be a clearing agency registered under the Exchange Act, (b) the
Company in its discretion at any time determines not to have all the Notes
represented by such Global Security or (c) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Notes
represented by such Global Security. Any Global Security that is exchangeable
for certificated Notes pursuant to the preceding sentence will be exchanged for
certificated Notes in authorized denominations and registered in such names as
DTC or any successor depositary holding such Global Security may direct. Subject
to the foregoing, a Global Security is not exchangeable, except for a Global
Security of like denomination to be registered in the name of DTC or any
successor depositary or its nominee. In the event that a Global Security becomes
exchangeable for certificated Notes, (a) certificated Notes will be issued only
in fully registered form in denominations of $1,000 or integral multiples
thereof, (b) payment of principal of, and premium, if any, and interest on, the
certificated Notes will be payable, and the transfer of the certificated Notes
will be registerable, at the office or agency of the Company maintained for such
purposes and (c) no service charge will be made for any registration of transfer
or exchange of the certificated Notes, although the Company may require payment
of a sum sufficient to cover any tax or governmental charge imposed in
connection therewith.
So long as DTC or any successor depositary for a Global Security, or any
nominee, is the registered owner of such Global Security, DTC or such successor
depositary or nominee, as the case may be, will be considered the sole owner or
Holder of the Notes represented by such Global Security for all purposes under
the Indenture and the Notes. Except as set forth above, owners of beneficial
interests in a Global Security will not be entitled to have the Notes
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of certificated Notes in definitive
form and will not be considered to be the owners or Holders of any Notes under
such Global Security. Accordingly, each Person owning a beneficial interest in a
Global Security must rely on the procedures of DTC or any successor depositary,
and, if such Person is not a participant, on the procedures of the participant
through which such Person owns its
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interest, to exercise any rights of a Holder under the Indenture. The Company
understands that under existing industry practices, in the event that the
Company requests any action of Holders or that an owner of a beneficial interest
in a Global Security desires to give or take any action which a Holder is
entitled to give or take under the Indenture, DTC or any successor depositary
would authorize the participants holding the relevant beneficial interest to
give or take such action and such participants would authorize beneficial owners
owning through such participants to give or take such action or would otherwise
act upon the instructions of beneficial owners owning through them.
DTC has advised the Company that DTC is a limited-purpose trust company
organized under the Banking Law 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 under the
Exchange Act. DTC was created to hold the securities of its 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, banks, trust companies, clearing corporations and certain other
organizations some of whom (or their representatives) own DTC. 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, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in Global Securities among participants of DTC, it is
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 Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
GOVERNING LAW
The Indenture and the Notes are governed by the internal laws of the State
of New York without reference to principles of conflicts of law.
THE TRUSTEE
U.S. Bank Trust National Association will be the Trustee under the
Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such of the rights and powers vested in it under the Indenture and use
the same degree of care and skill in its exercise as a prudent Person would
exercise under the circumstances in the conduct of such Person's own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
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"Acquired Subsidiary Guarantors" means each of Copperweld Corporation and
Welded Tube Company of America and each of their respective Domestic Wholly
Owned Subsidiaries (other than a Securitization Subsidiary or Inactive
Subsidiary).
"Additional Assets" means (a) any Property (other than cash, cash
equivalents or securities) to be owned by the Company or any Restricted
Subsidiary; or (b) Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by the Company
or another Restricted Subsidiary from any Person other than the Company or an
Affiliate of the Company.
"Affiliate" of any specified Person means (a) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (b) any other Person who is a director or
officer of (i) such specified Person, (ii) any Subsidiary of such specified
Person or (iii) any Person described in clause (a) above. For the purposes of
this definition, "control" when used with respect to any Person means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenants described under "Certain
Covenants -- Limitation on Transactions with Affiliates", "Limitation on Asset
Sales" and the definition of the term "Additional Assets" only, "Affiliate"
shall also mean any beneficial owner of shares representing 5% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the Company
or of rights or warrants to purchase such Voting Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Sale" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction or by means of a disposition of
Capital Stock permitted by clause (iii) of the covenant described under "Certain
Covenants -- Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries" (each referred to for the purposes of this definition as a
"disposition"), of (a) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares), (b) all or substantially all the
assets of any division or line of business of the Company or any Restricted
Subsidiary (other than LTV Steel or the Tubular Business) or (c) any other
assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (other than (i)
in the case of clauses (a), (b) and (c) above, any disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary, (ii) in the case of clauses (b) and (c) above, (x) any
disposition of accounts receivable or inventory by or to the Company or any
Restricted Subsidiary to or from any Securitization Subsidiary in connection
with the Incurrence of Debt by such Subsidiary under Credit Facilities or (y)
any disposition of Property having, together with other Property disposed of
pursuant to such clauses during the same fiscal year, an aggregate Fair Market
Value of less than $25 million and (iii) in the case of clauses (a), (b) and (c)
above, any disposition subject to the first or second paragraph of the covenant
described under "Merger, Consolidation and Sale of Property").
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at any date of determination, (a) if such Sale and Leaseback Transaction is a
Capital Lease Obligation, the amount of Debt represented thereby according to
the definition of the term "Capital Lease Obligation" and (b) in all other
instances, the present value (discounted at
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the actual rate of interest implicit in such transaction, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of any date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (a) the sum of the
product of the numbers of years (rounded to the nearest one-twelfth of one year)
from the date of determination to the dates of each successive scheduled
principal payment of such Debt or redemption or similar payment with respect to
such Preferred Stock multiplied by the amount of such payment by (b) the sum of
all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
"Capital Expenditure Debt" means Debt Incurred by any Person to finance a
capital expenditure so long as (a) such capital expenditure is or should be
included as an addition to "Property, Plant and Equipment" in accordance with
GAAP (including in any event an addition to Property as a result of the purchase
or other acquisition of Capital Stock of a Person that becomes a Subsidiary
Guarantor as a result of such purchase or acquisition by the Company or another
Subsidiary Guarantor from any Person other than the Company or an Affiliate of
the Company) and (b) such Debt is Incurred within 180 days of the date such
capital expenditure is made.
"Capital Lease Obligations" means any obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP; and the amount of Debt represented by such obligation shall be the
capitalized amount of such obligations determined in accordance with GAAP; and
the Stated Maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty. For purposes of
"Certain Covenants -- Limitation on Liens", a Capital Lease Obligation shall be
deemed secured by a Lien on the Property being leased.
"Capital Stock" means, with respect to any Person, any shares or other
equivalents (however designated) of corporate stock, partnership interests or
any other participations, rights, warrants, options or other interests in the
nature of an equity interest in such Person, including Preferred Stock, but
excluding any debt security convertible or exchangeable into such equity
interest.
"Capital Stock Sale Proceeds" means the aggregate Net Cash Proceeds
received by the Company from the issuance or sale (other than to a Subsidiary of
the Company or an employee stock ownership plan or trust established by the
Company or any of its Subsidiaries for the benefit of their employees) by the
Company of any class of its Capital Stock (other than Disqualified Stock) after
the Issue Date of the Company's 8.20% Senior Notes due 2007.
"Cash Equivalents" means any of the following: (i) direct obligations of
the United States of America or any agency thereof or obligations fully and
unconditionally guaranteed by the United States of America or any agency
thereof; (ii) direct obligations
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of Canada or any agency thereof or obligations fully and unconditionally
guaranteed by Canada or any agency thereof; (iii) time deposit accounts,
certificates of deposit and money market deposits maturing within 270 days of
the date of acquisition thereof issued by a bank or trust company which is
organized under the laws of the United States of America or any state thereof,
and which bank or trust company has capital, surplus and undivided profits
aggregating in excess of $500 million and has outstanding Debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund having assets in excess of $500 million
all of which consist of other obligations described in (i), (ii), (iii), (iv),
(v) or (vi) sponsored by a registered broker dealer or mutual fund distributor;
(iv) repurchase and reverse repurchase obligations with a term of not more than
30 days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (iii)
above; (v) commercial paper, maturing not more than 180 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
state thereof with a rating at the time as of which any investment therein is
made of "P-2" (or higher) according to Moody's or "A-2" (or higher) according to
S&P; and (vi) securities with maturities of one year or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America or by any political
division or taxing authority thereof, and rated at least "A" by Moody's or S&P,
provided that all Cash Equivalents purchased or otherwise acquired by the Escrow
Agent as contemplated under "Escrow of Proceeds; Special Mandatory Redemption"
shall mature on or prior to the Assumed Redemption Date.
"Change of Control" means the occurrence of any of the following events:
(a) if any "Person" or "group" (as such terms are used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act or any successor provisions to
either of the foregoing), including any group acting for the purpose of
acquiring, holding, voting or disposing of securities within the meaning of
Rule 13d-5(b)(1) under the Exchange Act, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, except that a Person will be
deemed to have "beneficial ownership" of all shares that any such Person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of 50% or more of
the total voting power of all classes of the Voting Stock of the Company
(for purposes of this clause (a), such other Person or group shall be
deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as such other Person or group beneficially owns,
directly or indirectly, in the aggregate a majority of the voting power of
all classes of the Voting Stock of such parent corporation); or
(b) the sale, transfer, assignment, lease, conveyance or other
disposition, directly or indirectly, of all or substantially all the assets
of the Company and the Restricted Subsidiaries, considered as a whole
(other than a disposition of such assets as an entirety or virtually as an
entirety to a Wholly Owned Subsidiary) shall have occurred, or the Company
merges, consolidates or amalgamates with or into any other Person or any
other Person merges, consolidates or amalgamates with or into the Company,
in any such event pursuant to a transaction in which the outstanding Voting
Stock of the Company is reclassified into or exchanged for cash, securities
or other Property, other than any such transaction where (i) the
outstanding Voting
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Stock of the Company is reclassified into or exchanged for Voting Stock of
the surviving corporation and (ii) the Holders of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation
immediately after such transaction and in substantially the same proportion
as before the transaction; or
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election or appointment by such Board or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors then in office; or
(d) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Trust Agreement" means the Collateral Trust Agreement dated as
of May 15, 1993, as amended through the Issue Date, among the Company, LTV Steel
Company, Inc., the USWA and Bank One Ohio Trust Company, N.A., as collateral
trustee.
"Commodity Price Protection Agreement" means, in respect of a Person, any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in commodity prices.
"Consolidated Current Liabilities" means, as of any date of determination,
the aggregate amount of liabilities of the Company and its consolidated
Restricted Subsidiaries which may properly be classified as current liabilities
(including taxes accrued as estimated), after eliminating (a) all intercompany
items between the Company and any Restricted Subsidiary or between Restricted
Subsidiaries and (b) all current maturities of long-term Debt.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the aggregate amount of EBITDA for the period of
the most recent four consecutive fiscal quarters ending at least 45 days prior
to such determination date to (b) Consolidated Interest Expense for such four
fiscal quarters; provided, however, that (i) if the Company or any Restricted
Subsidiary has Incurred any Debt since the beginning of such period that remains
outstanding or if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio is an Incurrence of Debt, or both,
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Debt as if such Debt had been Incurred on
the first day of such period and the discharge of any other Debt repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new Debt
as if such discharge had occurred on the first day of such period, (ii) if since
the beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Sale or if the transaction giving rise to the need to calculate
the Consolidated Interest Coverage Ratio is an Asset Sale, or both, EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset Sale for
such period, or increased by an amount equal to the EBITDA (if negative)
directly
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attributable thereto for such period, in either case as if such Asset Sale had
occurred on the first day of such period and Consolidated Interest Expense for
such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Debt of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Restricted Subsidiaries in connection with such
Asset Sale for such period, as if such Asset Sale had occurred on the first day
of such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
by an amount equal to the Consolidated Interest Expense for such period directly
attributable to the Debt of such Restricted Subsidiary to the extent the Company
and its continuing Restricted Subsidiaries are no longer liable for such Debt
after such sale), (iii) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of Property, including any acquisition of Property occurring
in connection with a transaction causing a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any Debt) as
if such Investment or acquisition occurred on the first day of such period and
(iv) if since the beginning of such period any Person (that subsequently became
a Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset Sale,
Investment or acquisition of Property that would have required an adjustment
pursuant to clause (ii) or (iii) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if such
Asset Sale, Investment or acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of Property, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Debt incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer and as further
contemplated by the definition of the term "pro forma". If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Debt shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries, (a) interest expense
attributable to capital leases, (b) amortization of debt discount and debt
issuance cost, (c) capitalized interest, (d) non-cash interest expenses, (e)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (f) net costs associated with
Hedging Obligations (including amortization of fees), (g) Redeemable Dividends,
(h) Preferred Stock dividends in respect of all Preferred Stock of Restricted
Subsidiaries held by Persons other than the Company or a Wholly Owned
Subsidiary, (i) interest incurred in connection with Investments in discontinued
operations, (j) interest accruing on any Debt of any other Person to the extent
such Debt is Guaranteed by the Company or any Restricted Subsidiary (such amount
included, if such Debt is also Guaranteed by a venture partner or other equity
owner of such Person that is capable of satisfying its obligations under such
Guarantee (as determined by an Officer in good faith at the time of any relevant
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determination), only to the extent of the Company's direct or indirect equity
ownership of such Person) and (k) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Debt Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income (a) any net income (loss)
of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (i) subject to the exclusion contained in clause (d)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (c) below) and (ii) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income, (b) any
net income (loss) of any Person acquired by the Company or any of its
consolidated Subsidiaries in a pooling of interests transaction for any period
prior to the date of such acquisition, (c) any net income (loss) of any
Restricted Subsidiary to the extent that such Restricted Subsidiary is subject
to restrictions, directly or indirectly, on the payment of dividends or the
making of distributions, directly or indirectly, to the Company, except that (i)
subject to the exclusion contained in clause (d) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
distributed by such Restricted Subsidiary during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause) and (ii) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be included in
determining such Consolidated Net Income, (d) any gain (but not loss) realized
upon the sale or other disposition of any Property of the Company or any of its
consolidated Subsidiaries (including pursuant to any Sale and Leaseback
Transaction) which is not sold or otherwise disposed of in the ordinary course
of business, (e) any extraordinary gain or loss, (f) any unusual or nonrecurring
non-cash charge or credit separately identified on the Company's consolidated
income statement for such period, provided that (i) to the extent any such
charge represents an accrual of or reserve for cash expenditures in any future
period, such cash expenditure shall be included in Consolidated Net Income for
such future period or (ii) for purposes of the covenant described under "Certain
Covenants -- Limitation on Restricted Payments" only, to the extent any such
credit will result in the receipt of cash payments in any future period, such
cash payment shall be included in Consolidated Net Income for such future
period, (g) the cumulative effect of a change in accounting principles and (h)
any non-cash compensation expense realized for grants of performance shares,
stock options or other stock awards to officers, directors and employees of the
Company or any Restricted Subsidiary; provided further, however, that there
shall be added to such Consolidated Net Income any provision for taxes not
payable in cash.
"Consolidated Net Tangible Assets" means, as of any date of determination,
the sum of the amounts that would appear on a consolidated balance sheet of the
Company and its consolidated Restricted Subsidiaries as the total assets (less
accumulated depreciation, depletion and amortization, allowances for doubtful
receivables, adjustments for pension
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liabilities, other applicable reserves and other properly deductible items) of
the Company and its Restricted Subsidiaries, after giving effect to purchase
accounting and after deducting therefrom Consolidated Current Liabilities and,
to the extent otherwise included, the amounts of (without duplication): (a) the
excess of cost over fair market value of assets or businesses acquired; (b) any
revaluation or other write-up in book value of assets subsequent to the last day
of the fiscal quarter of the Company immediately preceding the Issue Date as a
result of a change in the method of valuation in accordance with GAAP; (c)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items; (d) minority
interests in consolidated Subsidiaries held by Persons other than the Company or
any Restricted Subsidiary; (e) treasury stock; (f) cash or securities set aside
and held in a sinking or other analogous fund established for the purpose of
redemption or other retirement of Capital Stock to the extent such obligation is
not reflected in Consolidated Current Liabilities; and (g) Investments in and
assets of Unrestricted Subsidiaries.
"Consolidated Net Worth" means the total of the amounts shown on the
consolidated balance sheet of the Company and its Restricted Subsidiaries as of
the end of the most recent fiscal quarter of the Company ending at least 45 days
prior to the taking of any action for the purpose of which the determination is
being made, as (a) the par or stated value of all outstanding Capital Stock of
the Company plus (b) paid-in capital or capital surplus relating to such Capital
Stock plus (c) any retained earnings or earned surplus less (i) any accumulated
deficit, (ii) any amounts attributable to Disqualified Stock and (iii) any
adjustments for pension liabilities.
"Copperweld Acquisition" means the acquisition by the Company of Copperweld
Corporation and Copperweld Canada Inc. pursuant to the Copperweld Acquisition
Agreement.
"Copperweld Acquisition Agreement" means the Stock Purchase Agreement by
and between Imetal SA and the Company dated as of September 8, 1999, as amended,
waived or otherwise modified through the Issue Date.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more credit facilities or securitization facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables or inventory financing (including the Existing Securitization
Facilities) or trade letters of credit, in each case together with any
extensions, revisions, refinancings or replacements thereof.
"Currency Exchange Protection Agreement" means, in respect of a Person, any
foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
"Debt" means, with respect to any Person on any date of determination
(without duplication), (a) the principal of and premium (if any) in respect of
(i) debt of such Person for money borrowed and (ii) debt evidenced by Notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (b) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale and Leaseback Transactions
entered into by such Person; (c) all obligations of such Person issued or
assumed as the deferred purchase price of Property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention
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agreement (but excluding trade accounts payable arising in the ordinary course
of business); (d) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (a) through (c) above) entered
into in the ordinary course of business of such Person to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed no later than the tenth Business Day following receipt by
such Person of a demand for reimbursement following payment on the letter of
credit); (e) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in
each case, any accrued dividends); (f) all obligations of the type referred to
in clauses (a) through (e) of other Persons and all dividends of other Persons
for the payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee; (g) all obligations of the type referred to in clauses (a)
through (f) of other Persons secured by any Lien on any Property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
Property or assets or the amount of the obligation so secured; (h) to the extent
not otherwise included in this definition, Hedging Obligations of such Person;
and (i) to the extent not otherwise included in this definition, any financing
of accounts receivable or inventory of such Person (whether or not treated as a
sale or debt for accounting purposes), provided that such accounts receivable or
inventory shall be deemed to be on the consolidated balance sheet of the Company
for purposes of clause (b)(ii) of the definition of "Permitted Debt". The amount
of Debt of any Person at any date shall be the outstanding balance at such date
of all unconditional obligations as described above and the maximum liability,
upon the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Debt" means, with respect to each Acquired Subsidiary
Guarantor, all Debt and other obligations of such Acquired Subsidiary Guarantor
under the New Bank Financing and any Permitted Refinancing Debt in respect
thereof, whether outstanding on the Issue Date or thereafter created.
"Disqualified Stock" means, with respect to any Person, Redeemable Stock of
such Person as to which the maturity, mandatory redemption, redemption at the
option of the holder thereof, conversion or exchange occurs, or may occur, on or
prior to the first anniversary of the Stated Maturity of the Notes; provided,
however, that Redeemable Stock of such Person that would not otherwise be
characterized as Disqualified Stock under this definition shall not constitute
Disqualified Stock if such Redeemable Stock is convertible or exchangeable into
Debt solely at the option of the issuer thereof.
"Domestic" means, with respect to any Subsidiary, any Subsidiary that is
organized under the laws of the United States of America or any state thereof or
the District of Columbia.
"EBITDA" means, for any period, an amount equal to, for the Company and its
consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income for
such period, plus the following to the extent reducing Consolidated Net Income
for such period:
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(i) the provision for taxes for such period based on income or profits or
utilized in computing net loss, (ii) Consolidated Interest Expense, (iii)
depreciation and amortization of fixed and intangible assets and (iv) any other
non-cash items (other than any such non-cash item to the extent that it
represents an accrual of or reserve for cash expenditures in any future period),
minus (b) all non-cash items increasing Consolidated Net Income for such period
(other than any such non-cash item to the extent that it will result in the
receipt of cash payments in any future period). Notwithstanding the foregoing,
the provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Restricted Subsidiary shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Event of Default" has the meaning set forth under "Events of Default".
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Securitization Facilities" means the Receivables Credit Agreement
and the Inventory Facility.
"Fair Market Value" means, with respect to any Property, the price (or, in
the case of a lease, the rent) which could be negotiated in an arm's-length free
market transaction, for cash, between a willing seller (or lessor) and a willing
buyer (or lessee), neither of whom is under undue pressure or compulsion to
complete the transaction. Fair Market Value will be determined, except as
otherwise provided, (a) if such Property has a Fair Market Value equal to or
less than $25 million, by any Officer of the Company or (b) if such Property has
a Fair Market Value in excess of $25 million, by a majority of the Board of
Directors and evidenced by a Board Resolution, dated within 30 days of the
relevant transaction, delivered to the Trustee.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date, including those set forth (a) in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) in the statements and pronouncements of the
Financial Accounting Standards Board, (c) in such other statements by such other
entity as approved by a significant segment of the accounting profession and (d)
the rules and regulations of the Commission governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee
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against loss in respect thereof (in whole or in part); provided, however, that
the term "Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligation" of any Person means any obligation of such Person
pursuant to any Interest Rate Agreement, Currency Exchange Protection Agreement,
Commodity Price Protection Agreement or any other similar agreement or
arrangement.
"Inactive Subsidiary" means, at any time, any Subsidiary of the Company
that (a) has assets with a total book value not in excess of $1 million, (b) has
not conducted any business or other operations during the prior 12 month period
and (c) is not an obligor with respect to any Debt.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by merger, conversion, exchange or otherwise), extend,
assume, Guarantee or become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
obligation on the balance sheet of such Person (and "Incurrence" and "Incurred"
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time, and is not theretofore classified as Debt, becoming Debt shall not be
deemed an Incurrence of such Debt; provided further, however, that solely for
purposes of determining compliance with "Certain Covenants -- Limitation on Debt
and Restricted Subsidiary Preferred Stock", amortization of debt discount shall
not be deemed to be the Incurrence of Debt, provided that in the case of Debt
sold at a discount, the amount of such Debt Incurred shall at all times be the
aggregate principal amount at Stated Maturity.
"Independent Appraiser" means an investment banking firm of national
standing or any third party appraiser of national standing, provided that such
firm or appraiser is not an Affiliate of the Company.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect against fluctuations in interest rates.
"Inventory Facility" means the Note Purchase and Letter of Credit Agreement
dated as of February 26, 1998 among LTV Steel, as a party and as agent on behalf
of certain affiliates, the financial institutions party thereto, Chase
Securities Inc., as Placement Agent and The Chase Manhattan Bank, as Agent and
Collateral Agent, as amended from time to time.
"Investment" by any Person means any direct or indirect loan (other than
advances to customers in the ordinary course of business that are recorded as
accounts receivable on the balance sheet of such Person), advance or other
extension of credit or capital contribution (by means of transfers of cash or
other Property to others or payments for Property or services for the account or
use of others, or otherwise) to, or Incurrence of a Guarantee of any obligation
of, or purchase or acquisition of Capital Stock, bonds, Notes, debentures or
other securities or evidence of Debt issued by, any other Person. In determining
the amount of any Investment made by transfer of any Property other than cash,
such Property shall be valued at its Fair Market Value at the time of such
Investment.
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"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's and BBB- (or the equivalent) by S&P.
"Investment Grade Status" shall be deemed to have been reached on the date
that the Notes have an Investment Grade Rating from both Rating Agencies.
"Issue Date" means the date on which the Old Notes were initially issued.
"Issue Date of the Company's 8.20% Senior Notes due 2007" means September
17, 1997, the date the Company originally issued its existing 8.20% Senior Notes
due 2007.
"Letter of Credit" means an irrevocable documentary letter of credit from
an issuing bank of nationally recognized standing (whose senior unsecured debt
is rated "A" or higher according to the Rating Agencies at the time of issuance)
expiring on a date not earlier than May 31, 2000, which names the Escrow Agent
as the beneficiary thereof and which shall be presentable for payment at any
time by the Escrow Agent, provided that the only condition to payment thereunder
shall be a certification signed by the Escrow Agent stating one of the
following: (i) the Escrow Agent will use the amount drawn to fund a portion of
the aggregate Mandatory Redemption Price or (ii) in the case of any presentation
on or after January 31, 2000, the Special Mandatory Redemption has not taken
place.
"Lien" means, with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such Property (including any Capital Lease
Obligation, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing or any Sale and
Leaseback Transaction, but excluding any operating lease (except Sale and
Leaseback Transactions) entered into in the ordinary course of such Person's
business).
"Limited Recourse Guarantee" means (i) any pledge of the Capital Stock of
an Unrestricted Subsidiary securing Debt of such Unrestricted Subsidiary that is
non-recourse in all respects to the Company and its Restricted Subsidiaries
except with respect to foreclosure on any Capital Stock of such Unrestricted
Subsidiary held by the Company or any Restricted Subsidiary and (ii) any
Guarantee by a Venture Holding Company of Debt of a Person, other than a
Restricted Subsidiary, in which such Venture Holding Company holds an
Investment, including through a pledge of such Investment, which Guarantee is
non-recourse in all respects to the Company and its other Restricted
Subsidiaries.
"Liquid Securities" means securities (i) of an issuer organized under the
laws of the United States or any State thereof or the laws of any member nation
of the European Union in each case that is not an Affiliate of the Company, (ii)
that are publicly traded on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market, the London Stock Exchange, the Bourse de
Paris or the Frankfurt Stock Exchange and (iii) as to which the Company is not
subject to any restrictions on sale or transfer (including any volume
restrictions under Rule 144 under the Securities Act or any other restrictions
imposed by the Securities Act) or as to which a registration statement under the
Securities Act covering the resale thereof is in effect for as long as the
securities are held, provided, that securities meeting the requirements of
clauses (i), (ii) and (iii) above shall be treated as Liquid Securities from the
date of receipt thereof until and only until the earlier of (x) the date on
which such securities are sold or exchanged for cash or
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Cash Equivalent or (y) 90 days following the date of receipt of such securities.
In the event such securities are not sold or exchanged for cash or Cash
Equivalents within 90 days of receipt thereof, for purposes of determining
whether the transaction pursuant to which the Company or a Restricted Subsidiary
received the securities was in compliance with the covenant described under
"Certain Covenants -- Limitation on Asset Sales", such securities shall be
deemed not to have been Liquid Securities at any time.
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"Net Available Cash" from any Asset Sale means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a Note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Debt or other obligations relating to the
Property that is the subject of such Asset Sale or received in any other
non-cash form), in each case net of (a) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be accrued as a liability
under GAAP, as a consequence of such Asset Sale, (b) all payments made on any
Debt which is secured by any Property subject to such Asset Sale, in accordance
with the terms of any Lien upon or other security agreements of any kind with
respect to such Property, or which must by its terms, or in order to obtain a
necessary consent to such Asset Sale, or by applicable law, be repaid out of the
proceeds from such Asset Sale, (c) all distributions and other payments required
to be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Sale and (d) the deduction of appropriate amounts provided
by the seller as a reserve, in accordance with GAAP, against any liabilities
associated with the Property disposed in such Asset Sale and retained by the
Company or any Restricted Subsidiary after such Asset Sale.
"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Bank Financing" means the credit agreement dated on or about the Issue
Date among the Company, the subsidiary guarantors party thereto, the lenders
party thereto, Credit Suisse First Boston, as administrative agent, and Morgan
Stanley Senior Funding, Inc., as syndication agent, together with any related
documents (including any security documents and guarantee agreements), as any of
the foregoing may be amended, supplemented or otherwise modified from time to
time.
"Obligations" means the obligation of each Subsidiary Guarantor pursuant to
its Subsidiary Guaranty of (a) the full and punctual payment of principal and
interest on the Notes when due, whether at maturity, by acceleration, by
redemption or otherwise, and all other monetary obligations of the Company under
the Indenture and the Notes and (b) the full and punctual performance within
applicable grace periods of all other obligations of the Company under the
Indenture and the Notes.
"Officer" means the President and Chief Executive Officer, the Chief
Financial Officer or any Vice President of the Company.
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"Officers' Certificate" means a certificate signed by two Officers of the
Company, at least one of whom shall be the principal executive officer or
principal financial officer of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Liens" means:
(a) Liens to secure Debt permitted to be Incurred under clause (b) of
the second paragraph of the covenant described under "Certain
Covenants -- Limitation on Debt and Restricted Subsidiary Preferred Stock",
provided that any such Lien is limited to the accounts receivable and
inventory (and insurance proceeds and other Property similarly incidental
thereto) of the Company and the Restricted Subsidiaries and any securities
issued by a Securitization Subsidiary that purchases such accounts
receivable or inventory in connection with the Incurrence of such Debt;
(b) Liens on the assets of the Acquired Subsidiary Guarantors to
secure Debt permitted to be Incurred under the New Bank Financing, provided
that the outstanding principal amount of the Debt secured by Liens
permitted by this clause (b) shall not exceed $225 million;
(c) Liens to secure Debt permitted to be Incurred under clause (c) of
the second paragraph of the covenant described under "Certain
Covenants -- Limitation on Debt and Restricted Subsidiary Preferred Stock",
provided that any such Lien may not extend to any Property of the Company
or any Restricted Subsidiary other than (i) the Property purchased,
acquired, constructed or leased with the proceeds of such Debt, (ii) all
improvements and accessions to such Property and (iii) in the case of
personal Property, any real Property underlying such personal Property;
(d) Liens for taxes, assessments or governmental charges or levies on
the Property of the Company or any Restricted Subsidiary if the same shall
not at the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision that shall be required in conformity with GAAP shall
have been made therefor;
(e) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens on the Property of the Company or any Restricted
Subsidiary arising in the ordinary course of business and securing payment
of obligations which are not more than 60 days past due or are being
contested in good faith and by appropriate proceedings;
(f) Liens on the Property of the Company or any Restricted Subsidiary
Incurred in the ordinary course of business to secure performance of
obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of
a like nature and Incurred in a manner consistent with industry practice,
in each case which are not Incurred in connection with the borrowing of
money, the obtaining of advances or credit or the payment of the deferred
purchase price of Property and which do not in the aggregate impair in any
material respect the use of Property in the operation of the business of
the Company and the Restricted Subsidiaries taken as a whole;
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(g) Liens on Property at the time the Company or any Restricted
Subsidiary acquired such Property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted
Subsidiary; provided, however, that any such Lien may not extend to any
other Property of the Company or any Restricted Subsidiary; provided
further, however, that such Liens shall not have been Incurred in
anticipation of or in connection with the transaction or series of
transactions pursuant to which such Property was acquired by the Company or
any Restricted Subsidiary;
(h) Liens on the Property of a Person at the time such Person becomes
a Restricted Subsidiary; provided, however, that any such Lien may not
extend to any other Property of the Company or any other Restricted
Subsidiary which is not a direct Subsidiary of such Person; provided
further, however, that any such Lien was not Incurred in anticipation of or
in connection with the transaction or series of transactions pursuant to
which such Person became a Restricted Subsidiary;
(i) pledges or deposits by the Company or any Restricted Subsidiary
under workmen's compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Debt) or leases to which the
Company or any Restricted Subsidiary is party, or deposits to secure public
or statutory obligations of the Company, or deposits for the payment of
rent, in each case Incurred in the ordinary course of business;
(j) utility easements, building restrictions and such other
encumbrances or charges against real Property as are of a nature generally
existing with respect to properties of a similar character;
(k) Liens to secure industrial revenue or pollution control bonds
issued by the Company, provided that (i) the aggregate principal amount
outstanding of the Debt secured by Liens permitted by this clause (k) shall
not at any time exceed the higher of the cost or the Fair Market Value of
the Property financed by such Debt (together with improvements and
accessions to such Property) and (ii) such Liens shall not extend to any
other Property of the Company or any Restricted Subsidiaries;
(l) Liens arising out of judgments or decrees which involve uninsured
amounts not exceeding $20 million and which are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision that
shall be required in conformity with GAAP shall have been made therefor;
(m) Liens securing or constituting a Limited Recourse Guarantee;
(n) Liens existing on the Issue Date not otherwise described in
clauses (a) through (m) above, including the Lien securing the USWA Secured
Obligations, provided that such Lien may be extended from time to time to
Property of the Company or any Restricted Subsidiary not subject thereto on
the Issue Date to the extent any such extension is required by the terms of
the Collateral Trust Agreement as in effect on the Issue Date;
(o) Liens on the Property of the Company or any Restricted Subsidiary
to secure any Refinancing, in whole or in part, of any Debt secured by
Liens referred to in clause (a), (b), (c), (g), (h), (k), (n), (q) or (r)
of this definition; provided, however, that any such Lien shall be limited
to all or part of the same Property that
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secured the original Lien (together with improvements and accessions to
such Property) and the aggregate principal amount of Debt that is secured
by such Lien shall not be increased to an amount greater than the sum of
(i) the outstanding principal amount, or, if greater, the committed amount,
of the Debt secured by Liens described under clause (a), (b), (c), (g),
(h), (k), (n), (q) or (r) of this definition, as the case may be, at the
time the original Lien became a Permitted Lien under the Indenture and (ii)
an amount necessary to pay any premiums, fees and other expenses incurred
by the Company or such Restricted Subsidiary in connection with such
Refinancing;
(p) Liens to secure Debt permitted to be Incurred under clause (l) of
the second paragraph of the covenant described under "Certain
Covenants -- Limitation on Debt and Restricted Subsidiary Preferred Stock",
provided that any such Lien shall be limited to the Property (together with
improvements and accessions to such Property) subject to the applicable
Sale and Leaseback Transaction;
(q) Liens to secure Debt permitted to be Incurred under clause (m)
(ii) of the second paragraph of the covenant described under "Certain
Covenants -- Limitation on Debt and Restricted Subsidiary Preferred Stock",
provided that any such Lien shall be limited to the Property (together with
improvements and accessions to such Property) subject to the applicable
Sale and Leaseback Transaction; and
(r) Liens securing Debt not otherwise described in clauses (a) through
(q) above, provided that at the time any such Lien is Incurred the sum of
(i) the aggregate principal amount (in the case of Debt sold at a discount,
at Stated Maturity) of all Secured Debt outstanding at such time (other
than the USWA Secured Obligations and any Permitted Refinancing Debt in
respect thereof to the extent not exceeding $250 million in the aggregate
and any Limited Recourse Guarantee) and (ii) the aggregate amount of
Attributable Debt outstanding at such time with respect to Sale and
Leaseback Transactions entered into by the Company or any Restricted
Subsidiary, does not exceed 10% of Consolidated Net Tangible Assets, as
determined based on the consolidated balance sheet of the Company as of the
end of the most recent fiscal quarter, after giving pro forma effect to the
transactions giving rise to the need for such calculation.
"Permitted Refinancing Debt" means any Debt that Refinances any other Debt,
including any successive Refinancings, so long as (a) such Debt is in an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) not in excess of the sum of (i) the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding of the Debt being Refinanced and (ii) an amount
necessary to pay any fees and expenses, including premiums and defeasance costs,
related to such Refinancing, (b) the Average Life of such Debt is equal to or
greater than the Average Life of the Debt being Refinanced, (c) the Stated
Maturity of such Debt is no earlier than the earlier of (i) the Stated Maturity
of the Debt being Refinanced and (ii) the date that is at least one year and one
day after the Stated Maturity of the Notes and (d) the new Debt shall not be
senior in right of payment to the Debt that is being Refinanced; provided,
however, that Permitted Refinancing Debt shall not include (a) Debt of a
Subsidiary that Refinances Debt of the Company or (b) Debt of the Company or a
Restricted Subsidiary that Refinances Debt of an Unrestricted Subsidiary.
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"Person" means any individual, corporation, company (including any limited
liability or joint-stock company), partnership, joint venture, association,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the Holder thereof to a preference with respect to the payment of
dividends, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of any other class of
Capital Stock issued by such Person.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including Capital Stock in, and other securities of, any other
Person. For purposes of any calculation required pursuant to the Indenture, the
value of any Property shall be its Fair Market Value.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms hereof, a calculation performed in accordance with
Article 11 of Regulation S-X promulgated under the Securities Act, as
interpreted in good faith by the Board of Directors after consultation with the
independent certified public accountants of the Company, or otherwise a
calculation made in good faith by the Board of Directors after consultation with
the independent certified public accountants of the Company, as the case may be.
"Public Equity Offering" means an underwritten public offering of common
stock of the Company pursuant to an effective registration statement under the
Securities Act.
"Rating Agencies" mean Moody's and S&P.
"Receivables Credit Agreement" means the agreement dated as of October 12,
1994 among LTV Sales Finance Company, the lenders party thereto and Bankers
Trust Company, as collateral agent and facility agent, as amended from time to
time.
"Redeemable Dividend" means, for any dividend with respect to Redeemable
Stock, the quotient of the dividend divided by the difference between one and
the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Redeemable Stock.
"Redeemable Stock" means, with respect to any Person, any Capital Stock
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (a) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (b) is or may
become redeemable or repurchaseable at the option of the holder thereof, in
whole or in part, or (c) is convertible or exchangeable for Debt or Disqualified
Stock.
"Refinance" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue other Debt, in
exchange or replacement for, such Debt. "Refinanced" and "Refinancing" shall
have correlative meanings.
"Restricted Payment" means (a) any dividend or distribution (whether made
in cash, securities or other Property) declared or paid on or with respect to
any shares of Capital Stock of the Company or any Restricted Subsidiary
(including any payment in connection with any merger or consolidation with or
into the Company or any Restricted Subsidiary), except for any dividend or
distribution which is made solely to the Company or a Restricted Subsidiary
(and, if such Restricted Subsidiary is not a Wholly Owned
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Subsidiary, to the other shareholders of such Restricted Subsidiary on a pro
rata basis) or any dividend or distribution payable solely in shares of Capital
Stock (other than Redeemable Stock) of the Company; (b) any payment made by the
Company or any Restricted Subsidiary to purchase, redeem, repurchase, acquire or
retire for value any Capital Stock of the Company or any Affiliate of the
Company (other than a Restricted Subsidiary) or (c) any payment made by the
Company or any Restricted Subsidiary to purchase, redeem, repurchase, defease or
otherwise acquire or retire for value, prior to any scheduled maturity,
scheduled sinking fund or mandatory redemption payment, any Subordinated
Obligation (other than the purchase, repurchase, or other acquisition of any
Subordinated Obligation purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition).
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Service or any successor to the
rating agency business thereof.
"Sale and Leaseback Transaction" means any arrangement relating to Property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such Property to another Person and the Company or a Restricted
Subsidiary leases it from such Person, other than any such arrangement with
respect to Property acquired or placed into service by the Company or any
Restricted Subsidiary after the Issue Date to the extent entered into within 365
days after the date of such acquisition or placement into service and not
constituting a Capital Lease Obligation.
"Secured Debt" means any Debt of the Company or any Restricted Subsidiary
secured by a Lien.
"Securitization Subsidiary" means any bankruptcy-remote special-purpose
Subsidiary of the Company or any Restricted Subsidiary established for the
purpose of arranging financing of accounts receivable and inventory, including
by selling or selling interests in such accounts receivable and inventory and
related Property or through borrowing money or obtaining credit secured by such
Property, and including LTV Sales Finance Company, a Delaware corporation, and
LTV Steel Products, L.L.C., a Delaware limited liability corporation.
"Senior Debt" of the Company means (a) all obligations consisting of the
principal, premium, if any, and accrued and unpaid interest in respect of (i)
Debt of the Company for borrowed money and (ii) Debt of the Company evidenced by
Notes, debentures, bonds or other similar instruments permitted under the
Indenture for the payment of which the Company is responsible or liable; (b) all
Capital Expenditure Debt of the Company; (c) all obligations of the Company (i)
for the reimbursement of any obligor on any letter of credit, bankers'
acceptance or similar credit transaction or (ii) under Hedging Obligations; and
(d) all obligations of other Persons of the type referred to in clauses (a) and
(b) for the payment of which the Company is responsible or liable as Guarantor;
provided, however, that Senior Debt of the Company shall not include (A) Debt of
the Company that is by its terms subordinate in right of payment to the Notes;
(B) any Debt Incurred in violation of the provisions of the Indenture; (C)
accounts payable or any other obligations of the Company to trade creditors
created or assumed by the Company in the ordinary course of business in
connection with the obtaining of materials or services
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(including Guarantees thereof or instruments evidencing such liabilities); (D)
any liability for Federal, state, local or other taxes owed or owing by the
Company; (E) any obligation of the Company to any Subsidiary; or (F) any
obligations with respect to any Capital Stock. "Senior Debt" of any Subsidiary
Guarantor has a correlative meaning, provided that clause (E) above shall be
deemed to refer to any obligations of such Subsidiary Guarantor to the Company
or any Subsidiary of the Company.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred and, in the case of the Notes, excluding the Special Mandatory
Redemption provisions).
"Subordinated Obligation" means any Debt of the Company or any Subsidiary
Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which
is subordinate or junior in right of payment to the Notes or the applicable
Subsidiary Guaranty pursuant to a written agreement to that effect.
"Subsidiary" means, in respect of any specified Person, any corporation,
company, partnership, joint venture, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Domestic Wholly Owned Subsidiary (other
than any Securitization Subsidiary or Inactive Subsidiary) and any other Person
that becomes a Subsidiary Guarantor pursuant to the covenant described under
"Certain Covenants -- Future Subsidiary Guarantors".
"Subsidiary Guaranty" means, (a) with respect to each Subsidiary Guarantor
that is not an Acquired Subsidiary Guarantor, the senior unsecured Guarantee of
the Obligations by such Subsidiary Guarantor and (b) with respect to each
Acquired Subsidiary Guarantor, the senior subordinated Guarantee of the
Obligations by such Acquired Subsidiary Guarantor, in each case on the terms set
forth in the Indenture.
"Tubular Business" means the aggregate business as conducted on the Issue
Date (or, if the Copperweld Acquisition has not been completed as of the Issue
Date, the date immediately following the closing of the Copperweld Acquisition)
of Copperweld, Welded Tube and LTV Tubular, together with any other Subsidiaries
formed or acquired after the Issue Date primarily involved in the manufacture
and sale of tubular steel products.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary; (b) any Subsidiary of the Company that is designated after the Issue
Date as an Unrestricted Subsidiary as permitted pursuant to the covenant
described under "Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries" and not thereafter
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redesignated as a Restricted Subsidiary as permitted pursuant thereto; and (c)
Presque Isle Corporation, L-S Electro-Galvanizing Company, LTV-Trico, Inc.,
Cayman Mineracao do Brasil Ltda and L.A.S. Resources, Inc.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"USWA Secured Obligations" means the retiree health benefit, plan
contribution and other obligations of the Company and its Subsidiaries secured
by a Lien granted to the USWA pursuant to the Collateral Trust Agreement.
"Venture Holding Company" means (a) LTV Columbus Processing, Inc., LTV EGL
Holding Company, Dearborn Leasing, Inc., Alcite I, Inc., LTV Blanking
Corporation, LTV Steel de Mexico, Ltd. and LTV Walbridge Inc. and (b) any other
Subsidiary of the Company formed or acquired after the Issue Date whose
activities are limited to making and owning equity interests and other
Investments in one or more joint ventures and activities incidental thereto,
including participation in financing arrangements of such joint ventures (but in
each case only for so long as its activities are so limited), provided that (i)
in the case of clauses (a) and (b), the equity interests in any such joint
venture are owned by at least one other Person (other than the Company or any
Affiliate of the Company) and (ii) in the case of clause (b), the applicable
assets are acquired by such Subsidiary in connection with the formation of such
joint venture.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof.
"Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary all
the Voting Stock of which (except directors qualifying shares) is at such time
owned, directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.
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THE EXCHANGE OFFER
The LTV Corporation and the Subsidiary Guarantors have agreed, pursuant to
a registration rights agreement dated November 2, 1999 with the placement agents
of the Old Notes
(1) to file a registration statement not later than 60 days after the
date of issuance of the Old Notes with respect to an offer to exchange the
Old Notes for a new issue of Notes, with terms substantially the same as of
the Old Notes but registered under the Securities Act,
(2) to cause the registration statement to be declared effective by
the SEC not later than 150 days after the date of issuance of the Old Notes
and
(3) use our best efforts to consummate the exchange offer and issue
the New Notes within 60 business days after the registration statement is
declared effective.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of Old Notes in any jurisdiction in which the exchange
offer or acceptance of the exchange offer would violate the securities or blue
sky laws of that jurisdiction.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
This prospectus and the accompanying letter of transmittal contain the
terms and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal, which together are the exchange offer, we will accept for exchange
Old Notes which are properly tendered on or prior to the expiration date, unless
you have previously withdrawn them.
- For each $1,000 principal amount of Old Notes surrendered to us in the
exchange offer, we will give you $1,000 principal amount of New Notes.
- We will keep the exchange offer open for not less than 30 days, or longer
if required by applicable law, after the date that we first mail notice
of the exchange offer to the holders of the Old Notes. We are sending
this prospectus, together with the letter of transmittal, on or about the
date of this prospectus to all of the registered holders of Old Notes at
their addresses listed in the trustee's security register with respect to
Old Notes.
- The exchange offer expires at 5:00 p.m., New York City time, on --, 2000;
provided, however, that we, in our sole discretion, may extend the period
of time for which the exchange offer is open. The term "EXPIRATION DATE"
means --, 2000 or, if extended by us, the latest time and date to which
the exchange offer is extended.
- As of the date of this prospectus, $275,000,000 in aggregate principal
amount of the Old Notes were outstanding. The exchange offer is not
conditioned upon any minimum principal amount of Old Notes being
tendered.
- Our obligation to accept Old Notes for exchange in the exchange offer is
subject to the conditions that we describe in the section called
"Conditions to the Exchange Offer" below.
- We expressly reserve the right, at any time, to extend the period of time
during which the exchange offer is open, and thereby delay acceptance of
any Old Notes,
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by giving oral or written notice of an extension to the exchange agent
and notice of that extension to the holders as described below. During
any extension, all Old Notes previously tendered will remain subject to
the exchange offer unless withdrawal rights are exercised. Any Old Notes
not accepted for exchange for any reason will be returned without expense
to the tendering holder as promptly as practicable after the expiration
or termination of the exchange offer.
- We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any Old Notes that we have not yet
accepted for exchange, if any of the conditions of the exchange offer
specified below under "Conditions to the Exchange Offer" are not
satisfied.
- We will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the Old Notes
as promptly as practicable. If we extend the expiration date, we will
give notice by means of a press release or other public announcement no
later than 9:00 a.m., New York City time, on the business day after the
previously scheduled expiration date. Without limiting the manner in
which we may choose to make any public announcement and subject to
applicable law, we will have no obligation to publish, advertise or
otherwise communicate any public announcement other than by issuing a
release to the Dow Jones News Service.
- Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the exchange offer.
- Old Notes which are not tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding
and be entitled to the benefits of the indenture, but will not be
entitled to any further registration rights under the registration rights
agreement.
- We intend to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder.
PROCEDURES FOR TENDERING OLD NOTES
WHAT TO SUBMIT AND HOW
When you tender to us Old Notes as set forth below, our acceptance of the
Old Notes will constitute a binding agreement between you and us upon the terms
and subject to the conditions in this prospectus and in the accompanying letter
of transmittal. If you, as the registered holder of an Old Note, wish to tender
your Old Notes for exchange in the exchange offer, you must transmit a properly
completed and duly executed letter of transmittal, including all other documents
required by such letter of transmittal, to U.S. Bank Trust National Association
at the address set forth below under "Exchange Agent" on or prior to the
expiration date.
In addition,
(1) certificates for Old Notes must be received by the exchange agent
along with the letter of transmittal, or
(2) a timely confirmation of a book-entry transfer of Old Notes, if
such procedure is available, into the exchange agent's account at DTC using
the procedure
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for book-entry transfer described below, must be received by the exchange
agent prior to the expiration date or
(3) you must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND NOTICES OF
GUARANTEED DELIVERY IS AT YOUR ELECTION AND RISK. IF DELIVERY IS BY MAIL, WE
RECOMMEND THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED,
BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO LTV.
HOW TO SIGN YOUR LETTER OF TRANSMITTAL AND OTHER DOCUMENTS
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes being surrendered for
exchange are tendered
(1) by a registered holder of the Old Notes who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(2) for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, the guarantees must be by any of the
following eligible institutions:
- a firm which is a member of a registered national securities exchange or
a member of the National Association of Securities Dealers, Inc. or
- a commercial bank or trust company having an office or correspondent in
the United States.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes and with the signature guaranteed.
If the letter of transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, the person should so indicate when signing and, unless waived by LTV,
proper evidence satisfactory to LTV of its authority to so act must be
submitted.
By executing, or otherwise becoming bound by a letter of transmittal, each
holder of the Old Notes (other than certain specified holders) will represent
that:
- it is not our affiliate;
- any New Notes to be received by it were acquired in the ordinary course
of business; and
- it has no arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the New Notes.
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If the tendering holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "-- Resale of the New Notes."
IMPORTANT RULES CONCERNING THE EXCHANGE OFFER
You should note that:
- All questions as to the validity, form, eligibility, time of receipt and
acceptance of Old Notes tendered for exchange will be determined by LTV
in its sole discretion, which determination shall be final and binding.
- We reserve the absolute right to reject any and all tenders of any
particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in our judgment or the
judgment of our counsel, be unlawful.
- We also reserve the absolute right to waive any defects or irregularities
or conditions of the exchange offer as to any particular Old Notes either
before or after the expiration date, including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the exchange
offer. Unless we agree to waive any defect or irregularity in connection
with the tender of Old Notes for exchange, you must cure any defect or
irregularity within any reasonable period of time as we shall determine.
- Our interpretation of the terms and conditions of the exchange offer as
to any particular Old Notes either before or after the expiration date
shall be final and binding on all parties.
- Neither LTV, the exchange agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to
any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give any notification.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Once all of the conditions to the exchange offer are satisfied or waived,
we will accept, promptly after the expiration date, all Old Notes properly
tendered and will issue the New Notes promptly after acceptance of the Old
Notes. See "Conditions to the Exchange Offer" below. For purposes of the
exchange offer, our giving of oral or written notice of our acceptance to the
exchange agent will be considered our acceptance of the exchange offer.
In all cases, we will issue New Notes in exchange for Old Notes that are
accepted for exchange only after timely receipt by the exchange agent of:
- certificates for Old Notes, or
- a timely book-entry confirmation of transfer of Old Notes into the
exchange agent's account at DTC using the book-entry transfer procedures
described below, and
- a properly completed and duly executed letter of transmittal and all
other required documents.
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If we do not accept any tendered Old Notes for any reason included in the
terms and conditions of the exchange offer or if you submit certificates
representing Old Notes in a greater principal amount than you wish to exchange,
we will return any unaccepted or non-exchanged Old Notes without expense to the
tendering holder or, in the case of Old Notes tendered by book-entry transfer
into the exchange agent's account at DTC using the book-entry transfer
procedures described below, non-exchanged Old Notes will be credited to an
account maintained with DTC as promptly as practicable after the expiration or
termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the Old Notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution that is a participant in
DTC's systems may make book-entry delivery of Old Notes by causing DTC to
transfer Old Notes into the exchange agent's account in accordance with DTC's
Automated Tender Offer Program procedures for transfer. However, the exchange
for the Old Notes so tendered will only be made after timely confirmation of
book-entry transfer of Old Notes into the exchange agent's account, and timely
receipt by the exchange agent of an agent's message, transmitted by DTC and
received by the exchange agent and forming a part of a book-entry confirmation.
The agent's message must state that DTC has received an express acknowledgment
from the participant tendering Old Notes that are the subject of that book-entry
confirmation that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce the agreement
against that participant.
Although delivery of Old Notes may be effected through book-entry transfer
into the exchange agent's account at DTC, the letter of transmittal, or a
facsimile copy, properly completed and duly executed, with any required
signature guarantees, must in any case be delivered to and received by the
exchange agent at its address listed under "-- Exchange Agent" on or prior to
the expiration date, or the guaranteed delivery procedure set forth below must
be complied with.
If your Old Notes are held through DTC, you must complete a form called
"instructions to registered holder and/or book-entry participant," which will
instruct the DTC participant through whom you hold your Notes of your intention
to tender your Old Notes or not tender your Old Notes. Please note that delivery
of documents to DTC in accordance with its procedures does not constitute
delivery to the exchange agent and we will not be able to accept your tender of
Notes until the exchange agent receives a letter of transmittal and a book-entry
confirmation from DTC with respect to your Notes. A copy of that form is
available from the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If you are a registered holder of Old Notes and you want to tender your Old
Notes but your Old Notes are not immediately available, or time will not permit
your Old Notes to reach the exchange agent before the expiration date, or the
procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if
(1) the tender is made through an eligible institution,
(2) prior to the expiration date, the exchange agent receives, by
telegram, telex, facsimile transmission, mail or hand delivery, from that
eligible institution a properly
145
<PAGE> 150
completed and duly executed letter of transmittal, or a facsimile copy, and
notice of guaranteed delivery, substantially in the form provided by us,
stating:
- the name and address of the holder of Old Notes
- the amount of Old Notes tendered
- the tender is being made by delivering that notice and guaranteeing that
within five New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery, the certificates of all
physically tendered Old Notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by that eligible
institution with the exchange agent, and
(3) the certificates for all physically tendered Old Notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, are
received by the exchange agent within five New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
You can withdraw your tender of Old Notes at any time on or prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent by telegram, telex, facsimile, mail or hand
delivery at the address listed below under "Exchange Agent." Any notice of
withdrawal must specify:
- the name of the person having tendered the Old Notes to be withdrawn
- the Old Notes to be withdrawn
- the principal amount of the Old Notes to be withdrawn
- if certificates for Old Notes have been delivered to the exchange agent,
the name in which the Old Notes are registered, if different from that of
the withdrawing holder
- if certificates for Old Notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of those certificates,
you must also submit the serial numbers of the particular certificates to
be withdrawn and a signed notice of withdrawal with signatures guaranteed
by an eligible institution unless you are an eligible institution.
- if Old Notes have been tendered using the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawn Old
Notes and otherwise comply with the procedures of that facility.
Please note that all questions as to the validity, form, eligibility and
time of receipt of notices of withdrawal will be determined by us, and our
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be considered not to have been validly tendered for exchange for
purposes of the exchange offer.
146
<PAGE> 151
If you have properly withdrawn Old Notes and wish to re-tender them, you
may do so by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, we will not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes and may terminate or amend the exchange offer, if at any time before the
acceptance of Old Notes for exchange or the exchange of the New Notes for Old
Notes, that acceptance or issuance would violate applicable law or any
interpretation of the staff of the SEC.
That condition is for our sole benefit and may be asserted by us regardless
of the circumstances giving rise to that condition. Our failure at any time to
exercise the foregoing rights shall not be considered a waiver by us of that
right. Our rights described in the prior paragraph are ongoing rights which we
may assert at any time and from time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for any Old Notes, if at that time any stop
order shall be threatened or in effect with respect to the exchange offer to
which this prospectus relates or the qualification of the indenture under the
Trust Indenture Act.
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as the exchange
agent for the exchange offer. All executed letters of transmittal should be
directed to the exchange agent at one of the addresses set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent, addressed as
follows:
Deliver To:
U.S. Bank Trust National Association
180 East 5th Avenue, Suite 200
St. Paul, Minnesota 55101
Attention: Specialized Finance Department
Facsimile Transmissions:
(651) 244-1537
To Confirm by Telephone
or for Information:
(800) 934-6802
DELIVERY TO AN ADDRESS OTHER THAN AS LISTED ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS LISTED ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by our officers,
regular employees and
147
<PAGE> 152
affiliates. We will not pay any additional compensation to any of our officers
and employees who engage in soliciting tenders. We will not make any payment to
brokers, dealers, or others soliciting acceptances of the exchange offer.
However, we will pay the exchange agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection with the exchange offer.
The estimated cash expenses to be incurred in connection with the exchange
offer, including legal, accounting, SEC filing, printing and exchange agent
expenses, will be paid by us and are estimated in the aggregate to be $215,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
us to register New Notes in the name of, or request that Old Notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
RESALE OF THE NEW NOTES
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the New Notes would in general be freely
transferable after the exchange offer without further registration under the
Securities Act. The relevant no-action letters include the Exxon Capital
Holdings Corporation letter, which was made available by the SEC on May 13,
1988, and the Morgan Stanley & Co. Incorporated letter, made available on June
5, 1991.
However, any purchaser of Old Notes who is an "affiliate" of LTV or who
intends to participate in the exchange offer for the purpose of distributing the
New Notes
(1) will not be able to rely on the interpretation of the staff of the
SEC,
(2) will not be able to tender its Old Notes in the exchange offer and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer
of the Notes unless that sale or transfer is made using an exemption from
those requirements.
By executing, or otherwise becoming bound by, the Letter of Transmittal
each holder of the Old Notes will represent that:
(1) it is not our "affiliate";
(2) any New Notes to be received by it were acquired in the ordinary
course of its business; and
(3) it has no arrangement with any person to participate in the
"distribution," within the meaning of the Securities Act, of the New Notes.
In addition, in connection with any resales of New Notes, any broker-dealer
participating in the exchange offer who acquired Notes for its own account as a
result of market-making or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act. The SEC has taken the position
in the Shearman & Sterling no-action letter, which it made available on July 2,
1993, that participating broker-dealers may fulfill
148
<PAGE> 153
their prospectus delivery requirements with respect to the New Notes, other than
a resale of an unsold allotment from the original sale of the Old Notes, with
the prospectus contained in the exchange offer registration statement. Under the
registration rights agreement, we are required to allow participating
broker-dealers and other persons, if any, subject to similar prospectus delivery
requirements to use this prospectus as it may be amended or supplemented from
time to time, in connection with the resale of New Notes.
149
<PAGE> 154
MATERIAL UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of Old Notes for New Notes in the exchange offer will not
result in any United States federal income tax consequences to holders. When a
holder exchanges an Old Note for a New Note in the exchange offer, the holder
will have the same adjusted basis and holding period in the New Note as in the
Old Note immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of New Notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where Old Notes
were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 90 days after the expiration
date, we will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any resale of New Notes received by it
in exchange for Old Notes.
We will not receive any proceeds from any sale of New Notes by
broker-dealers.
New Notes received by broker-dealers for their own account in the exchange
offer may be sold from time to time in one or more transactions
- in the over-the-counter market
- in negotiated transactions
- through the writing of options on the New Notes or
- a combination of those methods of resale
at market prices prevailing at the time of resale, at prices related to
prevailing market prices or negotiated prices.
Any resale may be made
- directly to purchasers or
- to or through brokers or dealers who may receive compensation in the
form of commissions or concessions from any broker-dealer or the
purchasers of any New Notes.
Any broker-dealer that resells New Notes that were received by it for its
own account in the exchange offer and any broker or dealer that participates in
a distribution of those New Notes may be considered to be an "underwriter"
within the meaning of the Securities Act. Any profit on any resale of those New
Notes and any commission or concessions received by any of those persons may be
considered to be underwriting compensation under the Securities Act. The letter
of transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be considered to admit that it
is an "underwriter" within the meaning of the Securities Act.
150
<PAGE> 155
For a period of 90 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests those documents in the letter of
transmittal.
LEGAL MATTERS
The validity of the New Notes issued in this exchange offer 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).
151
<PAGE> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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> 176
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> 177
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> 178
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> 179
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> 180
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> 181
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> 182
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> 183
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> 184
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> 185
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> 186
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> 187
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> 188
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> 189
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> 190
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> 191
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> 192
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> 193
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> 194
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> 195
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> 196
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> 197
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> 198
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> 199
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> 200
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> 201
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> 202
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> 203
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> 204
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> 205
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> 206
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> 207
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> 208
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> 209
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> 210
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> 211
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 stockholders equity.............................. 199.4 135.9
-------- --------
$ 531.1 $ 472.2
======== ========
</TABLE>
See notes to combined financial statements
F-56
<PAGE> 212
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> 213
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> 214
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> 215
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> 216
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> 217
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> 218
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> 219
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> 220
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> 221
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> 222
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> 223
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> 224
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> 225
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> 226
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> 227
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> 228
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> 229
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> 230
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> 231
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> 232
WELDED TUBE CO. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE 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> 233
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> 234
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.
Cleveland, Ohio
December 10, 1999 Ernst & Young LLP
F-79
<PAGE> 235
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> 236
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> 237
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> 238
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 Australian 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> 239
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> 240
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 liquidations 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> 241
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> 242
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> 243
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> 244
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS ACCURATE AS OF
ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More
Information....................... i
Forward-Looking Statements.......... ii
Prospectus Summary.................. 1
Risk Factors........................ 13
Use of Proceeds..................... 25
The Acquisitions.................... 26
Capitalization...................... 31
Unaudited Pro Forma Combined
Financial Information............. 32
Selected Consolidated Financial
Information and Certain Operating
Data of The LTV Corporation....... 38
Management's Discussion and Analysis
of Results of Operations and
Financial Condition of The LTV
Corporation....................... 41
Selected Combined Financial
Information and Certain Operating
Data of Copperweld................ 59
Business............................ 61
Management.......................... 86
Description of New Bank Financing... 89
Description of New Preferred
Stock............................. 90
Description of Certain Other
Indebtedness...................... 91
Description of Notes................ 97
The Exchange Offer.................. 141
Material United States Tax
Consequences of the Exchange
Offer............................. 150
Plan of Distribution................ 150
Legal Matters....................... 151
Experts............................. 151
Index to Financial Statements....... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$275,000,000
THE LTV CORPORATION
[LTV LOGO]
11 3/4% SENIOR EXCHANGE NOTES
DUE 2009
-------------------------
PROSPECTUS
-------------------------
--, 2000
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 245
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ------- --------
<C> <S>
1.1 Registration Rights Agreement dated as of November 2, 1999
among The LTV Corporation, the Subsidiary Guarantors and the
Placement Agents
4.1* Indenture, dated as of November 5, 1999 between LTV and U.S.
Bank Trust National Association, as trustee
4.2* Form of 11 3/4% Senior Note due 2009 of LTV (included in
Exhibit 4.1)
4.3* Form of 11 3/4% Senior Exchange Note due 2009 of LTV
(included in Exhibit 4.1)
</TABLE>
II-1
<PAGE> 246
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ------- --------
<C> <S>
5.1 Opinion of Davis Polk & Wardwell regarding the validity of
the New Notes being registered
12.1 Statement Re: Computation of Ratio of Earnings to Fixed
Charges
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)
25.1 Statement of Eligibility and Qualification on Form T-1 under
the Trust Indenture Act of U.S. Bank Trust National
Association, as trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Nominees
99.4 Form of Letter to Clients
99.5 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
</TABLE>
- -------------------------
* Previously filed.
ITEM 22. 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.
II-2
<PAGE> 247
(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.
(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.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 248
SIGNATURES
Pursuant to the requirements of the Securities Act, the undersigned
registrant 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
--------- ----- ----
<C> <S> <C>
/s/ PETER KELLY Chairman of the Board of December 18, 1999
- --------------------------------------------------- Directors and Chief
Peter Kelly Executive Officer
/s/ GLENN J. MORAN Senior Vice President, December 18, 1999
- --------------------------------------------------- General Counsel and
Glenn J. Moran Secretary
/s/ ERIC W. EVANS Vice President and December 18, 1999
- --------------------------------------------------- Controller
Eric W. Evans
/s/ GEORGE T. HENNING Vice President and Chief December 18, 1999
- --------------------------------------------------- Financial Officer
George T. Henning
</TABLE>
II-4
<PAGE> 249
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/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
/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> 250
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ------- --------
<C> <S>
1.1 Registration Rights Agreement dated as of November 2, 1999
among The LTV Corporation, the Subsidiary Guarantors and the
Placement Agents
4.1* Indenture, dated as of November 5, 1999 between LTV and U.S.
Bank Trust National Association, as trustee
4.2* Form of 11 3/4% Senior Note due 2009 of LTV (included in
Exhibit 4.1)
4.3* Form of 11 3/4% Senior Exchange Note due 2009 of LTV
(included in Exhibit 4.1)
5.1 Opinion of Davis Polk & Wardwell regarding the validity of
the New Notes being registered
12.1 Statement Re: Computation of Ratio of Earnings to Fixed
Charges
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)
25.1 Statement of Eligibility and Qualification on Form T-1 under
the Trust Indenture Act of U.S. Bank Trust National
Association, as trustee
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Nominees
99.4 Form of Letter to Clients
99.5 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
</TABLE>
- ---------------
* Previously filed.
E-1
<PAGE> 1
Exhibit 1.1
- -------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated November 2, 1999
among
THE LTV CORPORATION,
the Subsidiary Guarantors party hereto
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"), the Subsidiary Guarantors listed on Schedule I hereto (the
"Subsidiary Guarantors") and MORGAN STANLEY & CO. INCORPORATED and CREDIT
SUISSE FIRST BOSTON CORPORATION (the "Placement Agents").
This Agreement is made pursuant to the Purchase Agreement dated
November 2, 1999, among the Company, the Subsidiary Guarantors named therein
and the Placement Agents (the "Purchase Agreement"), which provides for the
sale by the Company to the Placement Agents of $275,000,000 aggregate principal
amount of the Company's 11 3/4% Senior Notes Due 2009 (the "Securities"). In
order to induce the Placement Agents to enter into the Purchase Agreement, the
Company and the Subsidiary Guarantors have agreed to provide to the Placement
Agents 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.
"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.
"EXCHANGE OFFER" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on form S-4 (or, if applicable, on another appropriate
form) and all amendments and supplements to such registration statement, in
each case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"EXCHANGE SECURITIES" shall mean securities issued by the Company and
which are jointly and severally guaranteed by the Subsidiary Guarantors under
the Indenture containing terms identical to the Securities (except that (i)
interest thereon shall accrue from the last date on which interest was paid on
the Securities or, if no such interest has
<PAGE> 3
been paid, from November 5, 1999 and (ii) the Exchange Securities will not
contain restrictions on transfer) and to be offered to Holders of Securities in
exchange for Securities pursuant to the Exchange Offer.
"HOLDER" shall mean the Placement Agents, for so long as they own any
Registrable Securities, and each of their successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture; PROVIDED that for purposes of Sections 4 and 5 of this
Agreement, the term "Holder" shall include Participating Broker-Dealers (as
defined in Section 4(a)).
"INDENTURE" shall mean the Indenture relating to the Securities dated as
of November 5, 1999 among the Company, the Subsidiary Guarantors and U.S. Bank
Trust National Association, as trustee, as the same may be amended from time to
time in accordance with the terms thereof.
"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 Placement Agents or 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 Holder 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.
"PLACEMENT AGENTS" shall have the meaning set forth in the preamble.
"PROSPECTUS" shall mean the prospectus included in a 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.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble.
"REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER, that
the Securities shall cease to be Registrable Securities (i) when a 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 Registration Statement, (ii) when 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 and the Subsidiary Guarantors with
this Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of
2
<PAGE> 4
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
Exchange Securities or Registrable Securities), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing and
distributing any 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) all rating agency fees, (v) all fees and disbursements relating
to the qualification of the Indenture under applicable securities laws, (vi) the
fees and disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and the Subsidiary Guarantors and, in
the case of a Shelf Registration Statement, the fees and disbursements of one
counsel for the Holders (which counsel shall be selected by the Majority Holders
and which counsel may also be counsel for the Placement Agent) and (viii) the
fees and disbursements of the independent public accountants of the Company and
the Subsidiary Guarantors, 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.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company that covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement and all amendments and supplements
to any 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.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) 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.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
"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.
3
<PAGE> 5
2. REGISTRATION UNDER THE 1933 ACT.
(a) The Company and the Subsidiary Guarantors shall prepare, and not
later than 60 days following the date of original issuance of the Securities,
shall file with the SEC an Exchange Offer Registration Statement covering the
offer by the Company to the Holders to exchange all of the Registrable
Securities for Exchange Securities and to have such Registration Statement
remain effective until the closing of the Exchange Offer. The Company and the
Subsidiary Guarantors shall cause the Exchange Offer to be declared effective
under the 1933 Act not later than 150 days after the date of original issuance
of the Securities. The Company shall commence the Exchange Offer promptly after
the Exchange Registration Statement has been declared effective by the SEC and
use its best efforts to have the Exchange Offer consummated not later than 60
days after such effective date. The Company shall commence the Exchange Offer by
mailing the related exchange offer Prospectus and accompanying documents to each
Holder stating, in addition to such other disclosures as are required by
applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period of
at least 30 days from the date such notice is mailed) (the "Exchange
Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any rights
under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal,
to the institution and at the address (located in the Borough of
Manhattan, The City of New York) specified in the notice prior to the
close of business on the last Exchange Date; and
(v) that Holders will be entitle to withdraw their election, not later
than the close of business on the last Exchange Date, by sending to the
institution and at the address (located in the Borough of Manhattan, The
City of New York) specified in the notice a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Registrable Securities delivered for exchange and a statement
that such Holder is withdrawing his election to have such Securities
exchanged.
As soon as practicable after the last Exchange Date, the Company
shall:
(i) accept for exchange Registrable Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof accepted for
exchange but the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
4
<PAGE> 6
The Company and the Subsidiary Guarantors shall comply with the
applicable requirements of the 1933 Act, the 1934 Act and other applicable laws
and regulations in connection with the Exchange Offer. The Exchange Offer shall
not be subject to any conditions, other than that the Exchange Offer does not
violate applicable law or any applicable interpretation of the Staff of the SEC.
The Company and the Subsidiary Guarantors shall inform the Placement Agents of
the names and addresses of the Holders to whom the Exchange Offer is made, and
the Placement Agents shall have the right, subject to applicable law, to contact
such Holders and otherwise facilitate the tender of Registrable Securities in
the Exchange Offer.
(b) In the event that (i) the Company and the Subsidiary Guarantors
determine that the Exchange Offer Registration provided for in Section 2(a)
above is not available or may not be consummated as soon as practicable after
the last Exchange Date because it would violate applicable law or the applicable
interpretations of the Staff of the SEC, (ii) for any reason the Exchange Offer
Registration Statement is not declared effective within 150 days after the date
of original issuance of the Securities or the Exchange Offer is not consummated
within 180 days after the date of original issuance of the Securities, (iii) the
Placement Agents so request with respect to Securities not eligible to be
exchanged for Exchange Securities in the Exchange Offer or (iv) any Holder of
Securities is not eligible to participate in the Exchange Offer or does not
receive freely tradeable Exchange Securities in the Exchange Offer, the Company
and the Subsidiary Guarantors shall, as promptly as practicable, file a Shelf
Registration Statement providing for the sale by the Holders of all of the
Registrable Securities and to have such Shelf Registration Statement declared
effective by the SEC. In the event the Company and the Subsidiary Guarantors
are required to file a Shelf Registration Statement solely as a result of the
matters referred to in clause (iii) of the preceding sentence, the Company and
the Subsidiary Guarantors shall use their best efforts to file and have declared
effective by the SEC both an Exchange Offer Registration Statement pursuant to
Section 2(a) with respect to all Registrable Securities and a Shelf Registration
Statement (which may be a combined Registration Statement with the Exchange
Offer Registration Statement) with respect to offers and sales of Registrable
Securities held by the Placement Agents after completion of the Exchange Offer.
The Company and the Subsidiary Guarantors agree to use their best efforts to
keep the Shelf Registration Statement continuously effective for a period of 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 and the Subsidiary Guarantors
shall be deemed not to have used their best efforts to keep the Shelf
Registration Statement effective during the requisite period if they voluntarily
take 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 in good faith and for valid business reasons (not including avoidance
of the Company's and the Subsidiary Guarantors' obligations hereunder),
including the acquisition or divestiture of assets, so long as the Company and
the Subsidiary Guarantors promptly thereafter comply with the requirements of
Section 3(e)(v) and Section 3(i) hereof, if applicable. The Company and the
Subsidiary Guarantors further agree to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company and the Subsidiary
Guarantors 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 and the Subsidiary Guarantors agree 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.
5
<PAGE> 7
(c) If any Placement Agent determines that it is not eligible to
participate in the Exchange Offer with respect to the exchange of Securities
constituting any portion of an unsold allotment, at the request of such
Placement Agent, the Company shall issue and deliver to such Placement Agent or
the person purchasing Securities registered under a Shelf Registration Statement
as contemplated by Section 2(b) hereof from such Placement Agent, in exchange
for such Securities, a new Security containing terms identical to the Exchange
Securities, but only to the extent the CUSIP Service Bureau will issue the same
CUSIP number for such new Securities as for Exchange Securities.
(d) The Company and the Subsidiary Guarantors shall pay all
Registration Expenses in connection with the registration pursuant to Section
2(a) and Section 2(b). 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.
(e) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) 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 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
Registration Statement may legally resume.
(f) Without limiting the remedies available to the Placement Agents
and the Holders, the Company and the Subsidiary Guarantors acknowledge that any
failure by the Company and the Subsidiary Guarantors to comply with their
respective obligations under Section 2(a) and Section 2(b) hereof may result in
material irreparable injury to the Placement Agents 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 Placement Agents or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Subsidiary Guarantors' obligations
under Section 2(a) and Section 2(b) hereof.
3. REGISTRATION PROCEDURES
In connection with the obligations of the Company and the Subsidiary
Guarantors with respect to the Registration Statements pursuant to Section 2(a)
and Section 2(b) hereof, the Company and the Subsidiary Guarantors shall as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by the
Company and the Subsidiary Guarantors and (y) shall, in the case of a Shelf
Registration, 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 their best efforts
to cause such 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 each Registration Statement as may be necessary to keep such
6
<PAGE> 8
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by an 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 or Exchange Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, 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 and the Subsidiary Guarantors consent 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;
(d) use their 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 Registration
Statement shall reasonably request in writing by the time the applicable
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 neither the Company
nor any Subsidiary Guarantor shall 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) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the Placement
Agents promptly and, if requested by any such Holder or counsel, confirm such
advice in writing (i) when a 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 Registration Statement and Prospectus or for additional
information after the 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 Registration Statement or the initiation of
any proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company and the
Subsidiary Guarantors 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 or any Subsidiary
Guarantor 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
7
<PAGE> 9
during the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus untrue
in any material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein not
misleading and (vi) of any determination by the Company or any Subsidiary
Guarantor that a post-effective amendment to a Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the withdrawal of
any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, 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 Indenture) 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) in the case of a Shelf Registration, upon the occurrence of any event
contemplated by Section 3(e)(v) hereof, use their best efforts to prepare and
file with the SEC a supplement or post-effective amendment to a 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 and the Subsidiary Guarantors
agree 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 and the Subsidiary Guarantors
have amended or supplemented the Prospectus to correct such misstatement or
omission;
(j) a reasonable time prior to the filing of any Registration Statement,
any Prospectus, any amendment to a Registration Statement or amendment or
supplement to a Prospectus or any document which is to be incorporated by
reference into a Registration Statement or a Prospectus after initial filing of
a Registration Statement, provide copies of such document to the Placement
Agents and their counsel (and, in the case of a Shelf Registration Statement,
the Holders and their counsel) and make such of the representatives of the
Company and the Subsidiary Guarantors as shall be reasonably requested by the
Placement Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) available for discussion of such
document, and shall not at any time file or make any amendment to the
Registration Statement, any Prospectus or any amendment of or supplement to a
Registration Statement or a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus, of
which the Placement Agents and their counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel)
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<PAGE> 10
shall not have previously been advised and furnished a copy or to which the
Placement Agents or their counsel (and, in the case of a Shelf Registration
Statement, 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
Placement Agents 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 Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act of
1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be, cooperate
with the Trustee and the Holders to effect such changes to the Indenture as may
be required for the Indenture to be so qualified in accordance with the terms of
the TIA and execute, and use their best efforts to cause the Trustee to execute,
all documents as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner.
(m) in the case of a Shelf Registration, 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 the Subsidiary Guarantors, and cause the
respective officers, directors and employees of the Company and the Subsidiary
Guarantors to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with a Shelf
Registration Statement;
(n) in the case of a Shelf Registration, use their 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 or
any of the Subsidiary Guarantors are then listed if requested by the majority
Holders, to the extent such Registrable Securities satisfy applicable listing
requirements;
(o) use their best efforts to cause the Exchange Securities or Registrable
Securities, as the case may be, to be rated by two nationally recognized
statistical rating organizations (as such term is defined in Rule 436(g)(2)
under the 1933 Act);
(p) if reasonably requested by any Holder of Registrable Securities
covered by a 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 (i) make
all required filings of such Prospectus supplement or such post-effective
amendment as soon as the Company and the Subsidiary Guarantors have received
notification of the matters to be incorporated in such filing; and
(q) in the case of a Shelf Registration, 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
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<PAGE> 11
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 the Subsidiary Guarantors and their respective
subsidiaries, the 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, 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 the Subsidiary Guarantors (and, if necessary, and other certified
public accountant of any subsidiary of the Company, or of any business
acquired by the Company or any of the Subsidiary Guarantors for which
financial statements and financial data are or are required to be included
in the 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 and the Subsidiary Guarantors made pursuant to
clause (i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company and the
Subsidiary Guarantors may require each Holder of Registrable Securities to
furnish to the Company and the Subsidiary Guarantors such information regarding
the Holder and the proposed distribution by such Holder of such Registrable
Securities as the Company and the Subsidiary Guarantors may from time to time
reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company and the Subsidiary Guarantors
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 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 suspend the disposition of Registrable Securities
pursuant to a Registration Statement, the Company shall extend the period during
which the 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.
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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. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any broker-
dealer that receives Exchange Securities for its own account in the Exchange
Offer in exchange for Securities that were acquired by such broker-dealer as a
result of market-making or other trading activities (a "Participating
Broker-Dealer"), may be deemed to be an "underwriter" within the meaning of the
1933 Act and must deliver a prospectus meeting the requirements of the 1933 Act
in connection with any resale of such Exchange Securities.
The Company and the Subsidiary Guarantors understand that it is the
Staff's position that if the Prospectus contained in the Exchange Offer
Registration Statement includes a plan of distribution containing a statement to
the above effect and the means by which Participating Broker-Dealers may resell
the Exchange Securities, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Securities owned by them, such Prospectus may
be delivered by Participating Broker-Dealers to satisfy their prospectus
delivery obligation under the 1933 Act in connection with resales of Exchange
Securities for their own accounts, so long as the Prospectus otherwise meets the
requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company and the Subsidiary Guarantors agree that the
provisions of this Agreement as they relate to a Shelf Registration shall also
apply to an Exchange Offer Registration to the extent, and with such reasonable
modifications thereto as may be, reasonably requested by the Placement Agents or
by one or more Participating Broker-Dealers, in each case as provided in clause
(ii) below, in order to expedite or facilitate the disposition of any Exchange
Securities by Participating Broker-Dealers consistent with the positions of the
Staff recited in Section 4(a) above; PROVIDED that:
(i) the Company and the Subsidiary Guarantors shall not be required
to amend or supplement the Prospectus contained in the Exchange Offer
Registration Statement, as would otherwise be contemplated by Section 3(i),
for a period exceeding 180 days after the last Exchange Date (as such
period may be extended pursuant to the penultimate paragraph of Section 3
of this Agreement) and Participating Broker-Dealers shall not be authorized
by the Company or any of the Subsidiary Guarantors to deliver and shall not
deliver such Prospectus after such period in connection with the resales
contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth in
Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the company and the Subsidiary Guarantors by the
Placement Agents or with the reasonable request in writing to the Company
and the Subsidiary Guarantors by one or more broker-dealers who certify to
the Placement Agents and the Company and the Subsidiary Guarantors in
writing that they anticipate that they will be Participating
Broker-Dealers; and PROVIDED FURTHER that, in connection with such
application of the Shelf Registration procedures set forth in Section
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<PAGE> 13
3 to an Exchange Offer Registration, the Company and the Subsidiary
Guarantors shall be obligated (x) to deal only with one entity representing
the Participating Broker-Dealers, which shall be Morgan Stanley & Co.
Incorporated unless it elects not to act as such representative, (y) to pay
the fees and expenses of only one counsel representing the Participating
Broker-Dealers, which shall be counsel to the Placement Agents unless such
counsel elects not to so act and (z) to cause to be delivered only one, if
any, "cold comfort" letter with respect to the Prospectus in the form
existing on the last Exchange Date and with respect to each subsequent
amendment or supplement, if any, effected during the period specified in
clause (i) above.
(c) The Placement Agents shall have no liability to the Company, and
Subsidiary Guarantor or any Holder with respect to any request that it may make
pursuant to Section 4(b) above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Subsidiary Guarantors, jointly and severally,
agree to indemnify and hold harmless the Placement Agents, each Holder and each
Person, if any, who controls any Placement Agent 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 Placement Agent or any
Holder, from and against all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
by the Placement Agent, 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 Registration Statement (or any amendment thereto) pursuant to
which Exchange Securities or 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 and the Subsidiary Guarantors 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 Placement Agents or any Holder furnished to the
Company and the Subsidiary Guarantors in writing through Morgan Stanley & Co.
Incorporated or any selling Holder expressly for use therein. In connection
with any Underwritten Offering permitted by Section 3, the Company and the
Subsidiary Guarantors will also, jointly and severally, indemnify the
Underwriters, if any, selling brokers, dealers and similar securities industry
professionals participating in the distribution, their offices 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
Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, the Subsidiary Guarantors, the Placement Agents and
the other selling Holders, and each of their respective directors, officers who
sign the Registration Statement and each Person, if any, who controls the
Company, the Subsidiary Guarantors, any Placement Agent 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 and
each
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<PAGE> 14
Subsidiary Guarantor to the Placement Agents and the Holders, but only with
reference to information relating to such Holder furnished to the Company and
the Subsidiary Guarantors in writing by such Holder expressly for use in any
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 Placement Agents and all
Persons, if any, who control any Placement Agent 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 and the Subsidiary Guarantors, their directors, their officers who
sign the Registration Statement and each Person, if any, who controls the
Company or any of the Subsidiary Guarantors 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 Placement Agents and Persons who control the Placement Agents,
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 and the Subsidiary
Guarantors. 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 5 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
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<PAGE> 15
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 and the Subsidiary Guarantors, on the one hand,
and the Holders, on the other hand, shall be determined by reference to, among
other things, whether 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 or the Subsidiary Guarantors, 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 5(d) are several in proportion to the respective
principal amount of Registrable Securities of such Holder that were registered
pursuant to a Registration Statement.
(e) The Company, each Subsidiary Guarantor and each Holder agree that
it would not be just or equitable if contribution pursuant to this Section 5
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 5, 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 5 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 5
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 Placement Agents, any Holder or any Person controlling any Placement Agent
or any Holder, or by or on behalf of the Company, its officers or directors or
any Person controlling the Company or any Subsidiary Guarantor, (iii) acceptance
of any of the Exchange Securities and (iv) any sale of Registrable Securities
pursuant to a Shelf Registration Statement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. Neither the Company nor any
Subsidiary Guarantor 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 or the Subsidiary Guarantors'
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 and the Subsidiary Guarantors have obtained
the written consent of Holders of at least a majority in aggregate principal
amount of the outstanding Registrable Securities affected by such
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<PAGE> 16
amendment, modification, supplement, waiver or consent; PROVIDED, HOWEVER, that
no amendment, modification, supplement, waiver or consent to any departure from
the provisions of Section 5 hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder.
(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 6(c), which address initially is, with respect to the Placement Agents,
the address set forth in the Purchase Agreement; and (ii) if to the Company and
the Subsidiary Guarantors, initially at the Company's address set forth in the
Purchase Agreement and thereafter at such other address, notice of which in
accordance with the provisions of this Section 6(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 Trustee, at the
address specified in the Indenture.
(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
Placement Agents (in their capacity as Placement Agents) shall have no liability
or obligation to the Company or any Subsidiary Guarantor 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 and the
Subsidiary Guarantors shall not, and shall use their 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 among the Company and the
Subsidiary Guarantors, on the one hand, and the Placement Agents, 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
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<PAGE> 17
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.
(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.
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<PAGE> 18
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
Each of the Subsidiary Guarantors listed on
Schedule I hereto,
By /s/Glenn J. Moran
------------------------------
Name: Glenn J. Moran
Title: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. Tyre
------------------------
Name: John D. Tyre
Title:Vice President
<PAGE> 19
SCHEDULE II
Subsidiary Guarantors
Georgia Tubing Corporation
Jalcite I, Inc.
LTV Blanking Corporation
LTV/EGL Holding Company
LTV Electro-Galvanizing, Inc.
LTVGT, Inc. (f/k/a Varco-Pruden, Inc.)
LTV International, Inc. (f/k/a LTV Holdings, Inc.)
LTV Steel Company, Inc.
LTV Steel Tubular Products Company (a division of
LTV Steel Company, Inc.)
Aliquippa and Southern Railroad Company
Chicago Short Line Railway Company
The Cuyahoga Valley Railway Company
The Mahoning Valley Railway Company
Dearborn Leasing Company
Erie B Corporation
Erie I Corporation
Fox Trail, Inc.
J&L Empire, Inc.
Jalcite II, Inc.
LTV-Columbus Processing, Inc.
LTV Pickle, Inc.
The Monongahela Connecting Railroad Company
Nemacolin Mines Corporation
Republic Technology Corporation
The River Terminal Railway Company
Youngstown Erie Corporation
LTV Steel de Mexico, Ltd.
LTV-Walbridge, Inc.
Trico Steel Company, Inc.
<PAGE> 20
VP Buildings, Inc (f/k/a VP Acquisition Company)
Varco-Pruden International, Inc. (f/k/a Buildings International
Company)
United Panel, Inc.
LTV Steel Mining Company
Welded Tube Holdings, Inc. (f/k/a ANI America Holdings Inc.)
(f/k/a Palmer Tube Mills, Inc.)
Welded Tube Co. of America
2
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF DAVIS POLK & WARDWELL]
December 30, 1999
The LTV Corporation
200 Public Square
Cleveland, OH 44114
Ladies and Gentlemen:
We have acted as special counsel to The LTV Corporation, a Delaware
corporation (the "Company"), in connection with the Company's offer (the
"Exchange Offer") to exchange its 11 3/4% Senior Notes due 2009 (the "New
Notes") for any and all of its outstanding 11 3/4% Senior Notes due 2009 (the
"Old Notes").
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments as we have deemed necessary or advisable
for the purpose of rendering this opinion.
Upon the basis of the foregoing and assuming the due execution and
delivery of the New Notes, we are of the opinion that the New Notes, when
executed, authenticated and delivered in exchange for the Old Notes in
accordance with the Exchange Offer will be valid and binding obligations of the
Company enforceable in accordance with their terms, except as the foregoing may
be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally and general principles of equity,
regardless of whether enforcement is sought in a proceeding at law or in equity.
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 relating to the Exchange Offer. We also consent to the
reference to us under the caption "Legal Matters" in the Prospectus contained in
such Registration Statement.
<PAGE> 2
This opinion is rendered 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 except
that U.S. National Trust Association, N.A., as Exchange Agent for the Exchange
Offer may rely upon this opinion as if it were addressed directly to it.
Very truly yours,
/s/ Davis Polk & Wardwell
-------------------------
2
<PAGE> 1
Exhibit 12.1
STATEMENT RE: COMPUTATION OF EARNINGS TO FIXED CHARGES
(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
subsidiaries 15 29 55 27 (14) (12) (9)
Fixed Charges 39 46 61 45 37 38 42
Capitalized interest adjustment (12) (24) (32) (19) (15) (8) (8)
Minority interest 1 2 2 4 8 7 10
----- ----- ----- ----- ----- ----- -----
Earnings $ (90) $ 106 $ 62 $ 126 $ 189 $ 336 $ 238
===== ===== ===== ===== ===== ===== =====
(B) FIXED CHARGES
===================================
Interest Expense $ 22 $ 26 $ 35 $ 22 $ 17 $ 19 $ 22
Interest portion of rent expenses 17 20 26 23 20 19 20
----- ----- ----- ----- ----- ----- -----
Fixed Charges $ 39 $ 46 $ 61 $ 45 $ 37 $ 38 $ 42
===== ===== ===== ===== ===== ===== =====
(A)/(B) Ratio of Earnings to Fixed Charges -- 2.3 1.0 2.8 5.1 8.8 5.7
===== ===== ===== ===== ===== ===== =====
</TABLE>
NOTE: Earnings were insufficient to cover fixed charges for the period
ended September 30, 1999 by $129.
<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-4, to be filed on or about December 30,
1999) and related Prospectus of The LTV Corporation for the registration of
$275,000,000 of 11-3/4% Senior Notes due 2009, 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
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
THE LTV CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 75-1070950
(State of Incorporation) (I.R.S. Employer
Identification No.)
200 Public Square
Cleveland, Ohio 44114
(Address of Principal Executive Offices) (Zip Code)
11 3/4% SENIOR EXCHANGE NOTES DUE 2009
(Title of the Indenture Securities)
<PAGE> 2
GENERAL
-------
1. GENERAL INFORMATION Furnish the following information as to the
Trustee.
(a) Name and address of each examining or supervising authority
to which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the
act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number 333-70709.
* Incorporated by reference to Registration Number 22-27000.
<PAGE> 3
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 22nd day of December,
1999.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Laurie Howard
------------------------------
Laurie Howard
Vice President
/s/ Harry H. Hall, Jr.
- -------------------------
Harry H. Hall, Jr.
Assistant Secretary
<PAGE> 4
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: December 22, 1999
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Laurie Howard
-----------------
Laurie Howard
Vice President
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
THE LTV CORPORATION
OFFER TO EXCHANGE ITS 11 3/4% SENIOR EXCHANGE NOTES DUE 2009
FOR ANY AND ALL OF ITS OUTSTANDING11 3/4% SENIOR NOTES DUE 2009
PURSUANT TO THE PROSPECTUS
DATED -, 2000
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON -, 2000, UNLESS THE OFFER IS EXTENDED.
-------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
U.S. BANK TRUST NATIONAL ASSOCIATION
By Registered or Certified Mail: By Overnight Delivery or Hand:
U.S. Bank Trust National Association U.S. Bank Trust National Association
180 East 5th Street 180 East 5th Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
Attn: Specialized Finance Dept. Attn: Specialized Finance Dept.
To Confirm by Telephone Facsimile Transmissions:
or for Information: (651) 244-1537
(800) 934-6802
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) if Old Notes are to be forwarded herewith. If tenders of Old
Notes are to be made by book-entry transfer to an account maintained by U.S.
Bank Trust National Association (the "EXCHANGE AGENT") at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in "The Exchange
Offer--Book-Entry Transfer" in the Prospectus and in accordance with the
Automated Tender Offer Program ("ATOP") established by DTC, a tendering holder
will become bound by the terms and conditions hereof in accordance with the
procedures established under ATOP.
<PAGE> 2
Holders of Old Notes whose certificates (the "CERTIFICATES") for such Old
Notes are not immediately available or who cannot deliver their certificates and
all other required documents to the Exchange Agent on or prior to the expiration
date (as defined in the Prospectus) or who cannot complete the procedures for
book-entry transfer on a timely basis, must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus. SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS
TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
2
<PAGE> 3
<TABLE>
<CAPTION>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
--------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
--------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) OLD NOTES TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- --------------------------------------------------------------------------------------------------------------------
CERTIFICATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT OF
NUMBER(S)* OF OLD NOTES* OLD NOTES TENDERED
(IF LESS THAN ALL)**
<S> <C> <C> <C>
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
Total Amount
Tendered
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof. All Old Notes held shall be deemed tendered
unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ___________________________________________
DTC Account Number ______________________________________________________
Transaction Code Number__________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ___________________________________________
Date of Execution of Notice of Guaranteed Delivery ______________________
Name of Institution which Guaranteed ____________________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer: ____________
Name of Tendering Institution ___________________________________________
DTC Account Number ______________________________________________________
Transaction Code Number _________________________________________________
[ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ___________________________________________________________________
Address: ________________________________________________________________
_______________________________________________________________
3
<PAGE> 4
Ladies and Gentlemen:
The undersigned hereby tenders to The LTV Corporation, a Delaware
corporation (the "COMPANY"), the principal amount of the Company's 11 3/4%
Senior Notes Due 2009 (the "OLD NOTES") specified above in exchange for a like
aggregate principal amount of the Company's11 3/4% Senior Exchange Notes Due
2009 (the "NEW NOTES"), upon the terms and subject to the conditions set forth
in the Prospectus dated !, 2000 (as the same may be amended or supplemented from
time to time, the "PROSPECTUS"), receipt of which is acknowledged, and in this
Letter of Transmittal (which, together with the Prospectus, constitute the
"EXCHANGE OFFER"). The Exchange Offer has been registered under the Securities
Act of 1933, as amended (the "SECURITIES ACT").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the certificates representing such Old Notes. The
certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if certificates are submitted for more Old Notes than are
tendered or accepted for exchange, certificates for such unaccepted or
nonexchanged Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account maintained
at DTC), without expense to the tendering holder, promptly following the
expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions hereto will, upon the Company's
acceptance for exchange of such tendered Old Notes, constitute a binding
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Exchange Offer. In all cases in which a Participant elects
to accept the Exchange Offer by transmitting an express acknowledgment in
accordance with the established ATOP procedures, such Participant shall be bound
by all of the terms and conditions of this Letter of Transmittal. The
undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or, in the case of a book-entry transfer of
Old Notes, that such New Notes be credited to the account indicated above
maintained at DTC. If applicable, substitute certificates representing Old Notes
not exchanged or not accepted for exchange will be issued to the undersigned or,
in the case of a book-entry transfer of Old Notes, will be credited to the
account indicated above maintained at DTC. Similarly, unless otherwise indicated
under "Special Delivery Instructions," please deliver New Notes to the
undersigned at the address shown below the undersigned's signature.
4
<PAGE> 5
By tendering Old Notes and executing, or otherwise becoming bound by, this
Letter of Transmittal, the undersigned hereby represents and agrees that
(i) the undersigned is not an "affiliate" of the Company,
(ii) any New Notes to be received by the undersigned are being acquired in
the ordinary course of its business, and
(iii) the undersigned has no arrangement or understanding with any person
to participate in a distribution (within the meaning of the Securities Act) of
such New Notes.
By tendering Old Notes pursuant to the exchange offer and executing, or
otherwise becoming bound by, this Letter of Transmittal, a holder of Old Notes
which is a broker-dealer represents and agrees, consistent with certain
interpretive letters issued by the staff of the Division of Corporation Finance
of the Securities and Exchange Commission to third parties, that (a) such Old
Notes held by the broker-dealer are held only as a nominee, or (b) such Old
Notes were acquired by such broker-dealer for its own account as a result of
market-making activities or other trading activities and it will deliver the
prospectus (as amended or supplemented from time to time) meeting the
requirements of the Securities Act in connection with any resale of such New
Notes (provided that, by so acknowledging and by delivering a prospectus, such
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act).
The Company has agreed that, subject to the provisions of the Registration
Rights Agreement, the Prospectus, as it may be amended or supplemented from time
to time, may be used by a participating broker-dealer (as defined below) in
connection with resales of New Notes received in exchange for Old Notes, where
such Old Notes were acquired by such participating broker-dealer for its own
account as a result of market-making activities or other trading activities, for
a period ending 90 days after the expiration date (subject to extension under
certain limited circumstances) or, if earlier, when all such New Notes have been
disposed of by such participating broker-dealer. In that regard, each broker
dealer who acquired Old Notes for its own account as a result of market-making
or other trading activities (a "PARTICIPATING BROKER-DEALER"), by tendering such
Old Notes and executing, or otherwise becoming bound by, this Letter of
Transmittal, agrees that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in the Prospectus untrue in any material respect or which causes the
Prospectus to omit to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading or of the occurrence of certain other events specified
in the Registration Rights Agreement, such participating broker-dealer will
suspend the sale of New Notes pursuant to the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to the
participating broker-dealer or the Company has given notice that the sale of the
New Notes may be resumed, as the case may be. If the Company gives such notice
to suspend the sale of the New Notes, it shall extend the 90-day period referred
to above during which participating broker-dealers are entitled to use the
Prospectus in connection with the resale of New Notes 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 participating broker-dealers shall have received
copies of the supplemented or amended Prospectus necessary to permit resales of
the New Notes or to and including the date on which the Company has given notice
that the sale of New Notes may be resumed, as the case may be.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
5
<PAGE> 6
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith. If signature is by an
attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary or representative capacity, please
set forth the signer's full title. See Instruction 5.
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date ______________________________________________________________________,1999
Name(s) ________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity: ______________________________________________________________________
(INCLUDE FULL TITLE)
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature ___________________________________________________________
Name ___________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Date _____________________________________________________________________, 1999
Capacity or Title ______________________________________________________________
Name of Firm ___________________________________________________________________
Address_________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _________________________________________________
________________________________________________________________________________
6
<PAGE> 7
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6)
<S> <C>
To be completed ONLY if the New Notes are to To be completed ONLY if New Notes are to be
be issued in the name of someone other than the sent to someone other than the registered holder of
registered holder of the Old Notes whose name(s) the Old Notes whose name(s) appear(s) above, or to
appear(s) above. such registered holder(s) at an address other than
that shown above.
Issue New Notes to: Mail New Notes To:
Name ___________________________________________ Name ___________________________________________
(PLEASE PRINT) (PLEASE PRINT)
________________________________________________ ________________________________________________
Address ________________________________________ Address ________________________________________
________________________________________________ ________________________________________________
________________________________________________ ________________________________________________
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
________________________________________________ ________________________________________________
(TAXPAYER IDENTIFICATION OR (TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER) SOCIAL SECURITY NUMBER)
_________________________________________________________________________________________________________________________
</TABLE>
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed if certificates are to
be forwarded herewith. If tenders are to be made pursuant to the procedures for
tender by book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" in the Prospectus and in accordance with ATOP established by DTC, a
tendering holder will become bound by the terms and conditions hereof in
accordance with the procedures established under ATOP. Certificates, or timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), if required, properly completed and duly executed, with any required
signature guarantees, must be received by the Exchange Agent at one of its
addresses set forth herein on or prior to the expiration date. Old Notes may be
tendered in whole or in part in the principal amount of $1,000 and integral
multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes and this Letter
of Transmittal to the Exchange Agent on or prior to the expiration date or (iii)
who cannot complete the procedures for delivery by book-entry transfer on a
timely basis, may tender their Old Notes by properly completing and duly
executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution (as defined below); (ii) a properly completed
and duly executed Letter of Transmittal (or facsimile) thereof and Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Exchange Agent on or prior to the expiration date; and
(iii) the certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed Delivery,
all as provided in "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Old Notes to be properly tendered pursuant to the guaranteed delivery procedure,
the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to
the expiration date. As used herein and in the Prospectus, "ELIGIBLE
INSTITUTION" means a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), or any Agent's Message in lieu thereof, waives any right to
receive any notice of the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC whose
name appears on a security position listing as the owner of the Old Notes) of
Old Notes tendered herewith, unless such holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
8
<PAGE> 9
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Notes evidenced by any certificate submitted are to be
tendered, fill in the principal amount of Old Notes which are to be tendered in
the box entitled "Principal Amount of Old Notes Tendered (if less than all)." In
such case, new certificate(s) for the remainder of the Old Notes that were
evidenced by your old certificate(s) will only be sent to the holder of the Old
Note, promptly after the expiration date. All Old Notes represented by
certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the expiration date. In order for a withdrawal to be
effective on or prior to that time, a written notice of withdrawal must be
timely received by the Exchange Agent at one of its addresses set forth above or
in the Prospectus on or prior to the expiration date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to be
withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes) and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing holder. If certificates for the Old Notes
have been delivered or otherwise identified to the Exchange Agent, then prior to
the release of such certificates, the withdrawing holder must submit the serial
numbers of the particular certificates for the Old Notes to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an Eligible
Institution, unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
the Prospectus under "The Exchange Offer--Book-Entry Transfer," any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Old Notes and otherwise comply with the procedures of
such facility. Old Notes properly withdrawn will not be deemed validly tendered
for purposes of the Exchange Offer, but may be retendered at any time on or
prior to the expiration date by following one of the procedures described in the
Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry procedures described in the Prospectus under
"The Exchange Offer--Book-Entry Transfer" such Old Notes will be credited to an
account maintained with DTC for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of certificates.
If this Letter of Transmittal or any certificates or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
9
<PAGE> 10
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of such persons' authority
to so act must be submitted.
When this Letter of Transmittal is signed by the registered holder(s) of
the Old Notes listed and transmitted hereby, no endorsement(s) of certificate(s)
or written instrument or instruments of transfer or exchange are required unless
New Notes are to be issued in the name of a person other than the registered
holder(s). Signature(s) on such certificate(s) or written instrument or
instruments of transfer or exchange must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Old Notes listed, the certificates must be endorsed
or accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by the Company in its sole discretion and
executed by the registered holder(s), in either case signed exactly as the name
or names of the registered holder(s) appear(s) on the certificates. Signatures
on such certificates or written instrument or instruments of transfer or
exchange must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form, validity, eligibility (including time of receipt)
and acceptance for exchange of any tender of Old Notes, which determination
shall be final and binding. The Company reserves the absolute right to reject
any and all tenders of any particular Old Notes not properly tendered or to not
accept any particular Old Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right, in its sole discretion, to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Old Notes either before or
after the expiration date (including the right to waive the ineligibility of any
holder who seeks to tender Old Notes in the Exchange Offer). The interpretation
of the terms and conditions of the Exchange Offer as to any particular Old Notes
either before or after the expiration date (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with the
tender of Old Notes for exchange must be cured within such reasonable period of
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen certificate(s) have been followed.
10. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith, except that holders who instruct the Company to register New Notes in
the name of or request that Old Notes not tendered or not accepted in the
Exchange Offer to be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer tax
thereon.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF),
OR AN AGENT'S MESSAGE IN LIEU THEREOF, AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT
ON OR PRIOR TO THE EXPIRATION DATE.
10
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
11 3/4% SENIOR NOTES DUE 2009
OF
THE LTV CORPORATION
This Notice of Guaranteed Delivery or one substantially equivalent
hereto must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 11 3/4% Senior Notes Due 2009
(the "OLD NOTES") are not immediately available, (ii) Old Notes, the Letter of
Transmittal and any other documents required by the Letter of Transmittal cannot
be delivered to U.S. Bank Trust National Association (the "EXCHANGE AGENT") on
or prior to the Expiration Date (as defined in the Prospectus referred to below)
or (iii) the procedures for book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand or sent by
facsimile transmission, overnight courier, telex, telegram or mail to the
Exchange Agent. See "The Exchange Offer - Guaranteed Delivery Procedures" in the
Prospectus dated -, 2000 (which, together with the related Letter of
Transmittal, constitutes the "EXCHANGE OFFER") of The LTV Corporation, a
Delaware corporation (the "COMPANY").
The Exchange Agent for the Exchange Offer is:
U.S. BANK TRUST NATIONAL ASSOCIATION.
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Overnight Delivery: Facsimile Transmissions: By Registered Or Certified Mail:
(Eligible Institutions Only)
U.S. Bank Trust National Association U.S. Bank Trust National
Corporate Trust Administration (651) 244-1537 Association
180 East 5th Street Corporate Trust Administration
St. Paul, Minnesota 55101 To Confirm by Telephone 180 East 5th Street
Attn: Specialized Finance Dept. or for Information Call: St. Paul, Minnesota 55101
Attn: Specialized Finance Dept.
(800) 934-6802
</TABLE>
<PAGE> 2
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A
FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER
OF TRANSMITTAL.
2
<PAGE> 3
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, hereby guarantees to deliver to the Exchange
Agent, at one of its addresses set forth above, either the certificates for all
physically tendered Old Notes, in proper form for transfer, or confirmation of
the book-entry transfer of such Old Notes to the Exchange Agent's account at The
Depository Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with any other
documents required by the Letter of Transmittal, within five New York Stock
Exchange trading days after the date of execution of this Notice of Guaranteed
Delivery.
The undersigned acknowledges that it must deliver the Old Notes
tendered hereby to the Exchange Agent within the time period set forth above and
that failure to do so could result in a financial loss to the undersigned.
Name of Firm:______________________ _________________________
(Authorized Signature)
Address:___________________________ Title:_____________________
__________________________________ Name:____________________
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:_____________________
____________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND FULLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
3
<PAGE> 1
Exhibit 99.3
THE LTV CORPORATION
OFFER TO EXCHANGE ITS
11 3/4% SENIOR EXCHANGE NOTES DUE 2009
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/4% SENIOR NOTES DUE 2009
To Registered Holders and The Depository
Trust Company Participants:
Enclosed are the materials listed below relating to the offer by The
LTV Corporation, a Delaware corporation (the "COMPANY"), to exchange its 11 3/4%
Senior Exchange Notes Due 2009 (the "NEW NOTES"), pursuant to an offering
registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
for a like principal amount of its issued and outstanding 11 3/4% Senior Notes
Due 2009 (the "OLD NOTES") upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated -, 2000, and the related Letter of
Transmittal (which together constitute the "EXCHANGE OFFER").
Enclosed herewith are copies of the following documents:
1. Prospectus dated -, 2000;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner; and
5. Letter which may be sent to your clients for whose account you
hold Old Notes in your name or in the name of your nominee, to
accompany the instruction form referred to above, for obtaining
such client's instruction with regard to the Exchange Offer.
<PAGE> 2
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE
EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON -, 2000 UNLESS
EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the holder is not an "affiliate" of the
Company, (ii) any New Notes to be received by it are being acquired in the
ordinary course of its business, and (iii) the holder has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. If the tendering holder is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, you will represent on behalf of such broker-dealer that the Old Notes
to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on behalf
of such broker-dealer that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes, such broker-dealer is not deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
The enclosed Instruction to Registered Holder and/or Book-Entry
Transfer Participant from Owner contains an authorization by the beneficial
owners of the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer
or to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 10 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
U.S. Bank Trust National Association
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL MAKE YOU THE AGENT
OF THE LTV CORPORATION OR U.S. BANK TRUST NATIONAL ASSOCIATION, OR AUTHORIZE YOU
TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE
2
<PAGE> 3
EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
3
<PAGE> 1
Exhibit 99.4
THE LTV CORPORATION
OFFER TO EXCHANGE ITS
11 3/4% SENIOR EXCHANGE NOTES DUE 2009
FOR ANY AND ALL OF ITS OUTSTANDING
11 3/4% SENIOR NOTES DUE 2009
To Our Clients:
Enclosed is a Prospectus, dated -, 2000, of The LTV Corporation, a
Delaware corporation (the "COMPANY"), and a related Letter of Transmittal (which
together constitute the "EXCHANGE OFFER") relating to the offer by the Company
to exchange its 11 3/4% Senior Exchange Notes Due 2009 (the "NEW NOTES"),
pursuant to an offering registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), for a like principal amount of its issued and
outstanding 11 3/4% Senior Notes Due 2009 (the "OLD NOTES") upon the terms and
subject to the conditions set forth in the Exchange Offer.
PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON -, 2000, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Old
Notes being tendered.
We are the holder of record and/or participant in the book-entry
transfer facility of Old Notes held by us for your account. A tender of such Old
Notes can be made only by us as the record holder and/or participant in the
book-entry transfer facility and pursuant to your instructions. The Letter of
Transmittal is furnished to you for your information only and cannot be used by
you to tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of
the Old Notes held by us for your account pursuant to the terms and conditions
of the Exchange Offer. We also request that you confirm that we may on your
behalf make the representations contained in the Letter of Transmittal.
<PAGE> 2
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the holder is not an "affiliate" of the
Company, (ii) any New Notes to be received by the holder are being acquired in
the ordinary course of its business, and (iii) the holder has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes. If the tendering holder is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, we will represent on behalf of such broker-dealer that the Old Notes
to be exchanged for the New Notes were acquired by it as a result of
market-making activities or other trading activities, and acknowledge on behalf
of such broker-dealer that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes, such broker-dealer is not deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
Very truly yours,
2
<PAGE> 1
Exhibit 99.5
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM OWNER
OF
THE LTV CORPORATION
11 3/4% Senior Notes Due 2009
(the "OLD NOTES")
TO REGISTERED HOLDER AND/OR PARTICIPANT OF THE BOOK-ENTRY TRANSFER FACILITY:
The undersigned hereby acknowledges receipt of the Prospectus dated -,
2000 (the "PROSPECTUS") of The LTV Corporation, a Delaware corporation (the
"COMPANY"), and the accompanying Letter of Transmittal (the "LETTER OF
TRANSMITTAL"), that together constitute the Company's offer (the "EXCHANGE
OFFER"). Capitalized terms used but not defined herein have the meanings as
ascribed to them in the Prospectus or the Letter of Transmittal.
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to the action to be taken by you relating to
the Exchange Offer with respect to the Old Notes held by you for the account of
the undersigned.
The aggregate face amount of the Old Notes held by you for the account
of the undersigned is (fill in amount):
$___________ of the 11 3/4% Senior Notes Due 2009
With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
[ ] TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, if any):
$___________ of the 11 3/4% Senior Notes Due 2009
<PAGE> 2
[ ] NOT to TENDER any Old Notes held by you for the account of the undersigned.
If the undersigned instructs you to tender the Old Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
holder is not an "affiliate" of the Company, (ii) any New Notes to be received
by the holder are being acquired in the ordinary course of its business, and
(iii) the holder has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of such
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes, it represents that such Old Notes
were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, such broker-dealer is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933, as amended.
2
<PAGE> 3
SIGN HERE
Name of beneficial owner(s): ___________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Taxpayer Identification or Social Security Number: _____________________________
________________________________________________________________________________
Date: __________________________________________________________________________
3
