<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number 1-4368
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THE LTV CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-1070950
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification Number)
200 Public Square
Cleveland, Ohio 44114-2308
(Address of principal executive office) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (216) 622-5000
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, par value $0.50 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No ___
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes |X| No ___
State the aggregate market value of the voting stock held by non-affiliates of
the registrant.
Approximately $633.9 Million
(As of February 16, 1999)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
99,793,666 shares of Common Stock
(As of February 16, 1999)
Documents Incorporated by Reference: Annual Report to Shareholders for fiscal
year 1998 (Part II); Annual Proxy Statement for 1999 Annual Meeting (Part III)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
<PAGE> 2
PART I
ITEM 1. BUSINESS.
FORWARD LOOKING STATEMENTS
"Item 1. Business," "Item 2. Properties" and "Item 3. Legal
Proceedings" of this report include forward-looking statements. The use of the
words "outlook," "anticipates," "believes," "estimate," "expect" and similar
words are intended to identify these statements as forward-looking. These
statements represent the Company's current judgment on what the future holds.
While the Company believes them to be reasonable, a number of important factors
could cause actual results to differ materially from those projected. These
factors include relatively small changes in market price or market demand;
changes in domestic capacity; changes in raw material costs; increased operating
costs; loss of business from major customers, especially for high value-added
product; unanticipated expenses; substantial changes in financial markets; labor
unrest; unfair foreign competition; major equipment failure; unanticipated
results in pending legal proceedings or difficulties in implementing information
technology, including Year 2000 compliant systems.
INTRODUCTION
The LTV Corporation ("LTV") was organized as a Delaware corporation in
November 1958 as a successor to a California corporation organized in 1953.
LTV's principal office is located at 200 Public Square, Cleveland, Ohio
44114-2308 and its telephone number is (216) 622-5000. LTV and its subsidiaries
are collectively referred to herein as "LTV" or the "Company" unless the context
otherwise requires.
LTV is a leading domestic integrated steel producer and has recently
acquired interests in metal fabrication and leading steel technologies. For
financial reporting purposes, LTV has disaggregated the results of its
operations and certain other financial information into three segments:
Integrated Steel, Metal Fabrication and Corporate and Other which includes
leading steel technologies. The notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operation set forth certain financial information relating to LTV's business
segments. The table below shows the percentage contribution to LTV's net sales
of each segment for the periods indicated.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Integrated Steel 84% 88% 92%
Metal Fabrication 16% 12% 8%
Corporate and Other -- -- --
</TABLE>
Integrated Steel. LTV's integrated steel segment manufactures and sells
a diversified line of coated sheet and cold rolled and hot rolled sheet and
strip and tin mill products. Coated sheet and cold rolled, hot rolled sheet and
strip are used to make products such as automobile bodies, appliances and other
consumer durable goods, farm equipment, industrial machinery, office equipment,
machine parts and tubular products. Tin mill products are used by the container
industry in the manufacture of cans and closures. LTV is engaged in such
operations primarily through its subsidiary, LTV Steel Company, Inc. ("LTV
Steel").
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<PAGE> 3
Based on 1998 shipments (as compiled by LTV based primarily on publicly
filed data), LTV believes it is the third largest domestic integrated steel
producer, the second largest producer of flat rolled steel and a leading
supplier of quality-critical, flat rolled steel to the transportation, appliance
and electrical equipment industries in the United States.
In its integrated steel operation, LTV operates two domestic integrated
steel mills (Cleveland Works and Indiana Harbor Works) and various finishing,
galvanizing and processing facilities, as well as tin mill operations. Also
included in LTV's integrated steel operation are iron ore and limestone
operations (which provide raw materials to its steelmaking facilities) and short
line railroad operations (which primarily transport raw materials and steel
products to support the manufacturing operations). See Item 2. Properties for a
description of these assets and operations.
Metal Fabrication. LTV's metal fabrication segment (i) manufactures
pipe, conduit and other tubular products for use in transportation, agriculture,
construction and oil and gas industries (ii) manufactures preengineered, metal
buildings for low rise commercial and industrial applications ("VP Buildings")
and (iii) includes interests in a steel tailor welded blank operation for
automotive applications ("TWB") and a steel processing and blanking operation in
Puebla, Mexico and a similar operation to be built in Silao, Mexico
("Lagermex").
Corporate and Other. LTV's corporate and other segment includes (i) a
50% interest in a steel minimill operation ("Trico Steel") which began
production in April 1997, (ii) a 46.5% interest in a reduced iron plant in the
Republic of Trinidad and Tobago ("CAL") which began commissioning procedures in
the first quarter of 1999 and (iii) corporate investments and related income and
other expense.
SIGNIFICANT DEVELOPMENTS
Steel Imports. During 1998, imports of flat rolled product (excluding
slabs) surged to record levels, averaging on an annual basis an estimated 25% of
total domestic shipments. The Company believes that a significant portion of the
recent imports have been unfairly traded and that this unfair trade has injured
the Company by reducing its production, shipping rates and average steel selling
prices. In response to this surge, the Company cut back raw steel production at
its Cleveland Works and Indiana Harbor Works, idling certain facilities and
announcing the closing of others, reduced iron ore pellet production and reduced
its workforce through layoffs.
Trade Cases. In September 1998, LTV joined with eleven other domestic
steel companies, the United Steelworkers of America ("USWA") and the Independent
Steelworkers Union in filing unfair trade cases covering certain hot rolled
steel products against Japan, Russia and Brazil. The Company is continuing to
monitor the surge in unfairly traded imports and its effects on the Company's
operations and anticipates that additional unfair trade cases may be filed. See
"Trade Cases."
Trico Steel. LTV's joint venture steel minimill operation, Trico Steel,
has experienced equipment problems that have prevented Trico Steel from
achieving its rated capacity of 2.2 millions tons and product mix. Such
equipment problems are continuing into 1999, although efforts are ongoing to
correct such problems. However, transformer outages at the minimill will likely
result in substantially reduced production into the second quarter of 1999. The
recent surge in steel imports has also negatively affected sales which in turn
has negatively affected production levels at Trico Steel. Due to the low
production levels experienced by Trico Steel, 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 $50 million commitment is in addition to a $30
million loan
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<PAGE> 4
commitment (LTV's share of which is $15 million) made in mid-1998 ($24 million
of which was loaned in 1998).
PBGC Agreement. The agreement executed between LTV and the Pension
Benefit Guaranty Corporation (the "PBGC") at the time of LTV's reorganization
was substantially restructured in 1998. Prospectively, the restated agreement
normalizes funding requirements under Employee Retirement Income Security Act
of 1974 for LTV's major defined benefit plans, and deletes or modifies
restrictive financial covenants to make them no more restrictive than those in
the Company's existing senior note securities. In connection with the
restructuring, the Company prepaid a promissory note payable to PBGC in the
amount of $62 million, including accumulated interest.
INTEGRATED STEEL
STEEL MILL PRODUCTS
During the years 1998, 1997 and 1996, LTV's integrated steel operation
accounted for 7.1%, 7.3% and 7.6%, respectively, of total domestic industry
shipments of steel mill products, based on American Iron and Steel Institute
("AISI") reports. The net tons of steel mill products shipped by LTV's
integrated steel operations during these periods were: 1998--7,238,000;
1997--7,655,000 and 1996--7,605,000.
LTV's integrated steel mill product mix is reflected in the following
table which shows the revenue dollars for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
(DOLLARS IN MILLIONS)
1998 1997 1996
REVENUE* REVENUE* REVENUE*
-------- -------- --------
<S> <C> <C> <C>
Hot and cold flat rolled products $1,861 $2,036 $2,017
Galvanized products 1,213 1,230 1,203
Tin mill products 395 502 453
Other 121 137 140
--- --- ---
Total $3,590 $3,905 $3,813
====== ====== ======
</TABLE>
* Excludes intersegment steel shipments to the Company's metal fabrication
operation.
Hot and cold flat rolled and galvanized product are used in the
manufacture of automobile bodies, appliances and other consumer durable goods,
farm equipment, industrial machinery, office equipment, machine parts and
tubular products. Tin mill products are used by the container industry in the
manufacture of cans and closures.
Sales in 1998 decreased from 1997 due to a surge in unfairly traded
imports which resulted in lower average steel selling prices and lower shipments
at the Company.
STEEL PRODUCTION
The following table sets forth raw steel production and estimated
capability information for both LTV and the domestic steel industry during the
periods indicated:
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<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Capability (net tons in thousands)
LTV-Integrated Steel 8,600 8,400 8,400
Industry(b) 125,000 121,400 116,100
Percent of industry 6.8% 6.9% 7.2%
Production (net tons in thousands)
LTV-Integrated Steel 8,100 8,900 8,800
Industry(b) 107,600 107,500 104,400
Percent of industry 7.6% 8.3% 8.4%
Production as a percentage of capability
LTV-Integrated Steel(a) 95.0% 106.0% 105.0%
Industry(b) 85.9% 88.5% 89.9%
</TABLE>
(a) The Company follows industry standards in calculating its maximum
operating rate which is based on 95% of blast furnace capacity, which
recognizes the average effect of blast furnace relines. LTV re-rated
its capacity in 1998 which resulted in a 2.3% increase in AISI rated
capacity.
(b) The information relating to the domestic steel industry is as reported
by or is derived from data reported by the AISI and is preliminary for
1998. A net ton is 2,000 pounds.
In its integrated steel operation, LTV produces its steel using the
basic oxygen furnace process at its Cleveland Works and Indiana Harbor Works.
With three continuous casters, LTV continuously casts 100% of its steel
production. LTV has supplemented its own steel production in recent years with
purchases of semi-finished steel. In 1998, 1997 and 1996, LTV 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 LTV's
overall need at the time and can be significantly higher or lower than LTV's
average operating rate. LTV does not believe data regarding the utilization of
individual facilities is necessarily meaningful.
CUSTOMERS
The following table sets forth the percentage of integrated steel
shipments by tonnage distributed among LTV's various markets for the periods
indicated:
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<PAGE> 6
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Steel service centers 25% 26% 32%
Transportation 27 25 23
Converters and processors 18 19 17
Electrical, agricultural and other machinery 8 8 8
Household appliances and office equipment 7 6 6
Containers and packaging 7 8 7
Construction 6 6 5
Exports 2 2 2
All other --- --- ---
----- ----- -----
Total 100% 100% 100%
</TABLE>
Direct sales to General Motors, the Company's largest customer,
accounted for approximately 9%, 11% and 11% of the Company's consolidated
revenues in 1998, 1997 and 1996, respectively. In September 1999, the principal
labor agreements are scheduled to expire at GM and the two other largest
domestic automotive manufacturers.
SALES AND MARKET DISTRIBUTION
Approximately 60% of LTV's integrated steel products are sold under
sales arrangements, most of which are negotiated on an annual basis. Almost all
of LTV's integrated steel sales to its larger customers in the transportation,
appliance, electrical equipment and food and beverage can markets are made
pursuant to such sales arrangements. LTV's sales arrangements generally provide
for set prices for the products ordered during the period they are in effect. As
a result, LTV may experience a delay in realizing price changes related to its
long-term integrated steel business. Much of the remainder of LTV's integrated
steel product is sold under contracts covering shorter periods at the then
prevailing market prices for such product.
The Company's integrated steel sales organization is located at LTV's
headquarters. Employees performing commercial, marketing and customer service
functions are organized along market lines. LTV also maintains regional offices
for integrated steel sales functions.
LTV's export sales of integrated steel product were 2.2% of total
dollar steel sales in 1998, 2.0% in 1997 and 2.1% in 1996.
COMPETITION
LTV competes directly with domestic and foreign flat rolled carbon
steel producers and indirectly with producers of plastics, aluminum and other
materials such as ceramics and wood which sometimes can be substituted for flat
rolled carbon steel in manufactured products. The primary factors that have
affected competition include price, quality, delivery performance and customer
service. LTV targets quality-critical, value-added applications and believes it
is able to differentiate certain of its products from those of its competitors
on the basis of product quality, technology, modern facilities and customer
product and technical support.
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
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<PAGE> 7
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 against Japan, Russia
and Brazil in 1998 as well as final dumping and subsidy decisions issued in
1992, some of which are still the subject of pending appeals, see "Trade Cases"
below.
Based on preliminary 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 the three years 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.
Domestic
LTV also competes with other domestic integrated producers, some of
which have greater resources than the Company, and with mini-mills which are
relatively efficient, low-cost producers that generally produce steel from scrap
in electric furnaces, have lower employment and environmental costs and
generally target regional markets. Recently developed thin slab casting
technologies have allowed some mini-mill producers to enter certain sectors of
the flat rolled market, which have traditionally been supplied by integrated
producers, and others have announced their intention to do the same. Because of
their technology, mini-mills are currently highly dependent upon scrap and
susceptible to fluctuating scrap prices. In weak markets, minimills benefit from
falling scrap prices, their principal raw material. See "Corporate and Other"
for information regarding LTV's 50% participation in Trico Steel, a mini-mill
joint venture.
TRADE CASES
United States Trade Cases
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 Japan, Russia
and Brazil alleging injury resulting from subsidies and dumping in the
importation of certain hot rolled carbon steel products.
On November 13, 1998, the International Trade Commission ("ITC")
determined that there is a reasonable indication that the U.S. steel industry is
threatened with material injury from such imports. Further, on November 23,
1998, the Department of Commerce ("DOC") found that "critical circumstances"
exist with respect to such imports from Russia and Japan (i.e., that there were
massive imports from these two countries over a relatively short period of time
with knowledge that the trade cases were imminent). The critical circumstances
determination means that steelmakers from such countries could be liable for
antidumping duties on such steel imported into the U.S. since mid-November 1998.
In February 1999, DOC issued preliminary determinations that set substantial
dumping margins on hot rolled steel product from Japan, Russia and Brazil and
countervailing duty margins on such product from Brazil. The preliminary
findings mean that importers from the three countries must file bonds to cover
the preliminary dumping margins on such imports. With respect to Japan and
Russia, such bonds
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<PAGE> 8
must cover imports dating back to mid-November 1998. Ultimately, liability for
dumping duties will depend on affirmative final determinations of injury and
dumping by the ITC and DOC in mid-1999.
On February 22, l999, the DOC announced that the U.S. government had
reached a tentative agreement with the Russian Federation that, if finalized,
would preclude the imposition of dumping duties in the pending trade cases
against Russia and would roll back Russia's recent 700% increase in hot rolled
steel product imports (from 508,000 metric tons in 1995 to 3,468,000 metric tons
in 1998) to 1996 import levels (750,000 metric tons). The suspension agreement
would also impose a six month moratorium on any future hot rolled product import
from Russia and would establish a minimum price of $255 per metric ton at which
such product could thereafter be sold in the United States. LTV has announced
that it intends to oppose the suspension agreement and will likely prosecute to
conclusion its trade case pending against Russia. If the suspension agreement is
not finalized, a successful prosecution of LTV's trade case would allow Russia
full access to the U.S. market (i.e. no quota would be imposed) but would no
longer allow importers of product from Russia to import such product at dumped
prices without incurring substantial dumping duties.
The DOC also announced that a tentative comprehensive agreement had
been negotiated with the Russian Federation, covering all other steel product,
which, if finalized, would reduce the level of imports of such other steel
product to 1997 levels.
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 until changed as
a result of a periodic "Administrative Review," which would consider the
appropriateness of the existing duty margin, or by an order following a "Sunset
Review." Sunset Reviews of the orders will begin in 1999. Under the Sunset
Review provisions, dumping and countervailing duties will be eliminated unless
it is determined that revocation of the order is likely to lead to a
continuation or recurrence of dumping or countervailable subsidies and a
continuation or recurrence of injury to United States steel producers.
Canada and Mexico Trade Cases
In Canada, dumping duties have been imposed on LTV Steel exports of hot
dipped galvanized steel coils, except for hot dipped galvanized steel used for
exterior auto bodies that are sold to Canadian customers. Canadian
administrative reviews have established "normal values" for the dutiable LTV
Steel products exported to Canada. "Normal value" is the price at which goods
can be sold without incurring dumping penalties. Dumping duties formerly imposed
on LTV Steel exports of cold rolled steel coils were rescinded by the Canadian
International Trade Tribunal in 1998. 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.
In Mexico, dumping duties were established for LTV Steel on hot rolled
steel and plate-in-coil exports. However, the Mexican courts have found that
these dumping duties were imposed illegally. The decisions voiding the dumping
duties have been appealed by the Mexican government, and LTV Steel and other
importers of record must continue to post a bond to cover possible dumping
duties in the event these decisions are reversed by an appellate court.
Because the total LTV Steel shipments of these products to Canada and
Mexico are relatively small, these duties should have an insignificant effect on
the Company's results of operations.
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<PAGE> 9
METAL FABRICATION
LTV's metal fabrication segment (i) manufactures pipe, conduit and other
tubular products for use in oil and gas, transportation, agriculture and
construction industries through its tubular division, (ii) manufactures
pre-engineered, metal buildings for low rise commercial and industrial
applications (VP Buildings) and (iii) includes interests in a steel tailor
welded blank operation for automotive applications (TWB) and steel processing
and blanking operations in Puebla, Mexico (Lagermex) and a similar operation to
be built in Silao, Mexico.
Tubular. LTV's tubular products include standard, line and oil country
pipe used primarily in the oil and gas, and construction industries and a
variety of tubing products such as electrical conduit, conveyor tubing, axle
tubing, prop shaft tubing, condenser and pressure tubing and drawn tubing used
in the automotive, agriculture and construction industries.
Tubular products are sold through a separate sales organization divided
into four regions and through independent sales representatives.
The U.S. market for tubular products is heavily affected by imports;
foreign products accounted for 49% of the market in 1998, 37% in 1997 and 34% in
1996.
LTV recently completed construction and began commissioning a new
technologically advanced tubing manufacturing facility in Marion, Ohio. The
facility, which is expected to begin shipments in the first quarter of 1999,
will manufacture high-quality tubing for the automotive mechanical tubing
market, including for the manufacture of hydroformed parts. The automotive
mechanical tubing market is expected to grow as automobile manufacturers
increase their use of tubular products in order to reduce the weight of vehicles
and the cost of vehicle construction. The facility has a rated processing
capacity of 146,000 tons of steel annually.
In the fourth quarter of 1998, the Company announced that it would shut
down its electricweld tubular operations at its Cleveland tubular products
plant. In 1998, the Company processed 36,000 tons of electricweld tubular
product at such plant.
Metal Buildings. VP Buildings was acquired on July 2, 1997. VP
Buildings' metal buildings are typically 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. 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 April 1998, VP Buildings acquired United Panel, Inc. ("UPI") which
manufactures fiberglass panels with imbedded aggregate for commercial buildings.
LTV believes, based on Metal Building Manufacturers Association
("MBMA") data, that VP Buildings has the second largest market share in the
domestic industry. VP Buildings designs and manufactures metal building systems
at eight domestic locations and markets them through approximately 1,000
builders and distributors in the United States and Canada, and directly to large
national and international accounts. VP Buildings also has metal building
systems production joint ventures or licensing arrangements in Argentina,
Brazil, Chile, China, Egypt, Japan, Mexico, South Korea, and Spain.
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<PAGE> 10
VP Buildings is a major user of flat rolled steel, but is not currently
a significant customer of LTV's integrated steel operations. VP Buildings has
developed a proprietary software system intended to significantly improve the
ability of customers to develop engineering designs, obtain immediate pricing
and order various building design configurations.
Metal buildings compete with conventional forms of non-residential
building construction, with competition primarily based on cost, construction
time, appearance, thermal efficiency and other customer requirements. VP
Buildings also competes with numerous other metal building systems
manufacturers. The largest five such manufacturers (including VP Buildings)
account for approximately 70% of industry sales, according to MBMA. Competition
among metal building systems companies is based primarily on price, service,
product design and performance, and marketing capabilities.
Other. LTV's metal fabrication operation also includes an approximate
11% interest in a tailor welded blanking operation (TWB) in Monroe, Michigan
(acquired in 1997) which adds value to product sold to domestic automotive
customers. Other partners in the joint venture are Worthington Industries, Inc.,
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, which have recently
experienced growing acceptance for their ability to reduce cost and weight,
include body side frames, wheel house panels, center pillars, pillar
reinforcements, motor compartment rails, floor panels and front and rear door
panels.
LTV also owns a 25% interest in Lagermex (acquired in 1997), a joint
venture which operates automotive steel processing and blanking operations in
Puebla, Mexico and a second to be built in Silao, Mexico. The venture in Puebla,
Mexico supplies to Volkswagen de Mexico and its parts suppliers in Puebla
inventory management, slitting and blanking products and services required to
produce the Volkswagen plant's steel stampings. Partners in the joint venture
are Krupp Hoesch Stahlexport GmbH and local plant management. The operation to
be built in Silao, Mexico will supply blanks and offer warehouse services to a
local supplier of a General Motors plant.
CORPORATE AND OTHER
LTV's corporate and other segment includes leading steel technology
operations which consist of interests in a steel minimill and a foreign reduced
iron facility (which produces a substitute for steel scrap for use in electric
furnace steel manufacturing operations) and corporate investments and related
income and other expense.
Steel Minimill. LTV's joint venture steel minimill operation, 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 LTV
and 25% each by subsidiaries of Sumitomo Metal Industries, Ltd. ("Sumitomo") and
British Steel plc ("British Steel"), produces commercial and higher quality hot
rolled steel. Trico Steel has a rated annual capacity of 2.2 million tons. The
steel produced by Trico Steel is sold by a sales force of a wholly owned
subsidiary of LTV which is dedicated solely to the sale of Trico Steel product.
The Trico Steel investment is expected to provide LTV and its 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 rated capacity of 2.2 million tons. Such
equipment problems continue, although efforts to correct such problems are
ongoing. The recent surge in steel imports has also negatively affected
production levels at Trico Steel. See "Significant Developments."
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<PAGE> 11
Reduced Iron Facility. LTV's reduced iron joint venture with
Cleveland-Cliffs Inc and Lurgi AG, Cliffs and Associates ("CAL"), is
constructing a facility in the Republic of Trinidad and Tobago to produce
reduced iron briquettes (a substitute for steel scrap) for use in electric
furnace steelmaking operations. The joint venture, CAL, which began
commissioning procedures in the first quarter of 1999, is 46.5% owned by a
subsidiary of LTV with the remainder owned by subsidiaries of Cleveland-Cliffs
Inc (46.5%) and Lurgi AG (7%). The project utilizes the new CIRCORED(R) process
and is expected to have an annual rated capacity of 500,000 metric tons.
Operation of the facility is managed by Cliffs Reduced Iron Management Company,
a subsidiary of Cleveland-Cliffs Inc.
Headquarters and Other. Headquarters and other expense includes
corporate investments and related income and expenses.
EMPLOYEES AND LABOR MATTERS
As of December 31, 1998, LTV and its consolidated subsidiaries had
approximately 14,800 active employees. Of these employees, approximately 12,100
employees are employed in the integrated steel segment and approximately 2,700
employees are employed in the metal fabrication segment. Approximately 10,500
active employees, primarily hourly workers, are represented by unions. Of the
union represented employees, approximately 9,600 are represented by the USWA
(primarily in the integrated steel segment and in the tubular operations
included in metal fabrication segment) and approximately 900 are represented by
either the teamsters union or by the sheet metal workers union (in the metal
fabrication segment).
LTV's current steel labor agreements with the USWA covering
approximately 9,500 active employees expires on August 1, 1999. The USWA's labor
agreements with several other domestic integrated steel producers also expire on
August 1, 1999. LTV is unable to predict whether, or on what terms, it will be
able to negotiate new steel labor contracts in 1999, or what the effects on LTV
might be. A prolonged work stoppage by USWA represented employees would have a
material adverse effect on LTV.
LTV also has other labor agreements covering approximately 145
USWA-represented employees at LTV's two electro-galvanizing joint ventures which
expire on August 1, 1999. Additionally, four of twenty-three union contracts
covering LTV's railroads are currently being renegotiated. The Company's labor
agreement with the teamsters union is scheduled to expire at year-end 1999, and
the Company's two labor agreements with the sheet metal workers union are
scheduled to expire in April 1999 and January 2000, respectively. VP Buildings'
labor contract with the USWA at its Wisconsin plant is scheduled to expire on
April 1, 2001.
OTHER ASPECTS OF LTV
RESEARCH AND DEVELOPMENT
LTV's research and development efforts focus on developing new
production processes to improve the quality and reduce the cost of LTV's product
lines, provide product and technical support to customers and create new steel
products.
LTV operates a research and development facility and customer technical
center in Cleveland to develop new steel products, improve existing steel
products and develop more efficient operating procedures to meet the continually
increasing demands of the transportation, appliance, electrical equipment and
container markets. The employees of LTV's research and development facilities
include chemists, metallurgists and engineers.
- 10 -
<PAGE> 12
LTV also has a product application office in Detroit that works closely
with customers in identifying optimum steel and manufacturing methods,
evaluating steel product performance and solving customer manufacturing
problems.
Expenditures for research and development totaled $14 million in 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.
ENVIRONMENTAL LIABILITIES
LTV is subject to changing and increasingly stringent environmental
laws and regulations concerning air emissions, water discharges and waste
disposal.
The Company spent approximately $14 million in 1998 and $32 million in
1997 for compliance-related capital expenditures, primarily in connection with
its integrated steel operations, and expects to spend an average of
approximately $30 million annually in capital expenditures for the next
five-year period, primarily in connection with its integrated steel operation,
to meet environmental standards (including requirements of the 1990 Clean Air
Act Amendments). Estimates for future capital expenditures and operating costs
required for environmental compliance are difficult to determine, however, due
to numerous uncertainties, including the evolving nature of the regulations, the
possible imposition of more stringent requirements and the availability of new
technologies.
Also, the Company spent approximately $24 million in 1998 and $16
million during 1997 for environmental clean-up and related matters at operating
and idled facilities and had a recorded liability of $136 million at December
31, 1998 (including costs related to the demolition, closure and clean-up of
closed facilities) and $154 million at December 31, 1997 for known and
identifiable environmental clean-up and related matters that are probable to
occur, based on current law and existing technology. Most of these expenditures
are expected to be incurred by the Company over the next five-year period,
primarily in connection with its integrated steel operation. Other requirements
for environmental matters, which could increase these costs, may arise in the
future. See the discussion of "Environmental Liabilities and Related Costs"
included in Management's Discussion and Analysis included in the Company's 1998
Annual Report to Shareholders which is incorporated herein by reference.
- 11 -
<PAGE> 13
YEAR 2000 READINESS DISCLOSURE
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 the Company's 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 non-information technology (Non-IT)
systems. The Company expects to achieve company-wide Year 2000 readiness mid
1999. LTV has formed 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. LTV has contracted with its
principal Year 2000 outside contractor (the "Outside Contractor") to achieve
Year 2000 readiness with respect to its business and related information
technology infrastructure systems ("Business Systems"). In addition to the
Company's Year 2000 program described above, LTV is continuing to implement a
business reengineering project, which began in 1994 and which includes, among
other activities, replacing certain information systems with systems that are
Year 2000 ready. As a result, those systems scheduled for replacement during
1999 under the business reengineering project have been excluded from the Year
2000 readiness program and costs which are disclosed below.
LTV's Year 2000 readiness program involves several stages, including
(l) 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 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.
Management believes that the Company has made, and continues to make,
significant progress toward Year 2000 readiness; such progress and the
appropriateness of the Company's approach have both been confirmed by a major
automotive customer and an outside professional firm.
Currently, the Company's systems are at various stages of readiness.
The inventory stage has been completed for manufacturing and operations systems,
which include Non-IT systems such as smart sensors, logic controllers,
distributed control systems and embedded microprocessors. Remediation, testing
and implementation for these systems is approximately 90% complete with the
remainder scheduled to be completed by the end of the first quarter of 1999. The
Outside Contractor has completed remediation, testing and implementation of
mission critical Business Systems.
In the event the Company 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 miscalculations
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 Company's business and results of operations.
In addition, the Company is in the process of developing a strategy to
address the additional potential consequences that may result from unresolved
Year 2000 issues, which will include the development of one or more contingency
plans by mid 1999. LTV has been querying material third
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<PAGE> 14
parties, including suppliers, utility and other resource providers and customers
to assess their Year 2000 readiness efforts. Positive statements of readiness
have been received from 70% of the Company's suppliers. The Company has assumed
that any nonresponsive third party will be noncompliant for the purpose of risk
assessment. The Company is implementing a supply chain plan for most sole source
and mission critical suppliers and customers. This plan includes telephone
interviews and on-site visits.
The Company has budgeted approximately $55 million for its Year 2000
readiness efforts, with $8 million designated for remediation of manufacturing
and operation systems and $47 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 $8 million of Year 2000 costs in 1997, and $35 million in 1998. The
funds expensed for Year 2000 are outside of the normal information technology
budget. Because LTV's 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 management's current best estimates,
which were derived based on numerous assumptions of future events, including 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 LTV's suppliers and customers to become
Year 2000 compliant in a timely manner.
NOTE: THE DISCLOSURE ABOVE IS DESIGNATED AS YEAR 2000 READINESS
DISCLOSURE UNDER THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of LTV.
<TABLE>
<CAPTION>
NAME AGE* OFFICE
<S> <C> <C>
Peter Kelly 57 Chairman of the Board, President and Chief Executive Officer
James F. Haeck 52 Executive Vice President
Richard J. Hipple 46 Executive Vice President
Arthur W. Huge 53 Executive Vice President and Chief Financial Officer
Jeffrey A. Saxon 50 Executive Vice President
Glenn J. Moran 51 Senior Vice President, General Counsel and Secretary
George T. Henning 57 Vice President and Controller
John C. Skurek 54 Vice President and Treasurer
</TABLE>
* As of December 31, 1998.
- 13 -
<PAGE> 15
OFFICERS
The only employee of LTV and its subsidiaries who is a director of LTV
is Mr. Kelly, the Chairman of the Board, President and Chief Executive Officer
of LTV. Mr. David H. Hoag, who had been Chairman of the Board, retired as
Chairman of the Board and as a director of LTV effective January 31, 1999.
All officers, except Messrs. Henning and Saxon, have been employed by
LTV or its subsidiaries for more than the last five years.
Mr. Kelly became Chairman of the Board of LTV in February 1999, and
Chief Executive Officer of LTV in September 1998. He has been a director of LTV
since July 1997. Additionally, since July 1997, he has been President and Chief
Operating Officer of LTV. Prior thereto, since February 1991, he was a Group
Vice President of LTV. He has been President and a director of LTV Steel since
February 1991. He also serves as a director of National City Bank.
Mr. 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.
Mr. 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.
Mr. Huge was elected Executive Vice President in February 1998 and has
served as Chief Financial Officer of LTV since June 1993. Prior to his election
as an Executive Vice President, Mr. Huge served as a Senior Vice President of
LTV. Mr. Huge has also served as Vice President and Chief Financial Officer of
LTV Steel for more than the past five years.
Mr. Saxon joined the Company as an Executive Vice President in February
1998. Prior thereto, since 1994, Mr. Saxon served as Group Vice
President-Specialty Plastics of The BFGoodrich Company.
Mr. Moran has been Senior Vice President and General Counsel of LTV
since September 1992 and Secretary since July 1993. He has also served for the
last five years as Vice President and Group Counsel of LTV Steel.
Mr. Henning was elected Vice President and Controller of LTV in
September 1995. Prior thereto, Mr. Henning was Vice President and Chief
Financial Officer of Pioneer Companies, Inc., a manufacturer of chlorine,
caustic soda and related products.
Mr. Skurek has been Vice President and Treasurer of LTV since February
1993. Mr. Skurek has also served as Vice President and Treasurer of LTV Steel
since September 1992.
ITEM 2. PROPERTIES.
CORPORATE HEADQUARTERS
LTV's corporate headquarters is in Cleveland, Ohio and occupies 238,000
square feet under a lease expiring in 2011. The lease provides LTV three
consecutive five-year renewal options to extend the lease term through 2026.
- 14 -
<PAGE> 16
INTEGRATED STEEL PRODUCING FACILITIES
The Company has two integrated steel mills, Cleveland Works and Indiana
Harbor Works, and various finishing, galvanizing and processing facilities as
well as stand alone tin mill operations. During the last five years, the Company
has spent approximately $1.3 billion to modernize and upgrade these core
integrated steel facilities. In November 1998, the Company announced the
permanent closure of certain finishing operations at LTV's Cleveland Works.
The Cleveland Works at Cleveland, Ohio produces a variety of flat
rolled products. Major facilities include three blast furnaces, two basic oxygen
furnaces, two continuous slab casters, one vacuum degassing and two ladle
metallurgy systems, two hot strip mills, two cold reducing mills, a continuous
anneal line, sheet finishing facilities and an electroplate line. In November
1998, the Company announced the closing in 1999 of certain finishing facilities
at the Cleveland Works.
The Indiana Harbor Works at East Chicago, Indiana produces a variety of
flat rolled products. Major facilities include two blast furnaces, a basic
oxygen furnace, 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.
Responding to the recent surge in unfairly traded steel imports, the
Company curtailed operations at its Cleveland and Indiana Harbor Works beginning
in the fourth quarter of 1998, including idling certain facilities for a two
week period at the Cleveland Works.
LTV also operates a tin mill in Aliquippa, Pennsylvania. The Company's
two tin mills (which includes one at Indiana Harbor Works as described above)
have a combined operating capacity aggregating 840,000 tons and operated at a
combined rate of 88% of capacity during 1998.
LTV also operates finishing operations in Hennepin, Illinois. The
Hennepin facilities, which receive semi-finished products from the steel
producing facilities, include a cold reducing mill, a sheet finishing mill and a
hot dipped galvanizing line. LTV also currently operates coke batteries in
Chicago, Illinois and Warren, Ohio.
Electro-Galvanizing Lines. LTV owns interests in two
electro-galvanizing lines. The first, involving a joint venture owned 60% by a
subsidiary of LTV and 40% by a subsidiary of Sumitomo, is located at LTV's
Cleveland Works. The line produces one-sided and two-sided zinc-coated flat
rolled steel products and has an annual capacity of approximately 420,000 tons
of coated products. The second line, located in Columbus, Ohio and involving a
joint venture that is owned equally by subsidiaries of LTV and Sumitomo,
produces zinc, nickel/zinc and nickel/zinc/organic coated products and has an
annual capacity of approximately 360,000 tons of coated product. Substantially
all of the cold rolled steel that is coated at these facilities is produced by
LTV, and LTV is responsible for all sales and marketing of coated products
processed by the joint venture. The two electro-galvanizing lines operated at a
combined rate of 80% of capacity during 1998.
In January 1999, the partnership entered into a new operating lease
covering the equipment at the Cleveland electro-galvanizing line, extending the
lease term until 2009. The partnership has an option to renew the lease or
purchase the equipment at the end of the lease.
The Company is considering the feasibility of entering into a joint
venture with a third party for the purpose of converting the Columbus facility
to a hot dipped galvanizing line capable of producing 500,000 tons of hot dip
galvanize product annually.
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<PAGE> 17
Railroads. LTV owns all of the capital stock of the following six
terminal switching railroad companies: Aliquippa and Southern Railroad Company,
serving the Aliquippa tin mill; The Cuyahoga Valley Railway Company and The
River Terminal Railway Company, serving the Cleveland Works; The Mahoning Valley
Railway Company, serving the Youngstown electric weld pipe mill; The Monongahela
Connecting Railroad Company 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 LTV.
Suitability
LTV's steel-related facilities are well maintained, considered adequate
for their intended purposes and being utilized for their intended purposes.
USWA Collateral Arrangement
LTV has agreed with the USWA to grant liens on property used in the
Company's flat rolled steel operations with an appraised value of $500 million
to secure payment of (i) certain retiree health benefits to salaried and hourly
employees and retirees and (ii) certain employer contributions under a defined
contribution plan for hourly employees (collectively, the "Secured
Obligations"). The maximum amount recoverable to pay the Secured Obligations
upon foreclosure of the collateral is $250 million. Pursuant to such agreement,
LTV has granted liens on certain plant, property and equipment at its Cleveland
Works and a royalty free license or sublicense with respect to intellectual
properties used in connection with the manufacture of products at such
facilities.
RAW MATERIALS-LTV'S INTEGRATED STEEL OPERATIONS
Iron Ore
LTV owns interests in two iron ore mining operations which are used in
LTV's flat rolled steel operations. LTV's share of production at these mines
during 1998 was sufficient to meet 100% of its iron ore requirements. LTV's
share of reserves at these mines is sufficient to meet its anticipated iron ore
requirements in the near term.
LTV estimates that as of January 1, 1999, the total of its proven crude
ore reserves and of its proportionate share of such reserves of the companies in
which it has an ownership interest was such that, when mined and beneficiated,
there could be produced for use by LTV approximately 447 million gross tons (a
gross ton is equivalent to 2,240 pounds) of iron pellets averaging approximately
64% iron content. These ore reserves at the end of 1998, and 1998 activity, were
as follows:
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<PAGE> 18
<TABLE>
<CAPTION>
PROVEN 1998
NET ANNUAL SHARE OF DELIVERIES
INTEREST IN IRON ORE 1998 TO STEEL
RESERVES(a) CONTENT ENTITLEMENT PRODUCTION PLANTS(b)
----------- ------- ----------- ---------- ---------
(GROSS TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Properties:
LTV Steel Mining Company(c)............. 407,000 64% 7,500(c) 7,109 7,436
Empire Iron Mining Partnership(d)....... 39,500 64% 2,000 1,967 1,884
------ ----- ----- -----
Total Properties.......................... 446,500 9,500 9,076 9,320
</TABLE>
(a) LTV's ownership interest in reserves is stated in gross tons of
pellets.
(b) "1998 Deliveries to Steel Plants" does not include the sale of ore
products to third parties.
(c) LTV owns 100% of LTV Steel Mining Company located in Minnesota. The
entitlement is based on normal annual plant capacity, and the
production level can be reduced at LTV's discretion.
(d) LTV holds a 25% interest in Empire Iron Mining Partnership which
operates an iron ore mine and pellet facility in Michigan. LTV can
reduce its annual ore purchase requirements. Minimum ore purchase
requirements in 1998 totaled 1,333,333 gross tons.
Ore reserves are expected to be exhausted prior to the expiration dates
of the various leases associated with LTV's mining properties. LTV is committed
to pay its share of the annual cost of 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% pellets and 8% sinter. During 1998, 98% of LTV's pellet and
sinter requirements came from affiliated sources.
Metallurgical Coal and Coke
Metallurgical coal is used to make coke which is used in blast furnaces
in LTV's integrated steel operations to make iron in the raw steelmaking
process. All LTV's metallurgical coal requirements are purchased from
unaffiliated third parties under a number of short and intermediate term
contracts.
LTV produced 45% of its coke requirements for its integrated steel
operations during 1998 and expects to produce 40% of its anticipated
requirements for 1999 at its owned coke batteries. The operational life of LTV's
batteries located at Warren, Ohio and Chicago, Illinois could be adversely
affected by increasingly stringent environmental regulations or their inability
to continue to meet existing environmental standards. LTV shut down its coke
plant in Pittsburgh, Pennsylvania in 1998. LTV anticipates, however, that its
internal coke supply, together with coke purchased from third parties
(approximately 60%), will meet substantially all of its near-term coke
requirements. See "Item 1. Business--Significant Developments" and "Item 3.
Legal Proceedings" for information relating to existing and threatened
environmental proceedings involving the Company's coke batteries.
Other Raw Materials
LTV has a 53.5% interest in Presque Isle Corporation which operates a
limestone quarry located in Michigan for use in LTV's integrated steel
operations. LTV's share of Presque Isle Corporation's proven limestone reserves
was approximately 123,900,000 gross tons as of December 31, 1998. In 1998, LTV
used approximately 433,000 gross tons of limestone from Presque Isle and other
sources in its steelmaking operations. LTV owns a burnt lime processing plant at
Grand River, Ohio, which processes limestone from Presque Isle and other sources
into burnt lime. In 1998, approximately 44% of the 311,000 net tons of high
calcite burnt lime consumed by LTV's flat rolled steel operations came from
these sources.
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<PAGE> 19
Substantially all other raw materials for use in LTV's 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 ferroalloys,
are expected to continue to be in sufficient supply, although market prices have
historically been subject to wide fluctuations.
During the past three years, the Company has purchased a significant
amount of semi-finished slabs from other steel producers to supplement its own
production. The availability of such slabs, and the prices at which they can be
purchased, may vary, especially during periods of peak production in the steel
industry. See "Steel Production" above.
Energy
The Company uses substantial amounts of electricity, natural gas, fuel
oil and coal, particularly in its flat rolled steel operations, all of which are
purchased at competitive or prevailing market prices. Adequate sources of supply
exist for all the Company's requirements.
METAL FABRICATION FACILITIES
The Company's tubular products facilities are located in Ferndale,
Michigan; Cleveland, Marion, Youngstown and Elyria, Ohio; Counce, Tennessee; and
Cedar Springs, Georgia and manufacture electric weld pipe and welded tubing
(pressure tubing, mechanical tubing, cold drawn tubing and electrical metallic
conduit).
VP Building's headquarters is 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.
CORPORATE AND OTHER FACILITIES
The Trico Steel minimill operation, in which the Company owns an
interest, is located in Decatur, Alabama. The CAL facility, in which the Company
owns an interest, is located in the Republic of Trinidad and Tobago.
PROPERTY ADDITIONS AND CAPITAL EXPENDITURES
Capital expenditures and depreciation and amortization for the periods
indicated are as follows:
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<PAGE> 20
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Capital Expenditures.......................
Integrated Steel.................... 310 310 240
Metal Fabrication................... 52 16 3
Corporate and Other................. -- -- --
---- ---- ----
Total............................... 362 326 243
Depreciation and Amortization..............
Integrated Steel.................... 247 255 263
Metal Fabrication................... 12 8 3
Corporate and Other................. -- -- --
---- ---- ----
Total............................... 259 263 266
</TABLE>
The expenditures for integrated steel operations during 1998, 1997 and
1996 were mainly to refurbish blast furnaces and for equipment and facilities
which are designed to reduce cost, increase production efficiency and improve
quality and for environmental control projects. During this three year period,
the Company also made substantial expenditures for the development of a new
information systems project to support the Company's business processes. LTV is
currently engaged in the implementation phase of the project. All existing and
future information systems supporting these business processes are being
maintained principally by outside information systems providers under long-term
contracts. Included in the above under Metal Fabrication are capital
expenditures for the construction of the new Marion, Ohio tubular plant. Capital
spending for environmental control projects, primarily for the Integrated Steel
operations, during 1998, 1997 and 1996 was $14 million, $32 million and $27
million, respectively.
Capital expenditures in 1999 are expected to aggregate approximately
$300 million, which include the cost of a blast furnace reline at the Cleveland
Works.
Additionally, LTV's investment in its leading steel technologies
operations totaled $80 million in 1998 and $101 million in 1997 primarily for
Trico Steel and the construction of the direct reduced iron plant in the
Republic of Trinidad and Tobago.
ITEM 3. LEGAL PROCEEDINGS.
In addition to matters specifically discussed below, LTV is involved in
various legal proceedings occurring in the normal course of its business. LTV
cannot predict with certainty the outcome of any legal proceedings to which it
is subject. However, in the opinion of LTV's management, adequate provision has
been made for losses for which management can make a reasonable estimate of the
range of possible outcomes that are likely to result from these actions. To the
extent that such reserves prove to be inadequate, LTV would incur a charge to
earnings, which could have a material adverse effect on LTV's results of
operations for the applicable period. The outcome of these proceedings, however,
is not currently expected to have a material adverse effect on the financial
position of LTV.
Trade Cases
For information concerning trade cases covering flat rolled steel
products and other steel products, see "Business-Trade Cases."
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<PAGE> 21
Environmental Proceedings
Legal and administrative actions have been taken or are being
threatened against LTV and its subsidiaries, as discussed below, by the EPA and
the States of Indiana, Illinois and Ohio or their environmental agencies for
alleged violations of various federal and state environmental laws and
regulations. The Company has accrued for losses and costs associated with these
actions that are probable and estimable or otherwise provided for studies which
will provide a basis for estimation.
In December 1998, the U.S. Department of Justice, representing the U.S.
EPA, filed a complaint against LTV Steel in the United States District Court for
the Northern District of Ohio. The complaint charges that LTV Steel allegedly
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 at the Cleveland Works and applicable sulfur oxide emission standards at
the C-1 blast furnace stoves and a boiler at the Cleveland Works at various
times over a period of several years. The complaint also charges that LTV Steel
discharged pollutants into the Mahoning River without authorization pursuant to
or in violation of the terms of its NPDES permit at its Warren coke plant and
alleges violations of applicable regulations relating to hazardous waste
materials at the Warren coke plant. The complaint seeks to enjoin LTV Steel from
further violations of the Clean Air Act, Clean Water Act and the Resource
Conservation and Recovery Act and civil penalties of up to $25,000 or $27,500
per violation, depending on the date of the violation, for each day of violation
of these Acts.
In March 1998, the U.S. Department of Justice filed a civil action on
behalf of the U.S. EPA in the United States District Court for the Western
District of Pennsylvania alleging LTV Steel violated applicable pushing and
combustion stack opacity emission standards in connection with the operation of
its Pittsburgh coke plant in and after October 1996. In January 1999, the United
States amended its complaint to allege that violations had occurred as early as
November 1994. The complaint seeks civil penalties not to exceed $25,000 per day
per violation for alleged violations occurring on or before January 30, 1997 and
$27,500 per day per violation for alleged violations that occurred after January
30, 1997. In April 1998, the Allegheny County Health Department filed a motion
to intervene and a separate complaint in the case. The complaint seeks penalties
for alleged violations in the amount of $25,000 per day. The Group Against Smog
and Pollution and Allegheny County have been granted intervenor status in the
action. Operations at the coke plant, which has been permanently closed, ceased
February 28, 1998.
In January 1999, the U.S. EPA issued a Notice of Violation with respect
to LTV Steel's Grand River, Ohio lime plant. The Notice of Violation alleges
that violations of the opacity standards applicable to the kiln precipitators
have occurred at various times over the past several years and constitute
violations of the Clean Air Act subject to the remedies provided therein.
State of Indiana. In April 1995, LTV Steel received a NOV issued by the
Indiana Department of Environmental Management ("IDEM") which alleges that
releases of contaminants onto and beneath the ground have occurred at the
Indiana Harbor Works in violation of applicable environmental regulations. IDEM
is seeking to have the Company undertake a comprehensive remediation program to
clean up the alleged on-ground and below-ground contamination at the facility.
The NOV is broad-based and, depending upon the nature of the remediation program
that might be imposed upon the subsidiary and IDEM's authority to require a
comprehensive clean-up, the cost of such work could be substantial.
In May 1998, LTV Steel received a Notice of Violation from the IDEM
alleging that LTV Steel exceeded applicable opacity standards at the H-3 blast
furnace cast house at its Indiana Harbor Works on certain days in May, June and
November 1997. IDEM is seeking civil penalties of up to $25,000 for each day of
violation of the applicable standards and the installation of additional
pollution control equipment
- 20 -
<PAGE> 22
at the H-3 blast furnace cast house. LTV Steel and IDEM are engaged in
discussions in an effort to settle the Notice of Violation.
IDEM had also issued NOVs to LTV Steel relating to basic oxygen furnace
("BOF") precipitator stack emissions and fugitive emissions from the BOF roof
monitors at the Indiana Harbor Works. The NOVs were resolved pursuant to an
Agreed Order entered into between LTV Steel and IDEM which has now terminated.
The Order provided for a civil penalty of $426,750, all but $85,350 of which has
been satisfied by the construction of certain environmental projects. In
addition, LTV Steel was required to demonstrate compliance through July 1, 1998
with applicable air quality standards at the BOF roof monitors or install
further controls if compliance is not demonstrated. The compliance demonstration
was made as required.
In November 1996, IDEM and the United States Department of Interior
informed the Company and 15 other companies of their intent to perform a
National Resource Damage Assessment ("NRDA") of the Grand Calumet River System.
Each of the 16 entities was asked to contribute an unspecified amount of funding
for the study, which will cover a significant area that has been used for
industrial purposes for over a century. No cost estimate or schedule for
implementation of the study has been provided. IDEM also indicated that the
Company has been identified as a potentially responsible party in connection
with the release of hazardous substances and oil and the subsequent damages
resulting from natural resource injury. Because of the preliminary nature of
this matter, the Company is unable to predict whether any action might be
recommended or required as a result of this study or the potential cost to the
Company of any such action. In addition, the Army Corps of Engineers (the
"Corps") has issued a feasibility report concerning dredging of the federal
channel within the Indiana Harbor and Indiana Harbor Ship Canal. Preliminary
estimates of the cost of the dredging are approximately $135 million. According
to the Corps' report, if dredging occurs, it will be funded primarily by the
federal government. However, the Corps also indicated that some non-federal
funding may be necessary. No claims have been filed against the Company with
respect to the dredging project, and the Company has not been asked to
contribute to the cost of the project.
State of Illinois. After notifying the Illinois EPA ("IEPA") of two
separate deposits of hazardous wastes discovered at LTV Steel's Chicago plant,
LTV submitted to IEPA remediation plans for clean-up at both sites. The Company
and the IEPA have reached an agreement on one of the 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 NPDES permit at its Cleveland Works
over an approximate five year period. Concurrent with this filing, a consent
agreement was filed with the court resolving the allegations in the complaint.
The agreement 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.
Patent Litigation
In July 1991, Inland Steel Company ("Inland") filed an action against
LTV Steel and another domestic steel producer in the U.S. District Court for the
Northern District of Illinois, Eastern Division, alleging defendants infringed
two of Inland's steel-related patents. Inland seeks monetary damages of up to
approximately $600 million and an injunction against future infringement. LTV
Steel in its answer and counterclaim alleges the patents are invalid and not
infringed and seeks a declaratory judgment to such effect. In May 1993, at a
jury trial, LTV Steel was found to have infringed the patents. The District
- 21 -
<PAGE> 23
Court proceeding on the validity of the patents has been stayed informally
pending the conclusion of proceedings in the U.S. Patent Office described below,
and the decision on infringement is not appealable until the validity issue is
tried. In July 1993, the U.S. Patent Office rejected the claims of the two
Inland patents upon a reexamination at the request of LTV Steel and another
domestic steel producer, in essence concluding that the patents should not have
been granted and are invalid. Inland filed a response which sought to have the
U.S. Patent Office reverse its decision; however, in July 1994, the U.S. Patent
Office affirmed its decision. Inland's appeal to the Patent Office Board of
Appeals has been heard, and a decision by the Board of Appeals is pending.
Other
In 1996, LTV Steel filed an action in the U.S. Court of Federal Claims
seeking recovery of approximately $25 million in Federal Insurance Contribution
Act ("FICA") and Federal Unemployment Tax Act ("FUTA") taxes which were paid by
LTV Steel to the U.S. government during the period 1987 through 1993 in
connection with certain pension make-up payments made to certain hourly and
salaried retirees. The Company's position is that these pension payments are not
subject to FICA and FUTA taxes. On October 19, 1998, the U.S. Court of Federal
Claims granted LTV Steel summary judgment. 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 the Company estimates to be
approximately $25 million. 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 LTV will
be refunded to eligible retirees.
In January 1999, the Illinois Circuit Court (Tenth Judicial Circuit)
dismissed the purported class action filed on behalf of retirees described in
the Company's Report on Form 10-Q for the Second Quarter of 1998 after the
Company sent the notice to retirees sought by plaintiffs and offered to such
retirees the requested retiree benefits. In connection with the dismissal, the
Company agreed to pay plaintiffs' attorneys fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
"Shareholders' Information" on the inside back cover, "Five-Year
Financial Summary" on page 30, "Quarterly Financial Information" on page 31 and
"Liquidity and Financial Resources" on page 6 of the 1998 Annual Report to
Shareholders are incorporated herein by reference.
BY-LAW AMENDMENTS:
ADVANCE STOCKHOLDER NOTICE REQUIREMENTS AND OTHER PROVISIONS
LTV has provisions in its By-Laws intended to promote the efficient
functioning of its annual meetings. The provisions describe LTV's right to
determine the time, place and conduct of stockholder meetings, require advance
notice by mail or delivery to LTV of stockholder proposals or director
nominations for annual meetings and require persons wishing to conduct a
solicitation of written consents of stockholders or to call a special meeting of
stockholders to apply to the Board of Directors to set a
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<PAGE> 24
record date for the consent solicitation or to determine whether the requisite
number of stockholders desire to call a special meeting.
Under the By-Laws, stockholders must provide LTV with at least 60 days,
but no more than 90 days, notice prior to the announced Tentative Meeting Date
of (i) business the stockholder is proposing for consideration at that meeting
and (ii) persons the stockholder intends to nominate for election as directors
at that meeting.
The LTV Board of Directors has selected April 28, 2000 as the Tentative
Meeting Date for the Annual Meeting of Stockholders in 2000. Accordingly,
stockholders who intend to propose business for consideration, or to nominate
persons for election as directors at the 2000 Annual Meeting, will be required
to provide notice and the required information to the Company no earlier than
January 29, 2000 and no later than February 28, 2000.
REQUIRED APPROVAL FOR CERTAIN PURCHASES OF
COMMON STOCK
For the purpose of preserving LTV's ability to utilize certain
favorable tax attributes, Article Ninth of LTV's Restated Certificate of
Incorporation prohibits, with certain limited exceptions, any unapproved
acquisition of Common Stock that would cause the ownership interest percentage
of the acquirer or any other person to increase to 4.5% or above. A person's
ownership interest percentage for purposes of Article Ninth is determined by
reference to specified federal income tax principles, including attribution of
shares from certain related parties, deemed exercise of rights to acquire stock
and aggregation of shares purchased by persons acting in concert. PURCHASES OF
COMMON STOCK FROM ANY PERSON OTHER THAN THE COMPANY ARE SUBJECT TO THE
LIMITATIONS IMPOSED BY ARTICLE NINTH, AND ANY UNAPPROVED PURCHASE IN EXCESS OF
THE AMOUNTS PERMITTED BY ARTICLE NINTH WILL BE VOID AB INITIO. A PROSPECTIVE
PURCHASER OF COMMON STOCK WHO BELIEVES THAT IT MAY BE SUBJECT TO THE LIMITATIONS
IMPOSED BY ARTICLE NINTH SHOULD CONSULT WITH THEIR ADVISORS OR LTV IN ADVANCE OF
ACQUIRING SUCH SECURITIES TO DETERMINE IF ADVANCE APPROVAL MUST BE OBTAINED FROM
LTV'S BOARD OF DIRECTORS.
LTV's Board of Directors was required by Article Ninth of LTV's
Restated Certificate of Incorporation to consider during 1996 whether to waive
the transfer restrictions in Article Ninth with respect to all future transfers
of securities. At its October 1996 meeting, the Board of Directors, after
considering all relevant factors, determined not to waive Article Ninth at that
time.
ITEM 6. SELECTED FINANCIAL DATA.
"Five-Year Financial Summary" on page 30 of the 1998 Annual Report to
Shareholders is incorporated herein by reference.
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<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
"Management's Discussion and Analysis" on pages 4 through 9 of the 1998
Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
"Quantitative and Qualitative Disclosure About Market Risk on page 8 of
the 1998 Annual Report to Shareholders is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The listing on page F-1 lists all financial statements which are filed
as a part of this Report and which are incorporated herein by reference.
"Quarterly Financial Information" on page 31 of the 1998 Annual Report
to Shareholders is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information relating to the directors of LTV to be included in LTV's
Annual Proxy Statement for the 1999 Annual Meeting of Stockholders, which LTV
plans to file with the Commission in final form in early 1999, is incorporated
herein by reference. Information relating to the executive officers of LTV is
included in "Item 1. Business-Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to management remuneration and transactions
included in LTV's Annual Proxy Statement for the 1999 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
1999, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to ownership of LTV stock by the directors and
officers of LTV and owners of more than 5% of any class of LTV stock to be
included in LTV's Annual Proxy Statement for the 1999 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
1999, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and related transactions
to be included in LTV's Annual Proxy Statement for the 1999 Annual Meeting of
Stockholders, which LTV plans to file with the Commission in final form in early
1999, is incorporated herein by reference.
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<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) List of Financial Statements and Financial Statement
Schedules.
Reference is made to the listing preceding the financial statements and
financial statement schedules attached hereto on page F-1 for a list of all
financial statements and financial statement schedules filed as exhibits and
part of this Report including the Financial Statements of Trico Steel Company,
L.L.C. filed as part of this Annual Report pursuant to Rule 3.09 of Regulation
S-X.
(a)(3) List of Exhibits.
Reference is made to the listing in (c) below for a list of all other
exhibits filed as part of this Report.
(b) Reports on Form 8-K.
None to report.
(c) Exhibits.
Certain of the exhibits to this Report are hereby incorporated by
reference, as specified below, to other documents filed with the Commission by
LTV. Exhibit designations below correspond to the numbers assigned to exhibit
classifications in Regulation S-K.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is submitted as a separate
section of this Report on page F-1.
<TABLE>
<S> <C> <C>
(2)-(1) - The LTV Second Modified Joint Plan of Reorganization (incorporated herein by
reference to Exhibit (28)(a)-(3) to LTV's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1992, filed with the Commission (File No. 1-4368)
on March 31, 1993)
(2)-(2) - Confirmation Order of the United States Bankruptcy Court for the Southern
District of New York entered on May 27, 1993, confirming the LTV Second Modified
Joint Plan of Reorganization (which includes, as Exhibit C to the Confirmation
Order, amendments to the LTV Second Modified Joint Plan of Reorganization)
(incorporated herein by reference to Exhibit 2(2) to LTV's Current Report on
Form 8-K, filed with the Commission (File No. 1-4368) on June 7, 1993)
(3)-(1) - Restated Certificate of Incorporation of LTV dated June 28, 1993 (incorporated
herein by reference to Exhibit 3.1 to LTV's Registration Statement on Form S-1
[Registration No. 33-50217])
</TABLE>
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<PAGE> 27
<TABLE>
<S> <C> <C>
(3)-(2) - Certificate of Designations for Series B Preferred Stock (incorporated herein by
reference to Exhibit 4 to SMI America, Inc.'s 13D Filing)
(3)-(3) - Amendments to LTV's By-Laws adopted on October 25, 1996 (incorporated herein by
reference to Exhibit (3)-(1) to LTV's Report on Form 10-Q for the quarter ended
September 30, 1996)
(10)-(1) - LTV Executive Benefit Plan as amended and restated effective January 1, 1985
(incorporated herein by reference to Exhibit (10)(c)-(2) to LTV's Report on Form
10-K for the year ended December 31, 1985)
(10)-(2) - Amendment to LTV Executive Benefit Plan adopted November 20, 1987 (incorporated
herein by reference to Exhibit (10)(c)-(3) to LTV's Report on Form 10-K for the
year ended December 31, 1987)
(10)-(3) - LTV Excess Benefit Plan dated as of January 1, 1985 (incorporated herein by
reference to Exhibit (10)(c)-(5) to LTV's Report on Form 10-K for the year ended
December 31, 1984)
(10)-(4) - Securities Purchase Agreement dated as of May 26, 1993 by and among LTV, LTV
Steel Company, Inc. and SMI America, Inc. (incorporated herein by reference to
Exhibit 2 to SMI America, Inc.'s 13D Filing)
(10)-(5) - Common Stock Registration Rights Agreement dated as of June 28, 1993 by and
between LTV and SMI America, Inc. (incorporated herein by reference to Exhibit 5
to SMI America, Inc.'s 13D Filing)
(10)-(6) - Consultation and Management Participation Agreement dated as of June 28, 1993
between LTV and Sumitomo Metal Industries, Ltd. (incorporated herein by
reference to Exhibit 6 to SMI America, Inc.'s 13D Filing)
(10)-(7) - L-S Exchange Right and Security Agreement dated as of June 28, 1993 by and among
LTV/EGL Holding Company, Sumikin EGL Corp., LTV, SMI America Inc., and Sumitomo
Metal USA Corporation (incorporated herein by reference to Exhibit 7 to SMI
America, Inc.'s 13D Filing)
(10)-(8) - Amendments Nos. 1 and 2 to the Securities Purchase Agreement dated as of May 26,
1993 among LTV, LTV Steel Company, Inc. and SMI America, Inc. (incorporated
herein by reference to Exhibit (10)-(20) to LTV's Report on Form 10-Q for the
quarter ended September 30, 1994)
(10)-(9) - Revolving Credit Agreement dated as of October 12, 1994 among LTV Sales Finance
Company, the financial institutions parties thereto as banks, the issuing banks,
the facility agent and collateral agent (incorporated herein by reference to
Exhibit (10)-(22) to LTV's Report on Form 10-Q for the quarter ended September
30, 1994)
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C> <C>
(10)-(10) - Receivables Purchase and Sale Agreement dated as of October 12, 1994 among LTV,
LTV Steel Company, Inc., Continental Emsco Company, LTV Steel Tubular Products
Company, Georgia Tubing Corporation and LTV Sales Finance Company (incorporated
herein by reference to Exhibit (10)-(23) to LTV's Report on Form 10-Q for the
quarter ended September 30, 1994)
(10)-(11) - Accession Agreement dated as of October 12, 1994 among LTV Sales Finance
Company, the financial institutions listed on the signature pages thereof, the
issuing bank named thereon, and Bankers Trust Company as facility agent and
collateral agent (incorporated herein by reference to Exhibit (10)-(24) to LTV's
Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(12) - Trust Termination Acknowledgment and Agreement, dated October 12, 1994, between
LTV Sales Finance Company and Wilmington Trust Company (incorporated herein by
reference to Exhibit (10)-(25) to LTV's Report on Form 10-Q for the quarter
ended September 30, 1994)
(10)-(13) - Assignment and Transfer Agreement, dated as of October 12, 1994, by and between
LTV Master Receivables Trust and LTV Sales Finance Company (incorporated herein
by reference to Exhibit (10)-(26) to LTV's Report on Form 10-Q for the quarter
ended September 30, 1994)
(10)-(14) - Collateral Trust Agreement dated as of May 25, 1993 among LTV, LTV Steel
Company, Inc., United Steelworkers of America and Bank One Ohio Trust Company,
NA, as Collateral Trustee (incorporated herein by reference to Exhibit 10.33 to
LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(15) - Open-End Mortgage, Security Agreement and Fixture Filing dated as of June 28,
1993 by LTV Steel Company, Inc. to Bank One Ohio Trust Company, N.A.
(incorporated herein by reference to Exhibit 10.34 to LTV's Report on Form 10-Q
for the quarter ended June 30, 1993)
(10)-(16) - License Agreement dated as of June 28, 1993 between LTV Steel Company, Inc. and
Bank One Ohio Trust Company, N.A. (incorporated herein by reference to Exhibit
10.35 to LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(17) - Settlement Agreement and Stipulated Order on behalf of the United States of
America on behalf of the United States Environmental Protection Agency approved
by the United States Bankruptcy Court Southern District of New York (the
"Court") on April 15, 1993 and supplemented by Exhibit 10.38 below (incorporated
herein by reference to Exhibit 10.38 to LTV's Report on Form 10-Q for the
quarter ended June 30, 1993)
</TABLE>
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<PAGE> 29
<TABLE>
<S> <C> <C>
(10)-(18) - Second Settlement Agreement and Stipulated Order supplementing 10.36 above and
approved by the Court on May 19, 1993 (incorporated by reference to Exhibit
10.39 to LTV's Registration Statement on Form S-1 [Registration No. 33-50217])
(10)-(19) - Settlement Agreement and Stipulated Order on behalf of the State of Minnesota
approved by the Court on May 19, 1993 (incorporated herein by reference to
Exhibit 10.39 to LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(20) - Settlement Agreement and Stipulated Order on behalf of the State of Indiana on
behalf of the Indiana Department of Environmental Management approved by the
Court on May 24, 1993 (incorporated herein by reference to Exhibit 10.40 to
LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(21) - Settlement Agreement and Stipulated Order on behalf of the State of New York and
approved by the Court on May 24, 1993 (incorporated herein by reference to
Exhibit 10.42 to LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(22) - Settlement Agreement and Stipulated Order on behalf of the State of Connecticut
and approved by the Court on May 19, 1993 (incorporated herein by reference to
Exhibit 10.43 to LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(23) - Settlement Agreement and Stipulated Order on behalf of the Commonwealth of
Pennsylvania and approved by the Court on May 24, 1993 (incorporated herein by
reference to Exhibit 10.44 to LTV's Report on Form 10-Q for the quarter ended
June 30, 1993)
(10)-(24) - Settlement Agreement and Stipulated Order on behalf of the State of Ohio on
behalf of the Ohio Environmental Protection Agency and approved by the Court on
May 24, 1993 (incorporated herein by reference to Exhibit 10.45 to LTV's Report
on Form 10-Q for the quarter ended June 30, 1993)
(10)-(25) - Settlement Agreement and Stipulated Order on behalf of the State of Georgia and
approved by the Court on May 24, 1993 (incorporated herein by reference to
Exhibit 10.46 to LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
(10)-(26) - Closing Agreement Between LTV, its subsidiaries and the Commissioner of Internal
Revenue as filed with the United States Bankruptcy Court for the Southern
District of New York on May 14, 1993 (incorporated herein by reference to
Exhibit 10.47 to LTV's Report on Form 10-Q for the quarter ended June 30, 1993)
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C> <C>
(10)-(27) - The LTV Corporation Non-Employee Directors Stock Option Plan adopted on October
22, 1993 (incorporated herein by reference to Exhibit 10.49 to Amendment No. 2
to LTV's Registration Statement on Form S-1 [Registration No. 33-50217])
(10)-(28) - Amendment to LTV Executive Benefit Plan adopted October 22, 1993 (incorporated
herein by reference to Exhibit 10.50 to Amendment No. 2 to LTV's Registration
Statement on Form S-1 [Registration No. 33-50217])
(10)-(29) - LTV Executive Benefit Trust Agreement approved on October 22, 1993 (incorporated
herein by reference to Exhibit 10.51 to Amendment No. 2 to LTV's Registration
Statement on Form S-1 [Registration No. 33-50217])
(10)-(30) - The LTV Corporation Supplemental Management Retirement Plan adopted on October
22, 1993 (incorporated herein by reference to Exhibit 10.52 to Amendment No. 2
to LTV's Registration Statement on Form S-1 [Registration No. 33-50217])
(10)-(31) - The LTV Corporation Supplemental Management Retirement Trust Agreement approved
on October 22, 1993 (incorporated herein by reference to Exhibit 10.53 to
Amendment No. 2 to LTV's Registration Statement on Form S-1 [Registration No.
33-50217])
(10)-(32) - The LTV Corporation Management Incentive Program as amended on January 28, 1994
(incorporated by reference to Exhibit (10)-(53) to LTV's Report on Form 10-K for
the year ended December 31, 1993)
(10)-(33) - Amendment to The LTV Corporation Supplemental Management Retirement Plan adopted
on January 28, 1994 (incorporated by reference to Exhibit (10)-(54) to LTV's
Report on Form 10-K for the year ended December 31, 1993)
(10)-(34) - Amendment to LTV Executive Benefit Plan adopted October 28, 1994 (incorporated
herein by reference to Exhibit (10)-(48) to LTV's Report on Form 10-Q for the
quarter ended September 30, 1994)
(10)-(35) - Amendment to The LTV Corporation Management Incentive Program adopted October
28, 1994 (incorporated herein by reference to Exhibit (10)-(49) to LTV's Report
on Form 10-Q for the quarter ended September 30, 1994)
(10)-(36) - Amendment to The LTV Corporation Supplemental Management Retirement Plan adopted
on October 28, 1994 (incorporated herein by reference to Exhibit (10)-(51) to
LTV's Report on Form 10-Q for the quarter ended September 30, 1994)
(10)-(37) - The Hourly Employee Stock Payment Alternative Plan (incorporated herein by
reference to Exhibit 4.3 to LTV's Registration Statement on Form S-8
[Registration No. 33-56861])
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C> <C>
(10)-(38) - Amendment No. 1 to the Receivables Purchase and Sale Agreement dated as of
October 12, 1994 among LTV, LTV Steel Company, Inc., Continental Emsco Company,
LTV Steel Tubular Products Company, Georgia Tubing Corporation and LTV Sales
Finance Company (incorporated herein by reference to Exhibit (10)-(57) to LTV's
Report on Form 10-Q for the quarter ended September 30, 1995)
(10)-(39) - The LTV Corporation Amended and Restated Non-Employee Directors' Equity
Compensation Plan adopted on November 22, 1996 (incorporated herein by reference
to Exhibit (10)-(58) to LTV's Report on Form 10-K for the year ended December
31, 1996)
(10)-(40) - The LTV Corporation Amended and Restated Non-Employee Directors' Deferred
Compensation Plan adopted on November 22, 1996 (incorporated herein by reference
to Exhibit (10)-(59) to LTV's Report on Form 10-K for the year ended December
31, 1996)
(10)-(41) - The LTV Corporation Amended and Restated Executive Deferred Compensation Plan
adopted on October 25, 1996 (incorporated herein by reference to Exhibit
(10)-(60) to LTV's Report on Form 10-K for the year ended December 31, 1996)
(10)-(42) - Indenture between LTV and The Chase Manhattan Bank, as Trustee, (incorporated by
reference to Exhibit 4.1 to LTV's Registration Statement on Form S-4
[Registration No. 333-40425])
(10)-(43) - The LTV Change in Control and Severance Pay Plan I (filed as Exhibit 10.1 to
Amendment No. 1 to LTV's Registration Statement on Form S-4 [Registration No.
333-40425])
(10)-(44) - Note Purchase and Letter of Credit Agreement dated as of February 26, 1998 among
LTV Steel Company, Inc., various financial institutions (as defined therein),
Chase Securities, Inc., as placement agent, The Chase Manhattan Bank, as
administrative agent and The Chase Manhattan Bank, as collateral agent
(incorporated by reference to Exhibit (10)-(52) to LTV's Report on Form 10-Q for
the quarter ended June 30, 1998)
(10)-(45) - Guaranty made as of February 26, 1998 by LTV Steel Products, LLC given in
connection with the Note Purchase and Letter of Credit Agreement dated as of
February 26, 1998 among LTV Steel Company, Inc., various financial institutions
(as defined therein), Chase Securities, Inc., as placement agent, The Chase
Manhattan Bank, as administrative agent and The Chase Manhattan Bank, as
collateral agent (incorporated by reference to Exhibit (10)-(53) to LTV's Report
on Form 10-Q for the quarter ended June 30, 1998)
</TABLE>
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<PAGE> 32
<TABLE>
<S> <C> <C>
(10)-(46) - Contribution and Sale Agreement dated as of February 26, 1998 among LTV Steel
Products, LLC, as purchaser, LTV Steel Company, Inc., as servicer, and LTV Steel
Company, Inc. and Georgia Tubing Corporation, as initial sellers (incorporated
by reference to Exhibit (10)-(54) to LTV's Report on Form 10-Q for the quarter
ended June 30, 1998)
(10)-(47) - Inventory Processing and Servicing Agreement dated as of February 26, 1998 by
and among LTV Steel Products, LLC, LTV Steel Company, Inc., as processor and
servicer, and The Chase Manhattan Bank, as collateral agent (incorporated by
reference to Exhibit (10)-(55) to LTV's Report on Form 10-Q for the quarter
ended June 30, 1998)
(10)-(48) - Trust Agreement dated as of February 26, 1998 among LTV Steel Products, LLC, as
issuer, and The Chase Manhattan Bank as collateral agent (incorporated by
reference to Exhibit (10)-(56) to LTV's Report on Form 10-Q for the quarter
ended June 30, 1998)
(10)-(49) - Amendment No. 2 dated as of March 1, 1998 to the Receivables Purchase and Sale
Agreement dated as of October 12, 1994 among LTV, LTV Steel Company, Inc.,
Continental Emsco Company, LTV Steel Tubular Products Company, Georgia Tubing
Corporation and LTV Sales Finance Company and Amendment No. 1 to Revolving
Credit Agreement dated as of October 12, 1994 among LTV Sales Finance Company,
the financial institutions parties thereto as banks, the issuing banks, the
facility agent and collateral agent, both dated as of March 1, 1998
(incorporated by reference to Exhibit (10)-(57) to LTV's Report on Form 10-Q for
the quarter ended June 30, 1998)
(10)-(50) - Agreement dated as of December 2, 1998 between LTV, the PBGC, the Initial LTV
Group (as defined in the Agreement) and LTV, as Administrator of the Restored
Plans (filed herewith)
(10)-(51) - Employment, Retirement and Non-Competition Agreement dated as of December 28,
1998 between LTV and David H. Hoag (filed herewith).
(11) - Statement re Computation of Per Share Earnings (filed herewith)
(13) - Portions of the 1998 Annual Report to Shareholders incorporated into this Report
by reference (filed herewith)
(21) - List of subsidiaries (filed herewith)
(23) - Consent of Ernst & Young LLP (filed herewith)
(27) - Financial Data Schedule (filed herewith)
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, as of the
26th day of February 1999.
THE LTV CORPORATION
By /s/ Glenn J. Moran
---------------------
(Glenn J. Moran)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. PETER KELLY Chairman of the Board, President, February 26 , 1999
- -------------------------- Chief Executive Officer and a Director
(J. Peter Kelly)
/s/ ARTHUR W. HUGE Executive Vice President and February 26, 1999
- -------------------------- Chief Financial Officer
(Arthur W. Huge) (Principal Financial Officer and
Principal Accounting Officer)
/s/ GEORGE T. HENNING Vice President and Controller February 26, 1999
- --------------------------
(George T. Henning)
/s/ EDGAR L. BALL Director February 26, 1999
- --------------------------
(Edgar L. Ball)
</TABLE>
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<PAGE> 34
<TABLE>
<S> <C> <C>
/s/ COLIN C. BLAYDON Director February 26, 1999
- --------------------------
(Colin C. Blaydon)
/s/ WILLIAM H. BRICKER Director February 26, 1999
- --------------------------
(William H. Bricker)
/s/ JOHN E. JACOB Director February 26, 1999
- --------------------------
(John E. Jacob)
/s/ EDWARD C. JOULLIAN III Director February 26, 1999
- --------------------------
(Edward C. Joullian III)
/s/ M. THOMAS MOORE Director February 26, 1999
- --------------------------
(M. Thomas Moore)
/s/ VINCENT A. SARNI Director February 26, 1999
- --------------------------
(Vincent A. Sarni)
/s/ SAMUEL K. SKINNER Director February 26, 1999
- --------------------------
(Samuel K. Skinner)
/s/ STEPHEN B. TIMBERS Director February 26, 1999
- --------------------------
(Stephen B. Timbers)
/s/ FARAH M. WALTERS Director February 26, 1999
- --------------------------
(Farah M. Walters)
</TABLE>
- 33 -
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, as of the
26th day of February 1999.
THE LTV CORPORATION
By _________________________
(Glenn J. Moran)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
____________________________ Chairman of the Board, President, February 26, 1999
(J. Peter Kelly) Chief Executive Officer and a Director
____________________________ Executive Vice President and February 26, 1999
(Arthur W. Huge) Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
____________________________ Vice President and Controller February 26, 1999
(George T. Henning)
____________________________ Director February 26, 1999
(Edgar L. Ball)
</TABLE>
<PAGE> 36
<TABLE>
<S> <C> <C>
____________________________ Director February 26, 1999
(Colin C. Blaydon)
____________________________ Director February 26, 1999
(William H. Bricker)
____________________________ Director February 26, 1999
(John E. Jacob)
____________________________ Director February 26, 1999
(Edward C. Joullian III)
____________________________ Director February 26, 1999
(M. Thomas Moore)
____________________________ Director February 26, 1999
(Vincent A. Sarni)
____________________________ Director February 26, 1999
(Samuel K. Skinner)
____________________________ Director February 26, 1999
(Stephen B. Timbers)
____________________________ Director February 26, 1999
(Farah M. Walters)
</TABLE>
<PAGE> 37
THE LTV CORPORATION
FORM 10-K - ITEM 14 (a)(1) and (2)
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
The following is a listing of the consolidated financial statements
which are incorporated herein by reference. The consolidated financial
statements of LTV and subsidiaries and Ernst & Young LLP's report thereon,
included in the 1998 Annual Report to Shareholders, are incorporated herein by
reference in Item 8. With the exception of the pages listed in this index and
the pages listed in Items 5, 6, 7 and 8, the 1998 Annual Report to Shareholders
is not deemed to be filed as part of this Form 10-K.
<TABLE>
<CAPTION>
Reference Page
--------------
1998 Annual
Report to
Shareholders
Incorporated
by Reference
--------------
The LTV Corporation
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................... 29
At December 31, 1998 and 1997:
Consolidated balance sheet..................................................... 11
For the years ended December 31, 1998, 1997 and 1996:
Consolidated statement of operations........................................... 10
Consolidated statement of cash flows........................................... 12
Consolidated statement of changes in equity.................................... 13
Notes to consolidated financial statements.......................................... 14-28
</TABLE>
The following is a listing of financial statements of Trico Steel
Company, L.L.C. which are included as part of this Report.
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors................................... T-1
At December 31, 1998 and 1997:
Balance sheet.................................................................. T-2
For the years ended December 31, 1998 and 1997:
Statement of operations........................................................ T-3
For the years ended December 31, 1998, 1997 and 1996:
Statements of cash flows....................................................... T-4
Statements of changes in members' equity....................................... T-5
Notes to financial statements....................................................... T-6-T-12
</TABLE>
All schedules for which provision is made in the applicable regulation
of the Securities and Exchange Commission have been omitted as the schedules are
not required under the related instructions, are inapplicable, or the
information required thereby is set forth in the financial statements or the
notes thereto.
F-1
<PAGE> 38
Report of Ernst & Young LLP, Independent Auditors
The Members
Trico Steel Company, L.L.C.
We have audited the accompanying balance sheets of Trico Steel Company, L.L.C.
as of December 31, 1998 and 1997, and the related statement of operations for
each of the two years then ended, and the related statements of changes in
Members' 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 financial statements referred to above present fairly, in
all material respects, the financial position of Trico Steel Company, L.L.C. at
December 31, 1998 and 1997 and the results of its operations for each of the two
years ended December 31, 1998 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 Note 2 to the financial statements, in 1997 the Company changed
its method of accounting for start-up costs.
/s/ Ernst & Young LLP
January 22, 1999
T-1
<PAGE> 39
Trico Steel Company, L.L.C.
Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 31,
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,936 $ 15,763
Related party receivables, less allowances of
$1,483 in 1998, and $1,626 in 1997 18,195 25,252
Other receivables 925 904
Inventories (Note 3) 24,774 26,471
Prepaid expenses and other 520 588
--------- ---------
Total current assets 54,350 68,978
Property, plant and equipment (Note 1):
Land and land improvements 29,769 28,666
Buildings 135,812 125,121
Machinery and equipment 400,323 370,103
Construction in progress 1,919 18,039
--------- ---------
567,823 541,929
Less accumulated depreciation 45,875 18,149
--------- ---------
Net property, plant and equipment 521,948 523,780
Debt issuance costs (Note 1) 8,342 8,118
Other assets -- 928
--------- ---------
TOTAL ASSETS $ 584,640 $ 601,804
========= =========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Note payable $ -- $ 2,500
Accounts payable 24,187 32,042
Accrued liabilities 1,376 2,013
Accrued interest payable 1,675 1,574
--------- ---------
Total current liabilities 27,238 38,129
Long-term debt (Note 4) 284,175 261,260
Deferred income (Note 1) 11,133 11,384
Members' equity:
Paid-in capital 464,876 393,410
Retained deficit (202,782) (102,379)
--------- ---------
Total members' equity 262,094 291,031
--------- ---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 584,640 $ 601,804
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
T-2
<PAGE> 40
Trico Steel Company, L.L.C.
Statement of Operations
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
--------- ---------
<S> <C> <C>
Sales to Trico Steel Company, Inc. $ 258,264 $ 98,396
Costs and expenses:
Cost of products sold 298,971 139,777
Depreciation and amortization 28,020 18,355
Selling, general and administrative 14,864 17,620
Net interest expense 17,949 17,096
Other income (1,137) (6,973)
--------- ---------
Total 358,667 185,875
--------- ---------
Net loss before cumulative effect of accounting change (100,403) (87,479)
Cumulative effect of accounting change for
start-up costs (Note 3) -- (14,900)
--------- ---------
NET LOSS ALLOCABLE TO MEMBERS $(100,403) $(102,379)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
T-3
<PAGE> 41
Trico Steel Company, L.L.C.
Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss allocable to Members $(100,403) $(102,379)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 28,020 18,355
Cumulative effect of accounting change -- 14,900
Allowance for doubtful accounts and sales returns (143) 1,626
Changes in operating assets and liabilities:
Related party receivables 7,200 (26,878)
Other receivables (21) (904)
Inventories 1,697 (22,862) $ (3,609)
Prepaid expenses and other assets 996 -- (9,439)
Accounts payable and other accrued liabilities (8,391) 22,124 10,186
--------- --------- ---------
Net cash used in operating activities (71,045) (96,018) (2,862)
INVESTING ACTIVITIES
Additions to property, plant and equipment (25,894) (93,207) (280,362)
--------- --------- ---------
Net cash used in investing activities (25,894) (93,207) (280,362)
FINANCING ACTIVITIES
Payments on note payable (2,500) -- --
Increase in notes payable -- 2,500 --
Payments on long-term debt (1,085) -- --
Proceeds from issuance of long-term debt -- 98,260 163,000
Proceeds from Members' borrowing 24,000 -- --
Proceeds from Members' contributions 71,466 92,200 121,046
Debt issuance costs (1,135) (517) (2,626)
Proceeds from grants 366 75 5,114
--------- --------- ---------
Net cash provided by financing activities 91,112 192,518 286,534
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (5,827) 3,293 3,310
Cash and cash equivalents at beginning of year 15,763 12,470 9,160
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,936 $ 15,763 $ 12,470
========= ========= =========
CASH PAID FOR INTEREST $ 18,080 $ 16,590 $ 1,932
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
T-4
<PAGE> 42
Trico Steel Company, L.L.C.
Statements of Changes in Members' Equity
(In Thousands)
<TABLE>
<CAPTION>
Total
Paid-In Retained Members'
Capital Deficit Equity
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1, 1996 $ 180,164 $ 180,164
Members' contributions 121,046 121,046
--------- --------- ---------
Balance at December 31, 1996 301,210 301,210
Net loss allocable to Members -- $(102,379) (102,379)
Members' contributions 92,200 -- 92,200
--------- --------- ---------
Balance at December 31, 1997 393,410 (102,379) 291,031
Net loss allocable to Members -- (100,403) (100,403)
Members' contributions 71,466 -- 71,466
--------- --------- ---------
BALANCE AT DECEMBER 31, 1998 $ 464,876 $(202,782) $ 262,094
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
T-5
<PAGE> 43
Trico Steel Company, L.L.C.
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Trico Steel Company, L.L.C. (the "Company"), formed on December 22, 1994,
operates a steel mini-mill that utilizes an electric arc/thin slab casting
process and pickle line facility in Decatur, Alabama. Steel production began in
April 1997 with an expected annual capacity of 2.2 million tons. Prior to
beginning steel production in 1997, the Company was in a development stage, and
capitalized all start-up costs (see Note 2).
The Company is a Delaware limited liability company owned by three entities
(referred to as Members) that are wholly-owned subsidiaries of: The LTV
Corporation (50%), Sumitomo Metal USA Corporation (25%), and British Steel plc
(25%). The Members have contributed to the Company their respective ownership
portion of $464.9 million as paid-in capital as of December 31, 1998.
The Company operates in one industry segment. All sales are to Trico Steel
Company, Inc. (a wholly-owned subsidiary of The LTV Corporation), its sole and
exclusive distributor of product for resale. The Company records sales at time
of shipment. All credit risks are borne by the Company. The Company extends
credit on normal terms and management does not believe it has a significant
concentration of credit risk in any one geographic area or market segment.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
as of December 31, 1998 and 1997 principally include cash and amounts invested
in money market certificates.
INVENTORIES
Inventories are stated at lower of cost or market value. The Company's cost is
based on the first-in, first-out (FIFO) method.
T-6
<PAGE> 44
Trico Steel Company, L.L.C.
Notes to Financial Statements--Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided using
the straight-line method. Estimated useful lives range from fifteen to
twenty-five years for buildings and three to twenty years for machinery and
equipment. Land is stated at estimated fair value as of the date of the grant.
Interest associated with construction in progress was capitalized in the amount
of $.6 million, $5.9 million and $3.0 million, in 1998, 1997 and 1996,
respectively.
DEBT ISSUANCE COSTS
Costs related to debt issuance are deferred and amortized over the term of the
related debt. Accumulated amortization was approximately $1.6 million at
December 31, 1998 and $.7 million at December 31, 1997.
INCOME TAXES
For income tax purposes, the Members have elected to be taxed as a partnership.
Consequently, no federal or state income tax provision or benefit is recorded by
the Company.
DEFERRED INCOME
The Company recorded the fair value of donated land and proceeds received from
various grants as deferred income. Such deferred amounts are accreted to income
based on the lives of the assets to which they relate. Accumulated accretion was
$1.1 million at December 31, 1998 and $.5 million at December 31, 1997.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period presentation.
T-7
<PAGE> 45
Trico Steel Company, L.L.C.
Notes to Financial Statements--Continued
2. CHANGE IN ACCOUNTING PRINCIPLE
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants cleared its Statement of Position,
"Reporting on the Costs of Start-up Activities", and on April 3, 1998, formally
issued Statement of Position 98-5 which requires the costs of start-up
activities to be expensed as incurred. The Company elected early adoption of
this statement. The cumulative effect of this change as of January 1, 1997 was a
charge of $14.9 million.
3. INVENTORIES
Inventories are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Raw Materials and mill supplies $ 19,228 $ 17,671
Products 5,546 8,800
-------- --------
$ 24,774 $ 26,471
======== ========
</TABLE>
4. FINANCING ARRANGEMENTS AND LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Tax-Exempt Bonds, variable interest rate, approximately
4.20% at December 31, 1998, due 2026 and 2027 $ 75,000 $ 50,000
Taxable Bonds, variable interest rates, approximate
effective interest rate of 7.27% at December 31, 1998,
due from 2000 through 2027 174,175 211,260
Taxable Bonds, variable interest rates, approximate
effective interest rate of 6.8% at December 31, 1998,
due 2027 11,000 --
Members' debt, variable interest rates, approximate
effective interest rate of 6.50% at December 31, 1998,
unsecured, due 2008 24,000 --
-------- --------
$284,175 $261,260
======== ========
</TABLE>
Substantially all assets of the Company collateralize the tax-exempt and taxable
bonds.
T-8
<PAGE> 46
Trico Steel Company, L.L.C.
Notes to Financial Statements--Continued
4. FINANCING ARRANGEMENTS AND LONG-TERM DEBT--CONTINUED
In November, 1995 the Company entered into a $285 million credit and
reimbursement agreement (the facility) with a syndicate bank group. The facility
was structured to support tax-exempt and taxable bonds. As of December 31,1998,
$260 million was outstanding of which $75 million is in tax-exempt bonds. The
tax-exempt bonds (for the purchase and construction of various solid waste
disposal components of the project) are supported by a direct pay letter of
credit issued by Chase Manhattan Bank. Until certain production capability
criteria are met, as defined in the agreement, the maximum draw allowable under
a $75 million revolving credit portion of the facility, is $52 million. The $52
million of borrowings are due in 2008.
The facility contains covenants that include requirements to meet certain
financial ratios, maintain restricted working capital and certain other
restrictions and limitations.
In July 1998, an agreement was made with the Members and the syndicated bank
group that permitted the Company to borrow $30 million from its Members. In
connection with this change, the date on which to compute the debt ratio
covenant was changed from December 31, 1998 to December 31, 1999. An aggregate
of $24 million was outstanding at December 31, 1998 under this agreement.
On December 18, 1998, the Company and the syndicated bank group amended the debt
agreements to allow for junior subordinated debt from its Members. The Company
has executed an agreement to borrow up to $50 million at a rate of LIBOR plus a
specified margin rate under a junior subordinated debt arrangement from the
Members. The termination date for this facility is April 11, 2008 and there was
no amount outstanding under this agreement at December 31, 1998.
The Company has a credit agreement for letters of credit with an aggregate face
amount not to exceed $1.5 million. At December 31, 1998, $.8 million was
outstanding in letters of credit.
As of January 22, 1999, the Company had borrowed the remaining $6 million
available under the $30 million Members' debt arrangement and borrowed $3
million under the $50 million junior subordinated debt arrangement with the
Members.
T-9
<PAGE> 47
Trico Steel Company, L.L.C.
Notes to Financial Statements--Continued
4. FINANCING ARRANGEMENTS AND LONG-TERM DEBT--CONTINUED
Future maturities of long-term debt as of December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ending:
<S> <C>
1999 $ --
2000 10,611
2001 11,491
2002 12,434
2003 13,475
Thereafter 236,164
-----------------
$ 284,175
=================
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under cancelable and non-cancelable leases
that expire at various dates. Minimum future operating lease obligations in
effect at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending:
<S> <C>
1999 $ 1,532
2000 1,532
2001 1,529
2002 1,118
2003 343
-----------------
$ 6,054
=================
</TABLE>
Rental expense on operating leases was $3.2 million for the year ended December
31, 1998 and $1.7 million for the year ended December 31, 1997.
T-10
<PAGE> 48
Trico Steel Company, L.L.C.
Notes to Financial Statements--Continued
6. DEFERRED COMPENSATION AND EMPLOYEE BENEFITS PLANS
Effective August 1, 1996, the Company adopted a 401(k) plan covering all
employees. The Company provided a 25% match for the first 6% of the employee's
qualified compensation contributed to the plan. Effective May 3, 1998, the
Company increased the match to 50% for the first 6% of the employee's qualified
compensation contributed to the plan. The amount of expense recorded by the
Company with respect to these plans for the year ended December 31, 1998 and
1997 was $.3 million and $.1 million, respectively.
7. RELATED PARTY TRANSACTIONS
The Company paid $15.3 million in 1998, $3.7 million in 1997 and $1.7 million in
1996 to related parties for goods and services.
8. SUBSEQUENT TRANSFORMER FAILURE (UNAUDITED)
The Company experienced a failure of a second of three transformers for incoming
power to the facility on January 27, 1999. The first transformer failure
occurred in November, 1998. The Company's engineers and operators are
reconfiguring and/or installing alternative sources of power supply. Management
is currently investigating the causes of these failures. Management believes the
property damage and business interruption caused by the failures should be
substantially covered by insurance.
9. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define an applicable year. Any of the Company's
computer programs that have time sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations 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. Failure by the Company and or significant third parties
such as power utility providers and other critical suppliers and major
customers, to complete Year 2000 readiness activities in a timely manner could
have an adverse effect on the Company's business.
Since many of the Company's computer and operating systems have been purchased
and installed subsequent to the discovery of the Year 2000 issue, testing was
accomplished during installation and problems were resolved as discovered.
T-11
<PAGE> 49
Trico Steel Company, L.L.C.
Notes to Financial Statements--Continued
9. YEAR 2000 (UNAUDITED)--CONTINUED
The Company has formed a Steering Committee for Year 2000 issues, which meets
regularly and is comprised of high-level executives and other management
personnel to assess the readiness of the Company on this issue. The Committee
believes that adapting systems to reflect the year 2000 will not have a material
adverse effect on the results of operations. Costs associated with this issue
have not been material to date and are not expected to have a material impact on
the Company in the future.
Management has begun a program of querying significant third parties, including
suppliers, utility and other resource providers and customers to assess their
Year 2000 readiness. Management is not presently aware of any known significant
third parties which are not expected to be Year 2000 compliant.
T-12
<PAGE> 1
Exhibit 10.50
AMENDED AND RESTATED SETTLEMENT AGREEMENT
by and among
Pension Benefit Guaranty Corporation,
The LTV Corporation and
each other member of
the LTV Controlled Group (as herein defined)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS ....................................................................................2
Section 1.1. Definitions.......................................................................2
Section 1.2. Accounting Terms.................................................................11
Section 1.3. Terms Generally..................................................................11
ARTICLE II
PLAN MANAGEMENT................................................................................12
Section 2.1. Plan Merger......................................................................12
Section 2.2. Plan Splits......................................................................12
ARTICLE III
RESTORATION PAYMENT SCHEDULE ORDERS............................................................13
Section 3.1. Issuance of Restoration Payment
Schedule Orders...................................................13
Section 3.2. Amendment of RPSOs...............................................................15
Section 3.3. Funding Credit Balances..........................................................15
Section 3.4. RPSO Obligations Unaffected......................................................16
Section 3.5. Deferral Regulations.............................................................16
ARTICLE IV
CONTRIBUTIONS..................................................................................17
Section 4.1. Joint and Several Obligations....................................................17
Section 4.2. GATT Exemption...................................................................17
ARTICLE V
SATISFACTION; LITIGATION.......................................................................17
Section 5.1. Satisfaction of Republic Retirement
Plan Claim........................................................17
Section 5.2. LTV Affirmation of Certain
Obligations.......................................................18
Section 5.3 . Release of the PBGC.............................................................19
ARTICLE VI
MERGERS, CONSOLIDATIONS, ETC.; DIVIDEND RESTRICTIONS...........................................19
Section 6.1. Dispositions and Acquisitions
of Assets.........................................................19
Section 6.2. Dividends and Other Distributions................................................23
ARTICLE VII
CONDITIONS.....................................................................................27
Section 7.1. Conditions to Obligations of LTV.................................................27
Section 7.2. Conditions to Obligations of
the PBGC..........................................................27
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII
GENERAL PROVISIONS.............................................................................28
Section 8.1. Entire Agreement.................................................................28
Section 8.2. Governing Law and Jurisdiction...................................................29
Section 8.3. Modifications....................................................................29
Section 8.4. Authority........................................................................29
Section 8.5. Notices..........................................................................30
Section 8.6. No Waiver........................................................................32
Section 8.7. Benefits.........................................................................32
Section 8.8. Execution........................................................................32
Section 8.9. Captions.........................................................................33
Section 8.10. Severability....................................................................33
Section 8.11. Survival........................................................................33
Section 8.12. Termination.....................................................................33
ARTICLE IX
REPRESENTATIONS AND WARRANTIES.................................................................34
Section 9.1. General Representations and
Warranties........................................................34
Section 9.2. Additional LTV Representations
and Warranties....................................................34
(a) No Violation.................................................................34
(b) True and Complete Disclosure, No Material Misstatements......................35
(c) Persons under Common Control.................................................35
ARTICLE X
ADDITIONAL COVENANTS AND AGREEMENTS............................................................35
Section 10.1. Further Assurances..............................................................35
Section 10.2. Information Covenants...........................................................36
(a) Annual Certificate by Public Accounting
Firm.......................................................................36
(b) Annual Officer's Certificate.................................................36
(c) Notice of Default, Event of Default or
Litigation.....................................................................37
(d) Auditors' Reports............................................................37
(e) Actuarial Valuation Reports;
IRS Form 5500..............................................................37
(f) Other Information............................................................38
Section 10.3. Senior Debt Negative Covenants..................................................38
(a) Incorporation of Certain Senior
Debt Negative Covenants....................................................38
(b) Expiration of Senior Debt Negative
Covenants..................................................................39
(c) Notice of Expiration or Replacement
of Senior Debt Negative Covenants..........................................42
Section 10.4. Additional Negative Covenants...................................................43
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Transactions with Affiliates.................................................43
(b) Restrictive Agreements.......................................................44
(c) Limit on Investments in Trico................................................45
Section 10.5. Confidentiality.................................................................45
ARTICLE XI
EVENTS OF DEFAULT..............................................................................47
(a) Contributions and Payments...................................................47
(b) Representations, Etc.........................................................47
(c) Special Agreements...........................................................48
(d) Covenants....................................................................48
(e) Default Under Other Agreements...............................................48
(f) Involuntary Bankruptcy, Etc..................................................49
(g) Voluntary Bankruptcy, Etc....................................................49
(h) Judgments....................................................................50
(i) Validity of This Agreement...................................................50
ARTICLE XII
REMEDIES.......................................................................................51
Section 12.1. Acknowledgment..................................................................51
Section 12.2. Remedies of the PBGC............................................................51
Section 12.3. Fees and Expenses...............................................................53
Section 12.4. Survival of LTV's Obligations...................................................53
Section 12.5. Remedies Cumulative.............................................................53
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED
--------------------
SETTLEMENT AGREEMENT
--------------------
This Amended and Restated Settlement Agreement (this
"Agreement") is made as of December 2, 1998 by and among Pension Benefit
Guaranty Corporation (the "PBGC") and The LTV Corporation, a corporation
organized under the laws of Delaware ("LTV"), and each other member of the LTV
Controlled Group (as hereinafter defined), and amends and restates the
Settlement Agreement made as of June 28, 1993, as amended by eleven amendments
to the date of this Agreement (as amended, the "Original Agreement"), by and
among (1) the PBGC, (2) LTV and each other member of the Initial LTV Group (as
hereinafter defined), including, without limitation, LTV Steel Company, Inc., a
corporation organized under the laws of New Jersey ("LTV Steel"), and (3) The
LTV Corporation, as Administrator (the "Administrator") of and on behalf of the
LTV Steel (J&L) Hourly Pension Plan, the 1992 LTV Steel (J&L) Hourly Pension
Plan, the LTV Steel (Republic) Hourly Pension Plan, the 1992 LTV Steel
(Republic) Hourly Pension Plan, the Jones & Laughlin Retirement Plan and the
1992 J&L Salaried Retirement Plan (collectively, the "Restored Plans").
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RECITALS:
A. The PBGC, LTV and the Administrator are parties to the
Original Agreement.
B. The PBGC and LTV desire to make certain changes to their
agreements set out in the Original Agreement.
C. Concurrently with the execution of this Agreement, an
agreement (the "Transaction Agreement") pursuant to which the Administrator
withdraws as a party to the Original Agreement and the PBGC and LTV consent and
agree to such withdrawal will become effective.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein, the receipt, adequacy and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the PBGC and LTV amend and restate in its entirety the Original Agreement and
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. DEFINITIONS.
The following terms, as used herein, have the following
meanings:
"Administrator" has the meaning set forth in the Preamble
hereto.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling
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(including but not limited to all directors and officers of such Person),
controlled by or under direct or indirect common control with such Person. For
purposes of this definition only, a Person shall be deemed to control a
corporation if such Person possesses directly or indirectly, the power (i) to
vote 20% or more of the securities having ordinary voting power for the election
of directors of such corporation or (ii) to direct or cause the direction of the
management or policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the Preamble hereto.
"Applicable Law" shall mean all applicable laws, including,
without limitation, those relating to health, safety, wage and hour, employee
benefit plans, the environment, taxes, securities and labor, ordinances,
judgments, decrees, injunctions, writs, decisions, and orders of any
Governmental Authority and rules, regulations, orders, interpretations, licenses
and permits of any Governmental Authority.
"Applicable Member" has the meaning set forth in Section
10.3(a).
"Applicable Percentage" has the meaning set forth in Section
6.2(b).
"Authorized Officer" shall mean any officer of LTV designated
in writing to the PBGC to be an Authorized Officer.
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"Business Day" shall mean any day excluding Saturday, Sunday
and any day which shall be in The City of New York or in the District of
Columbia a legal holiday or a day on which banks are authorized or required by
law or other governmental action to be closed.
"Calendar Year" shall mean the twelve calendar month period
commencing each January 1.
"Consolidated Net Income" (or "Consolidated Net Loss") shall
mean, with respect to the LTV Consolidated Group for any period, the aggregate
net income (or net loss) of the LTV Consolidated Group on a consolidated basis
for such period taken as a single accounting period, after nonrecurring and
extraordinary gains and losses and before reduction for any dividends or other
distributions in respect of any capital stock, in each case, for such period, in
accordance with GAAP.
"Credit Enhanced Debt" has the meaning set forth in Section
10.3(b).
"Default" shall mean an event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Effective Date" shall mean June 28, 1993.
"Equity Fair Market Value" has the meaning set forth in
Section 6.1.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Events of Default" has the meaning set forth in Article XI.
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<PAGE> 9
"Extraordinary Distribution" has the meaning set forth in
Section 6.2(c).
"FOIA" has the meaning set forth in Section 10.5.
"Funding Credit Balance" has the meaning set forth in Section
3.3.
"Funding Standard Account" shall mean the account defined by
section 412(b) of the IRC.
"GAAP" shall mean, at the time of any determination, generally
accepted accounting principles in the United States of America as then in
effect.
"Governmental Authority" shall mean any Federal, state,
county, municipal, regional or other government authority, agency, board, body,
instrumentality or court.
"Indenture" has the meaning set forth in Section 10.3(a).
"Initial LTV Group" shall mean LTV and all Persons, including,
without limitation, LTV Steel, who, as of the date of the Original Agreement,
were under common control with LTV within the meaning of section 4001(b)(1) of
ERISA and sections 414(b)-(c) of the IRC.
"Investment Grade Date" shall mean the date on which the
unsecured senior indebtedness of LTV has received a rating of at least BBB- from
Standard & Poor's Corporation or its successors ("S&P") and a rating of at least
Baa3 from Moody's Investment Service Inc. or its successors ("Moody's), or, if
S&P
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<PAGE> 10
and Moody's or both shall not make a rating of the unsecured senior indebtedness
of LTV, a comparable rating from another nationally recognized statistical
rating agency.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended.
"LTV" has the meaning set forth in the Preamble hereto.
"LTV Consolidated Group" shall mean, at any time of
determination, LTV and all Persons whose financial statements are consolidated
with LTV under then applicable GAAP and shall in any event include each and
every member of the LTV Controlled Group.
"LTV Controlled Group" shall mean, at any time of
determination, LTV and all Persons under common control with LTV within the
meaning of section 4001(b)(1) of ERISA and sections 414(b)-(c) of the IRC.
"LTV Steel" has the meaning set forth in the Preamble hereto.
"LTV Trico Entity" shall mean each or any of the LTV Trico
Members and Trico Sales Co.
"LTV Trico Member" shall mean, at any time, LTV-Trico, Inc., a
Delaware corporation, and any other Person or Persons, each of which is, at such
time, a wholly owned Subsidiary of LTV and a member of the Trico Joint Venture
and does not, at such time, engage in any business or activities other than (i)
as a member of the Trico Joint Venture, (ii) as
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<PAGE> 11
contemplated, with respect to members of the Trico Joint Venture, under the
Trico Transaction Documents in effect on May 2, 1995, or (iii) other activities
ancillary or incidental to the foregoing.
"Merged Plan" has the meaning set forth in Section 2.1.
"Moody's" has the meaning set forth in the definition of
"Investment Grade Date."
"New RPS; New RPSs" has the meaning set forth in Section 3.1.
"New RPSOs" has the meaning set forth in Section 3.1.
"Original Agreement" has the meaning set forth in the Preamble
hereto.
"Original RPS; Original RPSs" has the meaning set forth in
Section 3.1.
"Original RPSOs" has the meaning set forth in Section 3.1.
"PBGC" shall mean Pension Benefit Guaranty Corporation, a
United States Government corporation, located as of the date hereof at 1200 K
Street, N.W., Washington, D.C. 20005, established under section 4002 of ERISA
and responsible for the administration of Title IV of ERISA, or any agency that
may succeed to the functions exercised by the PBGC.
"Person" shall mean any natural person, corporation, business
trust, joint stock company, trust, joint
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venture, association, company, partnership or other entity.
"Plan Sponsor" shall mean with respect to any of the Restored
Plans the contributing sponsor thereof (within the meaning of section
4001(a)(13)(A) of ERISA) or its successor by merger or consolidation.
"Plan Year" shall mean the plan year (as such term is used in
section 412 of the IRC) with respect to which contributions are made to any
Restored Plan.
"Restored Plans" has the meaning set forth in the Preamble and
Section 2.1.
"RPS" has the meaning set forth in Section 3.1(a).
"RPSOs" has the meaning set forth in Section 3.1(a).
"S&P" has the meaning set forth in the definition of
"Investment Grade Date."
"Senior Debt Negative Covenants" has the meaning set forth in
Section 10.3(a).
"Senior Notes" has the meaning set forth in Section 10.3(a).
"Subsidiary" shall mean with respect to any Person (herein
referred to as the "parent"), any corporation, partnership, association, trust
or other business entity (i) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are,
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<PAGE> 13
at the time any determination is being made, owned, Controlled or held, or (ii)
which is, at the time any determination is being made, otherwise Controlled, by
the parent or one or more Subsidiaries of the parent or by the parent and one or
more Subsidiaries of the parent; where "Control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"Transaction Agreement" has the meaning set forth in Recital C
hereof.
"Trico Equity Investment" has the meaning set forth in Section
10.4(c).
"Trico Investment" has the meaning set forth in Section
10.4(c).
"Trico Joint Venture" shall mean Trico Steel Company, L.L.C.,
a Delaware limited liability company, or any successor entity thereto, that
constructs and operates a steel minimill, manufactures steel products for
distribution by Trico Sales Co., and engages in activities ancillary or
incidental thereto. It is understood that under the transaction structure
contemplated by the Trico Transaction Agreement as in effect as of the closing
thereunder, the Trico Joint Venture is not a member of either the LTV
Consolidated Group or the LTV Controlled Group.
"Trico Loan" has the meaning set forth in Section 10.4(c).
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<PAGE> 14
"Trico Sales Co." shall mean Trico Steel Company, Inc., a
Delaware corporation that (i) is a wholly owned Subsidiary of LTV on May 2, 1995
and (ii) does not engage in any business or activities other than as
contemplated by the Trico Transaction Documents in effect on May 2, 1995 or
other activities ancillary or incidental thereto.
"Trico Subordination and Standstill Agreement" shall mean the
Subordination and Standstill Agreement dated as of May 2, 1995 among the PBGC,
LTV, and U.S. Trust Company of California, N.A., as independent fiduciary, and
acknowledged and agreed to by the LTV Controlled Group.
"Trico Transaction Agreement" shall mean the Transaction
Agreement dated as of May 2, 1995 relating to the formation of the Trico Joint
Venture.
"Trico Transaction Documents" shall mean the Trico Transaction
Agreement and each Transaction Document referred to in the Trico Transaction
Agreement, each as amended, modified or supplemented from time to time; PROVIDED
that, without the prior written consent of the PBGC, no amendment, restatement,
modification or restructuring of the Trico Transactions Documents shall, at any
time after May 2, 1995 (i) prohibit any performance or satisfaction by LTV or
any member of the LTV Controlled Group of any obligation (whether due or not due
and whether mandatory or voluntary) under this Agreement, or (ii) directly
conflict with any rights of the PBGC. For purposes of this Agreement, the
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Trico Transaction Documents in effect on May 2, 1995 shall be deemed to include
the Commitment Letter dated May 2, 1995 among Chemical Bank, Chemical Securities
Inc., LTV, Sumitomo metal Industries, Ltd. and British Steel plc and all
Financing Documents (as defined in the Trico Transaction Agreement) entered into
on or after May 2, 1995 that are substantially consistent with and implement the
terms of such Commitment Letter.
"United Steelworkers" has the meaning set forth in Section
10.4(b).
"Working Capital Facilities" has the meaning set forth in
Section 10.3(b).
Section 1.2. ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.
Section 1.3. TERMS GENERALLY. The definitions in this
Agreement shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. All the agreements or
instruments defined in this Agreement shall mean such agreements or instruments
as the same may from time to time be supplemented or amended or the terms
thereof waived or modified to the extent permitted by, and in accordance with,
the terms hereof and thereof. All references herein to Articles, Sections and
Exhibits shall be deemed references to Articles and Sections of,
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<PAGE> 16
and Exhibits to, this Agreement unless the context shall otherwise require. The
words "herein", "hereof", "hereunder" and other words of similar import refer to
this instrument as a whole and not to any particular Article, Section or other
subdivision unless clearly stated otherwise.
ARTICLE II
PLAN MANAGEMENT
Section 2.1. PLAN MERGER. The PBGC will not assert any
objection to a merger, in accordance with the requirements of section 414(1) of
the IRC, and regulations thereunder, among any of the LTV Steel (J&L) Hourly
Pension Plan, the LTV Steel (Republic) Hourly Pension Plan, the 1992 LTV Steel
(J&L) Hourly Pension Plan and the 1992 LTV Steel (Republic) Hourly Pension Plan
(any plan formed by such a merger, a "Merged Plan"), should LTV and LTV Steel
desire to effect such mergers. If such mergers shall occur, for all purposes of
this Agreement references herein to the "Restored Plans" shall be interpreted
after the date of such merger as referring collectively to the Jones & Laughlin
Retirement Plan, the 1992 J&L Salaried Retirement Plan and the Merged Plans.
Section 2.2. PLAN SPLITS. LTV Steel has adopted the 1992 LTV
Steel (J&L) Hourly Pension Plan, the 1992 LTV Steel (Republic) Hourly Pension
Plan and the 1992 J&L Salaried Retirement Plan, such plans having been created
by spinoffs from the LTV Steel (J&L) Hourly Pension Plan, the LTV Steel
(Republic)
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Hourly Pension Plan and the Jones & Laughlin Retirement Plan, respectively, in
transactions intended to meet the requirements of section 414(1) of the IRC and
regulations thereunder. For all purposes of this Agreement, except where the
context clearly requires otherwise, with respect to periods of time on or after
the effective date of the spinoffs, any reference to the LTV Steel (J&L) Hourly
Pension Plan shall be deemed to include the 1992 LTV Steel (J&L) Hourly Pension
Plan, any reference to the LTV Steel (Republic) Hourly Pension Plan shall be
deemed to include the 1992 LTV Steel (Republic) Hourly Pension Plan, any
reference to the Jones & Laughlin Retirement Plan shall be deemed to include the
1992 J&L Salaried Retirement Plan, and any reference to the Restored Plans shall
be deemed to include the 1992 LTV Steel (J&L) Hourly Pension Plan, the 1992 LTV
Steel (Republic) Hourly Pension Plan and the 1992 J&L Salaried Retirement Plan.
ARTICLE III
RESTORATION PAYMENT SCHEDULE ORDERS
Section 3.1. ISSUANCE OF RESTORATION PAYMENT SCHEDULE ORDERS.
As of July 19, 1996, the PBGC issued three revised Restoration Payment Schedule
Orders (each, a "RPSO"), as described in 29 C.F.R. section 4047.3(b) (the
"Original RPSOs"), which modified the Restoration Payment Schedules (each, an
"RPS") established by the RPSO dated as of August 12, 1991 with respect to each
of the Restored Plans (as modified, each, an "Original
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<PAGE> 18
RPS" and collectively, the "Original RPSs"). On or before December 31, 1999, the
PBGC will issue further revised Restoration Payment Schedule Orders (the "New
RPSOs"), which will modify the Original RPSs with respect to each of the Plans
(as further modified, each, a "New RPS" and collectively, the "New RPSs") to
take into account the terms of this Agreement. As revised, each New RPS will
provide for amortization, in equal quarterly amounts, over 20 years of the
outstanding balance as of December 31, 2000 of the initial restoration
amortization base (as defined in IRC regulation section 1.412(c)(1)-3(b)(1))
with respect to each Restored Plan. The outstanding balance of the initial
restoration amortization base as of December 31, 2000 shall be reduced by the
discounted value of the quarterly payment due January 15, 2001. The New RPSOs
shall also contain provisions to the substantive effect that (i) IRC regulation
section 1.412(c)(1)-3(d) prescribes how the quarterly payment amounts prescribed
by the New RPSs which are due before the end of the Plan Year are charged to the
Funding Standard Accounts; and (ii) quarterly payment amounts prescribed by the
New RPSs which are due after the end of the Plan Year must be discounted at the
valuation interest rate to the last day of the Plan Year in order to determine
the charge to the Funding Standard Accounts. The PBGC agrees that it will
provide LTV with a reasonable opportunity to review and comment on the New RPSOs
before their issuance. The parties agree that PBGC has authority to issue RPSOs
as described in this Agreement.
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Section 3.2. AMENDMENT OF RPSOS. As long as no member of the
LTV Controlled Group is in default of any of its obligations or agreements under
this Agreement or the Original RPSOs or the New RPSOs, as applicable, the PBGC
will not amend the Original RPSOs or the New RPSOs, as applicable, without the
consent of LTV, EXCEPT as provided in Section 3.1 of this Agreement or to the
extent such amendment is required by mandatory provisions of Applicable Law
(without giving effect to modifications thereof effected by the PBGC (other than
the repeal described in Section 4.2)) or is necessary to correct errors relating
to valuation or as otherwise provided pursuant to Article XII. If terminated,
this Agreement, following such termination, shall not prevent the PBGC from
amending such Original RPSOs or New RPSOs, as applicable, or LTV from
challenging such amendment, all subject to the requirements of Applicable Law.
Section 3.3. FUNDING CREDIT BALANCES. Any funding credit
balance in the Funding Standard Account for each of the Restored Plans,increased
and decreased after the Effective Date as provided in section 412 of the IRC and
the rules thereunder (including both proposed and temporary rules) shall, as of
any time of determination, be hereinafter referred to as a "Funding Credit
Balance". A minimum Funding Credit Balance shall be maintained in the Funding
Standard Account for each Restored Plan as follows: for the LTV Steel (J&L)
Hourly Pension Plan, $36,265,785; for the LTV Steel (Republic) Hourly Pension
Plan, $15,477,609; for the Jones & Laughlin Retirement Plan,
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<PAGE> 20
$6,645,517; for the 1992 LTV Steel (J&L) Hourly Pension Plan, $99,853,492; for
the 1992 LTV Steel (Republic) Hourly Pension Plan, $90,804,670; and for the 1992
J&L Salaried Retirement Plan, $50,952,927. If at the end of any Plan Year, the
Funding Credit Balance of one or more of the Restored Plans shall be less than
the minimum, LTV shall make, by July 15 of the following year, additional
contributions, in excess of any other contributions required by Applicable Law
or under this Agreement, to the extent necessary to achieve the minimum Funding
Credit Balance required by this Section 3.3; PROVIDED, that LTV shall not be
required to make such additional contributions (i) in any year in excess of
$50,000,000 in the aggregate to all of the Restored Plans, or (ii) to the extent
that such contribution would not be deductible under Section 404 of the IRC. For
purposes of the preceding sentence, deductibility shall be determined using the
lowest interest rate in the permissible range for determining current liability
under Section 412(1) of the IRC.
Section 3.4. RPSO OBLIGATIONS UNAFFECTED. Nothing in this
Agreement shall affect the obligations of the LTV Controlled Group under
Applicable Law to make payments to the Restored Plans pursuant to the Original
RPSOs or the New RPSOs, as applicable.
Section 3.5. DEFERRAL REGULATIONS. This Agreement shall not
affect the provisions with respect to deferral set forth in 26 C.F.R. section
1.412(c)(1)-3(c)(4) (and companion PBGC regulations, if any) or the rights and
remedies thereunder.
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ARTICLE IV
CONTRIBUTIONS
Section 4.1. JOINT AND SEVERAL OBLIGATIONS. Notwithstanding
anything to the contrary contained in this Agreement, and notwithstanding that
certain of the provisions of this Agreement are silent as to the Person or
Persons liable for the applicable contributions, payments or obligations, each
member of the LTV Controlled Group shall be jointly and severally liable for the
contributions, payments and obligations required under or imposed by this
Agreement, including, without limitation, those specified in Sections 3.3, 4.2
and 12.2(c).
Section 4.2. GATT EXEMPTION. (a) LTV acknowledges that PBGC
may seek repeal of the exemption in Section 769(a)(1) of Public Law 103-465
effective January 1, 2000, or later. LTV recognizes that repeal is appropriate
in light of the matters provided for in this amendment and restatement of the
Original Agreement, and agrees not to oppose any such efforts by PBGC.
(b) Whether or not Section 769(a)(1) of Public Law 103-465 has been
repealed, LTV agrees to fund the Restored Plans and otherwise act with respect
to the Restored Plans as if Section 769(a)(1) had been repealed effective
January 1, 2000.
ARTICLE V
SATISFACTION; LITIGATION
Section 5.1. SATISFACTION OF REPUBLIC RETIREMENT PLAN CLAIM.
(a) On the Effective Date, all members of the LTV Controlled Group were
discharged for any and all liability under
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Title IV of ERISA with respect to the termination of the Republic Retirement
Plan (except for liability to the Section 4049 Trust pursuant to 29 U.S.C.
section 1362(c)(Supp. IV, 1986)), such claims having been settled as provided in
the Original Agreement.
(b) This Agreement, and the payment prior to the date hereof
of certain notes heretofore issued by LTV Steel to the PBGC, fully satisfies any
and all liability of all members of the LTV Controlled Group to the PBGC for
assumption of the Republic Retirement Plan, the PBGC hereby releases LTV and
each member of the LTV Controlled Group from any such liability, and under no
circumstances in the future shall the PBGC restore the Republic Retirement Plan
under ERISA.
Section 5.2. LTV AFFIRMATION OF CERTAIN OBLIGATIONS. LTV and
each of the other members of the LTV Controlled Group hereby affirm and agree
that (i) LTV Steel has assumed the maintenance and sponsorship of the Restored
Plans, (ii) the members of the LTV Controlled Group have various statutory
liabilities to the Restored Plans under ERISA, under section 412 of the IRC and
the regulations thereunder and under 29 C.F.R. section 4047, (iii) the members
of the LTV Controlled Group will fully comply with such liabilities, and (iv)
any discharge shall not affect the rights or obligations hereunder, nor affect
in any way the liability of the LTV Controlled Group under Section 302 of ERISA
or Section 412 of the IRC and regulations thereunder for minimum funding
contributions to the Restored Plans, nor affect in any way the liability of the
LTV
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Controlled Group for any termination of any pension plan that occurs after the
Effective Date.
Section 5.3. RELEASE OF THE PBGC. On the Effective Date, each
member of the Initial LTV Group released the PBGC and its agents, advisors and
representatives, and its Affiliates, including, without limitation, its current
and former officers, directors, employees and fiduciaries, of and from any and
all claims, obligations, rights, causes of action and liabilities (other than
the right to enforce the PBGC's obligations under this Agreement) which such
Person may have been entitled to assert, whether known or unknown, foreseen or
unforeseen, then existing or thereafter arising, based in whole or in part on
any act, omission or other occurrence taking place on or prior to the Effective
Date in any way relating to the PBGC, and each such member of the Initial LTV
Group which is a party to this Agreement reaffirms such release as of the date
hereof.
ARTICLE VI
MERGERS, CONSOLIDATIONS, ETC.; DIVIDEND RESTRICTIONS
Section 6.1. DISPOSITIONS AND ACQUISITIONS OF ASSETS. (a)
Without the PBGC's prior written approval, no member of the LTV Consolidated
Group shall sell, transfer, lease or otherwise dispose of (in one transaction or
in a series of transactions) all or any part of its assets or any capital stock
of any Subsidiary, EXCEPT that (i) each member of the LTV Consolidated Group may
sell, transfer, lease or otherwise dispose
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of property and assets in the ordinary course of business; (ii) this Section
6.1(a) shall not apply to assets acquired after the Effective Date or hereafter
acquired, other than those acquired for the purpose of maintaining, improving or
replacing the level of finished steel production capacity at the Effective Date;
(iii) this Section 6.1(a) shall not prohibit sales, leases or transfers from LTV
or a direct or indirect wholly-owned Subsidiary of LTV to LTV or to another
direct or indirect wholly-owned Subsidiary of LTV; (iv) this Section 6.1(a)
shall not prohibit sales, transfers, leases or other dispositions of other real
or personal property determined by the Board of Directors of LTV to be no longer
useful or necessary in the operation of LTV or other members of the LTV
Consolidated Group, or otherwise in the best interest of LTV or the LTV
Consolidated Group, and which do not exceed in the aggregate $150,000,000 in any
year; (v) the Trico Joint Venture and each LTV Trico Entity may sell, transfer,
lease or otherwise dispose of property and assets as contemplated by the Trico
Transaction Documents as in effect on May 2, 1995; (vi) this Section 6.1(a)
shall not apply to the sale or lease of assets forming part of a sale and
leaseback transaction otherwise permitted by this Agreement; and (vii) this
Section 6.1(a) shall not prohibit the pledge, sale, or transfer of senior
secured notes or subordinated unsecured notes by LTV or any member of the LTV
Consolidated Group pursuant to any financing arrangement otherwise permitted by
this Agreement.
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(b) Without the PBGC's prior written approval, no member of the LTV
Consolidated Group shall acquire, through merger, consolidation, purchase of
shares, purchase of assets or otherwise, the business of another Person not a
member of the LTV Consolidated Group if, at the time of such acquisition, the
present value of the "benefit liabilities" (as that term is defined in Title IV
of ERISA) of the defined benefit pension plans of such Person or for which such
Person is liable, valued on a termination basis, using assumptions prescribed in
regulations of the PBGC, exceeds the fair market value of the assets of such
plans by more than $300 million.
(c) Notwithstanding anything to the contrary contained in this
Agreement, each member of the LTV Controlled Group shall ensure that any Person
merged into or consolidated with any member of the LTV Controlled Group or into
which any member of the LTV Controlled Group shall merge or with which any
member of the LTV Controlled Group shall consolidate or any Person purchased or
otherwise acquired by any member of the LTV Controlled Group or which otherwise
becomes a member of the LTV Controlled Group or succeeds to the rights or
obligations of any member of the LTV Controlled Group hereunder shall agree in
writing with LTV and the PBGC and shall execute such other documents or
instruments as may be necessary or desirable to be jointly and severally liable
under this Agreement and to be bound by the terms and provisions of this
Agreement as if it had been a
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member of the LTV Controlled Group; PROVIDED that the agreements, obligations
and liabilities of each or any LTV Trico Entity under this Section 6.1(c) shall
be subject to the Trico Subordination and Standstill Agreement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, without the prior written consent of the PBGC, no member of the LTV
Controlled Group may (i) merge into or consolidate with or be merged into or
consolidated with any other Person, (ii) purchase or otherwise acquire any
stock, assets or other properties, (iii) sell, transfer or otherwise dispose of
any stock, assets or other properties, or (iv) take any other action, if, in any
such case, the result thereof shall be that any Person that prior to such event
or action is a member of the LTV Controlled Group shall after such event or
condition no longer be a member of the LTV Controlled Group; PROVIDED, that this
Section 6.1(d) shall not prohibit one or more members of the LTV Controlled
Group from merging into or consolidating with another member of the LTV
Controlled Group; PROVIDED, FURTHER, that the surviving or resulting Person
shall be a member of the LTV Controlled Group and shall comply with Section
6.1(c); PROVIDED, FURTHER, that this Section 6.1(d) shall not prohibit Trico
Sales Co. from ceasing to be a member of the LTV Controlled Group in the manner
contemplated by Section 3.05, 10.2, 15.04, 15.06 or 15.07 of the Amended and
Restated Limited Liability Company Agreement of the Trico Joint Venture or
Section 5.01 of the Trico Transaction Agreement, each as in effect on May 2,
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1995; and PROVIDED, FURTHER, that this Section 6.1(d) shall not apply to any
transaction involving a member of the LTV Controlled Group which has an Equity
Fair Market Value of less than $150 million. As used herein, "Equity Fair Market
Value" means the price which could be negotiated in an arms-length free market
transaction, for cash between a willing seller and a willing buyer, neither of
whom is under undue pressure or compulsion to complete the transaction, for the
entire shareholder, member, partnership or other equity interest in the member
of the LTV Controlled Group under consideration. Equity Fair Market Value shall
be determined in the good faith reasonable judgment (x) of any executive officer
of LTV, if not in excess of $25,000,000, or (y) by the Board of Directors of
LTV, if in excess of $25,000,000, and a copy of the certification of such
officer, or the resolution of the Board, as applicable, shall be delivered to
the PBGC within 30 days after the completion of the relevant transaction.
Section 6.2. DIVIDENDS AND OTHER DISTRIBUTIONS. (a) Until
December 31, 2001, LTV may, if the conditions set forth in (A) and (B) below are
satisfied or if the PBGC has otherwise given its express prior approval, (i)
declare or pay dividends or make other distributions in respect of its capital
stock (other than dividends or distributions to the extent payable in shares of
its capital stock, which may be made whether or not the following conditions are
met), or (ii) purchase,
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redeem or otherwise acquire or retire for value shares of its capital stock or
options, warrants or other rights to acquire shares of such stock or set aside
amounts for any such purpose, or (iii) permit any member of the LTV Consolidated
Group to declare or pay to Persons not members of the LTV Controlled Group
dividends or make other distributions to Persons not members of the LTV
Controlled Group in respect of any of the capital stock of such member (other
than dividends or distributions to the extent payable in shares of its capital
stock, which may be made whether or not the following conditions are met) or
(iv) permit any member of the LTV Consolidated Group to purchase, redeem or
otherwise acquire or retire for value from Persons not members of the LTV
Controlled Group shares of its capital stock or any options, warrants or other
right to acquire shares of such stock or set aside any amount for any such
purpose; PROVIDED, that (A) after giving effect, as if paid, to the proposed
dividend, distribution, payment or setting apart of a fund, the aggregate amount
of such dividends, distributions and payments declared or made and funds set
apart after the Effective Date (other than dividends or distributions to the
extent payable in capital stock as hereinbefore provided), would not exceed (x)
the sum of (1) the Consolidated Net Income, if any, of the LTV Consolidated
Group for the period (treated as a single accounting period) from the Effective
Date to the end of the most recent completed fiscal quarter preceding the date
of computation (or if there shall be a Consolidated Net Loss for such period,
minus 100% of the
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Consolidated Net Loss), (2) the aggregate net consideration received by LTV
subsequent to the Effective Date, from the issuance and sale or exchange of any
shares of its capital stock (or rights or warrants to purchase or subscribe
thereto) and (3) the aggregate net consideration received by other members of
the LTV Consolidated Group subsequent to the Effective Date, from the issuance
and sale or exchange to or with Persons who are not members of the LTV
Consolidated Group of any shares of their capital stock (or rights or warrants
to purchase or subscribe thereto) LESS (y) all such dividends, distributions and
payments made and funds set apart for such purpose during such period; and (B)
no Default or Event of Default shall have occurred and be continuing under this
Agreement; PROVIDED, HOWEVER, that the provisions of this Section 6.2 shall not
prevent the payment of any dividend on any such capital stock within sixty days
after the date of declaration thereof if at the date thereof such declaration
complied with the provisions of this Section 6.2 nor the purchase, for a price
not to exceed an aggregate of $2 million in any Calendar Year, of shares of LTV
common stock (x) to distribute to current or former employees, officers or
directors of LTV and its Subsidiaries, (y) from current or former employees,
officers or directors of LTV and its Subsidiaries or (z) otherwise in order to
distribute as employee compensation.
(b) In the case of shares of capital stock issued for property other
than cash, or any distribution of property other than cash, the amount of
consideration received or property
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distributed, as the case may be, shall for the purposes of this Section 6.2 be
deemed the fair value of such property as determined in good faith by the Board
of Directors of LTV.
(c) From and after December 31, 2001, LTV may (i) declare or pay
dividends or make other distributions in respect of its capital stock, or (ii)
purchase, redeem or otherwise acquire or retire for value shares of its capital
stock or options, warrants or other rights to acquire shares of such stock or
set aside amounts for any such purpose, or (iii) permit any member of the LTV
Consolidated Group to declare or pay to Persons not members of the LTV
Controlled Group dividends or make other distributions to Persons not members of
the LTV Controlled Group in respect of any of the capital stock of such member,
or (iv) permit any member of the LTV Consolidated Group to purchase, redeem or
otherwise acquire or retire for value from Persons not members of the LTV
Controlled Group shares of its capital stock or options, warrants or other
rights to acquire shares of such stock or set aside any amount for any such
purpose, in each case, without restriction hereunder; PROVIDED, HOWEVER, that
LTV shall not, directly or indirectly, declare, pay or make any Extraordinary
Distribution or permit any member of the LTV Consolidated Group, directly or
indirectly, to declare, pay or make any Extraordinary Distribution to Persons
not members of the LTV Controlled Group. For purposes of this Section 6.2(c),
the term "Extraordinary Distribution" shall mean a dividend or other
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distribution in respect of capital stock, of cash, property or assets of any
member of the LTV Consolidated Group in excess of ordinary quarterly dividends
consistent with past practice, as increased from time to time, declared by the
Board of Directors of LTV or such member, as the case may be, but shall not
include dividends or distributions (x) payable in shares of LTV's capital stock
or (y) which would be exempt from the provisions of Section 6.1(d) by operation
of the last PROVISO set forth therein.
ARTICLE VII
CONDITIONS
Section 7.1. CONDITIONS TO OBLIGATIONS OF LTV. The obligations
of LTV and the other members of the LTV Controlled Group under this Agreement
are subject to the satisfaction (or waiver by LTV) of the following conditions:
(a) On the date hereof, all representations and warranties of
the PBGC contained herein shall be true and correct in all material respects;
and
(b) There shall not exist any judgment, order, injunction or
other restraint precluding the consummation of, or materially affecting the
rights, obligations or performance of any of the parties with respect to, the
transactions contemplated by this Agreement.
Section 7.2. CONDITIONS TO OBLIGATIONS OF THE PBGC. The
obligations of the PBGC under this Agreement are subject to the satisfaction (or
waiver by the PBGC) of the following conditions:
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(a) On the date hereof, (i) there shall exist no Default or
Event of Default under this Agreement or under the Original Agreement, and (ii)
all representations and warranties of LTV and each member of the LTV Controlled
Group contained herein shall be true and correct in all material respects; and
(b) There shall not exist any judgment, order, injunction or
other restraint precluding the consummation of, or materially affecting the
rights, obligations or performance of any of the parties with respect to, the
transactions contemplated by this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. ENTIRE AGREEMENT. This Agreement and the
Transaction Agreement contain the entire and exclusive agreement and
understanding of the parties and supersede all prior agreements, understandings,
commitments and proposals, oral or written, between the parties relating to the
subject matter hereof, and no other agreement or understanding exists except as
expressly set forth herein. The parties agree that should a court be called upon
to interpret any provision of this Agreement, previous drafts shall not be used
by any party in any manner to support its interpretation of the meaning of this
Agreement. Each party and counsel for each party hereto have reviewed this
Agreement and have participated in its drafting and, accordingly, no party shall
attempt to invoke the normal rule of construction to the effect that ambiguities
are to be
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resolved against the drafting party in any interpretation of this Agreement.
Section 8.2. GOVERNING LAW AND JURISDICTION.
(a) This Agreement shall be interpreted in accordance with and
governed by the law of the State of New York, except to the extent preempted by
Federal law.
(b) Each member of the LTV Controlled Group hereby irrevocably
appoints LTV as its agent for service of process in respect of any action or
proceeding with respect to any dispute arising under or pertaining to this
Agreement.
(c) Any lawsuit or claim arising under or relating to this
Agreement shall be brought in a United States District Court of competent
jurisdiction.
Section 8.3. MODIFICATIONS. This Agreement (excluding the
Original RPSOs and New RPSOs) may be waived, modified or amended only pursuant
to a written agreement entered into by the PBGC and LTV, and such waiver,
modification or amendment shall not require the concurrence, approval or consent
of any other Person, whether or not such Person has or claims any rights or
obligations hereunder, express or implied, by agreement or at law or in equity.
Section 8.4. AUTHORITY. Each member of the LTV Controlled
Group hereby warrants and represents that (a) it is a duly organized and validly
existing corporation or other entity and is in good standing under the laws of
the jurisdiction in which it is incorporated or organized, (b) it has all
requisite
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power and authority to execute, deliver and perform this Agreement and each
other agreement or instrument contemplated hereby to which it is or will be a
party or by which it or any of its property is bound, (c) the execution and
delivery of this Agreement by it has been duly authorized by all necessary
corporate or other action and the performance by it of this Agreement and each
other agreement or instrument contemplated hereby have been duly authorized by
all requisite action by it and (d) this Agreement has been duly executed and
delivered and constitutes a legal, valid and binding obligation of each Person
in the LTV Controlled Group in accordance with its terms, and each other
agreement or instrument contemplated hereby will constitute, a legal, valid and
binding obligation of each Person in the LTV Controlled Group, in each case in
accordance with its respective terms. The PBGC hereby warrants and represents
that it has authority to sign this Agreement and that all necessary corporate or
other appropriate action has been taken to cause it to possess such authority.
Section 8.5. NOTICES. Any notice, consent, approval or other
communication required or permitted under this Agreement shall be in writing and
shall be delivered by hand or overnight courier service, sent by telefacsimile
transmission or other wire transmission (with request for assurance of receipt
in a manner customary for communications of such respective type), or by
certified or registered mail, postage prepaid, and shall be deemed duly given
when so delivered or sent by telefacsimile
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transmission or if sent by overnight courier service, on the first Business Day
after dispatch by overnight courier, or if sent by certified or registered mail,
five Business Days after the date of dispatch to the following respective
addressees at the address or telefacsimile number set forth below: To LTV and
members of the
LTV Controlled Group: The LTV Corporation
200 Public Square
Cleveland, Ohio 44114
Attention: General Counsel
Telefacsimile No.:
(216) 622-5688
To the PBGC: Chief Negotiator
Pension Benefit Guaranty
Corporation
Suite 270
1200 K Street, N.W.
Washington, D.C. 20005
Telefacsimile No.:
(202) 842-2643
with copies to:
General Counsel
Pension Benefit Guaranty
Corporation
1200 K Street, N.W.
Washington, D.C. 20005
Telefacsimile No.:
(202) 326-4112
or to such other Persons or addresses as any Person entitled to notice hereunder
may from time to time designate by notice in accordance with this Section 8.5 to
the other party or parties. If the effective date of notice shall fall upon a
day that is not a Business Day, notice shall not be deemed effective until the
next Business Day.
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Section 8.6. NO WAIVER. No failure of any party to this
Agreement to enforce at any time any of the provisions of this Agreement or to
exercise any option under this Agreement and no course of dealing between or
among any member of the LTV Controlled Group and the PBGC shall be construed to
be a waiver of any such provision or option, or shall in any way affect the
validity of this Agreement or the right of any party to enforce each and every
one of its provisions or options.
Section 8.7. BENEFITS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective permitted
successors and assigns. This Agreement shall also be binding upon and inure to
the benefit of any permitted purchaser of all or substantially all of the assets
of LTV or any member of the LTV Controlled Group. Notwithstanding the foregoing,
neither LTV nor any member of the LTV Controlled Group shall have the right to
assign any of its rights hereunder or interest herein or delegate any obligation
hereunder without the prior written consent of the PBGC. Wherever in this
Agreement any of the parties hereto is referred to, such reference shall be
deemed to refer to and include the permitted successors and assigns of such
party, and all covenants, promises and agreements by or on behalf of any party
that are contained in this Agreement shall bind and inure to the benefit of
their respective permitted successors and assigns.
Section 8.8. EXECUTION. This Agreement may be executed in any
number of identical counterparts, each of which
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shall be an original as against the party who signed it, and all of which
together shall constitute one and the same instrument. No party to this
Agreement shall be bound by this Agreement until a counterpart has been executed
by or on behalf of each party hereto.
Section 8.9. CAPTIONS. The captions to the several Articles
and Sections of this Agreement and the table of contents have been inserted for
convenience of reference only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
Section 8.10. SEVERABILITY. Any provision of this Agreement
that shall be prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
Section 8.11. SURVIVAL. The obligations, agreements,
indemnities, representations, and warranties contained in this Agreement shall
not be affected by and shall survive and shall continue in effect following the
execution and delivery of this Agreement, and shall be and continue in effect
notwithstanding any waiver of compliance with any of the terms, provisions, or
conditions of this Agreement.
Section 8.12. TERMINATION. This Agreement shall terminate on
the earlier of the Investment Grade Date or January 16, 2021.
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ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Section 9.1. GENERAL REPRESENTATIONS AND WARRANTIES. LTV and
each of the members of the LTV Controlled Group represents and warrants to the
PBGC, and the PBGC represents and warrants to LTV and each of the members of the
LTV Controlled Group, that it has full power and authority to enter into this
Agreement and that this Agreement constitutes a legal, valid, and binding
obligation of LTV and each of the members of the LTV Controlled Group or the
PBGC, as the case may be, enforceable against LTV and each of the members of the
LTV Controlled Group or the PBGC, as the case may be, in accordance with its
terms.
Section 9.2. ADDITIONAL LTV REPRESENTATIONS AND WARRANTIES.
Each Person in the LTV Controlled Group represents and warrants to the PBGC
that:
(a) NO VIOLATION. As of the date of this Agreement, none of
the execution, delivery or performance by each Person in the LTV Controlled
Group of this Agreement or any other agreement or instrument contemplated hereby
(i) will violate (A) any provision of Applicable Law, or the certificate of
incorporation or bylaws (or similar governing documents) of such Person or (B)
any indenture, agreement or other instrument to which any Person in the LTV
Controlled Group is a party or by which such Person or any of such Person's
property is bound, (ii) will conflict with or result in a breach of any of the
terms,
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covenants, conditions or provisions of any such indenture, agreement or
instrument, or constitute (with notice or lapse of time or both) a default
thereunder, or result in the creation or imposition of (or the obligation to
create or impose) any lien upon any property or assets of any member of the LTV
Controlled Group pursuant to any such indenture, agreement or other instrument.
(b) TRUE AND COMPLETE DISCLOSURE, NO MATERIAL MISSTATEMENTS.
All factual information provided herein or heretofore provided in connection
with this Agreement was true and accurate in all material respects on the date
as of which such information was dated or certified.
(c) PERSONS UNDER COMMON CONTROL. The Persons listed on the
execution page hereof as the members of the LTV Controlled Group constitute all
of the Persons who, as of the date of this Agreement, are under common control
with LTV within the meaning of section 4001(b)(1) of ERISA and sections
414(b)-(c) of the IRC.
ARTICLE X
ADDITIONAL COVENANTS AND AGREEMENTS
Section 10.1. FURTHER ASSURANCES. Each of the parties to this
Agreement agrees to execute any and all further documents, agreements and
instruments, and take all further action, which may be required under Applicable
Law, or which another party may reasonably request in order to effectuate the
transactions contemplated hereby.
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Section 10.2. INFORMATION COVENANTS. LTV will furnish to the
PBGC the following data, which the PBGC will treat in the manner provided in
Section 10.5:
(a) ANNUAL CERTIFICATE BY PUBLIC ACCOUNTING FIRM. Within 105
days after the close of each fiscal year of LTV, a certificate of an independent
certified public accounting firm of recognized national standing stating that in
the course of its regular audit of the business of LTV, which audit was
conducted in accordance with generally accepted auditing standards, after review
of this Agreement, such accounting firm has obtained no knowledge of any Default
or Event of Default (including, without limitation, one with respect to the
financial covenants contained herein) which has occurred and is continuing or,
if in the opinion of such accounting firm such a Default or Event of Default has
occurred and is continuing, a statement as to the nature and period of existence
thereof, all of the foregoing to be in form and substance satisfactory to the
PBGC.
(b) ANNUAL OFFICER'S CERTIFICATE. At the time of the delivery
of the certificate provided for in clause (a) above, a certificate of the chief
financial officer, controller, chief accounting officer or other Authorized
Officer of LTV to the effect that no Default resulting from a failure to comply
with any of the provisions of Sections 3.3, 6.1, 6.2, 10.3, 10.4 or to make the
due and punctual payment of any contribution required by the Original RPSOs or
the New RPSOs, or Event of Default exists or, if any such Default or Event of
Default does exist, specifying the nature and extent thereof.
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(c) NOTICE OF DEFAULT, EVENT OF DEFAULT OR LITIGATION.
Promptly, and in any event within five days after any member of the LTV
Consolidated Group obtains knowledge thereof, notice of (i) the occurrence of
any condition or event which constitutes a Default resulting from a failure to
comply with any of the provisions of Sections 3.3, 6.1, 6.2, 10.3, or 10.4, or
to make the due and punctual payment of any contribution required by the
Original RPSOs or the New RPSOs, or an Event of Default, which notice shall, in
each case, specify the nature thereof, the period of existence thereof and what
action LTV (or such member) proposes to take with respect thereto, and (ii) any
litigation or governmental proceeding pending against any member of the LTV
Consolidated Group which is likely to have a material adverse effect on the
business, properties, assets, condition (financial or otherwise) or prospects of
the LTV Consolidated Group taken as a whole or the ability of the LTV
Consolidated Group to perform its obligations hereunder.
(d) AUDITORS' REPORTS. Promptly upon receipt thereof, a copy
of each other report or "management letter" submitted to LTV by their
independent accountants in connection with any annual audit made by them of the
books of the LTV Consolidated Group.
(e) ACTUARIAL VALUATION REPORTS; IRS FORM 5500. (i) As soon as
delivered to LTV following completion by the actuary for a Restored Plan, the
annual actuarial valuation report required pursuant to IRC section 412(c)(9) and
the rules
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and regulations promulgated thereunder for such Restored Plan, (ii) when filed
with the IRS, (A) IRS Form 5500 filings (together with all attachments) for the
Restored Plans, (B) funding waiver requests with respect to any of the Restored
Plans, and (C) notification of any spin-off, merger or change of Plan Sponsor
with respect to any of the Restored Plans, (iii) notification ten days prior to
the adoption of any amendment to any of the Restored Plans and (iv) as soon as
reasonably practicable, a quarterly statement of the assets of each Restored
Plan.
(e) OTHER INFORMATION. Promptly upon transmission thereof,
copies of any filings and registrations with the SEC by any member of the LTV
Consolidated Group and copies of all financial statements, proxy statements,
notices and reports as LTV shall send to its security holders and, with
reasonable promptness, such other information or document (financial or
otherwise) as the PBGC may reasonably request from time to time.
Section 10.3. SENIOR DEBT NEGATIVE COVENANTS.
(a) INCORPORATION OF CERTAIN SENIOR DEBT NEGATIVE COVENANTS.
LTV and each Applicable Member (as defined hereinafter) of the LTV Controlled
Group covenants and agrees with the PBGC that, on and after the date this
Agreement is executed, and so long as this Section 10.3(a) shall remain in
effect, LTV and each such Applicable Member shall be bound under this Agreement
by the terms of the Senior Debt Negative Covenants (as defined hereinafter) to
the same extent as if such covenants
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(along with all definitions pertaining to them) were set out herein in full.
For purposes hereof:
"Senior Debt Negative Covenants" means the negative covenants
set out in Section 4.05 (Limitation on Debt and Restricted Subsidiary Preferred
Stock), Section 4.07 (Limitation on Liens), and Section 4.13 (Limitation on Sale
and Leaseback Transactions) of the Indenture dated as of September 22, 1997,
among LTV, LTV Steel Company, Inc. as Guarantor, and The Chase Manhattan Bank,
as Trustee (the "Indenture"), as such negative covenants may be modified,
amended, or supplemented from time to time.
"Senior Notes" means the 8.20% Senior Notes issued by LTV
pursuant to the Indenture.
"Applicable Member" means each member of the LTV Controlled
Group to whom the Senior Debt Negative Covenants apply.
(b) EXPIRATION OF SENIOR DEBT NEGATIVE COVENANTS. The
provisions of Section 10.3(a) shall expire upon the repayment in full of the
Senior Notes, PROVIDED, HOWEVER, that if the Senior Notes are repaid by the
proceeds of new debt incurred by LTV (or "deemed repaid by the proceeds of new
debt," as defined below), the limitations (if any) on debt, liens, and sale and
leaseback transactions applicable to such new debt (as such limitations may be
modified, amended, or supplemented from time to time) shall replace the Senior
Debt Negative Covenants for
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purposes of this Agreement from and after the date of such repayment and LTV and
each Applicable Member of the LTV Controlled Group shall be bound by such
replacement covenants for so long as any portion of such new debt remains
outstanding; and PROVIDED, FURTHER, that if such new debt is Credit-Enhanced
Debt (as defined below) and if the limitations on debt, liens, and sale and
leaseback transactions applicable to such Credit-Enhanced Debt are more
favorable to LTV or the Applicable Members of the LTV Controlled Group than the
Senior Debt Negative Covenants, the Senior Debt Negative Covenants shall not be
replaced by the new covenants but shall instead remain in effect for purposes of
this Agreement.
For purposes hereof -
(1) the Senior Notes shall be "deemed repaid by the
proceeds of new debt" if, within 180 days (before or after)
repayment of the Senior Notes, LTV or any member of the LTV
Controlled Group incurs new debt (other than debt incurred
under LTV's Working Capital Facilities, as defined below)
whose aggregate principal amount is equal to or greater than
the greater of (x) $15 million and (y) 25% of the amount
outstanding on the Senior Notes 180 days before such
repayment.
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(2) Any repayment (or deemed repayment) of the Senior
Notes by the proceeds of new debt incurred by LTV shall be
construed to have occurred as of the date that the Senior
Notes were actually repaid (not the date of such debt
incurrence, if different).
(3) the determination of whether the limitations on
debt, liens, and sale and leaseback transactions applicable to
Credit-Enhanced Debt are more favorable to LTV or the
Applicable Members of the LTV Controlled Group than the Senior
Debt Negative Covenants shall be made in good faith by LTV and
shall be communicated in writing to PBGC at least 14 days
before LTV incurs such Credit-Enhanced Debt.
(4) "Credit-Enhanced Debt" means debt that is secured
or guaranteed by a pledge of collateral (other than accounts
receivable, inventory, and insurance proceeds or other
property incidental to accounts receivable or inventory), a
letter of credit, the guaranty of a person not then a member
of the LTV Controlled Group, or similar means.
(5) "Working Capital Facilities" means debt
facilities secured or guarantied primarily by a pledge of the
inventory, accounts receivable, proceeds of inventory or
accounts receivable, or any combination thereof, of one or
more members of the LTV Controlled Group.
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Expiration or replacement of any replacement covenants shall
be governed, MUTATIS MUTANDIS, by the foregoing provisions. Thus, for example,
if the Senior Notes are repaid by new debt and the covenants on debt, liens, and
sale and leaseback transactions applicable to such new debt replace the Senior
Debt Negative Covenants, the replacement covenants will expire upon the
repayment in full of the new debt, but if the new debt is later repaid (or
deemed repaid) by the proceeds of other new debt, the covenants on debt, liens,
and sale and leaseback transactions applicable to that other new debt will
replace the former covenants, and so on for any successive iterations.
The incurrence of new Credit-Enhanced Debt by LTV to repay the
Senior Notes (including any deemed repayment as defined in paragraph (1) above)
shall be permissible only if the aggregate amount of such Credit-Enhanced Debt
was permitted under the covenants as they existed under this Agreement
immediately before repayment of the Senior Notes. For purposes of this
paragraph, "Senior Notes" means the Senior Notes or any debt that has replaced
the Senior Notes as provided above in this Section 10.3(b).
(c) NOTICE OF EXPIRATION OR REPLACEMENT OF SENIOR DEBT
NEGATIVE COVENANTS. LTV shall promptly notify the PBGC in writing of any
modification of the Senior Debt Negative Covenants, the expiration of the Senior
Debt Negative Covenants, any replacement of the Senior Debt Negative Covenants
as provided
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in Section 10.3(b) above, and the modification, expiration or replacement of any
such replacement covenants, PROVIDED, HOWEVER, the failure of LTV to provide
such notice shall not affect the modification, expiration or replacement of the
Senior Debt Negative Covenants or any replacements thereof.
Section 10.4. ADDITIONAL NEGATIVE COVENANTS. Each member of
the LTV Controlled Group covenants and agrees with the PBGC that, on and after
the date this Agreement is executed, and so long as this Agreement shall remain
in effect, unless the PBGC shall otherwise consent in writing, no member of the
LTV Consolidated Group shall:
(a) TRANSACTIONS WITH AFFILIATES. Enter into any transaction
or series of transactions, whether or not in the ordinary course of business,
with any Affiliate which is not a member of the LTV Controlled Group or a direct
or indirect wholly-owned Subsidiary of LTV, other than on terms and conditions
substantially as favorable to LTV as would be obtainable by LTV at the time in a
comparable arm's-length transaction with a Person other than such an Affiliate;
PROVIDED, that the foregoing restrictions shall not apply to customary fees paid
to members of the Board of Directors of LTV or to transactions with joint
ventures with third-party participants either (i) existing on the date of this
Agreement or (ii) hereafter entered into on terms no more favorable to the
third-party participants therein than the terms applicable to the third-party
participants in such joint ventures existing on the
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date of this Agreement; and PROVIDED FURTHER, that this Section 10.4(a) shall
not apply to any transaction or series of transactions contemplated by or in
accordance with the Supply and Marketing Agreement, the Services Agreement or
the Administrative Services Agreement (each as defined in the Trico Transaction
Agreement and each as in effect on May 2, 1995).
(b) RESTRICTIVE AGREEMENTS. Enter into any indenture,
agreement, instrument or other arrangement which, directly or indirectly,
prohibits or restrains, or has the effect of prohibiting or restraining, or by
its terms imposes materially adverse conditions upon, the performance by any
member of the LTV Consolidated Group of any of the terms or conditions of this
Agreement or any other agreement or instrument contemplated hereunder to which
such Person is a party or is bound; PROVIDED, that this provision shall not be
violated by the execution and delivery of, or performance under, the Trico
Transaction Documents (or any amendments, modifications or supplements thereof
to the extent permitted under the definition of "Trico Transaction Documents")
or the Trico Subordination and Standstill Agreement, which is incorporated in
this Agreement by reference as if set forth fully herein, any financing
arrangement otherwise permitted by the terms of this Agreement, or the
Settlement Agreement dated as of September 10, 1992 with the United Steelworkers
of America, AFL-CIO-CLC (the "United Steelworkers"), the Collateral Trust
Agreement dated as of May 25, 1993 among LTV, LTV Steel, the United Steelworkers
and Bank
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One Ohio Trust Co., N.A., as Collateral Trustee, and the Open-End Mortgage,
Security Agreement and Fixture Filing dated June 28, 1993 by LTV Steel, as
Mortgagor, and Bank One Ohio Trust Co., N.A., as Mortgagee (in the respective
forms theretofore approved by the PBGC).
(c) LIMIT ON INVESTMENTS IN TRICO. At any time after May 2,
1995 make any capital contribution to or equity investment in (each such capital
contribution or equity investment being a "Trico Equity Investment"), or loan or
advance to (each such loan or advance, a "Trico Loan"; a Trico Loan or a Trico
Equity Investment being referred to herein as a "Trico Investment"), the Trico
Joint Venture or Trico Sales Co. if, after giving effect to such Trico
Investment, (i) the aggregate amount of such Trico Investments then outstanding
(net of equity distributions) would exceed $300 million, (ii) the aggregate
amount of such Trico Equity Investments then outstanding (net of equity
distributions) would exceed $250 million, or (iii) the aggregate amount of such
Trico Equity Investments then outstanding (net of equity distributions) would
exceed $200 million and the Trico Equity Investment in question would not, to
the extent of such excess amount, be applied by the Trico Joint Venture in
respect of capital expenditures.
Section 10.5. CONFIDENTIALITY. The PBGC will use reasonable
efforts to hold, and to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial
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<PAGE> 50
or administrative process or by other requirements of law, all confidential
documents and information concerning LTV, the LTV Consolidated Group and the LTV
Controlled Group furnished to it as contemplated by this Agreement and marked as
confidential, proprietary or trade secret, except to the extent that such
information was (i) previously known on a nonconfidential basis by the PBGC (or
other Person covered by this provision), (ii) in the public domain through no
fault of the PBGC (or such other Person) or (iii) later lawfully acquired by the
PBGC (or such other Person) from sources other than LTV, the LTV Consolidated
Group or the LTV Controlled Group; PROVIDED, that the PBGC may disclose such
information to its officers, directors, employees, accountants, counsel,
consultants, advisors and agents in connection with the operation of this
Agreement so long as such Persons are informed by the PBGC of the confidential
nature of such information and are directed by the PBGC to treat such
information confidentially. The PBGC's obligation to hold any such information
in confidence or cause such information to be held in confidence shall be
satisfied if it exercises the same care with respect to such information as it
would take to preserve the confidentiality of its own similar information. All
information which, in LTV's judgment, constitutes confidential information which
is received by the PBGC pursuant to the provisions of this Agreement and marked
as confidential, proprietary or trade secret shall be treated by the PBGC as
exempt from disclosure under the Freedom of Information Act, 5
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U.S.C. section 552 ("FOIA"), pursuant to the exemptions thereto, including,
without limitation, the exemptions contained in 5 U.S.C. section 552(b)(4) for
confidential commercial and financial information and information received
pursuant to an agreement of confidentiality to the extent that such exemptions
apply to such information at the time a request under FOIA for disclosure of
such information is received by the PBGC.
ARTICLE XI
EVENTS OF DEFAULT
The following events shall, if occurring after the date hereof
or if occurring prior to the date hereof and continuing after the date hereof,
constitute events of default ("Events of Default") whether any such event shall
be voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body:
(a) CONTRIBUTIONS AND PAYMENTS. There shall be a default in
the due and punctual payment of any contribution required by Section 3.3, the
Original RPSs or the New RPSs; or
(b) REPRESENTATIONS, ETC. Any representation, warranty, or
statement of any member of the Initial LTV Group or the LTV Controlled Group
made in this Agreement shall prove to have been false or misleading in any
material respect when so made or furnished and such misrepresentation shall be
material at the time of discovery thereof and shall remain uncured; or any
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<PAGE> 52
representation, warranty, statement or information of any member of the LTV
Controlled Group contained in any report, certificate, financial statement or
other instrument furnished in connection with or pursuant to this Agreement
shall prove to have been knowingly false or misleading in any material respect
when so made or furnished; or
(c) SPECIAL AGREEMENTS. Any member of the LTV Controlled Group
shall fail to perform or observe any term, covenant, condition or agreement to
be performed or observed by it under Section 6.1 or 6.2, and such failure shall
continue unremedied for a period of ten days after written notice thereof from
the PBGC to LTV; or
(d) COVENANTS. Any member of the LTV Controlled Group shall
fail to perform or observe any other term, covenant, condition or agreement to
be performed or observed by it hereunder, and such failure shall continue
unremedied for a period of thirty days after written notice thereof from the
PBGC to LTV; or
(e) DEFAULT UNDER OTHER AGREEMENTS. Any member of the LTV
Controlled Group shall (i) fail to pay any principal or interest, regardless of
amount, due in respect of any Indebtedness in a principal amount in excess of
$100,000,000, when and as the same shall become due and payable (as scheduled or
by acceleration, mandatory prepayment or otherwise), beyond the period of grace,
if any, provided in the instrument or agreement under which such Indebtedness
was created; or (ii) fail
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to observe or perform any other term, covenant, condition or agreement relating
to any such Indebtedness or contained in (or any default or event of default
shall occur under) any instrument or agreement evidencing, securing or relating
thereto, if the effect of any such failure referred to in this clause (ii) is to
cause any such Indebtedness to become due or mandatorily required to be prepaid
prior to its stated maturity; or
(f) INVOLUNTARY BANKRUPTCY, ETC. An involuntary case or other
proceeding shall be commenced or an involuntary petition shall be filed in a
court of competent jurisdiction seeking (i) relief in respect of LTV or LTV
Steel, or of a substantial part of the property or assets of LTV or LTV Steel,
under the Bankruptcy Code, as now constituted or hereafter amended, or any other
Federal or state bankruptcy, insolvency, receivership or similar law, whether
now or hereafter in effect, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for LTV or LTV Steel or
for a substantial part of the property or assets of LTV or LTV Steel or (iii)
the winding-up or liquidation of LTV or LTV Steel; and such proceeding or
petition is not controverted within fifteen days or shall continue undismissed
for ninety days, after commencement of the case; or an order or decree approving
or ordering any of the foregoing shall be entered; or
(g) VOLUNTARY BANKRUPTCY, ETC. LTV or LTV Steel shall (i)
voluntarily commence any proceeding or file any petition seeking relief under
the Bankruptcy Code, as now
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constituted or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, whether now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner in the sole opinion of the PBGC, any proceeding or the filing
of any petition described in paragraph (f) above, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for LTV or LTV Steel or for a substantial part of the property
or assets of LTV or LTV Steel, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors (vi) become unable, admit in
writing its inability, or fail generally to pay its debts as they become due or
(vii) take any action for the purposes of effecting any of the foregoing; or
(h) JUDGMENTS. One or more judgments, orders or decrees for
the payment of money in excess of $100,000,000 in the aggregate (to the extent
not paid or fully covered by insurance provided by a carrier that has
acknowledged coverage) shall be rendered against any one or more members of the
LTV Consolidated Group and the same shall not have been vacated, discharged,
stayed or bonded pending appeal for a period of thirty consecutive days from the
entry thereof; or
(i) VALIDITY OF THIS AGREEMENT. Any member of the LTV
Controlled Group or the LTV Consolidated Group shall assert for any reason that
this Agreement is not a legal, valid
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and binding obligation of the respective parties hereto, enforceable in
accordance with its terms.
ARTICLE XII
REMEDIES
Section 12.1. ACKNOWLEDGMENT. To the fullest extent permitted
by Applicable Law, the PBGC shall have the right to enforce the provisions of
this Agreement through any and all of the remedies provided in Section 12.2 or
otherwise available at law or in equity.
Section 12.2. REMEDIES OF THE PBGC. Upon the occurrence of any
Event of Default, and at any time thereafter so long as the same shall be
continuing, the PBGC may, at its option, take any or all of the following
actions as the PBGC in its sole discretion shall determine:
(a) The PBGC may apply for an order requiring performance,
whether for the specific performance of any term or agreement hereof or for an
injunction against the violation of any of the terms or provisions hereof or for
an appropriate show cause order, it being agreed that a remedy of money damages
shall be inadequate because the failure of LTV to comply strictly with the terms
hereof would cause irreparable injury to the PBGC and the Restored Plans;
(b) The PBGC may proceed to enforce its rights by any other
action, suit, remedy or proceeding authorized or permitted by this Agreement or
by law or by equity;
(c) In addition to all amounts unpaid which are
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due hereunder, the Plan Sponsor shall, upon written demand of the PBGC, pay to
the applicable Restored Plan, as liquidated damages for the PBGC's loss of a
bargain and not as a penalty, in the case of an Event of Default under paragraph
(a) of Article XI, an amount equal to the sum of (A) interest on the unpaid
amount (at the rate specified in 29 C.F.R. section 4062.7 or its successor
rate), PLUS (B) the greater of (x) interest on the unpaid amount (at the rate
specified in 29 C.F.R. section 4062.7 or its successor rate), or (y) an amount
equal to 20% of the unpaid amount (it being understood that any liquidated
damages payable under this subsection (c) shall constitute pension contributions
for all purposes of this Agreement);
(d) The PBGC may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have its claims or claims
of the Restored Plans asserted or upheld in any bankruptcy, receivership or
other judicial proceedings;
(e) The PBGC may proceed by appropriate court action to
recover damages to itself or to the Restored Plans, as applicable, for the
breach hereof;
(f) The PBGC may, subject to the provisions of Applicable Law,
modify the Original RPSOs or the New RPSOs to protect the Restored Plans from
such Event of Default and the consequences or potential consequences thereof and
to prevent future liability of the PBGC resulting from the failure of any member
of the LTV Controlled Group to make such payments or
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contributions to the Restored Plans;
(g) The PBGC may, by notice to LTV, rescind or terminate this
Agreement and exercise its rights under Applicable Law; and/or
(g) The PBGC may exercise any other right or remedy that may
be available to it under Applicable Law.
Section 12.3. FEES AND EXPENSES. LTV shall pay to the PBGC all
reasonable fees and expenses (including, without limitation, fees of its
attorneys and financial experts or advisors) incurred by the PBGC in connection
with the exercise of any of the remedies hereunder following the occurrences of
(i) an Event of Default under paragraph (a) of Article XI or (ii) an Event of
Default under paragraph (c) or (d) of Article XI resulting from a failure to
comply with Section 6.1, 6.2, 10.3 or 10.4 hereof, unless, with respect to the
period with respect to which such failure to comply occurred, the accounting
firm has delivered the statement as to the absence of knowledge of any Event of
Default at the time specified in and otherwise in accordance with the provisions
of Section 10.2(a).
Section 12.4. SURVIVAL OF LTV'S OBLIGATIONS. No exercise of
any remedy under this Article XII shall, except as specifically provided herein,
relieve LTV or any member of the LTV Controlled Group of any of its liabilities
and obligations hereunder, all of which shall survive any such exercise of
remedy.
Section 12.5. REMEDIES CUMULATIVE. To the extent
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permitted by, and subject to the mandatory requirements of, Applicable Law, each
and every right, power and remedy herein specifically given to the PBGC in this
Agreement shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at law,
in equity or by statute, ordinance or regulation, and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and as often and in such order as may be deemed
expedient by the PBGC, and the exercise or the beginning of the exercise of any
power or remedy shall not be construed to be a waiver of the right to exercise
at the same time or thereafter any right, power or remedy. No delay or omission
by the PBGC in the exercise of any right, power or remedy or in the pursuit of
any remedy shall impair any such right, power or remedy or be construed to be a
waiver of any default on the part of LTV, members of the LTV Controlled Group or
members of the LTV Consolidated Group or to be an acquiescence therein. No
express or implied waiver by the PBGC of any Event of Default shall in any way
be, or be construed to be, a waiver of any future or subsequent Event of
Default. To the fullest extent permitted by Applicable Law, LTV, the members of
the LTV Consolidated Group and the members of the LTV Controlled Group hereby
waive any rights now or hereafter conferred by statute or otherwise that may
limit or modify any of the rights or remedies of the PBGC under this Article.
IN WITNESS WHEREOF, the parties to this Agreement
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<PAGE> 59
have caused this Agreement to be duly executed and delivered by their respective
duly authorized officers or representatives as of the day and year first written
above.
PENSION BENEFIT GUARANTY
CORPORATION
By: /s/ Joseph H. Grant
-----------------------------------
Title: Deputy Executive Director & COO
-------------------------------
Date: 12/2/98
--------------------------------
THE LTV CORPORATION, on behalf
of itself and the LTV Controlled
Group listed below
By: /s/
-----------------------------------
Title: Executive VP & CFO
-------------------------------
Date: 12/2/98
--------------------------------
MEMBERS OF LTV CONTROLLED GROUP:
Georgia Tubing Corporation
Investment Bankers, Inc.
Inmobiliaria Nueva Icacos, S.A. de C.V.
Jalcite I, Inc.
Jones & Laughlin Steel Incorporated
Kingsley International Insurance Ltd.
LTV Blanking Corporation
LTV Corporation, The (Wyoming)
LTV/EGL Holding Company
LTV Electro-Galvanizing, Inc.
LTVGT, Inc. (f/k/a Varco-Pruden, Inc.)
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LTVGT International, Inc. (f/k/a LTV
Holdings,Inc.)
Reomar, Inc.
Chateaugay Corporation
Republic Buildings Corporation
LTV International N.V.
LTV Properties, Inc.
LTV Sales Finance Company
LTV Steel Company, Inc.
Aliquippa and Southern Railroad Company
Cayman Mineracao do Brasil Ltda
Chicago Short Line Railway Company
Crystalane, Inc.
Cuyahoga Valley Railway Company, The
Mahoning Valley Railway Company, The
Dearborn Leasing Company
Erie B Corporation
Erie I Corporation
Fox Trail, Inc.
J&L Empire, Inc.
Jalcite II, Inc.
Jalore Mining Company, Ltd.
LTV Pickle, Inc.
LTV Steel Products, L.L.C.
Monongahela Connecting Railroad Company, The
Nemacolin Mines Corporation
Republic Technology Corporation
River Terminal Railway Company, The
Youngstown Erie Corporation
YST Erie Corporation
LTV Steel de Mexico, Ltd.
LTV-Trico, Inc.
RepSteel Overseas Finance N.V.
Trico Steel Company, Inc.
VP Buildings, Inc. (f/k/a VP Acquisition Company)
Varco Pruden International de Chile Limitada
Varco-Pruden Exports, Ltd.
Varco Pruden International, Inc. (f/k/a Buildings
International Company)
VP Buildings-Wisconsin, Inc.
Bethel Real Estate Co., Inc.
United Panel, Inc.
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EXHIBIT 10.51
EMPLOYMENT, RETIREMENT AND NON-COMPETITION AGREEMENT
----------------------------------------------------
THIS EMPLOYMENT, RETIREMENT AND NON-COMPETITION AGREEMENT (this
"Agreement") is made and entered into this 28th day of December, 1998, by and
between THE LTV CORPORATION, a Delaware corporation (the "Company," a term which
in this Agreement shall include its predecessors, parents, subsidiaries,
divisions, related or affiliated companies, officers, directors, stockholders,
members, employees, heirs, successors, assigns, representatives, agents and
counsel, unless the context otherwise clearly requires), and DAVID H. HOAG,
("Executive"),
WITNESSETH:
-----------
WHEREAS, Executive is an employee and director of the Company and
currently serves as Chairman of the Board of Directors of the Company;
WHEREAS, Executive voluntarily relinquished his position as Chief
Executive Officer of the Company on September 1, 1998, remains as Chairman, and
the Company and Executive have determined that Executive shall resign as a
director of the Company effective January 31, 1999, and shall retire as an
employee of the Company effective February 1, 1999:
WHEREAS, the Company wants to ensure that Executive will protect
Confidential Information (as hereinafter defined) and will not use his knowledge
and experience during the Non-Compete Period (as hereinafter defined) to assist
a competitor of the Company's business (as set forth on Exhibit B); and
WHEREAS, the Company and Executive desire to make provision for the
payments and benefits that Executive will be entitled to receive from the
Company in consideration for Executive's obligations and actions under this
Agreement and in connection with such retirement;
NOW, THEREFORE, in consideration of the premises and the promises and
agreements contained herein and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, and intending to be
legally bound, the Company and Executive agree as follows:
1. EFFECTIVE DATE OF AGREEMENT. This Agreement is effective on December
28, 1998 (the "Effective Date") and shall continue in effect as provided herein.
2. EMPLOYMENT. Commencing on the date hereof, Executive's employment
shall continue through January 31, 1999 (the "Employment Term"), subject to the
provisions hereof.
<PAGE> 2
3. DUTIES DURING EMPLOYMENT TERM. Executive's principal duties and
authority after the date hereof during the Employment Term will be to serve as
Chairman of the Board of Directors of the Company and as an advisor to the Chief
Executive Officer of the Company.
4. COMPENSATION DURING EMPLOYMENT TERM. During the Employment Term, the
Company shall
(a) continue to pay Executive an annualized base salary at the level
thereof on the Effective Date in accordance with the Company's regular payroll
practices;
(b) continue Executive's eligibility for a 1998 bonus under the
Company's Annual Incentive Program ("AIP"), to be determined by the Compensation
and Organization Committee of the Board of Directors of the Company in
accordance with prior practice; and
(c) continue to permit Executive to participate in the Company's
medical and life insurance programs, and other plans, programs and perquisites
appropriate for his position and status as if he remained chief executive
officer of the Company, on the same basis that Executive has participated in
such plans, programs and perquisites, until the end of the Employment Term.
5. RESIGNATION AND RETIREMENT.
(a) Executive hereby (i) effective February 1, 1999 (the "Retirement
Date") resigns and retires as an employee of the Company, and, (ii) to the
extent not previously accomplished, (A) resigns from all boards and offices of
any entity that is a subsidiary of or is otherwise related to or affiliated with
the Company, (B) resigns from all administrative, fiduciary or other positions
he may hold or have held with respect to arrangements or plans for, of or
relating to the Company, and (C) agrees to resign from any nonprofit positions
related to his services to the Company as the Company may request. The Company
hereby consents to and accepts said resignations, and the Company records shall
so reflect.
(b) The Company and Executive agree that Executive shall resign as a
member of the Company's Board of Directors on January 31, 1999.
(c) Upon his retirement, Executive shall be entitled to retirement
benefits under plans of the Company in accordance with their terms.
6. CERTAIN BENEFITS. In consideration of the promises of Executive in
this Agreement, including without limitation Paragraph 9 hereof:
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(a) LONG-TERM INCENTIVE PLAN. If Executive remains in the continuous
employ of the Company through January 31, 1999, then, as of such date, or, if
earlier, upon his death or termination by the Company without Cause,
(i) the restrictions on the 8,600 shares of Restricted Stock
awarded to Executive on October 27, 1994 pursuant to the terms of the
Company's Management Incentive Plan (such plan, as originally adopted,
and as amended and restated and approved by the stockholders of the
Company on April 24, 1997, shall be referred to as the "MIP"), shall
lapse;
(ii) all options to acquire Common Stock of the Company
("Options") granted pursuant to the MIP to Executive on or before
January 31, 1999, shall become exercisable to the extent not previously
exercisable;
(iii) for purposes of the 28,000 Performance Shares awarded to
Executive pursuant to the MIP on April 25, 1997, and the 28,000
Performance Shares awarded to Executive pursuant to the MIP on February
26, 1998, Executive shall be treated as having voluntarily terminated
employment with the Company after attaining age 62; provided, however,
that payment with respect to such Performance Shares will be made
following the end of the respective performance periods specified in
such awards and will reflect actual performance of the Company during
the respective performance periods set forth therein;
(iv) the restrictions on the 1,500 shares of Restricted Stock
awarded under the Management Stock Acquisition Program ("MSAP") portion
of the MIP plus any reinvested dividends shall lapse;
(v) the restrictions on the 4,097 matching shares awarded
under the MSAP plus any reinvested dividends shall lapse;
(vi) the restrictions on matching shares (if any) resulting
from Executive's deferral of a portion of his bonus for 1998 under the
Annual Incentive Program ("AIP") portion of the MIP plus any reinvested
dividends shall lapse; and
(vii) Executive's retirement shall be an early retirement
approved by the Compensation and Organization Committee of the Board of
Directors of the Company for purposes of the MIP.
This Section 6(a) shall, without additional actions by the Company and
Executive, be deemed to amend each agreement granting options or awarding
restricted stock or performance shares under
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the MIP and referred to in this Section 6(a) to Executive to the extent
necessary to implement the foregoing.
(b) For purposes of this Section 4,
(i) "Cause" shall mean (A) the willful and continued failure
by Executive to perform substantially the duties of his position as
Chairman and (B) the willful engaging by Executive in conduct which is
demonstrably injurious to the Company or an Affiliate; and
(ii) "Affiliate" shall mean a corporation, partnership, joint
venture, unincorporated association or other entity in which the
Company has a direct or indirect ownership or other equity interest.
(c) ESTATE ENHANCEMENT PROGRAM. At the election of Executive on or
before January 31, 1999, the Company will enter into agreements mutually
agreeable to Executive and the Company that implement an "estate enhancement
program" for Executive. Under such program, Executive shall relinquish some or
all of the payments which may become due to him pursuant to Paragraph 9(f) of
this Agreement in exchange for (i) the payment by the Company of premiums on a
split-dollar life insurance policy to be owned by a trust created by Executive
and assigned as collateral to the Company, and (ii) upon the death of the later
to die of Executive and his spouse, a charitable contribution by the Company
honoring the name of Executive; provided, however, that nothing in this
Paragraph 6(c) shall obligate the Company to pay any such premiums unless the
Company would be obligated to make payments pursuant to Paragraph 9(f) absent
such election. The economic terms of such exchange are set forth on Exhibit C.
7. RELEASES BY EXECUTIVE.
(a) In consideration of the payments made and to be made and the
benefits to be received by Executive pursuant to Paragraphs 6 and 9 of this
Agreement, Executive, for himself and his dependents, successors, assigns,
heirs, executors and administrators (and his and their legal representatives of
every kind), hereby releases, dismisses, remises and forever discharges the
Company from any and all arbitrations, claims, including claims for attorney's
fees, demands, damages, suits, proceedings, actions and/or causes of action of
any kind and every description, whether known or unknown ("claims"), which
Executive now has or may have had for, upon, or by reason of:
(i) Executive's employment by or service with the Company to
the Effective Date;
(ii) discrimination, including but not limited to claims of
discrimination on the basis of sex, race, age, national origin, marital
status, religion or
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<PAGE> 5
handicap, including, specifically, but without limiting the generality
of the foregoing, any claims under the Age Discrimination in Employment
Act, as amended, Title VII of the Civil Rights Act of 1964, as amended,
the Americans with Disabilities Act, Ohio Revised Code Section 4101.17
and Ohio Revised Code Chapter 4112, including Sections 4112.02 and
4112.99 thereof; and
(iii) breach of any contract or promise, express or implied,
on or prior to the Effective Date;
PROVIDED, HOWEVER, that the foregoing shall not apply to claims to enforce
rights that Executive may have as of the Effective Date under any of the
Company's health, welfare, retirement, pension or incentive plans (including the
MIP), under any indemnification agreement between Executive and the Company,
under the Company's indemnification by-laws, under the directors' and officers'
liability coverage maintained by the Company, under Section 145 of the Delaware
Corporation Law, or under this Agreement.
(b) Executive further agrees and acknowledges that:
(i) He has been advised by the Company to consult with legal
counsel prior to executing and delivering this Agreement and the
release provided for in this Paragraph 8, has had an opportunity to
consult with and to be advised by legal counsel of his choice, fully
understands the terms of this Agreement, and enters into this Agreement
freely, voluntarily and intending to be bound;
(ii) He has been given a period of twenty-one (21) days to
review and consider the terms of this Agreement, and the release
contained herein, prior to its execution and that he may use as much of
the twenty-one (21) day period as he desires; and
(iii) He may, within seven (7) days after execution and
delivery, revoke this Agreement. Revocation shall be made by delivering
a written notice of revocation to the Senior Vice President and General
Counsel at the Company. For such revocation to be effective, written
notice must be received by the Senior Vice President and General
Counsel at the Company no later than the close of business on the
seventh (7th) day after Executive executes this Agreement. If Executive
does exercise his right to revoke this Agreement, all of the terms and
conditions of the Agreement shall be of no force and effect and the
Company shall not have any obligation to make payments or provide
benefits to Executive as set forth in Paragraphs 6 and 9 of this
Agreement, except as may be required under the Consolidated Omnibus
Reconciliation Act of 1986 and except to the extent
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<PAGE> 6
Executive is entitled to such benefits by reason of agreements and
plans other than this Agreement.
(c) As a condition of the Company's obligation to make payments or
provide benefits to Executive as set forth in Paragraphs 6 and 9 of this
Agreement, Executive shall, if requested by the Company, at the time of his
retirement as an employee of the Company pursuant to Paragraph 5 of this
Agreement, execute and deliver a release substantially similar in form and
substance to this Paragraph 7, but effective as of the Retirement Date.
8. CONFIDENTIAL INFORMATION.
(a) Executive acknowledges and agrees that, in the performance of his
duties as an officer and employee of the Company, he was and may be brought into
frequent contact with, had or may have had access to, and/or became or may
become informed of confidential and proprietary information of the Company
and/or information which is a trade secret of the Company (collectively,
"Confidential Information"), as more fully described in subparagraph (b) of this
Paragraph 8. Executive acknowledges and agrees that the Confidential Information
of the Company gained by Executive during his association with the Company was
or will be developed by and/or for the Company through substantial expenditure
of time, effort and money and constitutes valuable and unique property of the
Company.
(b) Executive agrees that commencing on the Effective Date he will keep
in strict confidence, and will not, directly or indirectly, at any time,
disclose, furnish, disseminate, make available, use or suffer to be used in any
manner any Confidential Information of the Company without limitation as to when
or how Executive may have acquired such Confidential Information. Executive
specifically acknowledges that Confidential Information includes any and all
information, whether reduced to writing (or in a form from which information can
be obtained, translated, or derived into reasonably usable form), or maintained
in the mind or memory of Executive and whether compiled or created by the
Company, which derives independent economic value from not being readily known
to or ascertainable by proper means by others who can obtain economic value from
the disclosure or use of such information, that reasonable efforts have been put
forth by the Company to maintain the secrecy of Confidential Information, that
such Confidential Information is and will remain the sole property of the
Company, and that any retention or use by Executive of Confidential Information
after the termination of Executive's services for the Company shall constitute a
misappropriation of the Company's Confidential Information.
(c) Executive further acknowledges and agrees that his obligation of
confidentiality shall survive, regardless of any other breach of this Agreement
or any other agreement, by any party hereto, until and unless such Confidential
Information of
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<PAGE> 7
the Company shall have become, through no fault of Executive, generally known to
the public or Executive is required by law (after providing the Company with
notice and opportunity to contest such requirement) to make disclosure.
Executive's obligations under this Paragraph 8 are in addition to, and not in
limitation or preemption of, all other obligations of confidentiality which
Executive may have to the Company under the Company's policies, general legal or
equitable principles or statutes and which shall remain in full force and effect
following the Retirement Date.
9. NONCOMPETITION; CERTAIN ACTIONS.
(a) Executive agrees that for a period commencing on the Retirement
Date through January 31, 2002 (the "Non-Compete Period"), within the Territory
(as described in subparagraph (b) (i) of this Paragraph 9), he shall not,
directly or indirectly, do or suffer any of the following:
(i) Own, manage, control or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise
affiliated or associated as a consultant, independent contractor,
director or otherwise with, any other corporation, partnership,
proprietorship, firm, association, or other business entity
(collectively, an "Enterprise"), or otherwise engage in any business,
which is in competition with the Company's business (as described in
subparagraph (b) (ii) of this Paragraph 9); PROVIDED, HOWEVER, that the
ownership of not more than five percent (5%) of any class of
publicly-traded securities of any Enterprise shall not be deemed a
Violation of this Agreement.
(ii) Employ, assist in employing, or otherwise associate in
business with any person who presently or at the Retirement Date is an
employee, officer or agent of the Company, or any of its affiliated,
related or subsidiary entities.
(b) For purposes of this Agreement:
(i) "Territory" shall have the meaning set forth on Exhibit A
hereto.
(ii) The Company's business shall have the meaning set forth
on Exhibit B hereto.
(c) Executive agrees that for a period commencing on the Retirement
Date through the end of the Non-Compete Period, except within the terms of a
specific request from the Company, Executive shall not as a principal, or agent
of another person, propose or publicly announce or otherwise disclose an intent
to propose, or enter into or agree to enter into, singly or with any other
person or directly or indirectly, (i) any form of business combination,
acquisition, or other transaction relating to the
-7-
<PAGE> 8
Company or any majority-owned affiliate thereof, (ii) any form of restructuring,
recapitalization or similar transaction with respect to the Company or any such
affiliate, or (iii) any demand, request or proposal to amend, waive or terminate
any provision of this subparagraph 9(c) of this Agreement, nor except as
aforesaid during such period will Executive, as a principal, or agent of another
person, (1) make, or in any way participate in, any solicitation of proxies with
respect to any securities entitled to vote generally in the election of
directors of the Company (together with direct or indirect options or other
rights to acquire any such securities, "Voting Securities"), (including by the
execution of action by written consent), become a participant in any election
contest with respect to the Company, seek to influence any person with respect
to any Voting Securities or demand a copy of the Company's list of its
shareholders or other books and records, (2) participate in or encourage the
formation of any partnership, syndicate, or other group which owns or seeks or
offers to acquire beneficial ownership of any Voting Securities or which seeks
to affect control of the Company or for the purpose of circumventing any
provision of this Agreement, or (3) otherwise act, alone or in concert with
others (including by providing financing for another person), to seek or to
offer to control or influence, in any manner, the management, Board of
Directors, or policies of the Company. Provided Executive acts in a manner
consistent with the foregoing provisions of this Paragraph 9(c), Executive may
sell or otherwise dispose of Voting Securities so long as he complies with the
Company's policies regarding trading by insiders.
(d) Executive agrees that he shall not, directly or indirectly, induce
any person who is an employee, officer or agent of the Company, or any of its
affiliated, related, or subsidiary entities, to terminate such relationship.
(e) Without the prior consent of the Board of Directors of the Company,
during the Non-Compete Period (i) Executive shall not serve as a member of the
board of directors of any supplier to or customer of the Company, and (ii)
Executive shall not own, manage, control or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise affiliated
or associated as a consultant, independent contractor, director or otherwise
with any joint venture partner of the Company or other business entity which
with the Company shares ownership in any other partnership, limited liability
company, corporation or entity (including, but not limited to Cleveland-Cliffs
Inc, British Steel plc. and Sumitomo Metals Industries, Limited).
(f) In consideration of the promises of Executive in this Agreement,
including without limitation this Paragraph 9, the Company shall pay Executive a
non-compete fee of TWENTY-FIVE THOUSAND DOLLARS ($25,000) per month during the
Non-Compete Period, if Executive shall then be alive, in each case payable on
the last day of the month. In the event any provision of this Agreement shall be
held unenforceable by a court in a manner that
-8-
<PAGE> 9
is materially adverse to the Company, the Company may cease payments of the
non-compete fee to Executive.
(g) In the event Executive shall violate any provision of this
Paragraph 9 as to which there is a specific time period during which he is
prohibited from taking certain actions or from engaging in certain activities,
as set forth in such provision, then, in such event, such violation shall toll
the running of such time period from the date of such violation until such
violation shall cease.
(h) Executive has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company
under this Paragraph 9 and this Agreement, and hereby acknowledges and agrees
that the same are reasonable in time and territory, are designed to eliminate
competition which otherwise would be unfair to the Company, do not stifle the
inherent skill and experience of Executive, would not operate as a bar to
Executive's sole means of support, are fully required to protect the legitimate
interests of the Company and do not confer a benefit upon the Company
disproportionate to the detriment to Executive.
10. DISCLOSURE. Executive, for a period commencing on the date of this
Agreement through the end of the Non-Compete Period, agrees to communicate the
contents of Paragraphs 8, 9, 11(b) and 13 of this Agreement to any Enterprise
which he intends to be employed by, associated in business with, or represent.
11. BREACH.
(a) If Executive is in breach of this Agreement, then the Company may,
at its sole option, (i) in the case of a breach of any provision of this
Agreement, immediately terminate all remaining payments described in Paragraph 9
of this Agreement, and (ii) in the case of a breach of either Paragraph 8 or
Paragraph 9 of this Agreement, obtain reimbursement from Executive of all
payments by the Company already provided pursuant to Paragraph 9 of this
Agreement, plus any expenses, fees and damages incurred as a result of the
breach, with the remainder of this Agreement, and all promises and covenants
herein, remaining in full force and effect.
(b) Executive acknowledges and agrees that the remedy at law available
to the Company for breach by Executive of any of his obligations under
Paragraphs 8 and 9 of this Agreement would be inadequate and that damages
flowing from such a breach would not readily be susceptible to being measured in
monetary terms. Accordingly, Executive acknowledges, consents and agrees that,
in addition to any other rights or remedies which the Company may have at law,
in equity or under this Agreement, upon adequate proof of Executive's violation
of any provision of paragraph 8 or 9 of this Agreement, the Company shall be
entitled to immediate injunctive relief and may obtain a temporary order
restraining
-9-
<PAGE> 10
any threatened or further breach, without the necessity of proof of actual
damage.
(c) The Company shall give Executive notice within 30 days following
the date that it concludes that Executive is in breach of this Agreement. Prior
to taking or commencing any action under Paragraph 11(a) and (b), the Company
will provide Executive with the opportunity to address the Board of Directors of
the Company at its next regular meeting or, at the option of the Company, a
special meeting held for such purpose. Nothing in this Section 11 shall be
construed to limit or restrict Executive's right to seek judicial redress for
any actions taken by the Company in connection with this Section 11 which
Executive reasonably believes to be contrary to the provisions of this
Agreement.
12. CONTINUED AVAILABILITY AND COOPERATION.
(a) Executive shall cooperate fully with the Company and with the
Company's counsel in connection with any present and future actual or threatened
litigation or administrative proceeding involving the Company that relates to
events, occurrences or conduct occurring (or claimed to have occurred) during
the period of Executive's employment by the Company. This cooperation by
Executive shall include, but not be limited to:
(i) making himself reasonably available for interviews and
discussions with the Company's counsel as well as for depositions and
trial testimony;
(ii) if depositions or trial testimony are to occur, making
himself reasonably available and cooperating in the preparation
therefor as and to the extent that the Company or the Company's counsel
reasonably requests;
(iii) refraining from impeding in any way the Company's
prosecution or defense of such litigation or administrative proceeding;
and
(iv) cooperating fully in the development and presentation of
the Company's prosecution or defense of such litigation or
administrative proceeding.
(b) In addition to Executive's obligations under Paragraph 12(a),
during the Non-Compete Period, at the request of the Board of Directors of the
Company, Executive shall make himself available for consultation with and advice
to the Board at times and for periods of time which are mutually agreeable to
the Board and Executive.
(c) Executive shall be reimbursed by the Company for reasonable travel,
lodging, telephone and similar expenses, as well as reasonable attorneys' fees
(if independent legal counsel is necessary), incurred in connection with such
cooperation, consultation and advice. Executive shall not unreasonably
-10-
<PAGE> 11
withhold his availability for such cooperation, consultation and advice.
13. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any successor of or to the Company, including, without
limitation, any persons acquiring directly or indirectly all or substantially
all of the business and/or assets of the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and such successor shall thereafter
be deemed included in the definition of "the Company" for purposes of this
Agreement), but shall not otherwise be assignable or delegable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributes and/or legatees. The death or disability
(temporary or permanent) of Executive following the execution and delivery of
this Agreement shall not affect or revoke this Agreement or excuse any of the
obligations of the parties hereto.
(c) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other parties, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in subparagraphs (a) and (b) of this Paragraph 13.
(d) This Agreement is intended to be for the exclusive benefit of the
parties hereto, and except as provided in subparagraphs (a) and (b) of this
Paragraph 13, no third party shall have any rights hereunder.
(e) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, operation of law or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform this Agreement.
14. NON-DISCLOSURE. Except to the extent that this Agreement or the
terms hereof become publicly known or available because of legally mandated
disclosure and filing requirements of the Securities and Exchange Commission, or
because of any other legal requirement that this Agreement or the terms hereof
be disclosed, all provisions of this Agreement and the circumstances giving rise
hereto are and shall remain confidential and shall not be disclosed to any
person not a party hereto (other than (i) Executive's spouse, (ii) each party's
attorney, financial advisor and/or tax advisor to the extent necessary for such
advisor to render appropriate legal, financial and tax advice, and (iii) persons
or entities that fall within the scope of Paragraph 11 of this Agreement, but
only to the extent required thereby).
-11-
<PAGE> 12
15. NOTICES. For all purposes of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered, addressed to the Company (to the attention of the Senior
Vice President and General Counsel) at its principal executive offices and to
Executive at his principal residence, 30 Winterberry Lane, Moreland Hills, Ohio
44022, or to such other address as any party may have furnished to the other in
writing and in accordance herewith. Notices of change of address shall be
effective only upon receipt.
16. PROFESSIONAL FEES. (a) The Company and Executive acknowledge and
agree that each shall be responsible for the payment of their respective
professional fees and costs (and related disbursements) incurred in connection
with Executive's termination and resignation and all matters relating to the
negotiation and execution of this Agreement.
(b) It is the intent of the Company and Executive that, following a
"Change in Control," Executive not be required to incur legal fees and the
related expenses associated with the interpretation, enforcement or defense of
his rights under this Agreement by litigation or otherwise because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to Executive hereunder. For purposes of this Section 16(b), "Change in
Control" shall have the meaning given such term under The LTV Corporation
Executive Change in Control Severance Pay Plan I as in effect on the Effective
Date. Accordingly, following a Change in Control, if it should appear to
Executive that the Company has failed to comply with any of its obligations
under this Agreement or in the event that the Company or any other person takes
or threatens to take any action to declare this Agreement or any provision
hereof void or unenforceable, or institutes any litigation or other action or
proceeding designed to deny, or to recover from, Executive the benefits provided
or intended to be provided to Executive hereunder, the Company irrevocably
authorizes Executive from time to time to retain counsel of his choice, at the
expense of the Company as hereafter provided, to advise and represent Executive
in connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any director, officer, stockholder
or other person affiliated with the Company in any jurisdiction. Notwithstanding
any existing or prior attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to Executive's entering into an
attorney-client relationship with such counsel, and in that connection the
Company and Executive agree that a confidential relationship will exist between
Executive and such counsel. Without respect to whether Executive prevails in
whole or in part, in connection with any of the foregoing, the Company shall pay
and be solely financially responsible for any and all attorneys' and related
fees and expenses incurred by Executive in connection with any of the foregoing.
Notwithstanding the preceding provisions of this Section 16(b), legal fees and
-12-
<PAGE> 13
related expenses shall not be reimbursed pursuant to this Section 16(b) if an
independent party reasonably satisfactory to the Company and Executive
determines that the underlying claim by Executive (i) is not likely to exceed
$5,000.00, (ii) is not eligible for reimbursement pursuant to this Section
16(b), (iii) has no reasonable basis in law or in fact, or (iv) is not being
pursued in a manner consistent with the nature and magnitude of such claim.
17. TAXES, PAYMENTS. ETC.
(a) Executive acknowledges and agrees that he shall be responsible for
his share of any and all Federal, State and/or local taxes applicable to the
payments made, and benefits provided or made available, to Executive pursuant to
this Agreement and further agrees to indemnify the Company against any liability
as a result of those taxes.
(b) The payments to Executive pursuant to Paragraphs 6 and 9 of this
Agreement shall be made by check or direct deposit to an account designated by
Executive, and shall be reduced by any applicable Federal, State and local tax
or other required withholding.
18. AMENDMENT AND WAIVER. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
19. ENTIRE AGREEMENT; CONTINUING INDEMNIFICATION RIGHTS. This Agreement
shall constitute the entire agreement among the parties hereto with respect to
the subject matters covered by this Agreement and shall supersede all prior
verbal or written agreements, covenants, communications, understandings,
commitments, representations or warranties, whether oral or written, by any
party hereto or any of its representatives pertaining to such subject matter,
provided, however, that this Agreement is not intended to amend, supersede or
terminate the provisions of any existing stock option agreement, restricted
stock agreement, and any employee benefit plan, except to the extent
specifically provided in one or more provisions of this Agreement. This
Agreement shall not affect any indemnification or other rights under any
indemnification agreement between Executive and the Company or the Company's
regulations. The Company shall continue Executive's coverage under the
directors' and officers' liability coverage maintained by Company, as in effect
from time to time, to the same extent as other current and former senior
executive officers and directors of the Company.
-13-
<PAGE> 14
20. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the substantive laws of the
State of Ohio, without giving effect to the principles of conflict of laws of
such State.
21. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall nevertheless remain in full force and
effect.
22. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
23. CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings
used herein are for convenience and are not part of this Agreement and shall not
be used in construing it.
24. AUTHORIZATION BY THE COMPANY. The Company represents that
Executive's retirement has been approved by resolution of the Organization and
Compensation Committee of the Board of Directors of the Company, and that this
Agreement and the actions required of the Company herein have been authorized
and approved by a resolution of the Board of Directors of the Company.
25. FURTHER ASSURANCES. Each party hereto shall execute such additional
documents, and do such additional things, as may reasonably be requested by the
other party to effectuate the purposes and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date set forth above.
THE LTV CORPORATION
Witness: /s/ Christine Faile By: /s/ Glenn J. Moran
-------------------------- --------------------------------
Glenn J. Moran
Its: Senior Vice
President, General Counsel
and Secretary
/s/ David H. Hoag
--------------------------------
David H. Hoag
-14-
<PAGE> 15
EXHIBIT A
---------
All countries, possessions and territories within North America.
<PAGE> 16
EXHIBIT B
---------
Mining, production, sale and supply, purchase or acquisition of
iron units or other ferrous metallics for the production of
steel; production, sale and supply of coated sheet and cold
rolled and hot rolled sheet and strip, as well as tubular and tin
mill products and metal building systems, and integrated steel
making and sales thereof; sale and supply of aluminum for the
automotive industry.
<PAGE> 17
EXHIBIT C
---------
Economic Terms of Estate Enhancement Program Exchange
-----------------------------------------------------
1. Executive will relinquish a portion or all of the non-compete payments
that may be due him under Section 9(f) of the Agreement.
2. In exchange for Executive's relinquishment pursuant to 1, the Company
will make monthly payments of premiums on a second-to-die split dollar
life insurance policy (the "Policy") insuring the lives of Executive
and his spouse, to be owned by a trust (the "Trust") created by
Executive, and assigned as collateral to the Company (the
"Assignment"). The premiums will be equal to the elected non-compete
payments that would otherwise be paid.
3. Under the Policy and the Assignment, upon the death of the later to die
of Executive and his spouse, the Policy will first provide a death
benefit to the Company in an amount equal to the greater of the
premiums paid by the Company or the Policy's then cash value; any
remaining death benefits will be paid to the Trust.
4. The Company will, in honor of Executive, contribute amounts received,
if any, pursuant to 3 in excess of the premiums paid by the Company to
one or more public charities. For purposes hereof, a public charity is
an organization exempt from tax under Section 501(c) (3) of the
Internal Revenue Code of 1986, as amended, or any successor provision
thereto.
5. The risk of any adverse investment experience and adverse tax treatment
shall be borne by the Trust and Executive.
<PAGE> 1
Page 1 of 2
Exhibit (11)
THE LTV CORPORATION
Calculation of Basic Earnings Per Share (EPS)
(Dollar amounts in millions except for EPS)
(Share data in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
--------------------------------- ---------------------------------
Shares Amount EPS Shares Amount EPS
---------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations $ (27) $ 30
Preferred stock dividend requirements (2) (2)
--------- ---------
(29) 28
Weighted average share base:
Shares issued 105,361 105,361
Shares repurchased pursuant to share
repurchase program (5,512) (1,923)
---------- --------- ----------- ---------
99,849 (29) 103,438 $ 28
========== ========= =========== =========
BASIC EARNINGS (LOSS) PER SHARE $ (0.29) $ 0.27
========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
--------------------------------
Shares Amount EPS
---------- --------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 109
Preferred stock dividend requirements (2)
---------
107
Weighted average share base:
Shares issued 105,360
Shares repurchased pursuant to share
repurchase program -
---------- ---------
$ 105,360 $ 107
========== =========
BASIC EARNINGS (LOSS) PER SHARE $ 1.01
========
</TABLE>
<PAGE> 2
Page 2 of 2
Exhibit (11)
THE LTV CORPORATION
Calculation of Diluted Earnings Per Share (EPS)
(Dollar amounts in millions except for EPS)
(Share data in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------------------- --------------------------------
Shares Amount EPS Shares Amount EPS
---------- -------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations $ (27) $ 30
Preferred stock dividend requirements (2) (2)
-------- ---------
(29) 28
Weighted average share base:
Shares issued 105,361 105,361
Shares repurchased pursuant to share
repurchase program (5,512) (1,923)
Common Stock equivalent shares resulting from
outstanding Series A Warrants, Stock Options
and Restricted Stock (A) 141
Common Stock issuable upon conversion of
Series B Preferred Stock (A) (A) (A) (A)
Common Stock issuable upon conversion of
Senior Secured Convertible Notes - - - -
---------- -------- ---------- ---------
99,849 (29) 103,579 $ 28
========== ======== ========== =========
DILUTED EARNINGS (LOSS) PER SHARE $ (0.29) $ 0.27
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
--------------------------------
Shares Amount EPS
---------- --------- ---------
<S> <C> <C> <C>
Income (loss) from continuing operations $ 109
Preferred stock dividend requirements (2)
---------
107
Weighted average share base:
Shares issued 105,360
Shares repurchased pursuant to share
repurchase program -
Common Stock equivalent shares resulting from
outstanding Series A Warrants, Stock Options
and Restricted Stock 66
Common Stock issuable upon conversion of
Series B Preferred Stock 2,926 2
Common Stock issuable upon conversion of
Senior Secured Convertible Notes (B) -
---------- ---------
$ 108,352 $ 109
========== =========
DILUTED EARNINGS (LOSS) PER SHARE $ 1.01
=========
</TABLE>
(A) Shares are antidilutive.
(B) Senior Secured Convertible Notes are antidilutive in 1996. These Notes were
redeemed in 1997 and are not outstanding thereafter.
<PAGE> 1
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
The LTV Corporation ("LTV" or the "Company") operates in three reportable
segments: 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. Sales are made primarily to 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 buildings systems for manufacturing, warehousing
and commercial applications. Corporate and Other consists of steel-related joint
ventures, primarily Trico Steel Company, L.L.C. ("Trico Steel") and Cliffs and
Associates Limited ("CAL"), which are accounted for using the equity method and
corporate investments and related income and expenses.
================================================================================
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 1996
============================================================================================
<S> <C> <C> <C>
Sales $ 4,273 $ 4,446 $ 4,135
Costs and expenses 4,242 4,227 3,962
Special charges 55 150 --
- --------------------------------------------------------------------------------------------
Total 4,297 4,377 3,962
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes (24) 69 173
Income tax provision (primarily noncash taxes) 3 28 64
- --------------------------------------------------------------------------------------------
Income (loss) before items below (27) 41 109
Extraordinary charge on early extinguishment of debt -- (4) --
Cumulative effect of change in accounting for start-up costs -- (7) --
- --------------------------------------------------------------------------------------------
Net income (loss) $ (27) $ 30 $ 109
- --------------------------------------------------------------------------------------------
Diluted earnings (loss) per share $ (0.29) $ 0.37 $ 1.01
- --------------------------------------------------------------------------------------------
Dividends paid per common share $ 0.12 $ 0.12 $ 0.09
- --------------------------------------------------------------------------------------------
</TABLE>
Summary results for each segment are listed below ($ in millions):
<TABLE>
<CAPTION>
INTEGRATED STEEL METAL FABRICATION
-------------------------- ------------------------
1998 1997 1996 1998 1997 1996
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Sales $3,684 $4,006 $3,910 $ 683 $ 541 $ 322
Cost of products sold 3,308 3,445 3,417 560 456 286
Selling, general and administrative 120 120 117 52 32 16
Results of affiliates' operations -- -- -- 5 4 --
Net interest and other income 1 3 4 -- -- --
Income (loss) before income taxes and special charges 11 186 125 63 51 20
Special charges 52 150 -- 3 -- --
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
CORPORATE AND OTHER
------------------------
1998 1997 1996
==================================================================================
<S> <C> <C> <C>
Sales $ -- $ -- $ --
Cost of products sold -- -- --
Selling, general and administrative 12 12 10
Results of affiliates' operations (54) (45) --
Net interest and other income 22 39 39
Income (loss) before income taxes and special charges (43) (18) 28
Special charges -- -- --
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Tons in thousands
Steel shipments
Trade
Intersegment
Raw steel production
Operating rate
- ----------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 2
INTEGRATED STEEL Sales in 1998 decreased due to a significant increase in
unfairly traded imports that resulted in lower average steel selling prices of
3% 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 primarily as
a result of lower average selling prices and the H-4 blast furnace reline
completed in June at the Company's 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 the Company's steelmaking facilities decreased in
1998, 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.
The Company 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 the
Company's products exceeds production capability. LTV re-rated its 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
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 electrogalvanizing joint venture
in which LTV has a 50% interest and a salaried force reduction. In the third
quarter of 1997 LTV recorded a special charge of $150 million for the closure of
the Pittsburgh coke facility.
METAL FABRICATION Sales in 1998 increased 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 selling prices of 1% and decreased shipments of tubular steel products.
Cost of products sold as a percentage of sales decreased in 1998 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 CAL. In April 1997, Trico Steel, a joint
venture operating a flat rolled steel minimill in which LTV has a 50% interest,
commenced commercial operations. Trico Steel has experienced equipment problems
that have prevented achievement of its rated capacity of 2.2 million tons. Such
equipment problems continue although efforts to correct such problems are
ongoing. The recent surge in steel imports has also negatively affected
production levels at Trico Steel. LTV's share of Trico Steel losses was $50
million and $44 million in 1998 and 1997, respectively.
Also included in this segment are the pre start-up costs of CAL, a direct
reduced iron joint venture in which LTV has a 46.5% interest. Construction has
been completed and commissioning activities are currently in progress. Full
production volume of 500,000 tons will depend on market demand.
Lower interest and other income resulted from decreased interest income on
lower levels of investments and higher interest expense related to the Senior
Notes and were partially offset by higher capitalized interest.
INCOME TAXES 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. The
1998 cash taxes provided consist of state and federal taxes including a less
than 80% owned subsidiary.
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 in 1997
and 1996 did not result in cash payments because of pre-reorganization net
deductible temporary 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. The
Company's cash payments for income taxes in 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. 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's ability to reduce its future income tax payments through the
use of net operating loss carryforwards could be significantly limited on an
annual basis if the Company were to undergo an "ownership change" within the
meaning of Section 382 of the Internal Revenue Code of 1986. For the purpose of
preserving LTV's ability to utilize its net operating loss carryforwards,
Article Ninth of LTV's Restated Certificate of Incorporation prohibits, with
certain limited exceptions, any unapproved acquisition of common stock that
would cause the ownership interest percentage of the acquirer or any other
person to increase to 4.5% or above.
5
<PAGE> 3
================================================================================
LIQUIDITY AND FINANCIAL RESOURCES
The Company's sources of liquidity include cash and cash equivalents, marketable
securities, cash from operations, long-term borrowings, amounts available under
credit facilities and other external sources of funds.
In 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.
The Company's long-term financial obligations consist of the following (in
millions):
<TABLE>
<CAPTION>
1998 1997
==========================================================
<S> <C> <C>
Long-term debt
Senior Notes due 2007 $ 298 $ 298
Notes due 2020 -- 57
Mortgage payable 4 --
- ----------------------------------------------------------
Total debt 302 355
Pensions 565 548
Other postemployment obligations 1,552 1,570
- ----------------------------------------------------------
Total obligations $2,419 $ 2,473
- ----------------------------------------------------------
</TABLE>
The Company has three credit facilities with banks, a "Receivables Facility,"
"Inventory Facility," and a "Secured Demand Facility," which 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.
Management believes that cash provided by operations, along with its credit
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 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 $50 million
commitment is in addition to a $30 million loan commitment (LTV share $15
million) made in 1998. Actual loans advanced in 1998 to Trico Steel were $24
million (LTV share $12 million) of the $30 million loan commitment.
The Company's Inventory Facility Agreement and Senior Notes contain various
covenants that require the Company to maintain certain financial ratios and
amounts. These agreements place restrictions on payments of dividends, share
repurchases, capital expenditures, investments in subsidiaries and borrowings.
Under the terms of the most restrictive covenant, $97 million of retained
earnings are available for common stock dividend payments and stock repurchases
at December 31, 1998. The Company does not believe that the restrictions
contained in these covenants will cause significant limitations on its financial
flexibility.
In 1998 the Company signed a new agreement with the Pension Benefit Guaranty
Corporation ("PBGC"). Under the new agreement, LTV will fund its major defined
benefit pension plans based on 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, the Company repaid the $62 million balance of
8.5% PBGC Notes due in 2020 on December 2, 1998. LTV does not anticipate any
significant pension contributions in the near term.
Since the second quarter of 1996, the Company has paid quarterly common stock
dividends of $0.03 per share.
================================================================================
CAPITAL EXPENDITURES
LTV's 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 the Company are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
==========================================================
<S> <C> <C> <C>
Integrated Steel $ 310 $ 310 $ 240
Metal Fabrication 52 16 3
- ----------------------------------------------------------
Total $ 362 $ 326 $ 243
- ----------------------------------------------------------
</TABLE>
The 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 its 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 project cost of $66 million and was
the largest capital expenditure in the Metal Fabrication segment. The plant will
begin 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.
The Company anticipates that total capital expenditures will approximate $300
million during 1999.
6
<PAGE> 4
================================================================================
INVESTMENTS IN STEEL-RELATED BUSINESSES
Investments totaled $80 million in 1998, $101 million in 1997 and $79 million in
1996. The Company's strategy is to invest in growth industries and steel-related
businesses that complement its core steelmaking business. Recent investments
implementing this strategy resulted in acquiring interests in companies engaged
in metal fabrication and in companies with technologies providing new techniques
and processes in the steelmaking process and products.
Over the past three years, LTV has invested approximately $154 million in
Trico Steel, a joint venture steel minimill located in Decatur, Alabama, of
which LTV owns a 50% interest. Trico Steel began commercial operations in April
1997.
In 1996, LTV entered into a joint venture, CAL, to produce and market high
purity reduced iron briquettes as a scrap steel substitute for use in electric
furnace steelmaking operations. LTV invested $76 million, representing a 46.5%
investment in a facility which has a designed production level of 500,000 tons
per year. The plant will operate on a planned start-up curve and full year
production will depend on market demand.
The Company also has metal fabrication joint ventures which include a
tailor-welded blanking operation, an automotive steel processing and blanking
operation in Puebla, Mexico and international joint ventures in metal buildings
operations that are located in Argentina, Brazil, Chile and Mexico.
================================================================================
COMPETITION AND PRICES
Domestic steel producers face significant competition from foreign producers
affecting both prices and volume. Based on preliminary reports by the AISI, 1998
imports of flat rolled product from all foreign countries increased 43% from
1997 levels to approximately 20 million tons, or 25% of domestic steel
consumption. A significant amount of the 1998 increase occurred after July 1998.
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. On September 30, 1998,
LTV along with other domestic integrated producers and the United Steelworkers
of America ("USWA") filed flat rolled trade cases against dumped and subsidized
imports from Japan, Russia and Brazil. In February 1999, the Department of
Commerce ("DOC") issued preliminary determinations setting substantial dumping
margins on hot rolled steel products from the three countries and requiring
importers from these countries to file bonds to cover potential liability for
the preliminary dumping margins. Preliminary countervailing duty margins were
also set against Brazil. Under a "critical circumstances" finding made by the
DOC, in November 1998, any liability for dumping margins for products from Japan
and Russia is retroactive to mid-November 1998. Liability will ultimately depend
on affirmative final determination of injury and dumping by the International
Trade Commission and the DOC. Final rulings are anticipated later this year. On
February 22, 1999, the DOC announced tentative agreements between the U.S.
Government and the Russian Federation which, if finalized, would preclude the
imposition of dumping duties in the pending trade cases against Russia,
significantly reduce Russian imports of steel, impose a six month moratorium on
the import of hot rolled steel and set minimum prices for imported product. The
Company is opposed to the suspension agreement and will likely prosecute to
conclusion the trade cases pending against Russia.
LTV also competes with other domestic integrated producers, some of which
have greater resources than the Company, and with minimills, which are
relatively efficient, low-cost producers that generally produce steel from scrap
in electric furnaces, have lower employment and environmental costs and
generally target regional markets. Recently developed thin slab casting
technologies have allowed some minimill producers to enter certain sectors of
the flat rolled market that have traditionally been supplied by integrated
producers, and other producers have announced their intention to do the same.
Industry experts estimate that current domestic raw steel production capacity
will be increased by at least 5% by the end of 2000 as new minimills now under
construction engage in start-up operations or begin operation.
Many steel products face substantial competition from manufacturers of other
products, including plastics, aluminum, ceramics, glass, wood and concrete.
LTV's Integrated Steel segment's results of operations are substantially
affected by small variations in the realized prices of its steel products, which
are significantly influenced by prevailing prices for steel and demand for
particular products. 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, on a proforma basis, result in an
increase or decrease in pretax income of approximately $32 million. In 1998, the
steel industry experienced price declines from the price levels of 1997. Price
increases were obtained in 1997 from 1996 levels but average steel selling
prices in 1998 were below 1996 levels. Competitive pressures, including
increased domestic steelmaking capacity and rising import levels, limit the
Company's 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.
7
<PAGE> 5
================================================================================
ENVIRONMENTAL LIABILITIES AND RELATED COSTS
LTV is subject to changing and increasingly stringent environmental laws and
regulations concerning air emissions, water discharges and waste disposal, as
well as remediation activities that involve the clean-up of environmental media
such as soils and groundwater ("remediation liabilities"). As a consequence, the
Company has incurred, and will continue to incur, substantial capital
expenditures and operating and maintenance expenses in order to comply with such
requirements. Additionally, if any of the Company's facilities are unable to
meet required environmental standards or laws, those operations could be
temporarily or permanently closed. If, in the future, the Company were required
to implement corrective actions, the Company could be required to record
additional liabilities that cannot be estimated at this time, but would be
substantial.
During 1998, the Company spent approximately $24 million for environmental
clean-up and related matters at operating and idled facilities, and at December
31, 1998, has a recorded liability of $136 million for known and identifiable
environmental and related matters. As the Company becomes aware of additional
matters or obtains more information, it may be required to record additional
liabilities for environmental remediation. The Company also spent approximately
$14 million in 1998 for environmental compliance-related capital expenditures
and expects it will be required to spend an average of approximately $30 million
annually in capital expenditures during the next five years to meet
environmental standards.
================================================================================
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk, including changes in interest rates and
commodity prices. The Company uses 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.
The Company is also subject to interest rate risk. LTV's debt consists of
$300 million, 8.2% Senior 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.
The Company has 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 Consolidated
Financial Statements.
================================================================================
YEAR 2000 READINESS
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 the Company's 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 non-information technology (Non-IT)
systems. The Company expects to achieve company-wide Year 2000 readiness mid
1999. LTV has formed 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. LTV has contracted with its
principal Year 2000 outside contractor (the "Outside Contractor") to achieve
Year 2000 readiness with respect to its business and related information
technology infrastructure systems ("Business Systems"). In addition to the
Company's Year 2000 program described above, LTV is continuing to implement a
business reengineering project, which began in 1994 and which includes, among
other activities, replacing certain information systems with systems that are
Year 2000 ready. As a result, those systems scheduled for replacement during
1999 under the business reengineering project have been excluded from the Year
2000 readiness program and costs which are disclosed below.
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 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.
Management believes that the Company has made, and continues to make,
significant progress toward Year 2000 readiness; such progress and the
appropriateness of the Company's approach have both been confirmed by a major
automotive customer and an outside professional firm.
Currently, the Company's systems are at various stages of readiness. The
inventory stage has been completed for manufacturing and operations systems,
which include Non-IT systems such as smart sensors, logic controllers,
distributed control systems and embedded microprocessors. Remediation, testing
and implemen-
8
<PAGE> 6
tation for these systems is approximately 90% complete with the remainder
scheduled to be completed by the end of the first quarter of 1999. The Outside
Contractor has completed remediation, testing and implementation of mission
critical Business Systems.
In the event the Company 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 miscalculations
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 Company's business and results of operations.
The Company is also in the process of developing a strategy to address the
additional potential consequences that may result from unresolved Year 2000
issues, which will include the development of one or more contingency plans by
mid 1999. LTV has been querying material third parties, including suppliers,
utility and other resource providers and customers to assess their Year 2000
readiness efforts. Positive statements of readiness have been received from 70%
of the Company's suppliers. The Company has assumed that any nonresponsive third
party will be noncompliant for the purpose of risk assessment. The Company is
implementing a supply chain plan for most sole source and mission critical
suppliers and customers. This plan includes telephone interviews and on-site
visits.
The Company has budgeted approximately $55 million for its Year 2000
readiness efforts, with $8 million designated for remediation of manufacturing
and operations systems and $47 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 $8 million of Year 2000 costs in 1997 and $35 million in 1998. The
funds expensed for Year 2000 are outside of the normal information technology
budget. Because LTV's 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 management's current best estimates, which were
derived based on numerous assumptions of future events, including 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 LTV's suppliers and customers to become
Year 2000 compliant in a timely manner.
================================================================================
OUTLOOK
Unprecedented levels of imports, sold at prices below cost, have weakened the
Company's order entry and shipping rates and depressed selling prices to the
lowest levels in ten years. Without a significant improvement in the import
situation, prices will remain at depressed levels and lower order rates will
curtail production levels and operating losses could occur in early 1999.
The Company has a labor agreement with the USWA for approximately 9,500
active employees, primarily hourly workers, on terms consistent with those
negotiated with other major integrated steel producers that expires August 1,
1999. A new contract could result in increased labor costs in 1999 and
subsequent years over the duration of the new contract. Also, the possibility of
a work stoppage exists prior to reaching a contract settlement, which could have
a material adverse effect on the results of operations.
The Metal Fabrication segment shows continued strong sales of metal buildings
systems in a robust construction market, while pipe products are being
negatively impacted by reduced demand in the energy market and by the import
problem.
The Corporate and Other segment will be affected by the reduced work schedule
at Trico Steel as a result of lower order-entry rates, continued start-up
difficulties and the start-up costs associated with CAL. The lower cash levels
will generate reduced interest income compared to prior years. Trico Steel is
operating at reduced levels due to the electric transformer failure that
occurred in late January 1999 and is expected to continue to operate at these
reduced levels into the second quarter. Trico Steel is currently investigating
both the cause of the failure and the opportunities for improved operations
prior to replacement of the failed transformer. Without significant improvement
in the operating levels at Trico Steel, expenses will continue to exceed
revenues in 1999. The depressed prices for direct reduced iron produced by CAL
could also reduce the prospects for achieving profitable production levels and
increase the anticipated start-up costs.
This report includes forward-looking statements. Our use of the words
"outlook," "anticipate," "believes," "estimate," "expect" and similar words are
intended to identify these statements as forward-looking. These statements
represent our current judgment on what the future holds. While the Company
believes them to be reasonable, a number of important factors could cause actual
results to differ materially from those projected. These factors include
relatively small changes in market price or market demand; changes in domestic
capacity; changes in raw material costs; increased operating costs; loss of
business from major customers, especially for high value-added product;
unanticipated expenses; substantial changes in financial markets; labor unrest;
unfair foreign competition; major equipment failure; unanticipated results in
pending legal proceedings; or difficulties in implementing information
technology, including Year 2000 compliant systems. In this regard, we also
direct your attention to factors discussed above in the Management's Discussion
and Analysis.
9
<PAGE> 7
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 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.
10
<PAGE> 8
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
(IN MILLIONS, EXCEPT SHARE DATA) 1998 1997
==========================================================================================================================
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 101 $ 160
Marketable securities 210 360
- --------------------------------------------------------------------------------------------------------------------------
311 520
Receivables, less allowances 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
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
==========================================================================================================================
<S> <C> <C>
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.
11
<PAGE> 9
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
(IN MILLIONS) 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.
12
<PAGE> 10
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------
COMMON STOCK
CONVERTIBLE ------------------- ADDITIONAL OTHER COMPRE-
PREFERRED NUMBER PAID-IN RETAINED TREASURY HENSIVE INCOME
(IN MILLIONS) STOCK OF SHARES AMOUNT CAPITAL EARNINGS STOCK AND 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.
13
<PAGE> 11
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.
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.
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 proforma effect
on 1996 would have reduced net income by $5 million ($0.04 per share).
14
<PAGE> 12
================================================================================
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 minimill 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>
================================================================================
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>
15
<PAGE> 13
================================================================================
DEBT AND CREDIT FACILITIES
Long-term debt consisted of the following at December 31 (in millions):
<TABLE>
<CAPTION>
1998 1997
=====================================
<S> <C> <C>
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 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 was permitted to be borrowed; no letters of credit or
borrowings were outstanding under this facility.
The Senior Notes contain various covenants that require the Company to
maintain certain financial ratios and amounts, place certain restrictions on
payments of dividends, stock repurchases, capital expenditures, investments in
subsidiaries and borrowings. Under the terms of the most restrictive covenant,
$97 million of retained earnings are available for common stock dividend
payments and stock repurchases at December 31, 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>
16
<PAGE> 14
================================================================================
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 Steelworkers of America ("USWA") labor agreement,
the Company is required to contribute to a Voluntary Employee Beneficiary
Association ("VEBA") Trust to prefund postemployment health care and other
insurance benefits for covered employees and retirees in addition to making cash
payments for such benefits on a current basis. The Company is required to
contribute to the VEBA Trust a minimum of $5 million annually ($10 million in
years when common stock dividends are declared) and additional amounts based on
defined cash flow as set forth in the labor agreement. The required contribution
for 1998 was $10 million.
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
------------------- -------------------
Amounts recognized in the balance sheet consist of (in millions): 1998 1997 1998 1997
============================================================================================================
<S> <C> <C> <C> <C>
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>
17
<PAGE> 15
Amounts applicable to the Company's underfunded pension plans 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 cost 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 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>
18
<PAGE> 16
================================================================================
TAXES
The provision for income taxes is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
================================================
<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.
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>
19
<PAGE> 17
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 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 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> <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) -- - 18.88 (4) -- - 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>
20
<PAGE> 18
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 proforma 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 proforma 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
proforma 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.
================================================================================
COMPREHENSIVE INCOME
The following table reflects the accumulated balances of other comprehensive
income (in millions):
<TABLE>
<CAPTION>
GAINS ACCUMULATED
(LOSSES) ON MINIMUM OTHER
MARKETABLE PENSION COMPREHENSIVE
SECURITIES LIABILITY INCOME (LOSS)
=====================================================================================
<S> <C> <C> <C>
Balance at January 1, 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.
21
<PAGE> 19
================================================================================
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 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.
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
- ----------------------------------------------------------
$ 210
- ----------------------------------------------------------
</TABLE>
22
<PAGE> 20
================================================================================
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 proforma financial information for the Company is presented as if
the acquisition of VP Buildings had occurred on January 1, 1996. The proforma
results for 1997 and 1996, respectively (in millions except per share data) are:
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
proforma 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 electrogalvanizing 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, 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>
23
<PAGE> 21
================================================================================
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
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. 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
(IN MILLIONS) STEEL FABRICATION & OTHER TOTAL
================================================================================================================================
<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 charges 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>
24
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------
INTEGRATED METAL CORPORATE
(IN MILLIONS) STEEL FABRICATION & OTHER TOTAL
==============================================================================================================================
<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
==============================================================================================================================
<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>
25
<PAGE> 23
SUPPLEMENTAL GUARANTOR INFORMATION
LTV's wholly owned subsidiary, LTV Steel Company, Inc., has fully and
unconditionally guaranteed the Company's obligation to pay principal, premium,
if any, and interest with respect to the Senior Notes.
The following supplemental 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), LTV Steel
Company, Inc. (Guarantor) and the combined Non-Guarantor Subsidiaries'
investments in subsidiaries are accounted for using the equity method. Necessary
elimination entries have been made to consolidate the Parent and all of its
subsidiaries. Management does not believe that separate financial statements of
the Guarantor are material to investors. Therefore, separate financial
statements and other disclosures concerning the Guarantor are not presented.
================================================================================
CONDENSED CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------------------
NON-GUARANTOR
(IN MILLIONS) PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable securities $ 276 $ (22) $ 57 $ -- $ 311
Receivables 3 -- 372 -- 375
Notes receivable/(payable) -- 887 (887) -- --
Inventories -- -- 854 -- 854
Other current assets 3 8 4 -- 15
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 282 873 400 -- 1,555
Intercompany, net 282 126 (408) -- --
Investments and other noncurrent assets 1,405 215 446 (1,562) 504
Property, plant and equipment, net -- 3,038 227 -- 3,265
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,969 $ 4,252 $ 665 $ (1,562) $ 5,324
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities $ 25 $ 700 $ 114 $ -- $ 839
Long-term debt 298 -- 4 -- 302
Postemployment health care and other insurance benefits -- 1,432 120 -- 1,552
Pension benefits -- 560 5 -- 565
Other 18 400 20 -- 438
Shareholders' equity 1,628 1,160 402 (1,562) 1,628
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,969 $ 4,252 $ 665 $ (1,562) $ 5,324
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and marketable securities $ 467 $ (15) $ 68 $ -- $ 520
Receivables 4 -- 466 -- 470
Notes receivable/(payable) -- 303 (303) -- --
Inventories -- 859 43 -- 902
Other current assets 4 7 1 -- 12
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 475 1,154 275 -- 1,904
Intercompany, net 83 172 (255) -- --
Investments and other noncurrent assets 1,470 186 432 (1,607) 481
Property, plant and equipment, net -- 2,939 222 -- 3,161
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,028 $ 4,451 $ 674 $ (1,607) $ 5,546
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities $ 37 $ 799 $ 102 $ -- $ 938
Long-term debt 298 57 -- -- 355
Postemployment health care and other insurance benefits -- 1,458 112 -- 1,570
Pension benefits -- 538 10 -- 548
Other 17 419 23 -- 459
Shareholders' equity 1,676 1,180 427 (1,607) 1,676
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,028 $ 4,451 $ 674 $ (1,607) $ 5,546
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 24
================================================================================
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------
NON-GUARANTOR
(IN MILLIONS) PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 3,718 $ 4,199 $ (3,644) $ 4,273
Costs and expenses:
Cost of products sold -- 3,376 4,041 (3,644) 3,773
Depreciation and amortization -- 231 28 -- 259
Selling, general and administrative 12 132 40 -- 184
Results of affiliates' operations 32 30 49 (62) 49
Net interest and other (20) (63) 60 -- (23)
Special charges -- 40 15 -- 55
- -----------------------------------------------------------------------------------------------------------
Total 24 3,746 4,233 (3,706) 4,297
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (24) (28) (34) 62 (24)
Income tax provision (10) (12) (13) 38 3
- -----------------------------------------------------------------------------------------------------------
Net loss $ (14) $ (16) $ (21) $ 24 $ (27)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
================================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 3,965 $ 1,179 $ (698) $ 4,446
Costs and expenses:
Cost of products sold -- 3,460 1,039 (698) 3,801
Depreciation and amortization -- 241 22 -- 263
Selling, general and administrative 11 120 33 -- 164
Results of affiliates' operations (41) (40) 41 81 41
Net interest and other (39) 8 (11) -- (42)
Special charge -- 148 2 -- 150
- ---------------------------------------------------------------------------------------------------------------
Total (69) 3,937 1,126 (617) 4,377
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 69 28 53 (81) 69
Income tax provision 28 11 21 (32) 28
- ---------------------------------------------------------------------------------------------------------------
Income before items below 41 17 32 (49) 41
Extraordinary loss (4) -- -- -- (4)
Cumulative effect of accounting change (7) -- -- -- (7)
- ---------------------------------------------------------------------------------------------------------------
Net income $ 30 $ 17 $ 32 $ (49) $ 30
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 3,872 $ 947 $ (684) $ 4,135
Costs and expenses:
Cost of products sold -- 3,404 876 (684) 3,596
Depreciation and amortization -- 250 16 -- 266
Selling, general and administrative 10 117 16 -- 143
Results of affiliates' operations (138) (7) -- 145 --
Net interest and other (45) 5 (3) -- (43)
- --------------------------------------------------------------------------------------------------------------
Total (173) 3,769 905 (539) 3,962
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 173 103 42 (145) 173
Income tax provision 64 38 15 (53) 64
- --------------------------------------------------------------------------------------------------------------
Net income $ 109 $ 65 $ 27 $ (92) $ 109
- --------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 25
================================================================================
CONDENSED CONSOLIDATING CASH FLOWS STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------
NON-GUARANTOR
(IN MILLIONS) PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ (178) $ 401 $ 89 $ -- $ 312
- --------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures -- (348) (14) -- (362)
Investments in steel-related businesses -- -- (80) -- (80)
Net sales of marketable securities 150 -- -- -- 150
Other -- 5 (10) -- (5)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 150 (343) (104) -- (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) (64) 4 -- (74)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (42) (6) (11) -- (59)
Cash and cash equivalents at beginning of year 108 (16) 68 -- 160
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 66 $ (22) $ 57 $ -- $ 101
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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) $ 376 $ 95 $ -- $ 397
- -------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures -- (319) (7) -- (326)
VP Buildings acquisition (188) -- -- -- (188)
Investments in steel-related businesses -- -- (101) -- (101)
Net sales of marketable securities 207 -- -- -- 207
Other -- 1 23 -- 24
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 19 (318) (85) -- (384)
- -------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Borrowings 290 -- -- -- 290
Payments on long-term debt (106) -- -- -- (106)
Pension funding to restored plans -- (59) (2) -- (61)
Repurchases of common stock (68) -- -- -- (68)
Dividends paid and other (15) -- -- -- (15)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 101 (59) (2) -- 40
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 46 (1) 8 -- 53
Cash and cash equivalents at beginning of year 62 (15) 60 -- 107
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 108 $ (16) $ 68 $ -- $ 160
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operating activities $ (92) $ 494 $ 93 $ -- $ 495
- -------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Capital expenditures -- (222) (21) -- (243)
Investments in steel-related businesses -- -- (79) -- (79)
Net purchases of marketable securities (109) -- -- -- (109)
Other (2) 2 (6) -- (6)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (111) (220) (106) -- (437)
- -------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Pension funding to restored plans -- (199) (6) -- (205)
Dividends paid and other (12) -- -- -- (12)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (12) (199) (6) -- (217)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (215) 75 (19) -- (159)
Cash and cash equivalents at beginning of year 277 (90) 79 -- 266
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 62 $ (15) $ 60 $ -- $ 107
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 26
REPORT OF MANAGEMENT
The management of The LTV Corporation is responsible for the preparation of the
accompanying consolidated financial statements in conformity with generally
accepted accounting principles appropriate in the circumstances. Management is
also responsible for the determination of estimates and judgments used in the
financial statements and the preparation of other financial information included
in this annual report to shareholders. The financial statements have been
audited by Ernst & Young LLP, independent auditors.
The management of the Company is responsible for and maintains an accounting
system and related internal controls that it believes are sufficient to provide
reasonable assurance that assets are safeguarded against unauthorized
acquisition, use or disposition, that transactions are executed and recorded in
accordance with management's authorization and that the financial records are
reliable for preparing financial statements. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal control must
be related to the benefits derived and that the balancing of those factors
requires estimates and judgments. The system is tested and evaluated regularly
by the Company's internal auditors as well as by the independent auditors in
connection with their annual audit. Management responds to all significant
recommendations of the internal and independent auditors and makes changes to
the systems when appropriate.
The Board of Directors has an Audit Committee of Directors who are not
members of management. The Committee meets with management, the internal
auditors and the independent auditors in connection with its review of matters
relating to the Company's annual financial statements; the Company's internal
audit program; the Company's system of internal accounting controls; and the
services of the independent auditors. The Committee also periodically meets with
internal auditors as well as the independent auditors, without management
present, to discuss appropriate matters. In addition, the internal auditors and
the independent auditors have full and free access to meet with the Committee,
with or without management representatives present, to discuss the results of
their audits, the adequacy of internal accounting controls and the quality of
financial reporting.
/s/ J. Peter Kelly
J. Peter Kelly
Chairman of the Board, President and Chief
Executive Officer
/s/ Arthur W. Huge
Arthur W. Huge
Executive Vice President and
Chief Financial Officer
February 24, 1999
================================================================================
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.
Cleveland, Ohio
January 28, 1999
/s/ Ernst & Young LLP
29
<PAGE> 27
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 1996 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Summary of Operations for the Year
Sales $ 4,273 $ 4,446 $ 4,135 $ 4,283 $ 4,233
Income from continuing operations before special charges 31 219 173 311 203
Special charges 55 150 -- -- --
Income tax provision
Taxes payable (refundable) 3 10 -- 2 (2)
Taxes not payable in cash -- 18 64 115 75
- ----------------------------------------------------------------------------------------------------------------------------------
Total 3 28 64 117 73
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (27) 41 109 194 130
Discontinued operations -- -- -- (9) (3)
Extraordinary charge -- (4) -- -- --
Cumulative effect of a change in accounting for start-up costs -- (7) -- -- --
Net income (loss) $ (27) $ 30 $ 109 $ 185 $ 127
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share (diluted)
Continuing operations $ (0.29) $ 0.37 $ 1.01 $ 1.76 $ 1.30
Net income (loss) (0.29) 0.27 1.01 1.68 1.27
Dividends paid per common share $ 0.12 $ 0.12 $ 0.09 $ -- $ --
Financial Position at Year End
Working capital $ 716 $ 966 $ 989 $ 1,024 $ 1,190
Total assets 5,324 5,546 5,410 5,380 5,525
Property, net 3,265 3,161 3,117 3,140 3,189
Long-term debt 302 355 153 150 183
Other noncurrent obligations 2,555 2,577 2,648 3,008 3,222
Shareholders' equity 1,628 1,676 1,710 1,375 1,283
Other Financial Information
Property additions $ 362 $ 326 $ 243 $ 205 $ 234
Depreciation and amortization 259 263 266 252 242
Other Operating Data
Raw steel production (millions of tons) 8.2 8.9 8.8 8.5 8.3
Steel product shipments (millions of tons) 7.7 8.2 8.1 8.0 8.0
Operating rate 95% 106% 105% 102% 99%
Employees 14,800 15,500 14,000 14,400 15,300
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 28
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.
31
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
--------------------
(AS OF DECEMBER 31, 1998)
<TABLE>
<CAPTION>
NAME OF COMPANY PERCENTAGE OWNED
- --------------- ----------------
<S> <C>
THE LTV CORPORATION Parent
Georgia Tubing Corporation 100%
Vought Arabia 49%
Investment Bankers, Inc. 100%
Inmobiliaria Nueva Icacos, S.A. de C.V. 100%
Jalcite I, Inc. 100%
Black River Lime Company 25%
Cliffs and Associates Limited 46.5%
Jones & Laughlin Steel Incorporated 100%
Kingsley International Insurance Ltd. 100%
LTV Blanking Corporation 100%
TWB Company, L.L.C. 11.1%
LTV Corporation, The (Wyoming) 100%
LTV/EGL Holding Company 100%
L-S Electro-Galvanizing Company 60%
LTV Electro-Galvanizing, Inc. 100%
LTV International N.V. 100%
LTV Properties, Inc. 100%
LTV Sales Finance Company 100%
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
NAME OF COMPANY PERCENTAGE OWNED
- --------------- ----------------
<S> <C>
THE LTV CORPORATION (Continued) Parent
LTV Steel Company, Inc. 100%
Aliquippa and Southern Railroad Company 100%
Cayman Mineracao do Brasil Ltda 97.5%
Chicago Short Line Railway Company 100%
Crystalane, Inc. 100%
Cuyahoga Valley Railway Company, The 100%
Mahoning Valley Railway Company, The 100%
Dearborn Leasing Company 100%
L-S II Electro-Galvanizing Company 50%
Erie B Corporation 100%
LTV Steel Mining Company 45%
Erie I Corporation 100%
LTV Steel Mining Company 10%
Fox Trail, Inc. 100%
Cayman Mineracao do Brasil Ltda 2.5%
J&L Empire, Inc. 100%
Empire Iron Mining Partnership 25%
Marquette Range Coal Service Company 48.5%
Jalcite II, Inc. 100%
Black River Lime Company 12.5%
Jalore Mining Company, Ltd. 100%
L.A.S. Resources, Inc. 53%
LTV Pickle, Inc. 100%
Monongahela Connecting Railroad Company, The 100%
Nemacolin Mines Corporation 100%
Northern Land Company 50%
O'Hare Group, Inc., The 10%
Presque Isle Corporation 53.5%
Processing Technology, Inc. 47.6%
Republic Technology Corporation 100%
Reserve Mining Company 50%
River Terminal Railway Company, The 100%
Youngstown Erie Corporation 100%
LTV Steel Mining Company 45%
YST Erie Corporation 100%
LTV Steel de Mexico, Ltd. 100%
Lagermex S.A. de C.V. 25%
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
NAME OF COMPANY PERCENTAGE OWNED
- --------------- ----------------
<S> <C>
THE LTV CORPORATION (Continued) Parent
LTV-Trico, Inc. 100%
Trico Steel Company, L.L.C. 50%
RepSteel Overseas Finance N.V. 100%
Trico Steel Company, Inc. 100%
VP Buildings, Inc. (f/k/a VP Acquisition Company) 100%
Varco-Pruden Exports, Ltd. 100%
Varco Pruden International, Inc. (f/k/a Buildings International Company) 100%
Varco Pruden International de Chile Limitada 100%
IPAC-Varco Pruden, S.A. 49%
IMSA-Varco Pruden, S.A. de C.V. 49%
Medabil Varco-Pruden S.A. 30%
Miller Varco-Pruden S.A. 40%
VP Buildings - Wisconsin, Inc. 100%
The Bethel Real Estate Co., Inc. 100%
United Panel, Inc. 100%
</TABLE>
<PAGE> 1
Exhibit (23)
Consent of Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-52543, Form S-8 No. 33-52545, Form S-8 No. 33-54229, Form S-8
No. 33-56857, Form S-8 No. 33-56861, Form S-8 No. 33-61399, Form S-8 No.
33-20431 and Form S-8 No. 333-25865) pertaining to the Non-Employee Director
Stock Option Plan, Management Incentive Program, LTV Steel Group Employee Stock
Ownership Plan, Non-Employee Directors' Equity Compensation Plan, The Hourly
Employee Stock Payment Alternative Plan, Non-Qualified Stock Option Plan for
Certain Key Executives of Continental Emsco Company, Salaried Employee Stock
Option Plan and The LTV Corporation Amended and Restated Management Incentive
Program, respectively, of The LTV Corporation of our report dated January 28,
1999, with respect to the consolidated financial statements of The LTV
Corporation incorporated by reference in the Annual Report (Form 10-K) for the
year ended December 31, 1998 and of our report dated January 22, 1999 with
respect to the financial statements of Trico Steel Company, L.L.C. included in
the Form 10-K of The LTV Corporation for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Cleveland, Ohio
February 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 101
<SECURITIES> 210
<RECEIVABLES> 392
<ALLOWANCES> 17
<INVENTORY> 854
<CURRENT-ASSETS> 1,555
<PP&E> 4,325
<DEPRECIATION> 1,060
<TOTAL-ASSETS> 5,324
<CURRENT-LIABILITIES> 839
<BONDS> 302
0
1
<COMMON> 53
<OTHER-SE> 1,574
<TOTAL-LIABILITY-AND-EQUITY> 5,324
<SALES> 4,273
<TOTAL-REVENUES> 4,273
<CGS> 3,773
<TOTAL-COSTS> 4,320
<OTHER-EXPENSES> (26)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (24)
<INCOME-TAX> 3
<INCOME-CONTINUING> (27)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
